Document
false--02-01Q220190001326380In 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. 2007-092022-030.380.380.380.000.0010.0010.0013000000003000000003000000001020000001019000009050000010200000010190000090500000The 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. Borrowing availability under the Amended Revolver is limited to a borrowing base which allows us to borrow up to 90% of the appraisal value of the inventory, 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 period between July 15 and October 15 of each year. Letters of credit reduce the amount available to borrow under the Amended Revolver by an amount equal to the face value of the letters of credit. In the event that excess availability under the Amended 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.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 Amended Revolver is less than 20%, or is projected to be within six months after such payment or 2) excess availability under the Amended Revolver is less than 15%, or is projected to be within six months after such payment, and the fixed charge coverage ratio, as calculated on a pro-forma basis for the prior 12 months, is 1.0:1.0 or less. 850000000 0001326380 2019-02-03 2019-08-03 0001326380 2018-02-04 2018-08-04 0001326380 2019-05-05 2019-08-03 0001326380 2019-09-04 0001326380 2019-08-03 0001326380 2019-02-02 0001326380 2018-08-04 0001326380 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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED AUGUST 3, 2019

OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-32637
GameStop Corp.
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-2733559
(State or other jurisdiction of
incorporation or organization)
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13104155&doc=11
(I.R.S. Employer
Identification No.)
 
 
 
625 Westport Parkway
76051
Grapevine,
Texas
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(817) 424-2000

Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Class A Common Stock
 
GME
 
NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 
Number of shares of $.001 par value Class A Common Stock outstanding as of September 4, 2019: 90,457,598



TABLE OF CONTENTS 
 
 
 
Page No.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 



Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value per share)
 
 
August 3,
2019
 
August 4,
2018
 
February 2,
2019
ASSETS
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
424.0

 
$
272.8

 
$
1,624.4

Receivables, net
 
122.4

 
121.8

 
134.2

Merchandise inventories, net
 
948.9

 
1,130.6

 
1,250.5

Prepaid expenses and other current assets
 
143.2

 
159.5

 
118.6

Assets held for sale
 
29.1


640.1

 

Total current assets
 
1,667.6

 
2,324.8

 
3,127.7

Property and equipment, net
 
312.0

 
325.8

 
321.3

Operating lease right-of-use assets
 
769.7

 

 

Deferred income taxes
 
157.8

 
153.6

 
147.3

Goodwill
 

 
1,337.9

 
363.9

Other noncurrent assets
 
80.8

 
140.3

 
84.1

Total assets
 
$
2,987.9

 
$
4,282.4

 
$
4,044.3

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
 
 
Accounts payable
 
$
368.3

 
$
535.8

 
$
1,051.9

Accrued and other current liabilities
 
593.7

 
714.3

 
780.0

Current portion of operating lease liabilities
 
240.3

 

 

Current portion of debt, net
 

 

 
349.2

Liabilities held for sale
 
14.5

 
40.7

 

Total current liabilities
 
1,216.8

 
1,290.8

 
2,181.1

Deferred income taxes
 
0.1

 
5.0

 
0.1

Long-term debt, net
 
419.1

 
819.2

 
471.6

Operating lease liabilities
 
523.9

 

 

Other long-term liabilities
 
18.3

 
63.2

 
55.3

Total liabilities
 
2,178.2

 
2,178.2

 
2,708.1

Commitments and contingencies (Note 8)
 

 

 

Stockholders’ equity:
 
 
 
 
 
 
Class A common stock — $.001 par value; 300 shares authorized; 90.5, 101.9 and 102.0 shares issued and outstanding
 
0.1

 
0.1

 
0.1

Additional paid-in capital
 

 
27.5

 
27.7

Accumulated other comprehensive loss
 
(75.1
)
 
(40.4
)
 
(54.3
)
Retained earnings
 
884.7

 
2,117.0

 
1,362.7

Total stockholders’ equity
 
809.7

 
2,104.2

 
1,336.2

Total liabilities and stockholders’ equity
 
$
2,987.9

 
$
4,282.4

 
$
4,044.3




See accompanying condensed notes to unaudited consolidated financial statements.

1

Table of Contents

GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
Net sales
 
$
1,285.7

 
$
1,501.1

 
$
2,833.4

 
$
3,286.9

Cost of sales
 
886.6

 
1,031.1

 
1,963.1

 
2,285.8

Gross profit
 
399.1

 
470.0

 
870.3

 
1,001.1

Selling, general and administrative expenses
 
459.3

 
441.5

 
889.9

 
897.6

Depreciation and amortization
 
22.6

 
27.0

 
45.7

 
55.5

Goodwill impairments
 
363.9

 

 
363.9

 

Operating (loss) earnings
 
(446.7
)
 
1.5

 
(429.2
)
 
48.0

Interest income
 
(2.6
)
 
(0.5
)
 
(7.9
)
 
(1.0
)
Interest expense
 
9.6

 
14.4

 
22.6

 
28.6

(Loss) earnings from continuing operations before income taxes
 
(453.7
)
 
(12.4
)
 
(443.9
)
 
20.4

Income tax (benefit) expense
 
(40.1
)
 
27.4

 
(37.8
)
 
39.8

Net loss from continuing operations
 
(413.6
)
 
(39.8
)
 
(406.1
)
 
(19.4
)
(Loss) income from discontinued operations, net of tax
 
(1.7
)
 
14.9

 
(2.4
)
 
22.7

Net (loss) income
 
$
(415.3
)
 
$
(24.9
)
 
$
(408.5
)
 
$
3.3

 
 
 
 
 
 
 
 
 
Basic (loss) earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(4.14
)
 
$
(0.39
)
 
$
(4.01
)
 
$
(0.19
)
Discontinued operations
 
(0.02
)
 
0.15

 
(0.02
)
 
0.22

Basic (loss) earnings per share
 
$
(4.15
)
 
$
(0.24
)
 
$
(4.04
)
 
$
0.03

 
 
 
 
 
 
 
 
 
Diluted (loss) earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(4.14
)
 
$
(0.39
)
 
$
(4.01
)
 
$
(0.19
)
Discontinued operations
 
(0.02
)
 
0.15

 
(0.02
)
 
0.22

Diluted (loss) earnings per share
 
$
(4.15
)
 
$
(0.24
)
 
$
(4.04
)
 
$
0.03

 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
100.0

 
102.1

 
101.2

 
101.9

Diluted
 
100.0

 
102.1

 
101.2

 
101.9


















See accompanying condensed notes to unaudited consolidated financial statements.

2

Table of Contents

GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
Net (loss) income
 
$
(415.3
)
 
$
(24.9
)
 
$
(408.5
)
 
$
3.3

Other comprehensive loss:
 

 

 

 

Foreign currency translation adjustment
 
(6.9
)
 
(17.4
)
 
(20.8
)
 
(52.6
)
Total comprehensive loss
 
$
(422.2
)
 
$
(42.3
)
 
$
(429.3
)
 
$
(49.3
)

















































See accompanying condensed notes to unaudited consolidated financial statements.

3

Table of Contents

GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except for per share data)
 
Class A
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Shares
 
Amount
 
 
 
 
Balance at February 2, 2019
102.0

 
$
0.1

 
$
27.7

 
$
(54.3
)
 
$
1,362.7

 
$
1,336.2

Net income

 

 

 

 
6.8

 
6.8

Foreign currency translation

 

 

 
(13.9
)
 

 
(13.9
)
Dividends declared, $0.38 per common share

 

 

 

 
(38.7
)
 
(38.7
)
Stock-based compensation expense

 

 
1.9

 

 

 
1.9

Settlement of stock-based awards
0.3

 

 
(0.6
)
 

 

 
(0.6
)
Balance at May 4, 2019
102.3

 
$
0.1

 
$
29.0

 
$
(68.2
)
 
$
1,330.8

 
$
1,291.7

Net loss

 

 

 

 
(415.3
)
 
(415.3
)
Foreign currency translation

 

 

 
(6.9
)
 

 
(6.9
)
Stock-based compensation expense

 

 
3.3

 

 

 
3.3

Repurchase of common shares
(12.0
)
 

 
(32.1
)
 

 
(30.8
)
 
(62.9
)
Settlement of stock-based awards
0.2

 

 
(0.2
)
 

 

 
(0.2
)
Balance at August 3, 2019
90.5

 
$
0.1

 
$

 
$
(75.1
)
 
$
884.7

 
$
809.7



 
Class A
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Shares
 
Amount
 
 
 
 
Balance at February 3, 2018
101.3

 
$
0.1

 
$
22.1

 
$
12.2

 
$
2,180.1

 
$
2,214.5

Adoption of ASU 2014-09

 

 

 

 
11.5

 
11.5

Net income

 

 

 

 
28.2

 
28.2

Foreign currency translation

 

 

 
(35.2
)
 

 
(35.2
)
Dividends declared, $0.38 per common share

 

 

 

 
(38.9
)
 
(38.9
)
Stock-based compensation expense

 

 
7.6

 

 

 
7.6

Settlement of stock-based awards
0.6

 

 
(4.2
)
 

 

 
(4.2
)
Balance at May 5, 2018
101.9

 
$
0.1

 
$
25.5

 
$
(23.0
)
 
$
2,180.9

 
$
2,183.5

Net loss

 

 

 

 
(24.9
)
 
(24.9
)
Foreign currency translation

 

 

 
(17.4
)
 

 
(17.4
)
Dividends declared, $0.38 per common share

 

 

 

 
(39.0
)
 
(39.0
)
Stock-based compensation expense

 

 
2.0

 

 

 
2.0

Balance at August 4, 2018
101.9

 
$
0.1

 
$
27.5

 
$
(40.4
)
 
$
2,117.0

 
$
2,104.2

















See accompanying condensed notes to unaudited consolidated financial statements.

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Table of Contents

GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
 
26 Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
Cash flows from operating activities:
 
 
 
 
Net (loss) income
 
$
(408.5
)
 
$
3.3

Adjustments to reconcile net (loss) income to net cash flows from operating activities:
 

 

Depreciation and amortization (including amounts in cost of sales)
 
46.2

 
66.9

Provision for inventory reserves
 
21.5

 
25.6

Goodwill impairments
 
363.9

 

Stock-based compensation expense
 
5.2

 
9.6

Deferred income taxes
 
(11.8
)
 

Loss on disposal of property and equipment
 
0.9

 
0.9

Other
 
(8.0
)
 
(4.3
)
Changes in operating assets and liabilities:
 
 
 
 
Receivables, net
 
8.5

 
9.7

Merchandise inventories
 
249.0

 
77.0

Prepaid expenses and other current assets
 
(7.4
)
 
(13.3
)
Prepaid income taxes and income taxes payable
 
(76.5
)
 
(21.3
)
Accounts payable and accrued liabilities
 
(827.7
)
 
(581.7
)
Operating lease right-of-use assets and lease liabilities
 
(2.2
)
 

Changes in other long-term liabilities
 
0.2

 
(2.3
)
Net cash flows used in operating activities
 
(646.7
)
 
(429.9
)
Cash flows from investing activities:
 
 
 
 
Purchase of property and equipment
 
(41.2
)
 
(40.1
)
Other
 
(1.0
)
 
2.3

Net cash flows used in investing activities
 
(42.2
)
 
(37.8
)
Cash flows from financing activities:
 
 
 
 
Repayment of acquisition-related debt
 

 
(12.2
)
Repurchase of common shares
 
(62.9
)
 

Dividends paid
 
(40.5
)
 
(79.9
)
Borrowings from the revolver
 

 
154.0

Repayments of revolver borrowings
 

 
(154.0
)
Repayments of senior notes
 
(404.5
)
 

Settlement of stock-based awards
 
(0.8
)
 
(4.2
)
Net cash flows used in financing activities
 
(508.7
)
 
(96.3
)
Exchange rate effect on cash and cash equivalents and restricted cash
 
(5.1
)
 
(21.6
)
(Increase) decrease in cash held for sale
 
(0.1
)
 
3.4

Decrease in cash and cash equivalents and restricted cash
 
(1,202.8
)
 
(582.2
)
Cash and cash equivalents and restricted cash at beginning of period
 
1,640.5

 
869.1

Cash and cash equivalents and restricted cash at end of period
 
$
437.7

 
$
286.9









See accompanying condensed notes to unaudited consolidated financial statements.

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Table of Contents

GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.    General Information
The Company
GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global, multichannel video game, consumer electronics and collectibles retailer. GameStop operates over 5,700 stores across 14 countries. Our consumer product network also includes www.gamestop.com and Game Informer® magazine, the world's leading print and digital video game publication.
We operate our business in four geographic segments: United States, Canada, Australia and Europe. Our former Technology Brands segment had been comprised of Spring Mobile, Simply Mac and Cricket Wireless branded stores ("Cricket Wireless"). Cricket Wireless was sold in January 2018, and Spring Mobile was sold in January 2019. On May 9, 2019, we entered into a definitive agreement to sell our Simply Mac business to Cool Holdings, Inc., which was amended on July 12, 2019. See Note 2, "Discontinued Operations and Dispositions," for further information.
Simply Mac is reported in the United States segment in these consolidated financial statements and accompanying condensed notes. The historical results of Spring Mobile are reported as discontinued operations in our consolidated statements of operations for all periods presented. The assets and liabilities held for sale as of August 3, 2019, relate to Simply Mac, and the assets and liabilities held for sale as of August 4, 2018, relate to Spring Mobile. The consolidated statement of cash flows is presented on a combined basis for all periods presented and, therefore, does not segregate cash flows from continuing and discontinued operations. The information contained in these condensed notes to our consolidated financial statements refers to continuing operations unless otherwise noted.
Basis of Presentation and Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned 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 for the 52 weeks ended February 2, 2019, as filed with the Securities and Exchange Commission on April 2, 2019, (the “2018 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 26 weeks ended August 3, 2019 are not indicative of the results to be expected for the 52 weeks ending February 1, 2020 ("fiscal 2019").
Significant Accounting Policies
Except for the accounting policy for leases, which is discussed below within "—Adoption of New Accounting Pronouncements" and within Note 6, "Leases," there have been no material changes to our significant accounting policies as noted in Note 1, "Nature of Operations and Summary of Significant Accounting Policies," within our 2018 Annual Report on Form 10-K.
Restricted Cash
Restricted cash of $13.7 million, $14.1 million and $16.1 million as of August 3, 2019August 4, 2018 and February 2, 2019, 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.

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Table of Contents
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of cash and cash equivalents in the condensed consolidated balance sheets to total cash and cash equivalents and restricted cash in the condensed consolidated statements of cash flows (in millions):
 
 
August 3,
2019
 
August 4,
2018
 
February 2,
2019
Cash and cash equivalents
 
$
424.0

 
$
272.8

 
$
1,624.4

Restricted cash (included in prepaid expenses and other current assets)
 
0.4

 
2.8

 
2.7

Restricted cash (included in other noncurrent assets)
 
13.3

 
11.3

 
13.4

Total cash and cash equivalents and restricted cash in the statements of cash flows
 
$
437.7

 
$
286.9

 
$
1,640.5

Property and Equipment, Net
Accumulated depreciation related to our property and equipment totaled $1,255.3 million, $1,249.5 million and $1,235.8 million as of August 3, 2019August 4, 2018 and February 2, 2019, respectively.
Share Repurchases
On June 11, 2019, we commenced a modified Dutch auction tender offer for up to 12.0 million shares of our Class A common stock with a price range between $5.20 and $6.00 per share. The tender offer expired on July 10, 2019. Through the tender offer, we accepted for payment 12.0 million shares at a purchase price of $5.20 per share for a total of $62.9 million, including fees and commissions. The shares purchased through the tender offer were immediately retired. The excess purchase price over par value was recorded as a reduction to additional paid-in capital and retained earnings in our unaudited consolidated balance sheet.
Adoption of New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standard Update ("ASU") 2016-02, Leases, which requires a lessee to recognize a liability related to lease payments and a corresponding right-of-use asset representing a right to use the underlying asset for the lease term. Entities are required to use a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period presented in the financial statements, with certain reliefs available. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides clarifications and improvements to ASU 2016-02 including allowing entities to elect an additional transition method with which to adopt ASU 2016-02. The approved transition method enables entities to apply the transition requirements in this ASU at the effective date of ASU 2016-02 (rather than at the beginning of the earliest comparative period presented) with the effect of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840. In March 2019, the FASB issued ASU 2019-01, Leases which clarifies the disclosure requirements for interim periods.
We adopted the new lease standard, Accounting Standards Codification Topic 842, Leases ("ASC 842"), effective February 3, 2019, using the modified-retrospective transition approach as outlined in ASU 2018-11, with no restatement of comparative periods. As permitted by the standard, we elected certain practical expedients, including the "package of practical expedients," under which we did not reassess our prior conclusions regarding lease identification, lease classification, or capitalization of initial lease direct costs for existing or expired contracts. For our real estate leases, we elected the practical expedient to not separate lease and non-lease components. For our non-real estate leases, we elected to separate lease and non-lease components. We did not elect to exclude short-term leases from our right-of-use asset and liability balances, nor did we elect the hindsight practical expedient.
Under the modified-retrospective transition approach, we have recorded adjustments to our fiscal 2019 opening balance sheet (as of February 3, 2019) to recognize an initial operating lease right-of-use asset and corresponding initial lease liability of approximately $850 million. See Note 6, "Leases" for further details.

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Table of Contents
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.    Discontinued Operations and Dispositions
Discontinued Operations
On January 16, 2019, we completed the sale of all of the equity interest in our wholly-owned subsidiary Spring Communications Holding, Inc. ("Spring Mobile") to Prime Acquisition Company, LLC, a wholly-owned subsidiary of Prime Communications, L.P., pursuant to an Equity Purchase Agreement dated as of November 21, 2018. The net cash proceeds received from the sale totaled $727.9 million, which is subject to customary post-closing adjustments. The net proceeds received consisted of the purchase price of $700.0 million less $10.5 million of transaction costs, plus preliminary adjustments totaling $38.4 million for working capital and indebtedness. We recognized a gain on sale of $100.8 million ($65.4 million, net of tax) during the fourth quarter of fiscal 2018. Except for customary post-closing adjustments and transition services, we have no contingencies or continuing involvement with Spring Mobile subsequent to the completion of the sale.
The historical results of Spring Mobile are reported as discontinued operations in our consolidated statements of operations for all periods presented. The results of our discontinued operations for the 13 and 26 weeks ended August 3, 2019 and August 4, 2018 are as follows (in millions):
 
13 Weeks Ended
 
26 Weeks Ended
 
August 3, 2019
 
August 4, 2018
 
August 3, 2019
 
August 4, 2018
Net sales
$

 
$
145.6

 
$

 
$
293.8

Cost of sales

 
19.5

 

 
41.5

Gross profit

 
126.1

 

 
252.3

Selling, general and administrative expenses
2.2

 
100.8

 
3.0

 
210.8

Depreciation and amortization

 
5.2

 

 
10.8

(Loss) income from discontinued operations before income taxes
(2.2
)
 
20.1

 
(3.0
)
 
30.7

Income tax (benefit) expense
(0.5
)
 
5.2

 
(0.6
)
 
8.0

Net (loss) income from discontinued operations
$
(1.7
)
 
$
14.9

 
$
(2.4
)
 
$
22.7

There were no significant operating noncash items for our discontinued operations for the 26 weeks ended August 3, 2019. The following table presents capital expenditures, depreciation and amortization and other significant operating noncash items of our discontinued operations for the 26 weeks ended August 4, 2018 (in millions):
 
 
 
 
 
August 4, 2018
Capital expenditures
 
$
4.1

Depreciation and amortization
 
10.8

Provision for inventory reserves
 
7.1

Disposition of Simply Mac
On May 9, 2019, we entered into a definitive agreement to sell our Simply Mac business to Cool Holdings, Inc., which was amended on July 12, 2019. The sale is expected to close during the third quarter of fiscal 2019.

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Table of Contents
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Held for Sale
The assets and liabilities classified as held for sale as of August 3, 2019 relate to our Simply Mac business, the sale of which is expected to close in the third quarter of fiscal 2019. The assets and liabilities classified as held for sale as of August 4, 2018 relate to our former Spring Mobile business, which we sold in the fourth quarter of fiscal 2018. The major classes of assets and liabilities held for sale are as follows (in millions):
 
August 3, 2019
 
August 4, 2018
 
Simply Mac
 
Spring Mobile
Assets:
 
 
 
Cash and cash equivalents
$
0.1

 
$
6.8

Receivables, net
1.8

 
47.9

Merchandise inventories, net
15.4

 
106.4

Prepaid expenses and other current assets
0.6

 
9.0

Property and equipment, net
0.8

 
73.6

Operating lease right-of-use assets
9.0

 

Goodwill

 
316.9

Other intangible assets, net

 
77.0

Other assets
1.4

 
2.5

Total assets held for sale
$
29.1

 
$
640.1

 
 
 
 
Liabilities:
 
 
 
Accounts payable
$
4.0

 
$
5.9

Accrued liabilities
1.1

 
19.7

Operating lease liabilities
9.4

 

Other liabilities

 
15.1

Total liabilities held for sale
$
14.5

 
$
40.7


3.    Revenue
Net sales by significant product category for the periods indicated is as follows (in millions):
 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
August 3, 2019
 
August 4, 2018
 
August 3, 2019
 
August 4, 2018
New video game hardware (1)
 
$
175.6

 
$
298.3

 
$
409.1

 
$
657.5

New video game software
 
285.0

 
300.9

 
731.4

 
767.6

Pre-owned and value video game products
 
373.1

 
452.1

 
768.4

 
947.8

Video game accessories
 
169.6

 
187.3

 
369.8

 
386.4

Digital
 
36.3

 
40.2

 
74.4

 
83.2

Collectibles
 
171.8

 
141.7

 
329.1

 
284.1

Other (2)
 
74.3

 
80.6

 
151.2

 
160.3

Total
 
$
1,285.7

 
$
1,501.1

 
$
2,833.4

 
$
3,286.9


__________________________________________________
(1)
Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.
(2)
Includes mobile and consumer electronics sold through our Simply Mac branded stores. Also includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics, and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in print form.
See Note 10, "Segment Information," for net sales by geographic location.


9

Table of Contents
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Performance Obligations
We expect to recognize revenue in future periods for remaining performance obligations we have associated with unredeemed gift cards, trade-in credits, reservation deposits and our PowerUp Rewards loyalty program (collectively, “unredeemed customer liabilities”), extended warranties and subscriptions to our Game Informer magazine.
Performance obligations associated with unredeemed customer liabilities are primarily satisfied at the time our customers redeem their gift cards, trade-in credits, reservation deposits or loyalty program points for products that we offer. Unredeemed customer liabilities are generally redeemed within one year of issuance. As of August 3, 2019, our unredeemed customer liabilities totaled $250.6 million.
We offer extended warranties on certain new and pre-owned video game products with terms generally ranging from 12 to 24 months, depending on the product. Revenues for extended warranties sold are recognized on a straight-line basis over the life of the contract. As of August 3, 2019, our deferred revenue liability related to extended warranties totaled $63.3 million.
Performance obligations associated with subscriptions to our Game Informer magazine are satisfied when monthly magazines are delivered in print form or when made available in digital format. The significant majority of our customers’ subscriptions is for 12 monthly issues. As of August 3, 2019, we had deferred revenue of $40.6 million associated with our Game Informer magazine.
Contract Balances
Our contract liabilities primarily consist of unredeemed customer liabilities and deferred revenues associated with extended warranties and subscriptions to our Game Informer magazine. The opening balance, current period changes and ending balance of our contract liabilities are as follows (in millions):
 
 
Contract Liabilities
Balance at February 2, 2019
 
$
376.9

Increase to contract liabilities (1)
 
412.9

Decrease to contract liabilities (2)
 
(432.6
)
Other adjustments (3)
 
(2.7
)
Balance at August 3, 2019
 
$
354.5

__________________________________________________
(1)
Includes issuances of gift cards, trade-in credits and loyalty points, new reservation deposits, new subscriptions to Game Informer and extended warranties sold.
(2)
Includes redemptions of gift cards, trade-in credits, loyalty points and reservation deposits as well as revenues recognized for Game Informer and extended warranties. During the 26 weeks ended August 3, 2019, there were $39.8 million of gift cards redeemed that were outstanding as of February 2, 2019.
(3)
Primarily includes foreign currency translation adjustments.
4.    Fair Value Measurements and 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. Applicable accounting standards require 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 observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis include our foreign currency contracts, life insurance policies we own that have a cash surrender value, and certain nonqualified deferred compensation liabilities.
We value our foreign currency contracts, our life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities based on Level 2 inputs using quotations 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.

10

Table of Contents
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Our assets and liabilities measured at fair value on a recurring basis as of August 3, 2019, August 4, 2018 and February 2, 2019, utilize Level 2 inputs and include the following (in millions):
 
 
August 3, 2019
 
August 4, 2018
 
February 2, 2019
Assets
 
 
 
 
 
 
Foreign currency contracts(1)
 
$
3.2

 
$
4.5

 
$
1.0

Company-owned life insurance(2)
 
16.3

 
14.8

 
14.6

Total assets
 
$
19.5

 
$
19.3

 
$
15.6

Liabilities
 
 
 
 
 
 
Foreign currency contracts(3)
 
$
1.6

 
$
1.3

 
$
1.2

Nonqualified deferred compensation(3)
 
1.2

 
1.2

 
1.1

Total liabilities
 
$
2.8

 
$
2.5

 
$
2.3


__________________________________________________
(1)
Recognized in prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets.
(2)
Recognized in other non-current assets in our unaudited condensed consolidated balance sheets.
(3)
Recognized in accrued liabilities in our unaudited condensed consolidated balance sheets.
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 $223.7 million, $390.4 million and $240.0 million as of August 3, 2019, August 4, 2018 and February 2, 2019, respectively.
Activity related to the trading of derivative instruments and the offsetting impact of related intercompany and foreign currency assets and liabilities recognized in selling, general and administrative expense is as follows (in millions):
 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
Gains (losses) on the change in fair value of derivative instruments
 
$
0.4

 
$
4.7

 
$
2.8

 
$
9.4

(Losses) gains on the re-measurement of related intercompany loans and foreign currency assets and liabilities
 
(0.4
)
 
(4.5
)
 
(2.8
)
 
(7.5
)
Net gains
 
$

 
$
0.2

 
$

 
$
1.9


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.
Assets that are Measured at Fair Value on a Nonrecurring Basis
Assets that are measured at fair value on a nonrecurring basis relate primarily to property and equipment, right-of-use assets and intangible assets, which are remeasured when the estimated fair value is below its carrying value. For these assets, we do not periodically adjust carrying value to fair value; rather, when we determine that impairment has occurred, the carrying value of the asset is reduced to its fair value.
Other Fair Value Disclosures
The carrying values of our cash equivalents, receivables, net, accounts payable and notes payable approximate the fair value due to their short-term maturities.
As of August 3, 2019 our unsecured 6.75% senior notes due in 2021 had a net carrying value of $419.1 million and a fair value of $423.5 million. The fair values of our 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 this to be a Level 2 measurement as all significant inputs into the quote provided by our pricing source are observable in active markets.

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GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5.    Goodwill
Goodwill represents the excess purchase price over tangible net assets and identifiable intangible assets acquired. Intangible assets are recorded apart from goodwill if they arise from a contractual right and are capable of being separated from the entity and sold, transferred, licensed, rented or exchanged individually. We are required to evaluate goodwill and other intangible assets not subject to amortization for impairment at least annually. This annual test is completed at the beginning of the fourth quarter of each fiscal year or when circumstances indicate the carrying value of the goodwill or other intangible assets might be impaired. Goodwill has been assigned to reporting units for the purpose of impairment testing. We have four operating segments, including the United States, Canada, Australia and Europe, which also define our reporting units based upon the similar economic characteristics of operations within each segment, including the nature of products, product distribution and the type of customer and separate management within these businesses. In order to test goodwill for impairment, we compare a reporting unit's carrying amount to its estimated fair value. If the reporting unit’s carrying value exceeds its estimated fair value, then an impairment charge is recorded in the amount of the excess.
During the 13 weeks ended August 3, 2019, we determined that a triggering event occurred as a result of a decline in our market capitalization; therefore, we performed an interim impairment test for our goodwill and indefinite-lived intangible assets. As a result of the interim impairment test, we recognized a goodwill impairment charge totaling $363.9 million related to our United States segment. We have no remaining goodwill as a result of the impairment charge. We estimated the fair value of our United States segment by using a combination of the income approach and market approach. The income approach is based on the present value of future cash flows, which are derived from our long-term financial forecasts, and requires significant assumptions including, among others, a discount rate and a terminal value. The market approach is based on the observed ratios of enterprise value to earnings of the Company and other comparable, publicly-traded companies.
The changes in the carrying amount of goodwill, by reportable segment, for fiscal 2019 were as follows (in millions):
 
 
United States
 
Canada
 
Australia
 
Europe
 
Total
Balance at February 2, 2019
 
$
363.9

 
$

 
$

 
$

 
$
363.9

Impairment charge
 
(363.9
)
 

 

 

 
(363.9
)
Balance at August 3, 2019
 
$

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Cumulative goodwill impairment charges
 
$
1,173.0

 
$
129.1

 
$
173.5

 
$
499.5

 
$
1,975.1


6.    Leases
We conduct the substantial majority of our business with leased real estate properties, including retail stores, warehouse facilities and office space. We also lease certain equipment and vehicles. These are generally leased under noncancelable agreements and include various renewal options for additional periods. These agreements generally provide for minimum, and in some cases, percentage rentals, and require us to pay insurance, taxes and other maintenance costs. Percentage rentals are based on sales performance in excess of specified minimums at various stores and are accounted for in the period in which the amount of percentage rentals can be accurately estimated. All of our lease agreements are classified as operating leases.
Effective February 3, 2019, we adopted ASC 842, Leases (see Note 1, "General Information"). Under ASC 842, fixed payments associated with our operating leases are included in operating lease right-of-use ("ROU") assets and both current and noncurrent operating lease liabilities on the balance sheet. We determine if an arrangement is considered a lease at inception. We recognize ROU assets, on the commencement date based on the present value of future minimum lease payments over the lease term, including reasonably certain renewal options. As the rate implicit in the lease is not readily determinable for most leases, we utilize our incremental borrowing rate ("IBR") to determine the present value of future payments. The incremental borrowing rate represents a significant judgment that is based on an analysis of our credit rating, country risk, corporate bond yields, the effect of collateralization, as well as comparison to our borrowing rates. For our real estate leases, we do not separate the components of a contract, thus our future payments include minimum rent payments and fixed executory costs. For our non-real estate leases, future payments include only fixed minimum rent payments. We record the amortization of our ROU assets and the accretion of our lease liabilities as a single lease cost on a straight-line basis over the lease term, which includes option terms we are reasonably certain to exercise. We recognize our cash or lease incentives as a reduction to the ROU asset. We assess ROU assets for impairment in accordance with our long-lived asset impairment policy, which is performed periodically or when events or changes in circumstances indicate that the carrying amount may not be recoverable.

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GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Prior to our adoption of ASC 842, liabilities for future rental payments for operating leases were not recognized on the balance sheet. Leases with step rent provisions, escalation clauses or other lease concessions were accounted for on a straight-line basis over the lease term, which included renewal option periods when we were reasonably assured of exercising the renewal options and included “rent holidays” (periods in which we were not obligated to pay rent). Cash or lease incentives received upon entering into certain store leases (“tenant improvement allowances”) were also recognized on a straight-line basis as a reduction to rent expense over the lease term. We recorded the unamortized portion of tenant improvement allowances as a part of deferred rent.
Rent expense under operating leases was as follows (in millions):
 
 
13 Weeks Ended
 
26 weeks ended
 
 
August 3, 2019
 
August 3, 2019
Operating lease cost
 
$
85.0

 
$
171.2

Variable lease cost (1)
 
24.8

 
49.1

Total rent expense
 
$
109.8

 
$
220.3

_____________________________________________
(1)
Variable lease cost includes percentage rentals and variable executory costs.
During the 26 weeks ended August 3, 2019, we had cash outflows of $150.6 million associated with operating leases included in the measurement of our lease liabilities and we recognized $84.7 million of ROU assets that were obtained in exchange for operating lease obligations.
The weighted-average remaining lease term, which includes reasonably certain renewal options, and the weighted-average discount rate for operating leases included in the measurement of our lease liabilities, as of August 3, 2019, were as follows:
 
 
August 3, 2019
 
Weighted-average remaining lease term (years)
 
4.5

(1) 
Weighted-average discount rate
 
4.5
%
 
_____________________________________________
(1)
The weighted-average remaining lease term is weighted based on the lease liability balance for each lease as of August 3, 2019. This weighted average calculation differs from our simple average remaining lease term due to the inclusion of reasonably certain renewal options and the effect of the lease liability value of longer term leases.
Expected lease payments associated with our operating lease liabilities, excluding percentage rentals, as of August 3, 2019, are as follows (in millions):
Period
 
 
Operating Leases (1)
Remainder of Fiscal Year 2019, as of August 3, 2019
 
$
150.7

Fiscal Year 2020
 
232.1

Fiscal Year 2021
 
162.0

Fiscal Year 2022
 
112.2

Fiscal Year 2023
 
77.9

Thereafter
 
124.0

Total remaining lease payments
 
858.9

Less: Interest
 
(85.3
)
Present value of lease liabilities (2)
 
$
773.6

_______________________________________________________________
(1)
Operating lease payments exclude legally binding lease payments for leases signed but not yet commenced.
(2)
The present value of lease liabilities consist of $240.3 million classified as current portion of operating lease liabilities, $523.9 million classified as long-term operating lease liabilities, and $9.4 million classified as held-for-sale liabilities.


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GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, ASC 840, future minimum annual rentals, including reasonably assured options, as of February 2, 2019, were as follows (in millions):
Period
 
 
Fiscal Year 2019
$
296.2

Fiscal Year 2020
208.7

Fiscal Year 2021
149.1

Fiscal Year 2022
105.4

Fiscal Year 2023
71.4

Thereafter
116.2

 
 
$
947.0


7.    Debt
Senior Notes
The carrying value of our long-term debt, net is comprised as follows (in millions):
 
August 3, 2019
 
August 4, 2018
 
February 2, 2019
2019 Senior Notes principal amount
$

 
$
350.0

 
$
350.0

2021 Senior Notes principal amount
421.4

 
475.0

 
475.0

Less: Unamortized debt financing costs
(2.3
)
 
(5.8
)