GameStop Corp. Annual Report
GTA: SAN ANDREASMADDEN 2005 FABLE
2004
2004 proved to be another year of milestones
for GameStop. As we have been stating since
going public in February 2002, we believe it is
imperative that we not only perform fi nancially
every year, but that we build the company to take
advantage of the signifi cant growth opportunities
that a growing industry presents.
And with the launch in March 2005 of Sony’s
PlayStation Portable (PSP), scheduled to be
followed in November 2005 by Microsoft’s
Xbox 360, we are at the beginning stages
of another strong cycle of new hardware
products and software launches that will take
advantage of the ever-improving technology.
Furthermore, with GameStop’s merger with
Electronics Boutique moving forward on
schedule, we have positioned our company to
take maximum advantage of these emerging
growth trends.
Some of the 2004 highlights:
• Our revenues grew 16.7%, from
$1,579,000,000 to $1,843,000,000
• Earnings per share grew over 10%,
from $1.06 per diluted share to $1.17
per diluted share*
• Our stock price increased over 13%,
from $16.60 to $18.80
• We repurchased over 7 million
shares of our common stock
• We invested over $98 million in
new stores and infrastructure
• Our store count grew from 1,514
to 1,826
In addition, GameStop opened 338 stores
worldwide during 2004 - our most aggressive
expansion year ever. In December, we opened
our fi rst store in Wyoming, giving GameStop
a presence in all 50 states.
During the peak holiday season, GameStop
employed 23,000 people. Throughout the
year, we added 700 new full time positions
and 4,000 new part time associates across
the country.
In the course of this year we set sales records
with two titles, selling over 860,000 copies of
Halo 2 and over 780,000 copies of Grand Theft
Auto: San Andreas. Both titles have continued to sell
and are the all-time best sellers for GameStop.
In preparation for continued growth, and with
an eye on improving distribution effi ciency,
we purchased a new 420,000 square foot
general offi ce and distribution center in close
proximity to our old facility, with no resulting
disruption to the support of our stores and no
relocation issues for our people. We managed
to grow our company from approximately 500
stores in 1997 to over 1,900 stores today
without expanding our facilities; the new
distribution center is intended to ensure that
our rapid growth is not compromised, and that
our effi ciency goals will continue to be met.
Game Informer, GameStop’s magazine
division, grew to over 2,000,000 subscribers -
four times larger than our closest competitor.
According to Advertising Age, Game Informer
is now the 26th largest consumer publication
in the US and had the 3rd largest growth in
paid circulation in 2004.
As has been the case every year since we have
been a public company, GameStop’s market
share has grown; 2004 was no exception.
According to NPD Group data, our total share
of the growing video game market was 11.4%,
up from 9.8% in 2003. What is particularly
encouraging about our share growth is that
we have continuously found better ways to
serve new markets.
Dear Shareholders,
Letter to the Shareholders
* Before special charges of $0.12 per diluted share for California litigation settlement costs, professional fees relating to the spin-off by
Barnes & Noble, Inc. of our Class B common stock and the change in our method of accounting for leases.
R. Richard Fontaine
Chairman of the Board and
Chief Executive Offi cer
During the year, we refi ned our approach
to entering smaller communities by fi ne-
tuning our site selection criteria, store size,
merchandise selections and staffi ng to
better serve markets with a small immediate
population, but a wide geographic draw.
2005 and Beyond:
GameStop and Electronics Boutique
announced a combination on April 18, 2005
which, when completed, will create one of
the world’s largest retailers of video games
with over 4,000 stores, including over 600
international stores, with a total projected
revenue of over $4 billion. After integrating
our two companies, and adopting the best
practices of each, we anticipate up to $50
million in annual cost savings starting in 2006.
This combination not only demonstrates the
faith we have in our business model and our
people, but is testimony to our belief that the
video game industry will continue to grow
both domestically and internationally. This
combination will signifi cantly improve our
position within the very competitive US market,
and will give GameStop a leadership position
in 10 countries around the world.
Over the next three years, the US video game
market is expected to grow by an average of
17%* per year. By 2008, consumer spending on
video games is projected to surpass other major
forms of comparable entertainment including
movie box offi ce receipts and pre-recorded
music** and GameStop is in an outstanding
position to reap the benefi ts.
We are now at the start of another innovative
game technology cycle. In March, Sony’s PSP
– their fi rst handheld unit ever – was launched
and has been exceptionally well received by our
customers; in November, we expect Microsoft
to release the Xbox 360 and Nintendo to
launch another handheld, the Game Boy Micro.
Moving into 2006, the future continues to look
even brighter with Sony expected to release
the PlayStation 3, and Nintendo to follow with
their next generation console, the Revolution.
And it gets better: At GameStop, thanks to
our unique new and used video game product
synergy, we also capitalize on the “cycles
within cycles”. When new hardware and titles
hit the market, we buy back and resell the
older units and get more game product into
the hands of more value-oriented customers.
We are confi dent in how we have positioned
GameStop for the future. We have built our
company to capitalize on all the opportunities of
this dynamic business. I believe both our past
growth, and the huge incremental potential that our
soon to be completed combination will unleash,
puts GameStop in an even better position to be a
superior performer and an excellent investment.
As always, thanks to our thousands of store
managers who meet our customers and serve
them well every day. And thanks to all of you
for your continued support.
* Source: Industry Analysts
**Source: PriceWaterhouseCoopers Media Outlook 2004-2008
HALO 2
GTA: SAN ANDREAS
MADDEN 2005
Halo 2
867,983 Units
$45,665,000
Grand Theft Auto:
San Andreas
780,941 Units
$39,089,000
Fable
Need for Speed:
Underground 2
PlayStation 2
NCAA Football
2005
NBA Live 2005
Madden NFL
2005
XBOX
Metal Gear Solid 3:
Snake Eater
Fight Night 2004
World of
Warcraft Online
Dragon Ball Z:
Budokai 3
Need for Speed:
Underground 2
XBOX
WWE
Smackdown vs Raw
Ninja Gaiden
Madden NFL 2005
PlayStation 2
421,071 Units
$20,143,000
Top Selling Games of 2004
Video Game Software Unit Sales
METAL GEAR SOLID 3
NFS: UNDERGROUND 2
FABLE
.UMBERSINTHOUSANDS
3OURCE.0$'ROUP
.UMBERSINTHOUSANDS
3OURCE.0$'ROUP
.OTE%XCLUDESUSEDVIDEOGAMES
Video Game Hardware
Growth in Installed
Totals are a combination of Sony PlayStation 2, Microsoft Xbox, Nintendo Game Cube,
Nintendo Game Boy Advance SP, and Nintendo DS platforms.
Totals are a combination of Sony PlayStation 2, Microsoft Xbox, Nintendo Game Cube,
Nintendo Game Boy Advance SP, and Nintendo DS platforms.
Growth in
GameStop Store Count
&9
&9
&9
&9
&9
&9
&9
.UMBERSINMILLIONS
&9
&9
&9
&9
&9
&9
&9
The average gamer spends 10.4 hours per
week playing games.
GameStop Revenue Growth
(Source: Entertainment Software Association)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 2)
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Ñscal year ended January 29, 2005
or
n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-31228
GameStop Corp.
(Exact name of registrant as speciÑed in its Charter)
Delaware 75-2951347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) IdentiÑcation No.)
625 Westport Parkway
76051
Grapevine, Texas (Zip Code)
(Address of principal executive oÇces)
Registrant's telephone number, including area code:
(817) 424-2000
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class) (Name of Exchange on Which Registered)
Class A Common Stock, $.001 par value per share New York Stock Exchange
Class B Common Stock, $.001 par value per share New York Stock Exchange
Rights to Purchase Series A Junior Participating Preferred Stock, New York Stock Exchange
$.001 par value per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has Ñled all reports required to be Ñled 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 Ñle such reports), and
(2) has been subject to such Ñling requirements for the past 90 days. Yes ¥ No n
Indicate by check mark if disclosure of delinquent Ñlers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in deÑnitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant is an accelerated Ñler (as deÑned on Rule 12b-2 of the Act). Yes ¥ No n
The aggregate market value of the voting and non-voting stock held by non-aÇliates of the registrant was approximately $311,396,000,
based upon the closing market price of $15.40 per share of Class A Common Stock on the New York Stock Exchange as of July 30, 2004.
Number of shares of $.001 par value Class A Common Stock outstanding as of August 30, 2005: 21,949,509
Number of shares of $.001 par value Class B Common Stock outstanding as of August 30, 2005: 29,901,662
EXPLANATORY NOTE
On April 11, 2005, GameStop Corp. (the ""Company'') Ñled its Annual Report on Form 10-K for the Ñscal year ended January 29, 2005
(the ""Original Filing'') with the Securities and Exchange Commission (the ""SEC''). As a result of the Company's expectation that it would
not Ñle its deÑnitive proxy statement within 120 days after the end of the Ñscal year covered by the Original Filing, the Company Ñled
Amendment No. 1 on Form 10-K/A (the ""Amended Filing'') on May 20, 2005 in order to furnish the information required by Items 10, 11,
12, 13 and 14 of Part III of Form 10-K. The Company hereby amends Item 1 of Part I and Items 7 and 8 of Part II of the Amended Filing,
and the Company's consolidated Ñnancial statements (including the notes thereto), to respond to comments the Company received from the
SEC with respect to the Original Filing and the Amended Filing. In addition, in connection with the Ñling of this amendment, we are
including with this amendment certain currently dated certiÑcations and therefore we are amending Part IV solely for that purpose. Except as
described above, no other amendments are being made to the Original Filing or the Amended Filing.
This report continues to speak as of the date of the Original Filing, and the Company has not updated the disclosures in this report to
speak as of a later date. Updated information regarding recent developments is included in the Company's other Ñlings with the SEC and in
press releases issued by the Company.
TABLE OF CONTENTS
Page
PART I
Item 1. Business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2
Item 2. Properties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17
Item 3. Legal Proceedings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17
Item 4. Submission of Matters to a Vote of Security HoldersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏÏ 18
Item 6. Selected Consolidated Financial DataÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33
Item 8. Consolidated Financial Statements and Supplementary Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33
Item 9A. Controls and Procedures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33
PART III
Item 10. Directors and Executive OÇcers of the Registrant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34
Item 11. Executive CompensationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 38
Item 12. Security Ownership of Certain BeneÑcial Owners and Management and Related
Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 41
Item 13. Certain Relationships and Related Transactions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43
Item 14. Principal Accountant Fees and Services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45
PART IV
Item 15. Exhibits and Financial Statement Schedules ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 46
SIGNATURESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 48
FINANCIAL STATEMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-1
EXHIBITS
1
PART I
Item 1. Business
General
GameStop Corp. (""GameStop'' or the ""Company'') is the largest video game and PC entertainment
software specialty retailer in the United States, based on the number of U.S. stores we operate and our total
U.S. revenues. We carry one of the largest assortments of new and used video game hardware, video game
software and accessories, PC entertainment software, and related products, including action Ñgures, trading
cards and strategy guides. As of January 29, 2005, we operated 1,826 stores in the United States, Puerto Rico,
Ireland, Northern Ireland and Guam. We operate most of our stores under the GameStop name. We carry a
constantly changing selection of more than 5,000 stock keeping units (""SKUs'') of electronic game
merchandise in most stores. In addition, we operate a web site at www.gamestop.com and publish Game
Informer, the industry's largest circulation multi-platform video game magazine, with over 2,000,000
subscribers.
Of our 1,826 stores, 1,310 stores are located in strip centers and 516 stores are located in shopping malls
and other locations. Our strip center stores, which average approximately 1,600 square feet, carry a balanced
mix of new and used video game hardware, video game software and accessories, which we refer to as video
game products, and PC entertainment software. Our mall stores, which average approximately 1,200 square
feet, carry primarily new video game products and PC entertainment software, as well as used video game
products. Our used video game products provide a unique value proposition to our customers, and our
purchasing of used video game products provides our customers with an opportunity to trade in their used
video game products for store credits and apply those credits towards other merchandise, which, in turn,
increases sales.
Our corporate oÇce and distribution facilities are housed in a 250,000 square foot headquarters and
distribution center in Grapevine, Texas. In March 2004, we purchased a new 420,000 square foot facility in
Grapevine, Texas. We relocated some of our distribution operations to this facility in Ñscal 2004 (the 52 weeks
ending January 29, 2005), and intend to relocate our headquarters and remaining distribution center
operations to this facility in the second quarter of Ñscal 2005 (the 52 weeks ending January 28, 2006).
Prior to February 12, 2002, we were a wholly-owned subsidiary of Barnes & Noble, Inc. (""Barnes &
Noble''). On February 12, 2002, we completed an initial public oÅering of shares of our Class A common
stock raising net proceeds of approximately $347.3 million. A portion of those proceeds was used to repay
$250.0 million of our $400 million indebtedness to Barnes & Noble, with Barnes & Noble contributing the
remaining $150.0 million of indebtedness to us as additional paid-in-capital. Barnes & Noble owned
approximately 63% of the outstanding shares of our capital stock through its ownership of 100% of our Class B
common stock until October 2004. On October 1, 2004, we repurchased approximately 6.1 million shares of
our Class B common stock at a price equal to $18.26 per share for aggregate consideration of approximately
$111.5 million. On November 12, 2004, Barnes & Noble distributed to its shareholders its remaining
29.9 million shares of our Class B common stock in a tax-free dividend. Our Class A common stock and our
Class B common stock are traded on the New York Stock Exchange under the symbols GME and GME.B,
respectively.
Disclosure Regarding Forward-looking Statements
This report on Form 10-K/A and other oral and written statements made by the Company to the public
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the ""Securities Act''), and Section 21E of the Securities Exchange Act of 1934, as amended (the
""Exchange Act''). The forward-looking statements involve a number of risks and uncertainties. A number of
factors could cause our actual results, performance, achievements or industry results to be materially diÅerent
2
from any future results, performance or achievements expressed or implied by these forward-looking
statements. These factors include, but are not limited to:
‚ our reliance on suppliers and vendors for suÇcient quantities of their products and for new product
releases;
‚ economic conditions aÅecting the electronic game industry;
‚ the competitive environment in the electronic game industry;
‚ our ability to open and operate new stores;
‚ our ability to attract and retain qualiÑed personnel;
‚ our ability to successfully and eÇciently transfer our headquarters and distribution center to our new
facility; and
‚ other factors described in this Form 10-K/A, including those set forth under the caption, ""Business Ì
Risk Factors.''
In some cases, forward-looking statements can be identiÑed by the use of terms such as ""anticipates,''
""believes,'' ""continues,'' ""could,'' ""estimates,'' ""expects,'' ""intends,'' ""may,'' ""plans,'' ""potential,'' ""predicts,''
""will,'' ""should,'' ""seeks,'' ""pro forma'' or similar expressions. These statements are only predictions based on
current expectations and assumptions and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, levels of activity, performance or achievements to be
materially diÅerent from any future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. You should not place undue reliance on these forward-looking
statements.
Although we believe that the expectations reÖected in our forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this Form 10-K/A. In light of these risks and uncertainties, the forward-
looking events and circumstances contained in this Form 10-K/A may not occur, causing actual results to
diÅer materially from those anticipated or implied by our forward-looking statements.
Risk Factors
An investment in our Company involves a high degree of risk. You should carefully consider the risks
below, together with the other information contained in this report, before you make an investment decision
with respect to our Company. The risks described below are not the only ones facing our Company. Additional
risks not presently known to us, or that we consider immaterial, may also impair our business operations. Any
of the following risks could materially adversely aÅect our business, operating results or Ñnancial condition,
and could cause a decline in the trading price of our common stock and the value of your investment.
Risks Related to Our Business
We depend upon the timely delivery of products.
We depend on major hardware manufacturers, primarily Sony Computer Entertainment of America,
Nintendo of America, Inc. and Microsoft Corp., to deliver new and existing video game platforms on a timely
basis and in anticipated quantities. In addition, we depend on software publishers to introduce new and
updated software titles. Any material delay in the introduction or delivery of hardware platforms or software
titles could result in reduced sales in one or more Ñscal quarters.
We depend upon third parties to develop products and software.
Our business depends upon the continued development of new and enhanced video game platforms, PC
hardware and video game and PC entertainment software. Our business could suÅer due to the failure of
3
manufacturers to develop new or enhanced video game platforms, a decline in the continued technological
development and use of multimedia PCs, or the failure of software publishers to develop popular game and
entertainment titles for current or future generation video game systems or PC hardware.
Our ability to obtain favorable terms from our suppliers may impact our Ñnancial results.
Our Ñnancial results depend signiÑcantly upon the business terms we can obtain from our suppliers,
including competitive prices, unsold product return policies, advertising and market development allowances,
freight charges and payment terms. We purchase substantially all of our products directly from manufacturers,
software publishers and approximately Ñve distributors. Our largest vendors are Electronic Arts, Inc.,
Nintendo and Microsoft, which accounted for 14%, 13% and 12%, respectively, of our new product purchases
in Ñscal 2004. If our suppliers do not provide us with favorable business terms, we may not be able to oÅer
products to our customers at competitive prices.
The video game system and software product industries are cyclical, which could cause signiÑcant
Öuctuation in our earnings.
The electronic game industry has been cyclical in nature in response to the introduction and maturation
of new technology. Following the introduction of new video game platforms, sales of these platforms and
related software and accessories generally increase due to initial demand, while sales of older platforms and
related products generally decrease as customers migrate toward the new platforms. New video game
platforms have historically been introduced approximately every Ñve years. If video game platform manufac-
turers fail to develop new hardware platforms, our sales of video game products could decline.
An adverse trend in sales during the holiday selling season could impact our Ñnancial results.
Our business, like that of many specialty retailers, is seasonal, with the major portion of our sales and
operating proÑt realized during the fourth Ñscal quarter, which includes the holiday selling season. During
Ñscal 2004, we generated approximately 38% of our sales and approximately 56% of our operating earnings
during the fourth quarter. Any adverse trend in sales during the holiday selling season could lower our results
of operations for the fourth quarter and the entire year.
Our results of operations may Öuctuate from quarter to quarter, which could result in a lower price for
our common stock.
Our results of operations may Öuctuate from quarter to quarter depending upon several factors, some of
which are beyond our control. These factors include:
‚ the timing of new product releases;
‚ the timing of new store openings; and
‚ shifts in the timing of certain promotions.
These and other factors could aÅect our business, Ñnancial condition and results of operations, and this
makes the prediction of our Ñnancial results on a quarterly basis diÇcult. Also, it is possible that our quarterly
Ñnancial results may be below the expectations of public market analysts and investors.
Our failure to eÅectively manage new store openings could lower our sales and proÑtability.
Our growth strategy is largely dependent upon opening new stores and operating them proÑtably. We
opened 338 stores in Ñscal 2004 and expect to open approximately 370 to 400 new stores in Ñscal 2005. Our
4
ability to open new stores and operate them proÑtably depends upon a number of factors, some of which may
be beyond our control. These factors include:
‚ the ability to identify new store locations, negotiate suitable leases and build out the stores in a timely
and cost eÇcient manner;
‚ the ability to hire and train skilled associates;
‚ the ability to integrate new stores into our existing operations; and
‚ the ability to increase sales at new store locations.
Our growth will also depend on our ability to process increased merchandise volume resulting from new
store openings through our inventory management systems and distribution facility in a timely manner. If we
fail to manage new store openings in a timely and cost eÇcient manner, our growth may decrease.
If our management information systems fail to perform or are inadequate, our ability to manage our
business could be disrupted.
We rely on computerized inventory and management systems to coordinate and manage the activities in
our distribution center in Grapevine, Texas, as well as to communicate distribution information to the oÅ-site
third-party operated distribution centers with which we work. The third-party distribution centers pick up
products from our suppliers, repackage the products for each of our stores and ship those products to our stores
by package carriers. We use an inventory replenishment system to track sales and inventory. Our ability to
rapidly process incoming shipments of new release titles and deliver them to all of our stores, either that day or
by the next morning, enables us to meet peak demand and replenish stores at least twice a week, to keep our
stores in stock at optimum levels and to move inventory eÇciently. If our inventory or management
information systems fail to adequately perform these functions, our business could be adversely aÅected.
Our failure to successfully and eÇciently transfer our headquarters and distribution center to our new
facility could lower our sales and proÑtability.
In March 2004, we purchased a new 420,000 square foot headquarters and distribution center in
Grapevine, Texas. We relocated some of our distribution operations to this facility in Ñscal 2004. We intend to
transfer our headquarters and remaining distribution center operations to this facility in the second quarter of
Ñscal 2005. If this transfer is not implemented eÇciently, our sales and proÑtability may be adversely aÅected.
Pressure from our competitors may force us to reduce our prices or increase spending, which could
decrease our proÑtability.
The electronic game industry is intensely competitive and subject to rapid changes in consumer
preferences and frequent new product introductions. We compete with mass merchants and regional chains,
including Wal-Mart Stores, Inc. and Target Corporation; other video game and PC software specialty stores
located in malls and other locations, including Electronics Boutique Holdings Corp.; toy retail chains,
including Toys ""R'' Us, Inc.; mail-order businesses; catalogs; direct sales by software publishers; online
retailers; and computer product and consumer electronics stores, including Best Buy Co., Inc. and Circuit City
Stores, Inc. In addition, video games are available for rental from many video stores, some of whom, like
Hollywood Entertainment Corp. and Blockbuster, Inc., have increased the availability of video game products
for sale. Video game products may also be distributed through other methods which may emerge in the future.
We also compete with sellers of used video game products. Some of our competitors in the electronic game
industry have longer operating histories and may have greater Ñnancial resources than we do. Additionally, we
compete with other forms of entertainment activities, including movies, television, theater, sporting events and
family entertainment centers. If we lose customers to our competitors, or if we reduce our prices or increase
our spending to maintain our customers, we may be less proÑtable.
5
International events could delay or prevent the delivery of products to our suppliers.
Our suppliers rely on foreign sources, primarily in Asia, to manufacture a signiÑcant portion of the
products we purchase from them. As a result, any event causing a disruption of imports, including the
imposition of import restrictions or trade restrictions in the form of tariÅs or quotas, could increase the cost
and reduce the supply of products available to us, which could lower our sales and proÑtability.
If we are unable to renew or enter into new leases on favorable terms, our revenue growth may decline.
All of our retail stores are located in leased premises. If the cost of leasing existing stores increases, we
cannot assure you that we will be able to maintain our existing store locations as leases expire. In addition, we
may not be able to enter into new leases on favorable terms or at all, or we may not be able to locate suitable
alternative sites or additional sites for new store expansion in a timely manner. Our revenues and earnings may
decline if we fail to maintain existing store locations, enter into new leases, locate alternative sites or Ñnd
additional sites for new store expansion.
The ability to download video games and play video games on the Internet could lower our sales.
While it is currently not possible to download video game software onto existing video game platforms
over the Internet, at some point in the future this technology may become available. A limited selection of PC
entertainment software may currently be purchased for download over the Internet, and as technology
advances, a broader selection of PC entertainment software may become available for purchase and download
or playing on the Internet. If advances in technology continue to expand our customers' ability to access
software through these and other sources, our customers may no longer choose to purchase video games or PC
entertainment software in our stores. As a result, our sales and earnings could decline.
If we fail to keep pace with changing industry technology, we will be at a competitive disadvantage.
The interactive entertainment industry is characterized by swiftly changing technology, evolving industry
standards, frequent new and enhanced product introductions and product obsolescence. These characteristics
require us to respond quickly to technological changes and to understand their impact on our customers'
preferences. If we fail to keep pace with these changes, our business may suÅer.
The terms of our credit facility could restrict our operational Öexibility.
In the event that we had outstanding borrowings under our credit facility, we would then be subject to
operational covenants and other restrictions under our revolving credit facility. The covenants place
restrictions on our ability to, among other things, incur more debt or create liens on our assets, merge or
consolidate with others, make acquisitions and investments, dispose of assets and enter into transactions with
aÇliates. In addition, in the event that we had availability under the credit facility of less than $20,000,000, we
would be restricted from paying dividends or repurchasing equity securities. These covenants could limit our
operational Öexibility and restrict our ability to borrow additional funds, if necessary, to Ñnance operations.
Failure to comply with these operational covenants could result in an event of default under the terms of
the credit facility which, if not cured or waived, could result in the borrowed amounts becoming due and
payable. In addition, our obligations under the credit facility are secured by all assets owned by us and our
subsidiaries. An event of default under the credit facility would permit the lenders to proceed directly against
those assets.
We depend upon our key personnel and they would be diÇcult to replace.
Our success depends upon our ability to attract, motivate and retain key management for our stores and
skilled merchandising, marketing and administrative personnel at our headquarters. We depend upon the
continued services of our key executive oÇcers, R. Richard Fontaine, our Chairman of the Board and Chief
Executive OÇcer, Daniel A. DeMatteo, our Vice Chairman and Chief Operating OÇcer and David W.
6
Carlson, our Executive Vice President and Chief Financial OÇcer. The loss of services of any of our key
personnel could have a negative impact on our business.
We may engage in acquisitions which could negatively impact our business if we fail to successfully
complete and integrate them.
To enhance our eÅorts to grow and compete, we may engage in acquisitions. Our plans to pursue future
acquisitions are subject to our ability to negotiate favorable terms for these acquisitions. Accordingly, we
cannot assure you that future acquisitions will be completed. In addition, to facilitate future acquisitions, we
may take actions that could dilute the equity interests of our stockholders, increase our debt or cause us to
assume contingent liabilities, all of which may have a detrimental eÅect on the price of our common stock.
Finally, if any acquisitions are not successfully integrated with our business, our ongoing operations could be
adversely aÅected.
Legislative actions, higher director and oÇcer insurance costs and potential new accounting
pronouncements are likely to cause our general and administrative expenses to increase and impact our
future Ñnancial condition and results of operations.
In order to comply with the Sarbanes-Oxley Act of 2002, as well as changes to the New York Stock
Exchange listing standards and rules adopted by the Securities and Exchange Commission (the ""SEC''), we
may be required to increase our expenditures on internal controls, and hire additional personnel and additional
outside legal, accounting and advisory services, all of which may cause our general and administrative costs to
increase. Insurers are also likely to increase premiums as a result of the high claims rates they have incurred in
the past from other companies, and so our premiums for our directors' and oÇcers' insurance policies are
likely to increase. Changes in the accounting rules could materially increase the expenses that we report under
generally accepted accounting principles (""GAAP'') and adversely aÅect our operating results.
The limited voting rights of our Class A common stock could impact its attractiveness to investors and
its liquidity and, as a result, its market value.
The holders of our Class A and Class B common stock generally have identical rights, except that holders
of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are
entitled to ten votes per share on all matters to be voted on by stockholders. The diÅerence in the voting rights
of the Class A and Class B common stock could diminish the value of the Class A common stock to the extent
that investors or any potential future purchasers of our Class A common stock ascribe value to the superior
voting rights of the Class B common stock.
Industry Background
According to NPD Group, Inc., a market research Ñrm, the electronic game industry was an
approximately $11.0 billion market in the United States in 2004. Of this $11.0 billion market, approximately
$10.0 billion was attributable to video game products, excluding sales of used video game products, and
approximately $1.0 billion was attributable to PC entertainment software.
New Video Game Products. The Entertainment Software Association (formerly the Interactive Digital
Software Association), or ESA, estimates that 50% of all Americans, or approximately 145 million people,
play video or computer games on a regular basis. We expect the following trends to result in increased sales of
video game products:
‚ Hardware Platform Technology Evolution. Video game hardware has evolved signiÑcantly from the
early products launched in the 1980s. The processing speed of video game hardware has increased from
8-bit speeds in the 1980s to 128-bit speeds in next-generation systems such as Sony PlayStation 2,
launched in 2000, and Nintendo GameCube and Microsoft Xbox, which both launched in November
2001. In addition, portable handheld video game devices have evolved from the 8-bit Nintendo Game
Boy to the 128-bit Nintendo DS, which was introduced in November 2004. Technological develop-
ments in both chip processing speed and data storage have provided signiÑcant improvements in
7
advanced graphics and audio quality, which allow software developers to create more advanced games,
encourage existing players to upgrade their hardware platforms and attract new video game players to
purchase an initial system. As general computer technology advances, we expect video game
technology to make similar advances.
‚ Next-Generation Systems Provide Multiple Capabilities Beyond Gaming. Many next-generation
hardware platforms, including Sony PlayStation 2 and Microsoft Xbox, utilize a DVD software format
and have the potential to serve as multi-purpose entertainment centers by doubling as a player for
DVD movies and compact discs. In addition, both Sony PlayStation 2 and Microsoft Xbox manufac-
ture accessories which provide internet connectivity.
‚ Backward Compatibility. Sony PlayStation 2 and Nintendo DS are both backward compatible,
meaning that titles produced for the earlier version of the hardware platform may be used on the new
hardware platform. We believe that backward compatibility may result in more stable industry growth
because the decrease in consumer demand for products associated with existing hardware platforms
that typically precedes the release of next-generation hardware platforms may be diminished.
‚ Introduction of Next-Generation Hardware Platforms Drives Software Demand. Sales of video game
software generally increase as next-generation platforms mature and gain wider acceptance. Histori-
cally, when a new platform is released, a limited number of compatible game titles are immediately
available, but the selection grows rapidly as manufacturers and third-party publishers develop and
release game titles for that new platform. For example, when Sony PlayStation 2 was released in
October 2000, approximately 30 game titles were available for sale. By January 2003, over 450 game
titles for the Sony PlayStation 2 platform were available for sale. Currently, there are over 850 game
titles for the Sony PlayStation 2 platform available for sale.
‚ Broadening Demographic Appeal. While the typical electronic game enthusiast is male between the
ages of 14 and 35, the electronic game industry is broadening its appeal. More females are playing
electronic video games, in part due to the development of video game products that appeal to them.
According to ESA, approximately 39% of all electronic game players are female. More adults are also
playing video games as a portion of the population that played video games in their childhood continues
to play and advance to the next-generation video game products. In addition, the availability of used
video game products for sale has enabled a lower-economic demographic, that may not have been able
to aÅord the considerably more expensive new video game products, to participate in the video game
industry.
Used Video Game Market. As the installed base of video game hardware platforms has increased and
new hardware platforms are introduced, a growing used video game market has evolved in the United States.
Based on reports published by NPD, we believe that, as of December 2004, the installed base of video game
hardware systems in the United States, based on original sales, totaled over 185 million units, including
approximately 27 million Sony PlayStation 2 units, 12 million Microsoft Xbox units, 9 million Nintendo
GameCube units, 27 million Nintendo Game Boy Advance and Game Boy Advance SP units, 29 million Sony
PlayStation units and over 80 million units of older hardware platforms such as Sega Dreamcast, Nintendo 64,
Nintendo Game Boy and Game Boy Color, Sega Genesis and Super Nintendo systems. Hardware
manufacturers and third-party software publishers have produced a wide variety of software titles for each of
these hardware platforms. Based on internal company estimates, we believe that the installed base of video
game software units in the United States exceeds 700 million units.
PC Entertainment Software. PC entertainment software is generally sold in the form of CD-ROMs and
played on multimedia PCs featuring fast processors, expanded memories, and enhanced graphics and audio
capabilities.
8
Business Strategy
Our goal is to enhance our position as the nation's largest specialty retailer of new and used video game
products and PC entertainment software by focusing on the following strategies:
Targeting a Broad Audience of Game Players. We have created a store environment targeting a broad
audience including the electronic game enthusiast, the casual gamer and the seasonal gift giver. Our mall
stores primarily focus on the electronic game enthusiast who demands the latest merchandise featuring the
""hottest'' technology immediately on the day of release. Our strip center stores also serve the electronic game
enthusiast, but focus on serving the value-oriented customer by oÅering a wide selection of value-priced used
video game products and the opportunity to trade in used video game products in exchange for store credits
applicable to future purchases, which, in turn, drives more sales.
Enhancing our Image as a Destination Location. Our stores serve as destination locations for game
players due to our broad selection of products, knowledgeable sales associates, game-oriented environment and
unique pricing proposition. We oÅer all major video game platforms, provide a broad assortment of video game
products and oÅer a larger and more current selection of merchandise than other retailers. We provide a high
level of customer service by hiring game enthusiasts and providing them with ongoing sales training, as well as
training in the latest technical and functional elements of our products and services. Our stores are equipped
with several video game sampling areas, which provide our customers the opportunity to play games before
purchase, as well as equipment to play video game clips.
OÅering the Largest Selection of Used Video Game Products. We are the nation's leading provider and
carry the broadest selection of used video game products for both current and previous generation platforms.
We are one of the only retailers that provide video game software for previous generation platforms, giving us a
unique advantage in the video game retail industry. The opportunity to trade in and purchase used video game
products oÅers our customers a unique value proposition unavailable at mass merchants, toy stores and
consumer electronics retailers. We obtain most of our used video game products from trade-ins made in our
stores by our customers. Used video game products generate signiÑcantly higher gross margins than new video
game products.
Building the GameStop Brand. We currently operate most of our stores under the GameStop name and
have substantially completed the rebranding of our stores to the GameStop brand. Building the GameStop
brand has enabled us to leverage brand awareness and to capture advertising and marketing eÇciencies. Our
branding strategy is further supported by the GameStop loyalty card and our web site. The GameStop loyalty
card, which is obtained as a bonus with a paid subscription to our Game Informer magazine, oÅers customers
discounts on selected merchandise in our stores. Our web site allows our customers to buy games on-line and
to learn about the latest video game products and PC entertainment software and their availability in our
stores.
Providing a First-to-Market Distribution Network. We employ a variety of rapid-response distribution
methods in our eÅorts to be the Ñrst-to-market for new video game products and PC entertainment software.
We strive to deliver popular new releases to selected stores within hours of release and to all of our stores by
the next morning. This highly eÇcient distribution network is essential, as a signiÑcant portion of a new title's
sales will be generated in the Ñrst few days and weeks following its release. As the largest specialty retailer of
video game products and PC entertainment software in the United States, with a proven capability to
distribute new releases to our customers quickly, we believe that we regularly receive a disproportionately large
allocation of popular new video game products and PC entertainment software. On a daily basis, we actively
monitor sales trends, customer reservations and store manager feedback to ensure a high in-stock position for
each store. To assure our customers immediate access to new releases, we oÅer our customers the opportunity
to pre-order products in our stores or through our web site prior to their release.
Investing in our Information Systems and Distribution Capabilities. We employ sophisticated and fully-
integrated inventory management, store-level point of sale and Ñnancial systems and a centralized state-of-
the-art distribution facility. These systems enable us to maximize the eÇciency of the Öow of over 5,000
SKUs, improve store eÇciency, optimize store in-stock positions and carry a broad selection of inventory. Our
9
proprietary inventory management system enables us to maximize sales of new release titles and avoid
markdowns as titles mature and utilizes electronic point-of-sale equipment that provides corporate headquar-
ters with daily information regarding store-level sales and available inventory levels to automatically generate
replenishment shipments to each store at least twice a week. In addition, our highly-customized inventory
management system allows us to actively manage the pricing and product availability of our used video game
products across our store base and to reallocate our inventory as necessary. Our systems enable each store to
carry a merchandise assortment uniquely tailored to its own sales mix and customer needs. Our ability to react
quickly to consumer purchasing trends has resulted in a target mix of inventory, reduced shipping and
handling costs for overstocks and reduced our need to discount products.
Growth Strategy
New Store Expansion. We intend to continue to open new strip center stores in our targeted markets
and new mall stores in selected mall locations. We opened 300 new stores in Ñscal 2003 and 338 new stores in
Ñscal 2004. We plan on opening approximately 370 to 400 new stores in Ñscal 2005. Our primary growth
vehicle will be the expansion of our strip center store base, which we believe could grow to over 3,000 stores in
the United States. Our strategy is to open strip center stores in targeted major metropolitan markets and in
regional shopping centers in tertiary markets. We analyze each market relative to target population and other
demographic indices, real estate availability, competitive factors and past operating history, if available. In
some cases, these new stores may adversely impact sales at existing stores.
In addition, we began to expand in Europe in June 2003 by acquiring a majority interest in Gamesworld
Group Limited (""Gamesworld''), an Ireland-based video game retailer with 10 stores throughout Ireland.
Since our acquisition of Gamesworld, we have opened an additional 15 stores, including three in Northern
Ireland. We plan to continue to expand in Europe.
Increase Comparable Store Sales. We plan to increase our comparable store sales by capitalizing on the
growth in the video game industry, expanding our sales of used video game products and increasing awareness
of the GameStop name.
‚ Capitalize on Growth in Demand. Our sales of new and used video game software grew by
approximately 26% in Ñscal 2003 and by an additional 22% in Ñscal 2004. In Ñscal 2003 and Ñscal 2004,
our comparable store sales increased 0.8% and 1.7%, respectively, driven in large measure by the
success of Sony PlayStation 2, Microsoft Xbox, Nintendo GameCube and Nintendo DS, which was
launched in November 2004. Comparable store sales increased a modest 1.7% in Ñscal 2004, as
declining video game hardware price points and hardware shortages oÅset the increase in video game
software sales, which was fueled by the success of Grand Theft Auto: San Andreas, from Take-Two
Interactive Software, Inc. and Halo 2 from Microsoft Corp. During Ñscal 2003 and Ñscal 2004, we
capitalized on the growth in demand for video game software and accessories that followed the
increases in the installed hardware base of these four video game platforms. Over the next few years,
we expect to continue to capitalize on the increasing installed base for these platforms, the release in
March 2005 of the Sony PSP, the anticipated release in late 2005 of the Microsoft Xbox 2, the
anticipated release in 2006 of the Sony PlayStation 3 and the related growth in video game software
and accessories sales.
‚ Increase Sales of Used Video Game Products. We will continue to expand the selection and
availability of used video game products in both our mall and strip center stores. Our strategy consists
of increasing consumer awareness of the beneÑts of trading in and buying used video game products at
our stores through increased marketing activities. We expect the continued growth of new platform
technology to drive trade-ins of previous generation products, as well as next generation platforms,
thereby expanding the supply of used video game products.
‚ Increase GameStop Brand Awareness. We intend to increase customer awareness of the beneÑts of
shopping in our stores. In connection with our brand-building eÅorts, in each of the last three Ñscal
years, we increased the amount of media advertising in targeted markets. In Ñscal 2005, we plan to
continue to increase media advertising, to expand our GameStop loyalty card program, to aggressively
10
promote trade-ins of used video game products in our stores and to leverage our web site at
www.gamestop.com.
Merchandise
Substantially all of our revenues are derived from the sale of tangible products. Our product oÅerings
consist of new and used video game products, PC entertainment software, and related products, such as action
Ñgures, trading cards and strategy guides. Our in-store inventory generally consists of a constantly changing
selection of over 5,000 SKUs. We have a central buying group that negotiates terms, discounts and
cooperative advertising allowances for all of our stores. We use customer requests and feedback, advance
orders, industry magazines and product reviews to determine which new releases are expected to be hits.
Advance orders are tracked at individual stores to distribute titles and capture demand eÅectively. This
merchandise management is essential because a signiÑcant portion of a game's sales are usually generated in
the Ñrst days and weeks following its release. We also carefully manage product pricing utilizing a tiered-
pricing strategy that enables us to tailor pricing at our stores based on each store's competitive environment.
Video Game Software. We purchase new video game software directly from the leading manufacturers,
including Sony, Microsoft and Nintendo, as well as over 40 third-party game publishers, such as Electronic
Arts, Take-Two Interactive and Activision, Inc. We are one of the largest customers in the United States of
video game titles sold by these publishers. We carry over 1,000 SKUs of new video game software at any given
time across a variety of genres, including Sports, Action, Strategy, Adventure/Role Playing and Simulation.
Used Video Game Products. We are the largest retailer of used video games in the United States. We
provide our customers with an opportunity to trade in their used video game products in our stores in exchange
for store credits which can be applied towards the purchase of other products, including new merchandise. We
have the largest selection (over 4,000 SKUs) of used video game titles which have an average price of $13 as
compared to $35 for new video game titles and which generate signiÑcantly higher gross margins than new
video game products. Our trade-in program provides our customers with a unique value proposition which is
unavailable at mass merchants, toy stores and consumer electronics retailers. This program provides us with an
inventory of used video game products which we resell to our more value-oriented customers. In addition, our
highly-customized inventory management system allows us to actively manage the pricing and product
availability of our used video game products across our store base and to reallocate our inventory as necessary.
Our trade-in program also allows us to be one of the only suppliers of previous generation platforms and
related video games. We also operate a refurbishment center where defective video game products can be
tested, repaired, relabeled, repackaged and redistributed back to our stores.
Video Game Hardware. We oÅer the video game platforms of all major manufacturers, including Sony
PlayStation 2 and PlayStation, Microsoft Xbox, Nintendo DS, GameCube and Game Boy Advance SP. We
also oÅer extended service agreements on video game hardware. In support of our strategy to be the
destination location for electronic game players, we aggressively promote the sale of video game platforms.
Video game hardware sales are generally driven by the introduction of new platform technology and the
reduction in price points as platforms mature. Due to our strong relationships with the manufacturers of these
platforms, we often receive disproportionately large allocations of new release hardware products, which is an
important component of our strategy to be the destination of choice for electronic game players. We believe
that selling video game hardware increases store traÇc and promotes customer loyalty, leading to increased
sales of video game software and accessories, which have higher gross margins than video game hardware.
PC Entertainment and Other Software. We purchase PC entertainment software from over 35
publishers, including Electronic Arts, Microsoft and Vivendi Universal. We oÅer PC entertainment software
across a variety of genres, including Sports, Action, Strategy, Adventure/Role Playing and Simulation.
Accessories and Other Products. Video game accessories consist primarily of controllers, memory cards
and other add-ons. PC entertainment accessories consist primarily of video cards, joysticks and mice. We also
carry strategy guides and magazines, as well as character-related merchandise, including action Ñgures and
trading cards. We carry over 750 SKUs of accessories and other products. In general, this category has higher
margins than new video game and PC entertainment products.
11
Store Operations
As of January 29, 2005, we operated 1,826 stores, primarily under the GameStop name. Each of our
stores typically carries over 5,000 SKUs. We design our stores to provide an electronic gaming atmosphere
with an engaging and visually-captivating layout. Our stores are equipped with several video game sampling
areas, which provide our customers the opportunity to play games before purchase, as well as equipment to
play video game clips. We use store conÑguration, in-store signage and product demonstrations to produce
marketing opportunities both for our vendors and for us.
Store Formats
‚ Strip Center Stores. Our strip center stores, which average approximately 1,600 square feet, carry a
balanced mix of new and used video game products and PC entertainment software. As of January 29,
2005, we operated 1,310 strip center stores in the United States, Ireland, Northern Ireland and Puerto
Rico. Our strip center stores are located in both high traÇc ""power strip centers'' and local
neighborhood strip centers, primarily in major metropolitan areas. These locations provide visibility,
easy access and high frequency of visits. We target strip centers that are conveniently located, have a
mass merchant or supermarket anchor tenant and have a high volume of customers.
‚ Mall-Based Stores. Our mall-based stores, which average approximately 1,200 square feet, carry
primarily new video game products and PC entertainment software, as well as used video game
products. As of January 29, 2005, we operated 516 mall stores in high traÇc shopping malls in targeted
locations throughout the United States, Puerto Rico and Guam.
Site Selection and Locations
Site Selection. We have a dedicated staÅ of real estate personnel experienced in selecting store
locations. Site selections for new stores are made after an extensive review of demographic data and other
information relating to market potential, competitor access and visibility, compatible nearby tenants,
accessible parking, location visibility, lease terms and the location of our other stores. Most of our stores are
located in highly visible locations within malls and strip centers.
Locations. The table below sets forth the number of our stores located in each state, the District of
Columbia, Ireland, Northern Ireland, Puerto Rico and Guam as of January 29, 2005:
Number
State of Stores
Alabama ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27
Alaska ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3
Arizona ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34
Arkansas ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11
California ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 206
Colorado ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28
Connecticut ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21
DelawareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8
District of Columbia ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1
FloridaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 79
Georgia ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45
Guam ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2
HawaiiÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13
IdahoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3
IllinoisÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 94
Indiana ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25
12
Number
State of Stores
Iowa ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20
Kansas ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14
Kentucky ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18
Louisiana ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25
Maine ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3
Maryland ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 46
Massachusetts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31
MichiganÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 66
MinnesotaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32
Mississippi ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17
Missouri ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34
Montana ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6
Nebraska ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7
Nevada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18
New HampshireÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10
New JerseyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 75
New MexicoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15
New YorkÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 89
North CarolinaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 39
North DakotaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6
Ohio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 83
Oklahoma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23
Oregon ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15
PennsylvaniaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 84
Puerto Rico ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15
Rhode Island ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5
South CarolinaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20
South DakotaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3
Tennessee ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30
TexasÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 204
Utah ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21
Vermont ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1
Virginia ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 50
Washington ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43
West Virginia ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11
Wisconsin ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21
Wyoming ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1
1,801
Ireland ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22
Northern Ireland ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3
1,826
13
Game Informer
We publish Game Informer, a monthly video game magazine featuring reviews of new title releases, tips
and secrets about existing games and news regarding current developments in the electronic game industry.
The magazine is sold through subscription and through displays in our stores. For its February 2005 issue, the
magazine had more than 2,000,000 paid subscriptions. According to Advertising Age magazine, Game
Informer is the 26
th
largest consumer publication in the U.S. and had the third largest increase in paid
circulation among U.S. consumer magazines in 2004, with an increase in excess of 43%. Also, according to
Advertising Age magazine, Game Informer had the largest increase in paid circulation in 2003, with an
increase in excess of 45%. Game Informer revenues are also generated through the sale of advertising space. In
addition, we oÅer the GameStop loyalty card as a bonus with each paid subscription, providing our subscribers
with a discount on selected merchandise.
E-Commerce
We operate an electronic commerce web site at www.gamestop.com that allows our customers to buy
video game products and other merchandise on-line. The site also oÅers customers information and content
about available games, release dates for upcoming games, and access to store information, such as location and
product availability. In 2003, we entered into an arrangement with Amazon.com, Inc. under which we are the
exclusive specialty video game retailer listed on Amazon.com.
Advertising
Our stores are primarily located in high traÇc, high visibility areas of regional shopping malls and strip
centers. Given the high foot traÇc drawn past the stores themselves, we use in-store marketing eÅorts such as
window displays and ""coming soon'' signs to attract customers, as well as to promote used video game
products and subscriptions to our Game Informer magazine. Inside the stores, we feature selected products
through the use of vendor displays, ""coming soon'' or preview videos, signs, catalogs, point-of-purchase
materials and end-cap displays. These advertising eÅorts are designed to increase the initial sales of new titles
upon their release. We receive cooperative advertising and market development funds from manufacturers,
distributors, software publishers and accessory suppliers to promote their respective products. Generally,
vendors agree to purchase advertising space in one of our advertising vehicles. Once we run the advertising, the
vendor pays to us an agreed amount.
As part of our brand-building eÅorts and targeted growth strategies, in the last three years, we expanded
our newspaper advertising in certain targeted markets at certain key times of the year. In addition, we
expanded our use of radio advertising in certain markets to promote store openings. We plan to continue these
eÅorts in Ñscal 2005.
Information Management
Our operating strategy involves providing a broad merchandise selection to our customers as quickly and
as cost-eÅectively as possible. We use our inventory management systems to maximize the eÇciency of the
Öow of products to our stores, enhance store eÇciency and optimize store in-stock and overall investment in
inventory.
Distribution. We operate a 210,000 square foot state-of-the-art distribution center in Grapevine, Texas.
By operating with a centralized distribution facility, we eÅectively control and minimize inventory levels. A
technologically-advanced conveyor system and Öow-through racks control costs and improve speed of
fulÑllment. The technology used in the distribution center allows for high-volume receiving, distributions to
stores and returns to vendors. Inventory is shipped to each store at least twice a week, or daily, if necessary, in
order to keep stores in supply of products. In order to support our Ñrst-to-market distribution network, we
utilize the services of nine oÅ-site, third-party operated distribution centers that pick up products from our
suppliers, repackage the products for each of our stores and ship those products to our stores by package
carriers. Our ability to rapidly process incoming shipments of new release titles and deliver them to all of our
stores, either that day or by the next morning, enables us to meet peak demand and replenish stores at least
14
twice a week. We purchased a new 420,000 square foot headquarters and distribution center in Grapevine,
Texas in 2004 and relocated certain of our distribution center operations to this facility. We intend to move our
remaining distribution center operations to that facility in the second quarter of Ñscal 2005.
Management Information Systems. Our proprietary inventory management system and point-of-sale
technology show daily sales and in-store stock by title by store. Systems in place use this data to automatically
generate replenishment shipments to each store from our distribution center in Grapevine, Texas, enabling
each store to carry a merchandise assortment uniquely tailored to its own sales mix and rate of sale. Our call
lists and reservation system also provide our centralized buying staÅ with information to determine order size
and inventory management for store-by-store inventory allocation. We constantly review and edit our
merchandise categories with the objective of ensuring that inventory is up-to-date and meets customer needs.
We use a centralized PC network-based information system based in our corporate oÇces, in order to
minimize initial outlay of capital while allowing for Öexibility and growth as operations expand.
Our in-store point-of-sale system enables us to eÇciently manage in-store transactions. This proprietary
point-of-sale system has been enhanced to facilitate trade-in transactions, including automatic look-up of
trade-in prices and printing of machine-readable bar codes to facilitate in-store restocking of used video
games. In addition, our central database of all used video game products allows us to actively manage the
pricing and product availability of our used video game products across our store base and re-allocate our used
video game products as necessary.
Field Management and StaÅ
Our United States, Puerto Rico and Guam store operations are managed by a centrally located vice
president of stores, four divisional vice presidents and 14 regional store operations directors. The regions are
divided into approximately 140 districts, each with a district manager covering an average of 13 stores. Our
stores in Ireland and Northern Ireland are managed by the founders of Gamesworld. Each store employs, on
average, one manager, one assistant manager and between two and ten sales associates, many of whom are
part-time employees. We have cultivated a work environment that attracts employees who are actively
interested in electronic games. We seek to hire and retain employees who know and enjoy working with our
products so that they are better able to assist customers. To encourage them to sell the full range of our
products, we provide our employees with targeted incentive programs to drive sales. We also provide our
employees with the opportunity to take home and try new video games, which enables them to better discuss
those games with our customers. In addition, employees are casually dressed to encourage customer access
and increase the ""game-oriented'' focus of the stores. We also employ 14 regional loss prevention managers
who assist the Ñeld in implementing security to prevent theft of our products.
Our stores communicate with our corporate oÇces via daily e-mail. This e-mail allows for better tracking
of trends in upcoming titles, competitor strategies and in-stock inventory positions. In addition, this
communication allows title selection in each store to be continuously updated and tailored to reÖect the tastes
and buying patterns of the store's local market. These communications also give Ñeld management access to
relevant inventory levels and loss prevention information. We also sponsor an annual store managers'
conference, which we invite all video game software publishers to attend, and operate an intense educational
training program to provide our employees with information about the video game products that will be
released by those publishers in the holiday season.
Customer Service
Our store personnel provide value-added services to each customer, such as maintaining lists of regular
customers, notifying each customer by phone when new titles are available, and reserving new releases for
customers with a down payment to ensure product availability. In addition, our store personnel readily provide
product reviews to ensure customers are making informed purchasing decisions and oÅer help-line numbers to
increase a customer's enjoyment of the product upon purchase.
15
Vendors
We purchase substantially all of our new products from approximately 85 manufacturers and software
publishers and approximately Ñve distributors. Purchases from the top ten vendors accounted for approxi-
mately 71% of our new product purchases in Ñscal 2004. Only Electronic Arts, Nintendo and Microsoft
(which accounted for 14%, 13% and 12%, respectively) individually accounted for more than 10% of our new
product purchases during Ñscal 2004. We have established price protections and return privileges with our
primary vendors in order to reduce the risk of inventory obsolescence. In addition, we have no purchase
contracts with trade vendors and conduct business on an order-by-order basis, a practice that is typical
throughout the industry. We believe that maintaining and strengthening our long-term relationships with our
vendors is essential to our operations and continued expansion. We believe that we have very good relations
with our vendors.
Competition
The electronic game industry is intensely competitive and subject to rapid changes in consumer
preferences and frequent new product introductions. We compete with mass merchants and regional chains,
including Wal-Mart and Target; other video game and PC software specialty stores located in malls and other
locations, including Electronics Boutique; toy retail chains, including Toys ""R'' Us; mail-order businesses;
catalogs; direct sales by software publishers; online retailers; and computer product and consumer electronics
stores, including Best Buy and Circuit City. In addition, video games are available for rental from many video
stores, some of whom, like Hollywood Entertainment and Blockbuster, have increased the availability of video
game products for sale. Video game products may also be distributed through other methods which may
emerge in the future. We also compete with sellers of used video game products. Additionally, we compete
with other forms of entertainment activities, including movies, television, theater, sporting events and family
entertainment centers.
Seasonality
Our business, like that of many specialty retailers, is seasonal, with the major portion of our sales and
operating proÑt realized during the fourth Ñscal quarter, which includes the holiday selling season. During
Ñscal 2004, we generated approximately 38% of our sales and approximately 56% of our operating earnings
during the fourth quarter. Any adverse trend in sales during the holiday selling season could lower our results
of operations for the fourth quarter and the entire year.
Trademarks
We have a number of trademarks and servicemarks, including ""GameStop,'' ""Game Informer,''
""Babbage's'' and ""FuncoLand,'' all of which have been registered by us with the United States Patent and
Trademark OÇce. We maintain a policy of pursuing registration of our principal marks and opposing any
infringement of our marks.
Employees
We have approximately 2,500 full-time salaried, 2,300 full-time hourly and between 12,000 and
18,000 part-time hourly employees depending on the time of year. Fluctuation in the number of part-time
hourly employees is due to the seasonality of the electronic game industry. We believe that our relationship
with our employees is excellent. None of our employees is represented by a labor union or is a member of a
collective bargaining unit.
Available Information
We make available on our website (http://www.gamestop.com), under ""Investor Relations Ì SEC
Filings,'' free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically Ñle or
furnish such material with the SEC. In addition, the Company's Code of Standards, Ethics and Conduct is
16
available on our website under ""Investor Relations Ì Corporate Governance'' and is available to our
stockholders in print, free of charge, upon written request to the Company's Investor Relations Department at
GameStop Corp., 2250 William D. Tate Avenue, Grapevine, Texas 76051.
Item 2. Properties
All of our stores are leased. Store leases typically provide for an initial lease term of three to ten years,
plus renewal options. This arrangement gives us the Öexibility to pursue extension or relocation opportunities
that arise from changing market conditions. We believe that, as current leases expire, we will be able to obtain
either renewals at present locations or leases for equivalent locations in the same area.
The terms of the store leases for the 1,826 leased stores open as of January 29, 2005 expire as follows:
Number
Lease Terms to Expire During of Stores
(12 Months Ending on or About January 31)
Expired and in negotiations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 139
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 186
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 174
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 132
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 169
2010 and later ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,026
1,826
In addition to our stores, we lease a 250,000 square foot headquarters and distribution center in
Grapevine, Texas. This lease expires on January 31, 2006.
In March 2004, we purchased a 420,000 square foot facility in Grapevine, Texas. We relocated certain of
our distribution operations to this facility in Ñscal 2004 and will be relocating our headquarters and remaining
distribution center operations to this facility in the second quarter of Ñscal 2005. Management believes this
facility will support our long-term growth.
We lease a 7,300 square foot oÇce facility in Minneapolis, Minnesota which houses the operations of
Game Informer magazine. This lease expires in February 2007.
We lease a 15,000 square foot facility in Dublin, Ireland, which houses the corporate and distribution
operations for the Company's operations in Ireland and Northern Ireland. This lease expires in January 2013.
Item 3. Legal Proceedings
On May 29, 2003, former Store Manager Carlos Moreira (""Moreira'') Ñled a class action lawsuit against
the Company and its wholly-owned subsidiary Gamestop, Inc. (collectively ""GameStop'') in Los Angeles
County Superior Court alleging that GameStop's salaried retail managers were misclassiÑed as exempt and
should have been paid overtime. Moreira was seeking to represent a class of current and former salaried retail
managers who were employed by GameStop in California at any time between May 29, 1999 and
September 30, 2004. Moreira alleged claims for violation of California Labor Code sections 203, 226 and 1194
and California Business and Professions Code section 17200. Moreira was seeking recovery of unpaid
overtime, interest, penalties, attorneys' fees and costs. During court-ordered mediation in March 2004, the
parties reached a settlement which deÑned the class of current and former salaried retail managers and will
result in a cost to the Company of approximately $2,750,000. On January 28, 2005, the court granted approval
of the settlement. The matter is now in the claims administration process. A provision for this proposed
settlement was recorded in the 13 weeks ended May 1, 2004. Management expects that the Ñnal settlement
and resolution of this case will take place in the second quarter of Ñscal 2005.
On October 20, 2004, former Store Manager John P. Kurtz (""Kurtz'') Ñled a collective action lawsuit
against the Company in U.S. District Court, Western District of Louisiana, Lafayette/Opelousas Division,
17
alleging that GameStop's salaried retail managers were misclassiÑed as exempt and should have been paid
overtime, in violation of the Fair Labor Standards Act. Kurtz is seeking to represent all current and former
salaried retail managers who were employed by GameStop for the three years before October 20, 2004. Kurtz
is seeking recovery of unpaid overtime, interest, penalties, attorneys' fees and costs. On January 12, 2005,
GameStop Ñled an answer to the complaint and a motion to transfer the action to the Northern District of
Texas, Fort Worth Division. GameStop is awaiting the court's decision on the motion. Management intends to
vigorously defend this action and does not believe there is suÇcient information to estimate the amount of the
possible loss, if any, resulting from the lawsuit.
On February 14, 2005, Steve Strickland, as personal representative of the Estate of Arnold Strickland,
deceased, and Henry Mealer, as personal representative of the Estate of Ace Mealer, deceased, Ñled a
wrongful death lawsuit against GameStop, Sony, Take-Two Interactive and Wal-Mart (collectively, the
""Defendants'') and Devin Moore in the Circuit Court of Fayette County, Alabama, alleging that Defendants'
actions in designing, manufacturing, marketing and supplying Defendant Moore with violent video games were
negligent and contributed to Defendant Moore killing Arnold Strickland and Ace Mealer. PlaintiÅs are
seeking damages in excess of $600 million under the Alabama wrongful death statute. GameStop and the
other defendants are in the process of preparing an initial response and intend to vigorously defend this action.
In the ordinary course of our business, we are from time to time subject to various other legal
proceedings. We do not believe that any such other legal proceedings, individually or in the aggregate, will
have a material adverse eÅect on our operations or Ñnancial condition.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the 13 weeks ended January 29,
2005.
PART II
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Price Range of Common Stock
The Company's Class A common stock is traded on the New York Stock Exchange (""NYSE'') under
the symbol ""GME''. The Company's Class B common stock began trading on the New York Stock Exchange
(""NYSE'') under the symbol ""GME.B'' on November 12, 2004. As such, there was no public trading market
for the Company's Class B common stock prior to that time.
The following table sets forth, for the periods indicated, the high and low sales prices of the Class A
common stock on the NYSE Composite Tape.
Fiscal 2004
High Low
Fourth Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $23.50 $18.68
Third Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $20.23 $14.87
Second Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $18.18 $14.54
First QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $18.65 $16.29
Fiscal 2003
High Low
Fourth Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $18.57 $14.30
Third Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $18.92 $12.66
Second Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $14.85 $11.55
First QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $13.00 $ 7.59
18
The following table sets forth, for the periods indicated, the high and low sales prices of the Class B
common stock on the NYSE Composite Tape.
Fiscal 2004
High Low
Fourth Quarter (from November 12, 2004)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $24.00 $18.75
Approximate Number of Holders of Common Equity
As of February 23, 2005, there were approximately 8,500 record holders of the Company's $.001 par
value per share Class A common stock and approximately 31,000 record holders of the Company's $.001 par
value per share Class B common stock.
Dividends
The Company has never declared or paid any dividends on its common stock. We may consider in the
future the advisability of paying dividends. However, our payment of dividends is and will continue to be
restricted by or subject to, among other limitations, applicable provisions of federal and state laws, our
earnings and various business considerations, including our Ñnancial condition, results of operations, cash Öow,
the level of our capital expenditures, our future business prospects, our status as a holding company and such
other matters that our board of directors deems relevant. In addition, the terms of the revolving credit facility
we entered into in June 2004 restricts our ability to pay dividends if the availability under the credit facility is
less than $20,000,000. See ""Liquidity and Capital Resources'' included in ""Management's Discussion and
Analysis of Financial Condition and Results of Operations.''
Securities Authorized for Issuance under Equity Compensation Plans
Information for our equity compensation plans in eÅect as of January 29, 2005, is as follows:
Number of Securities
Remaining Available for
Weighted-Average Future Issuance Under
Number of Securities to Exercise Price of Equity Compensation
be Issued Upon Exercise Outstanding Plans (Excluding
of Outstanding Options, Options, Warrants Securities ReÖected in
Warrants and Rights and Rights Column (a))
Plan Category (a) (b) (c)
Equity compensation plans
approved by security
holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,406,000 $ 10.86 5,168,000
Equity compensation plans
not approved by security
holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 not applicable 0
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,406,000 $ 10.86 5,168,000
On March 11, 2005, an additional 2,102,000 options to purchase our Class A common stock were granted
under our Amended and Restated 2001 Incentive Plan at an exercise price of $20.25 per share. These options
vest in equal increments over three years and expire on March 10, 2015.
Purchases of Equity Securities by the Issuer and AÇliated Purchasers
There were no repurchases of the Company's equity securities during the fourth quarter of Ñscal 2004. As
of January 29, 2005, the Company had no amount remaining available for purchases under any repurchase
program.
Item 6. Selected Consolidated Financial Data
The following table sets forth our selected consolidated Ñnancial and operating data for the periods and at
the dates indicated. Our Ñscal year is composed of 52 or 53 weeks ending on the Saturday closest to January
19
31. The Ñscal years ended January 29, 2005, January 31, 2004, February 1, 2003 and February 2, 2002
consisted of 52 weeks and the Ñscal year ended February 3, 2001 consisted of 53 weeks. The ""Statement of
Operations Data'' for the Ñscal years 2004, 2003 and 2002 and the ""Balance Sheet Data'' as of January 29,
2005 and January 31, 2004 are derived from, and are qualiÑed by reference to, our audited Ñnancial statements
which are included elsewhere in this Form 10-K/A. The ""Statement of Operations Data'' for Ñscal years
ended February 2, 2002 and February 3, 2001 and the ""Balance Sheet Data'' as of February 1, 2003,
February 2, 2002 and February 3, 2001 are derived from our audited Ñnancial statements which are not
included elsewhere in this Form 10-K/A.
20
Our selected Ñnancial data set forth below should be read in conjunction with ""Management's Discussion
and Analysis of Financial Condition and Results of Operations'' and the consolidated Ñnancial statements and
notes thereto included elsewhere in this Form 10-K/A.
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
January 29, January 31, February 1, February 2, February 3,
2005 2004 2003 2002 2001
In Thousands, except per share data and statistical data
Statement of Operations Data:
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,842,806 $1,578,838 $1,352,791 $1,121,138 $756,697
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,333,506 1,145,893 1,012,145 855,386 570,995
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 509,300 432,945 340,646 265,752 185,702
Selling, general and administrative
expenses(1)(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 373,364 299,193 230,461 200,698 157,242
Depreciation and amortization(1)(2) ÏÏÏÏÏ 36,789 29,368 23,114 19,842 13,623
Amortization of goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì 11,125 9,223
Operating earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 99,147 104,384 87,071 34,087 5,614
Interest expense (income), netÏÏÏÏÏÏÏÏÏÏÏ 236 (804) (630) 19,452 23,411
Earnings (loss) before income taxes ÏÏÏÏÏÏ 98,911 105,188 87,701 14,635 (17,797)
Income tax expense (beneÑt)ÏÏÏÏÏÏÏÏÏÏÏÏ 37,985 41,721 35,297 7,675 (5,836)
Net earnings (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 60,926 $ 63,467 $ 52,404 $ 6,960 $(11,961)
Net earnings (loss) per Class A and
Class B common share Ì basic ÏÏÏÏÏÏÏ $ 1.11 $ 1.13 $ 0.93 $ 0.19 $ (0.33)
Weighted average shares outstanding Ì
basicÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 54,662 56,330 56,289 36,009 36,009
Net earnings (loss) per Class A and
Class B common share Ì dilutedÏÏÏÏÏÏÏ $ 1.05 $ 1.06 $ 0.87 $ 0.18 $ (0.33)
Weighted average shares outstanding Ì
diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57,796 59,764 60,419 39,397 36,009
Other Financial Data:
Net earnings (loss) excluding the after-tax
eÅect of goodwill amortization(3) ÏÏÏÏÏÏ $ 60,926 $ 63,467 $ 52,404 $ 15,373 $ (5,212)
Net earnings (loss) per share excluding the
after-tax eÅect of goodwill
amortization Ì diluted(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.05 $ 1.06 $ 0.87 $ 0.39 $ (0.14)
Store Operating Data:
Stores open at the end of period ÏÏÏÏÏÏÏÏÏ 1,826 1,514 1,231 1,038 978
Comparable store sales increase
(decrease)(4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.7% 0.8% 11.4% 32.0% (6.7)%
Inventory turnover ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.4 4.9 4.9 5.2 4.6
Balance Sheet Data:
Working capital (deÑcit)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 110,093 $ 188,378 $ 174,482 $ 31,107 $ (1,726)
Total assets(1)(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 914,983 902,189 806,237 608,674 511,504
Total debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,520 Ì Ì 399,623 385,148
Total liabilities(1)(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 371,972 308,156 257,562 612,659 532,114
Stockholders' equity (deÑcit) ÏÏÏÏÏÏÏÏÏÏÏÏ 543,011 594,033 548,675 (3,985) (20,610)
(1) In 2004, we revised our method of accounting for rent expense to conform to GAAP, as recently clariÑed
by the Chief Accountant of the SEC in a February 7, 2005 letter to the American Institute of CertiÑed
Public Accountants. A non-cash, after-tax adjustment of $3,312 was made in the fourth quarter of Ñscal
2004 to correct the method of accounting for rent expense (and related deferred rent liability) to include
the impact of escalating rents for periods in which we are reasonably assured of exercising lease options
and to include any ""rent holiday'' period (a period during which the Company is not obligated to pay
21
rent) the lease allows while the store is being constructed. We also corrected our calculation of
depreciation expense for leasehold improvements for those leases which do not include an option period.
The impact of these corrections on periods prior to Ñscal 2004 was not material and the adjustment does
not aÅect historical or future cash Öows or the timing of payments under related leases. See Note 1 of
""Notes to Consolidated Financial Statements'' of the Company for additional information concerning
lease accounting.
(2) In 2004, the Company changed its classiÑcation of tenant improvement allowances on the balance sheets,
statement of operations and statements of cash Öows. The Company historically classiÑed tenant
improvement allowances as reductions of property and equipment on the Company's balance sheets and
as reductions in depreciation and amortization in the Company's statements of operations. In order to
comply with the provisions of FASB Technical Bulletin No. 88-1, ""Issues Relating to Accounting for
Leases'' (""FTB 88-1''), however, the Company has reclassiÑed tenant improvement allowances as
deferred rent liabilities (in other long-term liabilities) on the Company's balance sheets and as a
reduction of rent expense (in selling, general and administrative expenses) in the statements of
operations. The eÅect of this reclassiÑcation increased total assets and total liabilities on the Company's
balance sheets by $4,671 as of January 29, 2005, $3,265 as of January 31, 2004, $2,328 as of February 1,
2003, $1,831 as of February 2, 2002 and $1,747 as of February 3, 2001 and decreased selling, general and
administrative expense and increased depreciation expense in the Company's statements of operations by
$671, $540, $601, $678 and $649 in Ñscal 2004, 2003, 2002, 2001 and 2000, respectively. Note 1 of
""Notes to Consolidated Financial Statements'' of the Company provides additional information concern-
ing lease accounting.
(3) Net earnings (loss) excluding the after-tax eÅect of goodwill amortization is presented here to provide
additional information about our operations. These items should be considered in addition to, but not as a
substitute for or superior to, operating earnings, net earnings, cash Öow and other measures of Ñnancial
performance prepared in accordance with GAAP.
(4) Stores are included in our comparable store sales base beginning in the 13th month of operation.
Comparable store sales for the Ñscal year ended February 3, 2001 were computed using the Ñrst 52 weeks
of the 53 week Ñscal year.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the information contained in our consoli-
dated Ñnancial statements, including the notes thereto. Statements regarding future economic performance,
management's plans and objectives, and any statements concerning assumptions related to the foregoing
contained in Management's Discussion and Analysis of Financial Condition and Results of Operations
constitute forward-looking statements. Certain factors, which may cause actual results to vary materially from
these forward-looking statements, accompany such statements or appear elsewhere in this Form 10-K/A,
including the factors disclosed under ""Business Ì Risk Factors.''
General
We are the largest specialty retailer of video game products and PC entertainment software in the United
States, based on the number of U.S. retail stores we operate and our total U.S. revenues. We sell new and used
video game hardware, video game software and accessories, as well as PC entertainment software and related
accessories and other merchandise. As of January 29, 2005, we operated 1,826 stores, in 50 states, the District
of Columbia, Ireland, Northern Ireland, Puerto Rico and Guam, primarily under the name GameStop. We
also operate an electronic commerce web site under the name gamestop.com and publish Game Informer, the
industry's largest circulation multi-platform video game magazine in the United States.
Our Ñscal year is composed of 52 or 53 weeks ending on the Saturday closest to January 31. The Ñscal
years ended January 29, 2005, or ""Ñscal 2004,'' January 31, 2004, or ""Ñscal 2003,'' and February 1, 2003, or
""Ñscal 2002,'' consisted of 52 weeks.
22
Our wholly-owned subsidiary Babbage's began operations in November 1996. In October 1999,
Babbage's was acquired by, and became a wholly-owned subsidiary of, Barnes & Noble. In June 2000,
Barnes & Noble acquired Funco and thereafter, Babbage's became a wholly-owned subsidiary of Funco. In
December 2000, Funco changed its name to GameStop, Inc.
Growth in the video game industry is driven by the introduction of new technology. In October 2000,
Sony introduced PlayStation 2 and, in November 2001, Microsoft introduced Xbox and Nintendo introduced
GameCube. Nintendo introduced the Game Boy Advance SP in March 2003 and the DS in November 2004.
As is typical following the introduction of new video game platforms, sales of new video game hardware
generally increase as a percentage of sales in the Ñrst full year following introduction. As video game platforms
mature, the sales mix attributable to complementary video game software and accessories, which generate
higher gross margins, generally increases in the second and third years. The net eÅect is generally a decline in
gross margins in the Ñrst full year following new platform releases and an increase in gross margins in the
second and third years. Unit sales of maturing video game platforms are typically also driven by manufacturer-
funded retail price decreases, further driving sales of related software and accessories. The retail prices for the
PlayStation 2, the Xbox and the GameCube were reduced in May 2002 and May 2003, resulting in an
increase in unit sales and sales of the related software and accessories. In September 2003, Nintendo reduced
the retail price of the GameCube, which resulted in a signiÑcant increase in unit sales and sales of the related
software and accessories during the fourth quarter of 2003. In March 2004, Microsoft reduced the retail price
of the Xbox and, in May 2004, Sony reduced the retail price of the PlayStation2. We expect that the installed
base of these hardware platforms and sales of related software and accessories will increase in the future. Sony
launched the PSP in March 2005 and the Company anticipates that Microsoft will launch the Xbox 2 in
November 2005. Because of these anticipated launches, we expect that our gross margin will decline from
Ñscal 2004 to Ñscal 2005.
Critical Accounting Policies
The Company believes that the following are its most signiÑcant accounting policies which are important
in determining the reporting of transactions and events.
Use of Estimates. The preparation of Ñnancial statements in conformity with GAAP requires manage-
ment to make estimates and assumptions that aÅect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the Ñnancial statements and the reported amounts
of revenues and expenses during the reporting period. In preparing these Ñnancial statements, management
has made its best estimates and judgments of certain amounts included in the Ñnancial statements, giving due
consideration to materiality. Changes in the estimates and assumptions used by management could have
signiÑcant impact on the Company's Ñnancial results. Actual results could diÅer from those estimates.
Revenue Recognition. Revenue from the sales of the Company's products is recognized at the time of
sale. The sales of used video game products are recorded at the retail price charged to the customer. Sales
returns (which are not signiÑcant) are recognized at the time returns are made. Subscription and advertising
revenues are recorded upon release of magazines for sale to consumers and are stated net of sales discounts.
Magazine subscription revenue is recognized on a straight-line basis over the subscription period.
Merchandise Inventories. Our merchandise inventories are carried at the lower of cost or market using
the average cost method. Used video game products traded in by customers are recorded as inventory at the
amount of the store credit given to the customer. In valuing inventory, management is required to make
assumptions regarding the necessity of reserves required to value potentially obsolete or over-valued items at
the lower of cost or market. Management considers quantities on hand, recent sales, potential price protections
and returns to vendors, among other factors, when making these assumptions.
Property and Equipment. Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation on furniture, Ñxtures and equipment is computed using the straight-line method
over estimated useful lives (ranging from two to eight years). Maintenance and repairs are expensed as
incurred, while betterments and major remodeling costs are capitalized. Leasehold improvements are
capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases,
23
including renewal options in which the exercise of the option is reasonably assured (generally ranging from
three to ten years). Capitalized lease acquisition costs are being amortized over the average lease terms of the
underlying leases. Costs incurred in purchasing management information systems are capitalized and included
in property and equipment. These costs are amortized over their estimated useful lives from the date the
systems become operational. The Company periodically reviews its property and equipment whenever events
or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation
or amortization periods should be accelerated. The Company assesses recoverability based on several factors,
including management's intention with respect to its stores and those stores' projected undiscounted cash
Öows. An impairment loss would be recognized for the amount by which the carrying amount of the assets
exceeds the present value of their projected cash Öows. No write-downs have been necessary by the Company
through January 29, 2005.
Goodwill. Goodwill, aggregating $340.0 million, was recorded in the acquisition of Funco and through
the application of ""push-down'' accounting in accordance with SAB 54 in connection with the acquisition of
Babbage's by a subsidiary of Barnes & Noble. Goodwill in the amount of $2.9 million was recorded in
connection with the acquisition of Gamesworld Group Limited in June 2003. Goodwill represents the excess
purchase price over tangible net assets and identiÑable intangible assets acquired. EÅective February 3, 2002,
the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, ""Goodwill and
Other Intangible Assets'' (""SFAS 142''). SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead evaluate goodwill for impairment on at least an annual basis. Prior to the
adoption of the provisions of SFAS 142, the Company's goodwill was amortized on a straight-line basis over a
30-year period. At February 2, 2002, accumulated amortization was $22.0 million. In accordance with the
requirements of SFAS 142, the Company completed the initial impairment test of the goodwill attributable to
its reporting unit as of February 3, 2002, and concluded that none of its goodwill was impaired. As part of this
analysis, the Company determined that it has one reporting unit based upon the similar economic
characteristics of its operations. Fair value of this reporting unit was estimated using market capitalization
methodologies. Subsequent to the acquisition of Gamesworld Group Limited, the Company determined that it
still has one reporting unit based upon the similar economic characteristics of its operations. The Company
also evaluates the goodwill of its reporting unit for impairment at least annually. The Company elected to
perform its annual impairment test during the fourth quarter of both Ñscal 2003 and Ñscal 2004 and concluded
that none of its goodwill was impaired. Note 7 of ""Notes to Consolidated Financial Statements'' of the
Company provides additional information concerning goodwill.
Cash Consideration Received from Vendors. The Company and its vendors participate in cooperative
advertising programs and other vendor marketing programs in which the vendors provide the Company with
cash consideration in exchange for marketing and advertising the vendors' products. Our accounting for
cooperative advertising arrangements and other vendor marketing programs, in accordance with FASB
Emerging Issues Task Force Issue 02-16 or ""EITF 02-16,'' results in a portion of the consideration received
from our vendors reducing the product costs in inventory rather than as an oÅset to our marketing and
advertising costs as in years prior to Ñscal 2003. The consideration serving as a reduction in inventory is
recognized in cost of sales as inventory is sold. The amount of vendor allowances recorded as a reduction of
inventory is determined by calculating the ratio of vendor allowances in excess of speciÑc, incremental and
identiÑable advertising and promotional costs to merchandise purchases. The Company then applies this ratio
to the value of inventory in determining the amount of vendor reimbursements recorded as a reduction to
inventory reÖected on the balance sheet. Because of the variability in the timing of our advertising and
marketing programs throughout the year, the Company uses signiÑcant estimates in determining the amount
of vendor allowances recorded as a reduction of inventory in interim periods, including estimates of full year
vendor allowances, speciÑc, incremental and identiÑable advertising and promotional costs, merchandise
purchases and value of inventory. Estimates of full year vendor allowances and the value of inventory are
dependent upon estimates of full year merchandise purchases. Determining the amount of vendor allowances
recorded as a reduction of inventory at the end of the Ñscal year no longer requires the use of estimates as all
vendor allowances, speciÑc, incremental and identiÑable advertising and promotional costs, merchandise
purchases and value of inventory are known.
24
Although management considers its advertising and marketing programs to be eÅective, we do not believe
that we would be able to incur the same level of advertising expenditures if the vendors decreased or
discontinued their allowances. In addition, management believes that the Company's revenues would be
adversely aÅected if its vendors decreased or discontinued their allowances, but management is unable to
quantify the impact.
Lease Accounting. The Company, similar to many other retailers, has revised its method of accounting
for rent expense (and related deferred rent liability) and leasehold improvements funded by landlord
incentives for allowances under operating leases (tenant improvement allowances) to conform to GAAP, as
recently clariÑed by the Chief Accountant of the SEC in a February 7, 2005 letter to the American Institute of
CertiÑed Public Accountants. For all stores opened since the beginning of Ñscal 2002, the Company had
calculated straight-line rent expense using the initial lease term, but was generally depreciating leasehold
improvements over the shorter of their estimated useful lives or the initial lease term plus the option periods.
The Company corrected its calculation of straight-line rent expense to include the impact of escalating rents
for periods in which it is reasonably assured of exercising lease options and to include in the lease term any
period during which the Company is not obligated to pay rent while the store is being constructed (""rent
holiday''). The Company also corrected its calculation of depreciation expense for leasehold improvements for
those leases which do not include an option period. Because the eÅects of the correction were not material to
any previous years, a non-cash, after-tax adjustment of $3.3 million was made in the fourth quarter of Ñscal
2004 to correct the method of accounting for rent expense (and related deferred rent liability). Of the
$3.3 million after-tax adjustment, $1.8 million pertained to the accounting for rent holidays, $1.4 million
pertained to the calculation of straight-line rent expense to include the impact of escalating rents for periods in
which the Company is reasonably assured of exercising lease options and $0.1 million pertained to the
calculation of depreciation expense for leasehold improvements for the small portion of leases which do not
include an option period. The aggregate eÅect of these corrections relating to prior years was $1.9 million
($0.9 million for Ñscal 2003, $0.4 million for Ñscal 2002 and $0.6 million for years prior to Ñscal 2002). The
correction does not aÅect historical or future cash Öows or the timing of payments under related leases.
In addition, the Company has changed its classiÑcation of tenant improvement allowances on its balance
sheets and statements of cash Öows. Like many other retailers, the Company had historically classiÑed tenant
improvement allowances as reductions of property and equipment on the Company's balance sheets, as
reductions in depreciation and amortization in the Company's statements of operations and as reductions in
capital expenditures, an investing activity, on the Company's statements of cash Öows. In order to comply with
the provisions of FTB 88-1, however, the Company has reclassiÑed tenant improvement allowances as
deferred rent liabilities (in long-term liabilities) on the Company's balance sheets, as a reduction of rent
expense (in selling, general and administrative expenses) in the statements of operations and as an operating
activity on the statements of cash Öows. The eÅect of this reclassiÑcation increased property and equipment
and deferred rent and other long-term liabilities on the Company's balance sheets by $4.7 million as of
January 29, 2005 and $3.3 million as of January 31, 2004, decreased selling, general and administrative
expense and increased depreciation expense in the Company's statements of operations by $0.7 million,
$0.5 million and $0.6 million in Ñscal 2004, 2003 and 2002, respectively, and increased net cash Öows provided
by operating activities and increased net cash Öows used in investing activities in the Company's statements of
cash Öows by $2.3 million, $1.5 million and $1.1 million in Ñscal 2004, 2003 and 2002, respectively.
25
Results of Operations
The following table sets forth certain income statement items as a percentage of sales for the periods
indicated:
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
Statement of Operations Data:
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100.0% 100.0% 100.0%
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 72.4 72.6 74.8
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27.6 27.4 25.2
Selling, general and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20.2 19.0 17.1
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.0 1.8 1.7
Operating earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.4 6.6 6.4
Interest expense (income), net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.0 0.0 (0.1)
Earnings before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.4 6.6 6.5
Income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.1 2.6 2.6
Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.3% 4.0% 3.9%
The Company includes purchasing, receiving and distribution costs in selling, general and administrative
expenses, rather than cost of goods sold, in the statement of operations. For the Ñscal years ended January 29,
2005, January 31, 2004 and February 1, 2003 these purchasing, receiving and distribution costs amounted to
$9.2 million, $9.5 million and $10.1 million, respectively. The Company includes processing fees associated
with purchases made by check and credit cards in cost of sales, rather than selling, general and administrative
expenses, in the statement of operations. For the Ñscal years ended January 29, 2005, January 31, 2004 and
February 1, 2003 these processing fees amounted to $12.0 million, $10.7 million and $10.7 million,
respectively. As a result of these classiÑcations, our gross margins are not comparable to those retailers that
include purchasing, receiving and distribution costs in cost of sales and include processing fees associated with
purchases made by check and credit cards in selling, general and administrative expenses. The net eÅect of the
Company's classiÑcations is that its cost of sales as a percentage of sales is higher than, and its selling, general
and administrative expenses as a percentage of sales are lower than, they would have been had the Company's
treatment conformed with those retailers that include purchasing, receiving and distribution costs in cost of
sales and include processing fees associated with purchases made by check and credit cards in selling, general
and administrative expenses, by 0.2% and 0.1% for the Ñscal years ended January 29, 2005 and January 31,
2004, respectively. The eÅect of these classiÑcations on the Ñscal year ended February 1, 2003 was not
material.
The following table sets forth sales (in millions) by signiÑcant product category for the periods indicated:
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
January 29, 2005 January 31, 2004 February 1, 2003
Percent Percent Percent
Sales of Total Sales of Total Sales of Total
Sales:
New video game hardware ÏÏÏÏ $ 209.2 11.4% $ 198.1 12.6% $ 216.8 16.0%
New video game software ÏÏÏÏÏ 776.7 42.1% 647.9 41.0% 524.7 38.8%
Used video game products ÏÏÏÏ 511.8 27.8% 403.3 25.5% 296.4 21.9%
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 345.1 18.7% 329.5 20.9% 314.9 23.3%
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,842.8 100.0% $1,578.8 100.0% $1,352.8 100.0%
26
The following table sets forth gross proÑt (in millions) and gross proÑt percentages by signiÑcant product
category for the periods indicated:
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
January 29, 2005 January 31, 2004 February 1, 2003
Gross Gross Gross
Gross ProÑt Gross ProÑt Gross ProÑt
ProÑt Percent ProÑt Percent ProÑt Percent
Gross ProÑt:
New video game hardware ÏÏÏÏÏÏÏÏÏÏÏ $ 8.5 4.1% $ 10.6 5.3% $ 4.4 2.0%
New video game software ÏÏÏÏÏÏÏÏÏÏÏÏ 151.9 19.6% 128.6 19.9% 93.7 17.9%
Used video game products ÏÏÏÏÏÏÏÏÏÏÏ 231.6 45.3% 179.3 44.5% 142.8 48.2%
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 117.3 34.0% 114.4 34.7% 99.7 31.7%
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $509.3 27.6% $432.9 27.4% $340.6 25.2%
Fiscal 2004 Compared to Fiscal 2003
Sales increased by $264.0 million, or 16.7%, from $1,578.8 million in Ñscal 2003 to $1,842.8 million in
Ñscal 2004. The increase in sales was attributable to the $139.0 million in sales resulting from 338 new stores
opened since January 31, 2004 and the $94.2 million in additional sales from having a full year of sales in Ñscal
2004 from stores that opened in Ñscal 2003, compared to a partial year in 2003. Comparable store sales
increased a modest 1.7% as increases in video game software sales driven by strong new game releases were
oÅset by declining hardware price points and hardware shortages caused by insuÇcient quantities manufac-
tured by hardware vendors. Management does not expect these hardware shortages to continue throughout
Ñscal 2005. Stores are included in our comparable store sales base beginning in the thirteenth month of
operation.
The strong new game releases in Ñscal 2004 led to an increase in new video game software sales of
$128.8 million, or 19.9%, from Ñscal 2003 and an increase in new software sales as a percentage of total sales
from 41.0% in Ñscal 2003 to 42.1% in Ñscal 2004. The declining price points and hardware shortages described
above curtailed the expected growth in new hardware, resulting in a modest 5.6%, or $11.1 million, increase in
sales and a decline in hardware sales as a percentage of total sales from 12.6% in Ñscal 2003 to 11.4% in Ñscal
2004. Used video game products continued to show strong growth, with an increase in sales of $108.5 million,
or 26.9%, from Ñscal 2003 to Ñscal 2004 and an increase as a percentage of total sales from 25.5% in Ñscal 2003
to 27.8% in Ñscal 2004. This growth was due to our store growth in strip centers and the availability of used
products for sale caused by trade-ins of used video game products in response to the strong new game releases.
Sales of other product categories, including PC entertainment and other software and accessories, magazines
and character-related merchandise, grew only 4.7%, or $15.6 million, from Ñscal 2003 to Ñscal 2004, as was
expected due to a lack of strong new PC accessories and trading cards.
Cost of sales increased by $187.6 million, or 16.4%, from $1,145.9 million in Ñscal 2003 to $1,333.5 mil-
lion in Ñscal 2004 as a result of the changes in gross proÑt discussed below.
Gross proÑt increased by $76.4 million, or 17.6%, from $432.9 million in Ñscal 2003 to $509.3 million in
Ñscal 2004. Gross proÑt as a percentage of sales increased from 27.4% in Ñscal 2003 to 27.6% in Ñscal 2004.
This increase was primarily the result of the shift in sales mix from lower margin new video game hardware to
higher margin new video game software and used video game products, as discussed above. Gross proÑt as a
percentage of sales on new hardware declined from 5.3% in Ñscal 2003 to 4.1% in Ñscal 2004 due to the
expedited freight costs incurred in shipping hardware, which was in short supply, into our stores. The expected
continued downward pressure in margin rates on new release titles caused a decline in gross proÑt as a
percentage of sales on new software from 19.9% in Ñscal 2003 to 19.6% in Ñscal 2004. Gross proÑt as a
percentage of sales on used video game products increased from 44.5% in Ñscal 2003 to 45.3% in Ñscal 2004
due to increased eÅorts to monitor margin rates. Gross proÑt as a percentage of sales on other products
remained comparable from Ñscal 2003 to Ñscal 2004.
27
The Company expects the overall gross proÑt as a percentage of sales to decrease in Ñscal 2005 due to the
anticipated launch of two new hardware platforms.
Selling, general and administrative expenses increased by $74.2 million, or 24.8%, from $299.2 million in
Ñscal 2003 to $373.4 million in Ñscal 2004. These increases were primarily attributable to the increase in the
number of stores in operation, and the related increases in store, distribution, and corporate oÇce operating
expenses, the $2.8 million provision for the proposed California labor litigation settlement, the $2.8 million
charge attributable to the professional fees related to the spin-oÅ of our Class B common shares previously
owned by Barnes & Noble and $5.1 million attributable to correcting our method of accounting for rent
expense. Selling, general and administrative expenses as a percentage of sales increased from 19.0% in Ñscal
2003 to 20.2% in Ñscal 2004. The increase in selling, general and administrative expenses as a percentage of
sales was primarily due to the costs associated with the continued rollout of new stores and the eÅect these
stores have on leveraging of selling, general and administrative expenses and investments in our international
infrastructure (a combined impact of 0.6% of sales), the provision for the proposed California labor litigation
settlement (0.2% of sales), the charge attributable to the professional fees related to the spin-oÅ of our
Class B common shares (0.2% of sales) and correcting our method of accounting for rent expense (0.3% of
sales). Management anticipates that the new method of accounting for rent expense will impact selling,
general and administrative expenses in Ñscal 2005 by approximately $2.8 million.
Depreciation and amortization expense increased from $29.4 million in Ñscal 2003 to $36.8 million in
Ñscal 2004. This increase of $7.4 million was due to the capital expenditures for new stores and management
information systems during the Ñscal year. Depreciation and amortization expense will increase from Ñscal
2004 to Ñscal 2005 due to continued capital expenditures for new stores and management information systems
and due to the commencement of full operations in the Company's new distribution facility.
Interest income resulting from the investment of excess cash balances increased from $1.5 million in
Ñscal 2003 to $1.9 million in Ñscal 2004 due to an increase in the level of investments and the average yield on
the investments. Interest expense increased by $1.5 million, from $0.7 million in Ñscal 2003 to $2.2 million in
Ñscal 2004. This increase in interest expense was due to the interest incurred on the note payable to Barnes &
Noble in connection with the repurchase of the Company's Class B common stock. Interest expense on this
note payable is expected to be approximately $2.0 million in Ñscal 2005.
Income tax expense decreased by $3.7 million, from $41.7 million in Ñscal 2003 to $38.0 million in Ñscal
2004. The Company's eÅective tax rate decreased from 39.7% in Ñscal 2003 to 38.4% in Ñscal 2004 due to
corporate restructuring. The eÅective tax rate resulting from the corporate restructuring is expected to recur.
See Note 12 of ""Notes to Consolidated Financial Statements'' of the Company for additional information
regarding income taxes.
The factors described above led to a decrease in operating earnings of $5.3 million, from $104.4 million in
Ñscal 2003 to $99.1 million in Ñscal 2004 and a decrease in net earnings of $2.6 million, or 4.0%, from
$63.5 million in Ñscal 2003 to $60.9 million in Ñscal 2004.
Fiscal 2003 Compared to Fiscal 2002
Sales increased by $226.0 million, or 16.7%, from $1,352.8 million in Ñscal 2002 to $1,578.8 million in
Ñscal 2003. The increase in sales was attributable to the $126.3 million in sales resulting from 300 new stores
opened since February 1, 2003 and the $78.1 million in additional sales from having a full year of sales in Ñscal
2003 from stores that opened in Ñscal 2002, compared to a partial year in 2002. Comparable store sales
increased a modest 0.8% as declining video game hardware price points oÅset a signiÑcant increase in video
game software sales. Stores are included in our comparable store sales base beginning in the thirteenth month
of operation.
The declining price points described above led to a decline in hardware sales of $18.7 million, or 8.6%,
and a decline in hardware sales as a percentage of total sales from 16.0% in Ñscal 2002 to 12.6% in Ñscal 2003.
Growth in our store count led to an increase in new video game software sales of $123.2 million, or 23.5%,
from Ñscal 2002 to Ñscal 2003. The shift in sales from hardware led to an increase in new software sales as a
28
percentage of total sales from 38.8% in Ñscal 2002 to 41.0% in Ñscal 2003. Used video game products
continued to grow due to our store growth in strip centers and eÅorts to increase the consumers' awareness of
the beneÑts of trading in and buying used video game products. Sales of used video game products increased
by $106.9 million, or 36.1%, from Ñscal 2002 to Ñscal 2003 and increased as a percentage of total sales from
21.9% in Ñscal 2002 to 25.5% in Ñscal 2003. Sales of other product categories grew only 4.6%, or $14.6 million,
from Ñscal 2002 to Ñscal 2003, as was expected due to a lack of strong new PC titles.
Cost of sales increased by $133.8 million, or 13.2%, from $1,012.1 million in Ñscal 2002 to $1,145.9 mil-
lion in Ñscal 2003 as a result of the changes in gross proÑt discussed below.
Gross proÑt increased by $92.3 million, or 27.1%, from $340.6 million in Ñscal 2003 to $432.9 million in
Ñscal 2003. Gross proÑt as a percentage of sales increased from 25.2% in Ñscal 2002 to 27.4% in Ñscal 2003.
This increase was primarily the result of the implementation of EITF 02-16 (see footnote 2 to the
Consolidated Financial Statements), requiring certain vendor allowances to be deducted from cost of sales,
and the shift in sales mix from lower margin video game hardware to higher margin PlayStation 2, Game Boy
Advance, Xbox and GameCube video game software and used video game products. The implementation of
EITF 02-16 led to a decrease in cost of sales and a corresponding increase in gross proÑt of $21.6 million, or
1.4% of sales, and led to the increases in gross proÑt as a percentage of sales on new hardware, new software
and other products. Gross proÑt as a percentage of sales declined on used video game products from 48.2% in
Ñscal 2002 to 44.5% in Ñscal 2003 due to increased competition from other retailers expanding their presence
in the used video game business.
Selling, general and administrative expenses increased by $68.7 million, or 29.8%, from $230.5 million in
Ñscal 2002 to $299.2 million in Ñscal 2003. The increase was primarily attributable to the increase in the
number of stores in operation and the related increases in store, distribution, and corporate oÇce operating
expenses. In addition, implementing EITF 02-16 caused an increase of $26.8 million in selling, general and
administrative expenses. Selling, general and administrative expenses as a percentage of sales increased from
17.1% in Ñscal 2002 to 19.0% in Ñscal 2003. The increase in selling, general and administrative expenses as a
percentage of sales was primarily due to the eÅect of implementing EITF 02-16.
Depreciation and amortization expense increased from $23.1 million in Ñscal 2002 to $29.4 million in
Ñscal 2003. This increase of $6.3 million was due to the capital expenditures for new stores, management
information systems and distribution center enhancements during the Ñscal year.
Interest income resulting from the investment of excess cash balances decreased from $2.0 million in
Ñscal 2002 to $1.5 million in Ñscal 2003 due to a decrease in the level of investments and the average yield on
the investments. Interest expense decreased by $0.7 million, from $1.4 million in Ñscal 2002 to $0.7 million in
Ñscal 2003. The decrease was attributable to the repayment of $250.0 million in debt in February 2002 using
the proceeds of the Company's February 2002 public oÅering and the contribution of the remaining
$150.0 million in debt to paid-in-capital by Barnes & Noble.
Income tax expense increased by $6.4 million, from $35.3 million in Ñscal 2002 to $41.7 million in Ñscal
2003. The Company's eÅective tax rate decreased from 40.2% in Ñscal 2002 to 39.7% in Ñscal 2003 due
primarily to tax-exempt interest income and state income tax credits, which are expected to recur. See
Note 12 of ""Notes to Consolidated Financial Statements'' of the Company for additional information
regarding income taxes.
The factors described above led to an increase in operating earnings of $17.3 million, or 19.9%, from
$87.1 million in Ñscal 2002 to $104.4 million in Ñscal 2003 and an increase in net earnings of $11.1 million, or
21.2%, from $52.4 million in Ñscal 2002 to $63.5 million in Ñscal 2003.
Liquidity and Capital Resources
Subsequent to our acquisition by Barnes & Noble in October 1999, and prior to our initial public oÅering
on February 12, 2002, our operations were funded by cash Öows from operations and advances from Barnes &
Noble. Those advances were treated as an intercompany loan owed to Barnes & Noble by us. As of
February 2, 2002, we were indebted to Barnes & Noble in the amount of $399.6 million.
29
On February 12, 2002, we registered and sold an aggregate of 20,763,888 shares of our Class A common
stock at a price of $18.00 per share. The aggregate price of the oÅering amount registered and sold was
approximately $373.7 million. The net proceeds from the initial public oÅering were $347.3 million. A portion
of the proceeds was used to repay $250.0 million of our indebtedness to Barnes & Noble. Upon closing the
initial public oÅering, Barnes & Noble contributed the diÅerence between the aggregate amount of the
intercompany loans and $250.0 million as additional paid-in-capital. The amount of the capital contribution
was $150.0 million. Of the balance of the proceeds (approximately $97.3 million), approximately $33.8 mil-
lion was used for capital expenditures and the remainder was used for working capital and general corporate
purposes.
During Ñscal 2004, cash provided by operations was $146.0 million, compared to cash provided by
operations of $71.3 million in Ñscal 2003. In Ñscal 2004, cash provided by operations was primarily due to net
income of $60.9 million, depreciation and amortization of $37.0 million, provisions for inventory reserves of
$17.8 million, a decrease in prepaid taxes of $9.7 million and an increase in accounts payable and accrued
liabilities of $17.9 million, oÅset in part by an increase in merchandise inventory of $10.6 million. The increase
in merchandise inventories was less than increases in Ñscal 2003 and Ñscal 2002 because of video game
hardware shortages, which are expected to be temporary. In Ñscal 2003, cash provided by operations was
primarily due to net income of $63.5 million, depreciation and amortization of $29.5 million, provisions for
inventory reserves of $12.9 million and an increase in accounts payable of $40.0 million, which were oÅset
partially by an increase in merchandise inventories of $72.7 million. The increase in merchandise inventories
in Ñscal 2003 was due to the Company's investment in merchandise inventories to support the overall growth
of the Company and the anticipated store openings in early Ñscal 2004.
Cash used in investing activities was $99.2 million and $68.0 million during Ñscal 2004 and Ñscal 2003,
respectively. During Ñscal 2004, our capital expenditures included approximately $27.7 million to acquire and
build-out a new corporate headquarters and distribution center facility in Grapevine, Texas. The remaining
$70.6 million in capital expenditures was used to open new stores, remodel existing stores and invest in
information systems. During Ñscal 2003, we had capital expenditures of $64.5 million to open new stores,
remodel existing stores and invest in distribution and information systems.
Our future capital requirements will depend on the number of new stores we open and the timing of those
openings within a given Ñscal year. We opened 338 stores in Ñscal 2004 and expect to open between 370 and
400 stores in Ñscal 2005. Projected capital expenditures for Ñscal 2005 are approximately $80 million, to be
used primarily to fund new store openings, equip and improve the Company's new headquarters and
distribution center and invest in distribution and information systems.
The projected capital expenditures for Ñscal 2005 include approximately $6 million to complete the
improvements to and equip the 420,000 square foot headquarters and distribution center facility in Grapevine,
Texas which the Company acquired in March 2004. We expect that the total cost to purchase, improve and
equip this facility will be approximately $34 million. The distribution systems in this facility are expected to be
ready for testing in early Ñscal 2005 and the facility is expected to be fully-operational in the second quarter of
Ñscal 2005, at which time all headquarters and remaining distribution functions will be relocated. Depreciation
on certain leasehold improvements to the Company's existing facility has been adjusted to reÖect the shorter
life of these assets, which will be abandoned after the relocation is complete.
In June 2004, the Company amended and restated its $75.0 million senior secured revolving credit
facility, which now expires in June 2009. The revolving credit facility is governed by an eligible inventory
borrowing base agreement, deÑned as 55% of non-defective inventory, net of certain reserves. Loans incurred
under the credit facility will be maintained from time to time, at the Company's option, as: (1) Prime Rate
loans which bear interest at the prime rate (deÑned in the credit facility as the higher of (a) the administrative
agent's announced prime rate, or (b) 1/2 of 1% in excess of the federal funds eÅective rate, each as in eÅect
from time to time); or (2) LIBO Rate loans bearing interest at the LIBO Rate for the applicable interest
period, in each case plus an applicable interest margin. In addition, the Company is required to pay a
commitment fee, currently 0.375%, for any unused amounts of the revolving credit facility. Any borrowings
under the revolving credit facility are secured by the assets of the Company. If availability under the revolving
30
credit facility is less than $20.0 million, the revolving credit facility restricts our ability to pay dividends. There
have been no borrowings under the revolving credit facility.
In March 2003, the Board of Directors authorized a common stock repurchase program for the purchase
of up to $50.0 million of the Company's Class A common shares. The Company had the right to repurchase
shares from time to time in the open market or through privately negotiated transactions, depending on
prevailing market conditions and other factors. During the 52 weeks ended January 29, 2005, the Company
repurchased 959,000 shares at an average share price of $15.64. During the 52 weeks ended January 30, 2004,
the Company repurchased 2,304,000 shares at an average share price of $15.19. From the inception of this
repurchase program through January 29, 2005, the Company repurchased 3,263,000 shares at an average share
price of $15.32, totaling $50.0 million, and, as of January 29, 2005, had no amount remaining available for
purchases under this repurchase program. The repurchased shares will be held in treasury.
In October 2004, the Board of Directors authorized a repurchase of Class B common stock held by
Barnes & Noble. The Company repurchased 6,107,000 shares of Class B common stock at a price equal to
$18.26 per share for aggregate consideration of $111.5 million. The Company paid $37.5 million in cash and
issued a promissory note in the principal amount of $74.0 million. A payment of $37.5 million was made on
January 15, 2005, as deÑned in the promissory note, which also requires three payments of $12.2 million due
on October 15, 2005, October 15, 2006 and October 15, 2007. The note is unsecured and bears interest at
5.5% per annum, payable when principal installments are due. The repurchased shares were immediately
retired.
Based on our current operating plans, we believe that available cash balances and cash generated from
our operating activities will be suÇcient to fund our operations, required payments on our note payable, store
expansion and remodeling activities and corporate capital expenditure programs for at least the next
12 months.
Contractual Obligations
The following table sets forth our contractual obligations as of January 29, 2005:
Payments Due by Period
Less Than More Than
Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years
In millions
Long-Term Debt(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 36.5 $ 12.2 $ 24.3 $ Ì $ Ì
Operating Leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $444.4 $ 70.0 $120.9 $98.9 $154.6
Purchase Obligations(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $176.2 $176.2 $ Ì $ Ì $ Ì
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $657.1 $258.4 $145.2 $98.9 $154.6
(1) The long-term debt bears interest at 5.5%, which will result in additional obligations of approximately
$2.0 million in less than one year and $2.0 million in one to three years.
(2) Purchase obligations represent outstanding purchase orders for merchandise from vendors. These
purchase orders are generally cancelable until shipment of the products.
In addition to minimum rentals, the operating leases generally require the Company to pay all insurance,
taxes and other maintenance costs and may provide for percentage rentals. Percentage rentals are based on
sales performance in excess of speciÑed minimums at various stores. Leases with step rent provisions,
escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term,
including renewal options for those leases in which it is reasonably assured that the Company will exercise the
renewal option. The Company does not have leases with capital improvement funding or leases with payments
dependent upon indexes or rates.
As of January 29, 2005, we had no other commercial commitments such as standby letters of credit,
guarantees, or standby repurchase obligations outstanding.
31
OÅ-Balance Sheet Arrangements
As of January 29, 2005, the Company had no oÅ-balance sheet arrangements as deÑned in Item 303 of
Regulation S-K.
Impact of InÖation
We do not believe that inÖation has had a material eÅect on our net sales or results of operations.
Certain Relationships and Related Transactions
The Company operates departments within ten bookstores operated by Barnes & Noble. The Company
pays a license fee to Barnes & Noble in amounts equal to 7.0% of the gross sales of such departments.
Management deems the license fee to be reasonable and based upon terms equivalent to those that would
prevail in an arm's length transaction. During the 52 weeks ended January 29, 2005, January 31, 2004 and
February 1, 2003, these charges amounted to $0.9 million, $1.0 million and $1.1 million, respectively.
The Company participates in Barnes & Noble's worker's compensation, property and general liability
insurance programs. The costs incurred by Barnes & Noble under these programs are allocated to the
Company based upon the Company's total payroll expense, property and equipment, and insurance claim
history. Management deems the allocation methodology to be reasonable. During the 52 weeks ended
January 29, 2005, January 31, 2004 and February 1, 2003, these allocated charges amounted to $2.7 million,
$2.4 million and $1.7 million, respectively. The Company's participation in Barnes & Noble's insurance
programs will expire in Ñscal 2005 and the Company will secure new insurance coverage.
In July 2003, the Company purchased an airplane from a company controlled by a member of the Board
of Directors. The purchase price was $9.5 million and was negotiated through an independent third party
following an independent appraisal.
In October 2004, the Board of Directors authorized a repurchase of Class B common stock held by
Barnes & Noble. The Company repurchased 6,107,000 shares of Class B common stock at a price equal to
$18.26 per share for aggregate consideration of $111.5 million. The repurchase price per share was determined
by using a discount of 3.5% on the last reported trade of the Company's Class A common stock on the New
York Stock Exchange prior to the time of the transaction. The Company paid $37.5 million in cash and issued
a promissory note in the principal amount of $74.0 million, which is payable in installments over the next three
years and bears interest at 5.5% per annum, payable when principal installments are due. The Company made
a principal payment of $37.5 million on the promissory note in January 2005. Interest expense on the
promissory note for the 52 weeks ended January 29, 2005 totaled $1.3 million.
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (Revised
2004), Share-Based Payment, (""FAS 123(R)''). This Statement requires companies to expense the
estimated fair value of stock options and similar equity instruments issued to employees. Currently, companies
are required to calculate the estimated fair value of these share-based payments and can elect to either include
the estimated cost in earnings or disclose the pro forma eÅect in the footnotes to their Ñnancial statements. We
have chosen to disclose the pro forma eÅect. The fair value concepts were not changed signiÑcantly in
FAS 123(R), however, in adopting this Standard, companies must choose among alternative valuation models
and amortization assumptions. The valuation model and amortization assumption we have used continue to be
available, but we have not yet completed our assessment of the alternatives. FAS 123(R) will be eÅective for
the Company beginning with the third quarter of 2005. Transition options allow companies to choose whether
to adopt prospectively, restate results to the beginning of the year, or to restate prior periods with the amounts
on a basis consistent with pro forma amounts that have been included in their footnotes. We have not yet
concluded which transition option we will select. For the pro forma eÅect of a full year application, using our
existing valuation and amortization assumptions, see Note 1 of Notes to Consolidated Financial Statements
included in Item 15 of this Report on Form 10-K/A.
32
Seasonality
Our business, like that of many retailers, is seasonal, with the major portion of sales and operating proÑt
realized during the fourth quarter which includes the holiday selling season. Results for any quarter are not
necessarily indicative of the results that may be achieved for a full Ñscal year. Quarterly results may Öuctuate
materially depending upon, among other factors, the timing of new product introductions and new store
openings, sales contributed by new stores, increases or decreases in comparable store sales, adverse weather
conditions, shifts in the timing of certain holidays or promotions and changes in our merchandise mix.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Exposure
We do not use derivative Ñnancial instruments to hedge interest rate exposure. We limit our interest rate
risks by investing our excess cash balances in short-term, highly-liquid instruments with an original maturity
of three months or less. We do not expect any material losses from our invested cash balances, and we believe
that our interest rate exposure is modest.
Foreign Exchange Exposure
We do not believe we have material foreign currency exposure, because only a very immaterial portion of
our business is transacted in other than United States currency. The Company historically has not entered into
hedging transactions with respect to its foreign currency, but may do so in the future.
Item 8. Financial Statements and Supplementary Data
See Item 15(a)(1) and (2) of this Form 10-K/A.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company's management conducted an evaluation,
under the supervision and with the participation of the principal executive oÇcer and principal Ñnancial
oÇcer, of the Company's disclosure controls and procedures (as deÑned in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act). Based on this evaluation, the principal executive oÇcer and principal Ñnancial
oÇcer concluded that, as of the end of the period covered by this report, the Company's disclosure controls
and procedures are eÅective. Notwithstanding the foregoing, a control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within
the Company to disclose material information otherwise required to be set forth in the Company's periodic
reports.
(b) Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over Ñnancial
reporting, as such term is deÑned in Exchange Act Rules 13a-15(f). Under the supervision and with the
participation of our management, including our principal executive oÇcer and principal Ñnancial oÇcer, we
conducted an evaluation of the eÅectiveness of our internal control over Ñnancial reporting based on the
framework in Internal Control Ì Integrated Framework issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission. Based on our evaluation under the framework in Internal Control Ì
Integrated Framework, our management concluded that our internal control over Ñnancial reporting was
eÅective as of January 29, 2005. Our management's assessment of the eÅectiveness of our internal control over
Ñnancial reporting as of January 29, 2005 has been audited by BDO Seidman, LLP, an independent registered
public accounting Ñrm, as stated in their report which is included herein.
33
March 22, 2005
(c) Changes in Internal Controls Over Financial Reporting
There was no change in the Company's internal control over Ñnancial reporting (as such term is deÑned
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's most recently completed
Ñscal quarter that has materially aÅected, or is reasonably likely to materially aÅect, the Company's internal
control over Ñnancial reporting.
PART III
Item 10. Directors and Executive OÇcers of the Registrant
Directors
The following table sets forth the names and ages of our directors, the year they Ñrst became a director
and the positions they hold with the Company:
Director
Name Age Since Position with the Company
R. Richard FontaineÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 63 2001 Chairman of the Board, Chief
Executive OÇcer and Director
Daniel A. DeMatteoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57 2002 Vice Chairman, Chief Operating
OÇcer and Director
Michael N. Rosen ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 64 2001 Secretary and Director
Leonard Riggio(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 64 2001 Director
Stephanie M. Shern(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏ 57 2002 Director
Gerald R. Szczepanski(3) ÏÏÏÏÏÏÏÏÏÏÏ 57 2002 Director
Edward A. Volkwein(3) ÏÏÏÏÏÏÏÏÏÏÏÏ 64 2002 Director
(1) Member of Nominating and Corporate Governance Committee
(2) Chairperson of Audit Committee
(3) Member of Compensation Committee, Audit Committee and Nominating and Corporate Governance
Committee
Our board of directors currently consists of seven directors. Our certiÑcate of incorporation divides our
board of directors into three classes: Class I, whose terms will expire at the annual meeting of stockholders to
be held in 2006, Class II, whose terms will expire at the annual meeting of stockholders to be held in 2007,
and Class III, whose terms will expire at the annual meeting of stockholders in 2005. Michael N. Rosen and
Edward A. Volkwein are in Class I; R. Richard Fontaine and Stephanie M. Shern are in Class II; and Daniel
A. DeMatteo, Leonard Riggio and Gerald R. Szczepanski are in Class III. At each annual meeting of
stockholders, the successors to directors whose terms will then expire will be elected to serve from the time of
election and qualiÑcation until the third annual meeting following election.
R. Richard Fontaine has been our Chairman of the Board and Chief Executive OÇcer since our initial
public oÅering in February 2002. Mr. Fontaine has served as the Chief Executive OÇcer of our predecessor
companies since November 1996. He has been an executive oÇcer or director in the video game industry since
1988.
Daniel A. DeMatteo has been our Vice Chairman and Chief Operating OÇcer since March 2005. Prior to
March 2005, Mr. DeMatteo served as President and Chief Operating OÇcer of the Company or our
predecessor companies since November 1996. He has served on our board since 2002 and has been an
executive oÇcer in the video game industry since 1988.
Michael N. Rosen is our Secretary and a director. Mr. Rosen has served in the same capacities for us or
our predecessor companies since October 1999. Mr. Rosen has been a partner at Bryan Cave LLP, counsel to
34
us, since their July 2002 combination with Robinson Silverman. Prior to that, Mr. Rosen was Chairman of
Robinson Silverman for more than the past Ñve years. Mr. Rosen is also a director of Barnes & Noble.
Leonard Riggio is a director and a member of the Nominating and Corporate Governance Committee.
Mr. Riggio was the Chairman of the Board of the Company or its predecessor companies from November
1996 until our initial public oÅering in February 2002. He has served as an executive oÇcer or director in the
video game industry since 1987. Mr. Riggio has been Chairman of the Board and a principal stockholder of
Barnes & Noble since its inception in 1986 and served as Chief Executive OÇcer from its inception in 1986
until February 2002. Since 1965, Mr. Riggio has been Chairman of the Board, Chief Executive OÇcer and the
principal stockholder of Barnes & Noble College Booksellers, Inc., one of the largest operators of college
bookstores in the country. Since 1985, Mr. Riggio has been Chairman of the Board and a principal beneÑcial
owner of MBS Textbook Exchange, Inc., one of the nation's largest wholesalers of college textbooks.
Stephanie M. Shern is a director and Chair of the Audit Committee. Mrs. Shern formed Shern
Associates LLC in February 2002 to provide business advisory and board services, primarily to publicly-held
companies. From May 2001 until February 2002, Mrs. Shern served as Senior Vice President and Global
Managing Director of Retail and Consumer Products for Kurt Salmon Associates. From 1995 until April
2001, Mrs. Shern was the Vice Chair and Global Director of Retail and Consumer Products for Ernst &
Young LLP and a member of Ernst & Young's Management Committee. Mrs. Shern is currently a director
and Chair of the Audit Committee of The Scotts/Miracle Gro Company, a director and Chair of the Audit
Committee and member of the Governance Committee of Nextel Communications, Inc., a director and
member of the Audit Committee of Royal Ahold, and a director and Chair of the Audit Committee of the
Vitamin Shoppe, Inc.
Gerald R. Szczepanski is a director and Chair of the Compensation Committee and a member of the
Audit Committee and the Nominating and Corporate Governance Committee. Mr. Szczepanski is currently
retired. Mr. Szczepanski was the co-founder, and, from 1994 to 2005, the Chairman and Chief Executive
OÇcer of Gadzooks, Inc., a publicly traded, specialty retailer of casual clothing and accessories for teenagers.
On February 3, 2004, Gadzooks, Inc. Ñled a voluntary petition under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division
(Case No. 04-31486-11).
Edward A. Volkwein is a director and a member of the Audit Committee, the Compensation Committee
and the Nominating and Corporate Governance Committee. Mr. Volkwein is President and Chief Operating
OÇcer of Hydro-Photon, Inc., a water puriÑcation technology company. Prior to joining Hydro-Photon,
Mr. Volkwein had a broad marketing career beginning in brand management for General Foods and
Chesebrough-Ponds, Inc. He served as Senior Vice President Global Advertising and Promotion for Philips
Consumer Electronics and as Senior Vice President Marketing for Sega of America, where he was
instrumental in developing Sega into a major video game brand. Mr. Volkwein has also held senior executive
positions with Funk & Wagnalls and Prince Manufacturing.
Committees of the Board
The Board of Directors has three standing committees: an Audit Committee, a Compensation Commit-
tee and a Nominating and Corporate Governance Committee.
Audit Committee. The Audit Committee has the principal function of, among other things, reviewing
the adequacy of the Company's internal system of accounting controls, the appointment, compensation,
retention and oversight of the independent certiÑed public accountants, conferring with the independent public
accounting Ñrm concerning the scope of their examination of the books and records of the Company,
reviewing and approving related party transactions and considering other appropriate matters regarding the
Ñnancial aÅairs of the Company. In addition, the Audit Committee has established procedures for the receipt,
retention and treatment of conÑdential and anonymous complaints regarding the Company's accounting,
internal accounting controls and auditing matters. The board of directors has adopted a written charter setting
out the functions of the Audit Committee, a copy of which is available on the Company's website at
www.gamestop.com and is available in print to any stockholder who requests it, in writing to the Company's
35
Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. As required by the charter, the
Audit Committee will continue to review and reassess the adequacy of the charter annually and recommend
any changes to the board of directors for approval. The current members of the Audit Committee are
Stephanie M. Shern (Chair), Edward A. Volkwein and Gerald R. Szczepanski, all of whom are ""indepen-
dent'' directors under the listing standards of the NYSE. In addition to meeting the independence standards of
the NYSE, each member of the Audit Committee is Ñnancially literate and meets the independence standards
established by the Securities and Exchange Commission (the ""SEC''). The board of directors has also
determined that Mrs. Shern has the requisite attributes of an ""audit committee Ñnancial expert'' as deÑned by
regulations promulgated by the SEC and that such attributes were acquired through relevant education and/or
experience. The Audit Committee met ten times during Ñscal 2004.
Compensation Committee. The principal function of the Compensation Committee is to, among other
things, make recommendations to the board of directors with respect to matters regarding the approval of
employment agreements, management and consultant hiring and executive compensation. The Compensation
Committee is also responsible for administering our Amended and Restated 2001 Incentive Plan and our
Supplemental Compensation Plan (the ""Supplemental Compensation Plan''). The current members of the
Compensation Committee are Gerald R. Szczepanski (Chair) and Edward A. Volkwein, both of whom meet
the independence standards of the NYSE.
Nominating and Corporate Governance Committee. We were a ""controlled company'' under the rules
of the NYSE until all of the outstanding shares of our Class B Common Stock were distributed by Barnes &
Noble to its stockholders on November 12, 2004. Subsequent to this distribution, our board of directors
formed the Nominating and Corporate Governance Committee. The current members of the Nominating and
Corporate Governance Committee are Leonard Riggio, Gerald R. Szczepanski and Edward A. Volkwein, all
of whom meet the independence standards of the NYSE. Our board of directors has adopted a written charter
setting out the functions of the Nominating and Corporate Governance Committee, a copy of which can be
found on our website at www.gamestop.com.
Executive OÇcers
The following table sets forth the names and ages of our executive oÇcers and the positions they hold:
Name Age Position
R. Richard FontaineÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 63 Chairman of the Board and Chief Executive
OÇcer
Daniel A. DeMatteoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57 Vice Chairman and Chief Operating OÇcer
Joseph DePinto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42 President
David W. Carlson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42 Executive Vice President and Chief Financial
OÇcer
Ronald Freeman ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57 Executive Vice President of Distribution
Information with respect to executive oÇcers of the Company who also are directors is set forth in
""Information Concerning the Directors'' above.
Joseph DePinto has been our President since March 2005. Prior to joining GameStop, Mr. DePinto was
Vice President of Operations of 7-Eleven, Inc. since March 2002. Prior to March 2002, Mr. DePinto was
Senior Vice President and Chief Operating OÇcer for Thornton Quick Cafπe & Market. Prior to joining
Thornton Quick Cafπe & Market, Mr. DePinto held various positions with PepsiCo, Inc.
David W. Carlson has been Executive Vice President and Chief Financial OÇcer of GameStop or our
predecessor companies since November 1996. From 1989 to November 1996, Mr. Carlson held various
positions with Barnes & Noble, including Director of Finance, Director of Accounting and Manager of
Financial Reporting. Prior to 1989, Mr. Carlson held various positions with the public accounting Ñrm of
KPMG Peat Marwick.
36
Ronald Freeman has been our Executive Vice President of Distribution since January 2004. From March
2000 to January 2004, Mr. Freeman was our Vice President of Distribution and Logistics. Mr. Freeman was
Vice President of Distribution/ConÑguration for CompUSA from July 1997 until March 2000. Mr. Freeman
was Vice President of Distribution and Logistics of Babbage's, a predecessor company of ours, from
November 1996 until July 1997.
Our executive oÇcers are elected by our board of directors on an annual basis and serve until the next
annual meeting of our board of directors or until their successors have been duly elected and qualiÑed.
Code of Ethics
The Company has adopted a Code of Ethics that is applicable to the Company's Chairman of the Board
and Chief Executive OÇcer, Vice Chairman and Chief Operating OÇcer, President, Chief Financial OÇcer,
Vice President-Finance and any Executive Vice President of the Company. This Code of Ethics is attached as
Exhibit 14.1 to the Company's Form 10-K for Ñscal year ended January 31, 2004. In accordance with SEC
rules, the Company intends to disclose any amendment (other than any technical, administrative, or other
non-substantive amendment) to, or any waiver from, a provision of the Code of Ethics on the Company's
website at www.gamestop.com within Ñve business days following such amendment or waiver.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) BeneÑcial Ownership Reporting Compliance. Section 16(a) of the Exchange Act
requires the Company's executive oÇcers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to Ñle initial statements of beneÑcial ownership (Form 3)
and statements of changes in beneÑcial ownership (Forms 4 and 5) of common stock of the Company with the
SEC. Executive oÇcers, directors and greater than ten-percent stockholders are required to furnish the
Company with copies of all such forms they Ñle.
To the Company's knowledge, based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no additional forms were required, all Ñling
requirements applicable to the Company's executive oÇcers, directors and greater than ten-percent stockhold-
ers were complied with.
CertiÑcations
For Ñscal 2003, we Ñled with the NYSE the Annual CEO CertiÑcation regarding the Company's
compliance with the NYSE's Corporate Governance listing standards as required by Section 303A-12(a) of
the NYSE Listed Company Manual. In addition, the Company has Ñled as exhibits to this Annual Report on
Form 10-K/A for the year ended January 29, 2005, the applicable certiÑcations of its Chief Executive OÇcer
and its Chief Financial OÇcer required under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the
quality of the Company's public disclosures.
37
Item 11. Executive Compensation
The following table sets forth the compensation earned during the years indicated by our chief executive
oÇcer and our other executive oÇcers.
Long-Term
Compensation
Awards
Securities
Underlying
GameStop
Annual Compensation(1)
Fiscal Options All Other
Name and Principal Position Year Salary($) Bonus($) (Shs.) Compensation($)(2)
R. Richard Fontaine ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004 $566,153 $598,500 150,000(4) $13,031
Chairman of the Board and 2003 518,462 650,000 141,000(5) 10,600
Chief Executive OÇcer 2002 493,873 468,750 63,000(6) 10,271
Daniel A. DeMatteo ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004 466,646 493,500 150,000(4) 9,065
Vice Chairman and Chief 2003 425,138 533,000 141,000(5) 7,126
Operating OÇcer 2002 405,150 384,375 63,000(6) 6,995
David W. Carlson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004 273,077 144,375 75,000(4) 9,539
Executive Vice President 2003 248,077 175,000 75,000(5) 8,173
Chief Financial OÇcer 2002 223,077 118,125 45,000(6) 7,514
and Assistant Secretary
Ronald Freeman(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2004 249,039 93,750 66,000(4) 8,973
Executive Vice President 2003 198,077 80,000 66,000(5) 7,491
of Distribution 2002 174,038 39,375 9,000(6) 6,421
(1) None of the perquisites or other beneÑts paid to each named executive oÇcer exceeded the lesser of
$50,000 or 10% of the total annual salary and bonus received by each named executive oÇcer.
(2) Consists of contributions under our 401(k) plan.
(3) Mr. Freeman was appointed as Executive Vice President in January 2004. The amounts presented above
for periods prior to 2004 reÖect compensation while he served as the Company's Vice President of
Distribution and Logistics.
(4) ReÖects options granted on March 11, 2005, based on performance for the Ñscal year ended January 29,
2005.
(5) ReÖects options granted on March 2, 2004, based on performance for the Ñscal year ended January 31,
2004.
(6) ReÖects options granted on March 26, 2003, based on performance for the Ñscal year ended February 1,
2003.
38
Grants of Stock Options in Last Fiscal Year
The following table shows all grants of options to acquire shares of our Class A Common Stock granted to
the executive oÇcers named in the summary compensation table in the ""Executive Compensation'' section of
this Proxy Statement for the year ended January 29, 2005. The options for executive oÇcers to acquire shares
of our Class A Common Stock were granted on March 11, 2005, based on performance for the year ended
January 29, 2005. The potential realizable value is calculated based on the term of the option at its date of
grant. It is calculated assuming that the fair market value of our Class A Common Stock on the date of grant
appreciates at the indicated annual rates compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated stock. These numbers are calculated
based on the requirements of the SEC and do not reÖect our estimate of future stock price growth.
Option/SAR Grants In Last Fiscal Year
Individual Grants
% of
Potential Realizable Value at
Number of Total
Assumed Annual Rates of
Securities Options Exercise Market
Stock Price Appreciation for
Underlying Granted or Base Price on
Option Term
Options in Fiscal Price Date of Expiration
Granted Year ($/Shs.) Grant Date 5%($) 10%($)
R. Richard Fontaine
GameStop Class A Common
StockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 150,000 7.1% $20.25 $20.25 3/10/15 $1,910,000 $4,841,000
Daniel A. DeMatteo
GameStop Class A Common
StockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 150,000 7.1% $20.25 $20.25 3/10/15 $1,910,000 $4,841,000
David W. Carlson
GameStop Class A Common
StockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 75,000 3.6% $20.25 $20.25 3/10/15 $ 955,000 $2,420,000
Ronald Freeman
GameStop Class A Common
StockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 66,000 3.1% $20.25 $20.25 3/10/15 $ 841,000 $2,130,000
Fiscal Year End Option Value
The following table provides information for the executive oÇcers named in the summary compensation
table in the ""Executive Compensation'' section of this Proxy Statement regarding exercises of options to
purchase shares of our Class A Common Stock during the year ended January 29, 2005 and our options held
as of January 29, 2005 by any of our named executive oÇcers. The values realized upon exercise in the table
have been calculated using the stock price at the times of exercise. The year-end values in the table for our
Class A Common Stock have been calculated based on the $18.80 per share closing price of our Class A
39
Common Stock on January 28, 2005 (the last trading date of the Ñscal year), less the applicable exercise
price.
Aggregated Option/SAR Exercises In Last Fiscal Year
and
Fiscal Year End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year End Fiscal Year End
Shares
Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
(Shs.) ($)
R. Richard Fontaine
GameStop Class A
Common Stock ÏÏÏÏÏÏÏÏÏ Ì Ì 673,500 403,000 3,744,500 502,500
Daniel A. DeMatteo
GameStop Class A
Common Stock ÏÏÏÏÏÏÏÏÏ Ì Ì 673,500 403,000 3,744,500 502,500
David W. Carlson
GameStop Class A
Common Stock ÏÏÏÏÏÏÏÏÏ Ì Ì 449,000 222,000 3,347,000 321,000
Ronald Freeman
GameStop Class A
Common Stock ÏÏÏÏÏÏÏÏÏ 59,250 881,105 34,000 89,000 27,200 70,750
For information on our equity compensation plans, please see Item 5 of this Annual Report on 10-K/A.
Employment Agreements
GameStop has entered into employment agreements with R. Richard Fontaine and Daniel A. DeMatteo.
The term of each employment agreement commenced on April 11, 2005 and continues for a period of three
years thereafter, with automatic annual renewals thereafter unless either party gives notice of non-renewal at
least six months prior to automatic renewal.
Mr. Fontaine's minimum annual salary during the term of his employment under the employment
agreement shall be no less than $650,000. Mr. DeMatteo's minimum annual salary during the term of his
employment under the employment agreement shall be no less than $535,000. Annual bonus compensation
will be based on the formula and targets established under and in accordance with GameStop's Supplemental
Compensation Plan.
Each executive shall be entitled to all beneÑts aÅorded to key management personnel or as determined by
the board of directors of GameStop, including, but not limited to, stock and stock option beneÑts, insurance
programs, pension plans, vacation, sick leave, expense accounts and retirement beneÑts.
Each executive's employment may be terminated upon death, disability, by GameStop with or without
cause or by the executive within twelve months of a good reason event. A good reason event is deÑned as a
change of control, a reduction in compensation or a material reduction in beneÑts or responsibilities, or a
relocation of at least 50 miles. Among other things, the employment agreement includes a severance
arrangement if the executive is terminated by GameStop without cause or by the executive for good reason
which provides each executive with his base salary through the term of the agreement, plus the average of the
last three annual bonuses, with a one year minimum, plus the continuation of medical beneÑts for 18 months
and the release of all stock option restrictions.
Each executive is also restricted from competing with GameStop for the later of the expiration of the
term of the agreement or one year after termination of employment, unless the contract is terminated by
GameStop without cause or the executive for good reason.
40
Compensation of Directors
Directors who are not employees of our Company will receive compensation of $30,000 per annum and
$1,000 per in-person Board or Committee meeting. In June 2004, each of the directors who are not employees
of our Company or Barnes & Noble (Stephanie M. Shern, Edward A. Volkwein, Gerald R. Szczepanski and
Michael N. Rosen) were granted options to acquire 21,000 shares of our Class A Common Stock. Each of
these options were granted at an exercise price equal to the market price of the Class A Common Stock on the
grant date ($15.10) and each option vests in equal increments over a three-year period and expires ten years
from the grant date. In addition, we reimburse our directors for expenses in connection with attendance at
board and committee meetings. Other than with respect to reimbursement of expenses, directors who are our
employees do not receive additional compensation for their services as directors
Compensation Committee Interlocks and Insider Participation
In September 2002, our board of directors established a Compensation Committee, which currently
consists of Gerald R. Szczepanski and Edward A. Volkwein. None of our executive oÇcers serves as a
member of the board of directors or compensation committee of any entity that has one or more executive
oÇcers serving as a member of our board of directors or Compensation Committee.
Item 12. Security Ownership of Certain BeneÑcial Owners and Management and Related Stockholder
Matters
The following table sets forth the number of shares of our Class A Common Stock and our Class B
Common Stock and exercisable options to purchase such stock beneÑcially owned on May 1, 2005 by each
director and each of the executive oÇcers named in the summary compensation table in the ""Executive
Compensation'' section, each holder of 5% or more of our Class A Common Stock or our Class B Common
Stock and all of our directors and executive oÇcers as a group. Except as otherwise noted, the individual
director or executive oÇcer or his or her family members had sole voting and investment power with respect to
the identiÑed securities. The total number of shares of our Class A Common Stock and Class B Common
Stock outstanding as of May 1, 2005 was 21,431,798 and 29,901,662, respectively.
Shares BeneÑcially Owned
Class A Common
Stock (1) Class B Common Stock
Name Shares % Shares %
Wellington Management Company, LLP, 75 State
St., Boston, MA 02109 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,907,800(2) 13.6 Ì Ì
FMR Corp., 82 Devonshire Street, Boston MA
02109ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,475,107(2) 11.5 Ì Ì
Franklin Resources, Inc., One Franklin Parkway,
San Mateo, CA 94403ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,718,370(2) 8.0 Ì Ì
LSV Asset Management, 1 N. Wacker Drive,
Suite 4000, Chicago, Il 60606 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 1,586,626(2) 5.3
R. Richard Fontaine ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 961,600(3) 4.3 Ì Ì
Daniel A. DeMatteo ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 961,500(4) 4.3 Ì Ì
Joseph DePinto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì Ì
David W. Carlson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 606,000(4) 2.8 Ì Ì
Ronald FreemanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25,000(4) * Ì Ì
Michael N. Rosen ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,000(4) * 4,248(5) *
Leonard RiggioÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,500,000(4) 17.4 5,559,648(6) 18.6
Stephanie ShernÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16,000(7) * Ì Ì
41
Shares BeneÑcially Owned
Class A Common
Stock (1) Class B Common Stock
Name Shares % Shares %
Gerald R. Szczepanski ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,000(8) * Ì Ì
Edward A. Volkwein ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16,000(9) * Ì Ì
All directors and executive oÇcers as a group
(10 persons) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,116,100(10) 24.9 5,563,896 18.6
* Less than 1.0%
(1) Shares of Class A Common Stock that an individual or group has a right to acquire within 60 days after
May 1, 2005 pursuant to the exercise of options, warrants or other rights are deemed to be outstanding
for the purpose of computing the beneÑcial ownership of shares and percentage of such individual or
group, but are not deemed to be outstanding for the purpose of computing the beneÑcial ownership of
shares and percentage of any other person or group shown in the table.
(2) Information compiled from Schedule 13G Ñlings.
(3) Of these shares, 961,500 are issuable upon exercise of stock options.
(4) All of these shares are issuable upon exercise of stock options.
(5) These shares are owned by Mr. Rosen's wife.
(6) Of these shares, Mr. Riggio is the direct beneÑcial owner of 3,475,077 shares of Class B Common Stock.
Mr. Riggio is the indirect beneÑcial owner of 1,126,913 shares of Class B Common Stock owned by
Barnes & Noble College Booksellers, Inc., a New York corporation, of which Mr. Riggio owns all of the
currently outstanding voting securities. As co-trustee of The Riggio Foundation, a charitable trust,
Mr. Riggio is the indirect beneÑcial owner of 654,946 shares of Class B Common Stock owned by The
Riggio Foundation. Excluded from these shares are 302,712 shares of Class B Common Stock held in a
rabbi trust established by Barnes & Noble for the beneÑt of Mr. Riggio pursuant to a deferred
compensation arrangement, but over which Mr. Riggio has no voting power.
(7) Of these shares, 15,000 are issuable upon exercise of stock options.
(8) Of these shares, 10,000 are issuable upon exercise of stock options.
(9) Of these shares, 15,000 are issuable upon exercise of stock options. Of the remaining 1,000 shares,
500 shares are owned by Mr. Volkwein's wife, and 250 shares each are owned by Mr. Volkwein's two
children.
(10) Of these shares, 7,104,000 are issuable upon exercise of stock options.
Equity Compensation Plan Information
Number of
Securities
Number of Weighted- Remaining Available
Securities to be Average Exercise for Future Issuance
Issued Upon Price of Under Equity
Exercise of Outstanding Compensation Plans
Outstanding Options, (Excluding
Options, Warrants Warrants and Securities ReÖected
Plan Category and Rights Rights in Column (A))
(a) (b) (c)
Equity compensation plans approved by
security holdersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,406,000 $ 10.86 5,168,000
Equity compensation plans not approved
by security holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 not applicable 0
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,406,000 $ 10.86 5,168,000
42
Item 13. Certain Relationships and Related Transactions
Agreements With Barnes & Noble
In connection with the consummation of our initial public oÅering in February 2002, we entered into
various agreements with Barnes & Noble relating to our relationship with Barnes & Noble following the
completion of our initial public oÅering.
Separation Agreement
We entered into a ""separation agreement'' with Barnes & Noble, which governs our respective rights and
duties with respect to our initial public oÅering and the distribution to Barnes & Noble stockholders of its
shares of our capital stock (which is referred to as the ""spin-oÅ''), and contains covenants designed to
facilitate the spin-oÅ and to protect its intended tax-free nature.
Under the separation agreement, we agreed not to take certain actions without the approval of Barnes &
Noble or the satisfaction of certain procedures. These actions include:
‚ until two years after the spin-oÅ, entering into or permitting any transaction or series of transactions
which would result in a person or persons acquiring or having the right to acquire shares of our capital
stock that would comprise 50% or more of either the value of all outstanding shares of our capital stock
or the total combined voting power of our outstanding voting stock; and
‚ until two years after the spin-oÅ, liquidating, disposing of, or otherwise discontinuing the conduct of
any portion of our active trade or business.
We have generally agreed to indemnify Barnes & Noble and its aÇliates against any and all tax-related
losses incurred by Barnes & Noble in connection with any proposed tax assessment or tax controversy with
respect to the spin-oÅ to the extent caused by any breach by us of any of our representations, warranties or
covenants made in the separation agreement. This indemniÑcation does not apply if Barnes & Noble permits
us to take certain actions or if we otherwise comply with the terms of the separation agreement.
Insurance Agreement
We entered into an ""insurance agreement'' with Barnes & Noble, pursuant to which Barnes & Noble
allowed us to participate in Barnes & Noble's worker's compensation, property and general liability and
directors' and oÇcers' liability insurance programs. We shall reimburse Barnes & Noble for our pro rata share
of the cost of providing these insurance programs. In Ñscal 2004, Barnes & Noble charged us approximately
$2,662,000 for our insurance program.
The insurance agreement terminated in part on May 1, 2005 and will terminate in full on June 1, 2005, at
which time we will procure our own insurance.
Operating Agreement
We entered into an ""operating agreement'' with Barnes & Noble, pursuant to which we operate the
existing video game departments in ten Barnes & Noble stores. We pay Barnes & Noble a licensing fee equal
to 7.0% of the aggregate gross sales of each such department. In Ñscal 2004, Barnes & Noble charged us
approximately $859,000 in connection with our operation of such departments in Barnes & Noble stores.
The operating agreement will remain in force unless terminated:
‚ by mutual agreement of us and Barnes & Noble;
‚ automatically, in the event that we no longer operate any department within Barnes & Noble's stores;
‚ by us or Barnes & Noble, with respect to any department, upon not less than 30 days prior notice;
‚ by Barnes & Noble because of an uncured default by us;
43
‚ automatically, with respect to any department, if the applicable store lease in which we operate that
department expires or is terminated prior to its expiration date; or
‚ automatically, in the event of the bankruptcy or a change in control of either us or Barnes & Noble.
Tax DisaÇliation Agreement
We entered into a ""tax disaÇliation agreement'' with Barnes & Noble which governs the allocation of
federal, state, local and foreign tax liabilities and contains agreements with respect to other tax matters arising
prior to and after the date of our initial public oÅering. The tax disaÇliation agreement became eÅective at the
time of our initial public oÅering and, among other things, sets forth the procedures for amending returns Ñled
prior to the date of our initial public oÅering, tax audits and contests and record retention. In general, we are
responsible for Ñling and paying our separate taxes for periods after our initial public oÅering and Barnes &
Noble is responsible for Ñling and paying its separate taxes for periods after our initial public oÅering. In
general, with respect to consolidated or combined returns that include Barnes & Noble and us prior to our
initial public oÅering, Barnes & Noble is responsible for Ñling and paying the related tax liabilities and will
retain any related tax refunds.
Under the tax disaÇliation agreement, without the prior written consent of Barnes & Noble, we may not
amend any tax return for a period in which we were a member of Barnes & Noble's consolidated tax group.
Barnes & Noble has the sole right to represent the interests of its consolidated tax group, including us, in any
tax audits, litigation or appeals that involve, directly or indirectly, periods prior to the time that we ceased to be
a member of their consolidated tax group (the date of the oÅering), unless we are solely liable for the taxes at
issue and any redetermination of taxes would not result in any additional tax liability or detriment to any
member of Barnes & Noble's consolidated tax group. In addition, we and Barnes & Noble have agreed to
provide each other with the cooperation and information reasonably requested by the other in connection with
the preparation or Ñling of any amendment to any tax return, the determination and payment of any amounts
owed relating to periods prior to the date of the oÅering and in the conduct of any tax audits, litigation or
appeals.
We and Barnes & Noble have agreed to indemnify each other for tax or other liabilities resulting from the
failure to pay any taxes required to be paid under the tax disaÇliation agreement, tax or other liabilities
resulting from negligence in supplying inaccurate or incomplete information or the failure to cooperate with
the preparation of any tax return or the conduct of any tax audits, litigation or appeals. The tax disaÇliation
agreement requires us to retain records, documents and other information necessary for the audit of tax returns
relating to periods prior to the date we ceased to be a member of Barnes & Noble's consolidated tax group and
to provide reasonable access to Barnes & Noble with respect to such records, documents and information.
Other Transactions and Relationships
We have agreed to pay the legal fees and expenses of one of our directors, Leonard Riggio, in connection
with the transactions contemplated under the Agreement and Plan of Merger, dated as of April 17, 2005, by
and among GameStop Corp., GameStop, Inc., GSC Holdings Corp., Eagle Subsidiary LLC, Cowboy
Subsidiary LLC and Electronics Boutique Holdings Corp., including Mr. Riggio's legal fees and expenses
incurred in connection with the preparation and Ñling of Mr. Riggio's notiÑcation and report form under the
Hart-Scott Rodino Antitrust Improvements Act of 1976 (the ""HSR Act'') (including the Ñling fee) and in
connection with the negotiation of the voting agreement entered into by Mr. Riggio and his aÇliates. We
estimate that the legal fees and expenses in connection with the preparation and Ñling of Mr. Riggio's
notiÑcation and report form under the HSR Act and in connection with the negotiation of the voting
agreement will be approximately $150,000.
In October 2004, our Board of Directors authorized a repurchase of Class B Common Stock held by
Barnes & Noble. The Company repurchased 6,107,000 shares of its Class B Common Stock at a price equal to
$18.26 per share for aggregate consideration of $111.5 million. The repurchase price per share was determined
by using a discount of 3.5% on the last reported trade of the Company's Class A Common Stock on the New
York Stock Exchange prior to the time of the transaction. The Company paid $37.5 million in cash and issued
44
a promissory note in the principal amount of $74.0 million, which is payable in installments over the next three
years and bears interest at 5.5% per annum, payable when principal installments are due. The Company made
a principal payment of $37.5 million on the promissory note in January 2005. Interest expense on the
promissory note for the 52 weeks ended January 29, 2005 totaled $1.3 million.
In July 2003, the Company purchased an airplane from a company controlled by a member of the Board
of Directors. The purchase price was $9.5 million and was negotiated through an independent third party
following an independent appraisal.
Michael N. Rosen, our Secretary and one of our directors, is a partner of Bryan Cave LLP, which is
counsel to us.
Item 14. Principal Accountant Fees and Services
Registered Independent Public Accounting Firm
The Ñrm of BDO Seidman, LLP (""BDO Seidman'') has been selected as the registered independent
public accounting Ñrm for the Company.
The independent accountants examine annual Ñnancial statements and provide other permissible non-
audit and tax-related services for the Company. The Company and the Audit Committee have considered
whether the non-audit services provided by BDO Seidman are compatible with maintaining the independence
of BDO Seidman in its audit of the Company and are not considered prohibited services under the Sarbanes-
Oxley Act of 2002.
Audit Fees. In Ñscal 2004, the professional services of BDO Seidman totaled $575,907 for the
Company's audit of the annual Ñnancial statements, for reviews of the Company's Ñnancial statements
included in the Company's quarterly reports on Form 10-Q Ñled with the SEC and for the audit of the
Company's internal controls over Ñnancial reporting. For Ñscal 2003, the Company paid BDO Seidman
$258,253 for professional services rendered for the Company's audit of the annual Ñnancial statements and for
reviews of the Company's Ñnancial statements included in the Company's quarterly reports on Form 10-Q
Ñled with the SEC.
Audit-Related Fees. In Ñscal 2004, the Company paid BDO Seidman $122,465 for services in respect of
employee beneÑt plan audits ($9,000) and consultation concerning Ñnancial accounting and reporting
standards ($113,465). In Ñscal 2003, the Company paid BDO Seidman $13,450 for services in respect of
employee beneÑt plan audits ($11,000) and consultation concerning Ñnancial accounting and reporting
standards ($2,450).
Tax Fees. In Ñscal 2004, the Company paid BDO Seidman $355,285 for tax-related services. In Ñscal
2003, the Company paid BDO Seidman $59,390 for tax-related services. Tax-related services included
professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees. The Company did not pay BDO Seidman any other fees in Ñscal 2004 or Ñscal 2003.
Pre-approval Policies and Procedures. The Audit Committee Charter adopted by the board of directors
of the Company requires that, among other things, the Audit Committee pre-approve the rendering by the
Company's independent auditor of all audit and permissible non-audit services. Accordingly, as part of its
policies and procedures, the Audit Committee considers and pre-approves any such audit and permissible non-
audit services on a case-by-case basis. Since its formation in September 2002, the Audit Committee has
approved the services provided by BDO Seidman referred to above.
45
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are Ñled as a part of this Form 10-K/A:
(1) Index and Consolidated Financial Statements
The list of consolidated Ñnancial statements set forth in the accompanying Index to Consolidated
Financial Statements at page F-1 herein is incorporated herein by reference. Such consolidated Ñnancial
statements are Ñled as part of this report on Form 10-K/A.
(2) Financial Statement Schedules required to be Ñled by Item 8 of this form:
The following Ñnancial statement schedule for the 52 weeks ended January 29, 2005, January 31, 2004
and February 1, 2003 is Ñled as part of this report on Form 10-K/A and should be read in conjunction with our
Consolidated Financial Statements appearing elsewhere in this Form 10-K/A:
Schedule II Ì Valuation and Qualifying Accounts
For the 52 weeks ended January 29, 2005, January 31, 2004 and February 1, 2003:
Charged to Other
Balance at Charged to Accounts- Write-OÅs Balance at
Beginning Costs and Accounts Net of End of
of Period Expenses Payable Recoveries Period
(In thousands)
Inventory Reserve, deducted from asset
accounts
52 Weeks Ended January 29, 2005ÏÏÏÏÏÏÏÏÏÏ $12,274 $17,808 $ 9,856 $25,134 $14,804
52 Weeks Ended January 31, 2004ÏÏÏÏÏÏÏÏÏÏ 11,797 12,901 10,899 23,323 12,274
52 Weeks Ended February 1, 2003ÏÏÏÏÏÏÏÏÏÏ 10,400 14,071 10,214 22,888 11,797
The Company does not maintain a reserve for estimated sales returns and allowances as amounts are
considered to be immaterial. All other schedules are omitted because they are not applicable.
(b) Exhibits
The following exhibits are Ñled as part of this Form 10-K/A:
Exhibit
Number Description
3.1 Amended and Restated CertiÑcate of Incorporation.(1)
3.2 Bylaws.(1)
3.3 CertiÑcate of Designation of Preferences and Rights of Preferred Stock, Series A of the Company.(2)
4.1 Rights Agreement, dated October 25, 2004, between the Company and The Bank of New York, as
Rights Agent.(2)
10.1 Separation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(3)
10.2 Tax DisaÇliation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(1)
10.3 Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(1)
10.4 Operating Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(1)
10.5 Amended and Restated 2001 Incentive Plan.(7)
10.6 Supplemental Compensation Plan.(7)
10.7 Form of Option Agreement.(7)
46
Exhibit
Number Description
10.8 Lease, dated as of March 6, 1997, between RREEF Mid-Cities Industrial L.P. and Babbage's Etc.
LLC.(1)
10.9 First Amendment to Lease, dated as of December 30, 1999, between RREEF Mid-Cities Industrial
L.P. and Babbage's Etc. LLC.(1)
10.10 Amended and Restated Credit Agreement, dated as of June 21, 2004.(4)
10.11 Amended and Restated Security Agreement, dated as of June 21, 2004.(4)
10.12 Amended and Restated Securities Collateral Pledge Agreement, dated as of June 21, 2004, between
GameStop Corp. and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.13 Amended and Restated Securities Collateral Pledge Agreement, dated as of June 21, 2004, between
GameStop, Inc. and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.14 Securities Collateral Pledge Agreement, dated as of June 21, 2004, between GameStop of Texas
(GP), LLC and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.15 Securities Collateral Pledge Agreement, dated as of June 21, 2004, between GameStop (LP), LLC
and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.16 Amended and Restated Patent and Trademark Securities Agreement, dated as of June 21, 2004.(4)
10.17 Stock Purchase Agreement, dated as of October 1, 2004, by and among the Company, B&N
Gamestop Holding Corp. and Barnes & Noble.(5)
10.18 Promissory Note, dated as of October 1, 2004, made by the Company in favor of B&N GameStop
Holding Corp.(5)
14.1 Code of Ethics for Senior Financial OÇcers.(6)
21.1 Subsidiaries.(7)
23.1 Consent of BDO Seidman, LLP.
31.1 CertiÑcation of Chief Executive OÇcer pursuant to Rule 13a-14(a)/15(d)-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 CertiÑcation of Chief Financial OÇcer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securi-
ties Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 CertiÑcation of Chief Executive OÇcer pursuant to Rule 13a-14(b) under the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 CertiÑcation of Chief Financial OÇcer pursuant to Rule 13a-14(b) under the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(1) Incorporated by reference to the Registrant's Amendment No. 3 to Form S-1 Ñled with the Securities
and Exchange Commission on January 24, 2002 (No. 333-68294).
(2) Incorporated by reference to the Registrant's Form 8-K Ñled with the Securities and Exchange
Commission on October 28, 2004.
(3) Incorporated by reference to the Registrant's Amendment No. 4 to Form S-1 Ñled with the Securities
and Exchange Commission on February 5, 2002 (No. 333-68294).
(4) Incorporated by reference to the Registrant's Form 10-Q for the Ñscal quarter ended July 31, 2004 Ñled
with the Securities and Exchange Commission on September 7, 2004.
(5) Incorporated by reference to the Registrant's Form 8-K Ñled with the Securities and Exchange
Commission on October 5, 2004.
(6) Incorporated by reference to the Registrant's Form 10-K for the Ñscal year ended January 31, 2004 Ñled
with the Securities and Exchange Commission on April 14, 2004.
(7) Incorporated by reference to the Registrant's Form 10-K for the Ñscal year ended January 29, 2005 Ñled
with the Securities and Exchange Commission on April 11, 2005.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
GAMESTOP CORP.
By: /s/ R. R
ICHARD
F
ONTAINE
R. Richard Fontaine
Chairman of the Board and
Chief Executive OÇcer
Date: September 2, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K/A has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Name Capacity Date
/s/ R. R
ICHARD
F
ONTAINE
Chairman of the Board, Chief September 2, 2005
Executive OÇcer and Director
R. Richard Fontaine
(Principal Executive OÇcer)
/s/ D
AVID
W. C
ARLSON
Executive Vice President, Chief September 2, 2005
Financial OÇcer and Assistant
David W. Carlson
Secretary (Principal Accounting
and Financial OÇcer)
/s/ D
ANIEL
A. D
E
M
ATTEO
Vice Chairman and Chief September 2, 2005
Operating OÇcer and Director
Daniel A. DeMatteo
/s/ M
ICHAEL
N. R
OSEN
Secretary and Director September 2, 2005
Michael N. Rosen
/s/ L
EONARD
R
IGGIO
Director September 2, 2005
Leonard Riggio
/s/ S
TEPHANIE
M. S
HERN
Director September 2, 2005
Stephanie M. Shern
/s/ E
DWARD
A. V
OLKWEIN
Director September 2, 2005
Edward A. Volkwein
/s/ G
ERALD
R. S
ZCZEPANSKI
Director September 2, 2005
Gerald R. Szczepanski
48
(This page intentionally left blank)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
GameStop Corp. Consolidated Financial Statements:
Reports of Independent Registered Public Accounting FirmÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-2
Consolidated Financial Statements:
Balance Sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-5
Statements of Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-6
Statements of Stockholders' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-7
Statements of Cash Flows ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-8
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-9
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GameStop Corp.
Grapevine, Texas
We have audited the accompanying consolidated balance sheets of GameStop Corp. as of January 29,
2005 and January 31, 2004 and the related consolidated statements of operations, stockholders' equity, and
cash Öows for the 52 week periods ended January 29, 2005, January 31, 2004 and February 1, 2003. We have
also audited the schedule listed in Item 15(a)(2) of this Form 10-K. These Ñnancial statements and the
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on
these Ñnancial statements and the schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the Ñnancial statements and the schedule are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the Ñnancial
statements and schedule, assessing the accounting principles used and signiÑcant estimates made by
management, as well as evaluating the overall presentation of the Ñnancial statement and schedule. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated Ñnancial statements referred to above present fairly, in all material
respects, the Ñnancial position of GameStop Corp. at January 29, 2005 and January 31, 2004 and the results of
its operations and its cash Öows for each of the 52 week periods ended January 29, 2005, January 31, 2004 and
February 1, 2003, in conformity with accounting principles generally accepted in the United States of
America.
Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth herein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the eÅectiveness of GameStop Corp.'s internal control over Ñnancial reporting as of
January 29, 2005, based on criteria established in Internal Control Ì Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 30, 2005 expressed an unqualiÑed opinion thereon.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
March 30, 2005
(except for Note 16, which
is as of August 24, 2005)
F-2
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GameStop Corp.
Grapevine, Texas
We have audited management's assessment, included in the accompanying Management's Annual
Report on Internal Control over Financial Reporting appearing under Item 9, that GameStop Corp.
maintained eÅective internal control over Ñnancial reporting as of January 29, 2005, based on the criteria
established in Internal Control Ì Integrated Framework issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission (COSO). Management of GameStop Corp. is responsible for maintaining
eÅective internal control over Ñnancial reporting and for its assessment of the eÅectiveness of internal control
over Ñnancial reporting. Our responsibility is to express an opinion on management's assessment and an
opinion on the eÅectiveness of the internal control over Ñnancial reporting of GameStop Corp. based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether eÅective internal control over Ñnancial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over Ñnancial reporting, evaluating
management's assessment, testing and evaluating the design and operating eÅectiveness of internal control,
and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company's internal control over Ñnancial reporting is a process designed to provide reasonable
assurance regarding the reliability of Ñnancial reporting and the preparation of Ñnancial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over
Ñnancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reÖect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of Ñnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material eÅect on the Ñnancial
statements.
Because of its inherent limitations, internal control over Ñnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of eÅectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management's assessment that GameStop Corp. maintained eÅective internal control
over Ñnancial reporting as of January 29, 2005, is fairly stated, in all material respects, based on criteria
established in Internal Control Ì Integrated Framework issued by the COSO. Also, in our opinion,
GameStop Corp. maintained, in all material respects, eÅective internal control over Ñnancial reporting as of
January 29, 2005, based on the criteria established in Internal Control Ì Integrated Framework issued by the
COSO.
F-3
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of GameStop Corp. as of January 29, 2005 and
January 31, 2004 and the related consolidated statements of operations, stockholders' equity, and cash Öows
for the 52 week periods ended January 29, 2005, January 31, 2004 and February 1, 2003. We have also audited
the schedule listed in Item 15(a)(2) for this Form 10-K. Our report dated March 30, 2005 (except for
Note 16 which is dated August 24, 2005) expressed an unqualiÑed opinion on those consolidated Ñnancial
statements and schedule.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
March 30, 2005
F-4
GAMESTOP CORP.
CONSOLIDATED BALANCE SHEETS
January 29, January 31,
2005 2004
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $170,992 $204,905
Receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,812 9,545
Merchandise inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 216,296 223,526
Prepaid expenses and other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18,400 14,340
Prepaid taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,053 12,775
Deferred taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,435 7,661
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 423,988 472,752
Property and equipment:
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,000 Ì
Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 106,428 64,227
Fixtures and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 184,536 131,556
292,964 195,783
Less accumulated depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 124,565 88,487
Net property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 168,399 107,296
Goodwill, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 320,888 320,826
Other noncurrent assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,708 1,315
Total other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 322,596 322,141
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $914,983 $902,189
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $206,739 $204,011
Accrued liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 94,983 79,839
Note payable, current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12,173 Ì
Total current liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 313,895 283,850
Deferred taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,257 17,731
Note payable, long-term portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24,347 Ì
Deferred rent and other long-term liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,473 6,575
58,077 24,306
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 371,972 308,156
Stockholders' equity:
Preferred stock Ì authorized 5,000 shares; no shares issued or outstandingÏÏÏÏÏ Ì Ì
Class A common stock Ì $.001 par value; authorized 300,000 shares; 24,189
and 22,993 shares issued, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24 23
Class B common stock Ì $.001 par value; authorized 100,000 shares; 29,902
and 36,009 shares issued and outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30 36
Additional paid-in-capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 500,769 510,597
Accumulated other comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 567 296
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 91,621 118,087
Treasury stock, at cost, 3,263 and 2,304 shares, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (50,000) (35,006)
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 543,011 594,033
Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $914,983 $902,189
See accompanying notes to consolidated Ñnancial statements.
F-5
GAMESTOP CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands, except per share data)
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,842,806 $1,578,838 $1,352,791
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,333,506 1,145,893 1,012,145
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 509,300 432,945 340,646
Selling, general and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 373,364 299,193 230,461
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,789 29,368 23,114
Operating earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 99,147 104,384 87,071
Interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,919) (1,467) (1,998)
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,155 663 1,368
Earnings before income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 98,911 105,188 87,701
Income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37,985 41,721 35,297
Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 60,926 $ 63,467 $ 52,404
Net earnings per Class A and Class B common share Ì basic ÏÏÏ $ 1.11 $ 1.13 $ 0.93
Weighted average shares of common stock Ì basic ÏÏÏÏÏÏÏÏÏÏÏÏ 54,662 56,330 56,289
Net earnings per Class A and Class B common share Ì diluted $ 1.05 $ 1.06 $ 0.87
Weighted average shares of common stock Ì dilutedÏÏÏÏÏÏÏÏÏÏÏ 57,796 59,764 60,419
See accompanying notes to consolidated Ñnancial statements.
F-6
GAMESTOP CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other
Common Stock
Paid in Comprehensive Retained Treasury
Shares Class A Shares Class B Capital Income Earnings Stock Total
(In thousands)
Balance at February 2, 2002 ÏÏÏÏ Ì $Ì 36,009 $36 $ (6,237) $ Ì $ 2,216 $ Ì $ (3,985)
Shares issued in public oÅering ÏÏ 20,764 21 Ì Ì 347,318 Ì Ì Ì 347,339
Exercise of employee stock
options (including tax beneÑt
of $1,906)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 286 Ì Ì Ì 2,917 Ì Ì Ì 2,917
Capital contribution from
Barnes & Noble, Inc. ÏÏÏÏÏÏÏÏ Ì Ì Ì Ì 150,000 Ì Ì Ì 150,000
Net earnings for the 52 weeks
ended February 1, 2003 ÏÏÏÏÏÏ Ì Ì Ì Ì Ì Ì 52,404 Ì 52,404
Balance at February 1, 2003 ÏÏÏÏ 21,050 21 36,009 36 493,998 Ì 54,620 Ì 548,675
Comprehensive income:
Net earnings for the 52 weeks
ended January 31, 2004 ÏÏÏÏÏÏ Ì Ì Ì Ì Ì Ì 63,467 Ì
Foreign currency translation ÏÏÏÏÏ Ì Ì Ì Ì Ì 296 Ì Ì
Total comprehensive income ÏÏÏÏ 63,763
Exercise of employee stock
options (including tax beneÑt
of $9,702)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,943 2 Ì Ì 16,599 Ì Ì Ì 16,601
Treasury stock acquired,
2,304 shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì Ì Ì Ì Ì (35,006) (35,006)
Balance at January 31, 2004 ÏÏÏÏ 22,993 23 36,009 36 510,597 296 118,087 (35,006) 594,033
Comprehensive income:
Net earnings for the 52 weeks
ended January 29, 2005 ÏÏÏÏÏÏ Ì Ì Ì Ì Ì Ì 60,926 Ì
Foreign currency translation ÏÏÏÏÏ Ì Ì Ì Ì Ì 271 Ì Ì
Total comprehensive income ÏÏÏÏ 61,197
Exercise of employee stock
options (including tax beneÑt
of $5,082)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,196 1 Ì Ì 14,555 Ì Ì Ì 14,556
Repurchase and retirement of
Class B common stock ÏÏÏÏÏÏÏ Ì Ì (6,107) (6) (24,383) Ì (87,392) Ì (111,781)
Treasury stock acquired,
959 sharesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì Ì Ì Ì Ì (14,994) (14,994)
Balance at January 29, 2005 ÏÏÏÏ 24,189 $24 29,902 $30 $500,769 $567 $ 91,621 $(50,000)$ 543,011
See accompanying notes to consolidated Ñnancial statements.
F-7
GAMESTOP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands)
Cash Öows from operating activities:
Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 60,926 $ 63,467 $ 52,404
Adjustments to reconcile net earnings to net cash Öows provided
by operating activities:
Depreciation and amortization (including amounts in cost of
sales) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37,019 29,487 23,154
Provision for inventory reserves ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17,808 12,901 14,071
Amortization of loan costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 432 313 242
Deferred taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,752 5,713 4,710
Tax beneÑt realized from exercise of stock options by
employeesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,082 9,702 1,906
Loss on disposal of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 382 213 205
Increase in deferred rent and other long-term liabilities for
scheduled rent increases in long-term leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,349 338 329
Increase in liability to landlords for tenant allowances, net ÏÏÏÏ 1,644 937 498
Minority interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (96) (298) Ì
Changes in operating assets and liabilities, net
Receivables, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (267) (1,954) (963)
Merchandise inventoriesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (10,578) (72,712) (37,089)
Prepaid expenses and other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,060) (4,111) (1,872)
Prepaid taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,722 (12,775) Ì
Accounts payable, accrued liabilities and accrued income
taxes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17,872 40,056 36,374
Net cash Öows provided by operating activitiesÏÏÏÏÏÏÏÏÏÏÏÏ 145,987 71,277 93,969
Cash Öows from investing activities:
Purchase of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (98,305) (64,484) (40,628)
Acquisition of controlling interest in Gamesworld Group Limited,
net of cash received ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (62) (3,027) Ì
Net increase in other noncurrent assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (825) (522) (788)
Net cash Öows used in investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (99,192) (68,033) (41,416)
Cash Öows from Ñnancing activities:
Issuance of 20,764 shares relating to the public oÅering, net of
the related expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 347,339
Issuance of shares relating to employee stock options ÏÏÏÏÏÏÏÏÏÏ 9,474 6,899 1,011
Repayment of debt due to Barnes & Noble, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (250,000)
Repayment of debt of Gamesworld Group Limited ÏÏÏÏÏÏÏÏÏÏÏÏ Ì (2,296) Ì
Purchase of treasury shares through repurchase program ÏÏÏÏÏÏÏ (14,994) (35,006) Ì
Repurchase of Class B shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (111,781) Ì Ì
Issuance of debt relating to the Class B share repurchaseÏÏÏÏÏÏÏ 74,020 Ì Ì
Repayment of debt relating to the Class B shares ÏÏÏÏÏÏÏÏÏÏÏÏÏ (37,500) Ì Ì
Net increase in other payable to Barnes & Noble, Inc. ÏÏÏÏÏÏÏÏ Ì Ì 377
Net cash Öows (used in) provided by Ñnancing activities ÏÏÏÏÏÏÏ (80,781) (30,403) 98,727
Exchange rate eÅect on cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏ 73 34 Ì
Net increase (decrease) in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏ (33,913) (27,125) 151,280
Cash and cash equivalents at beginning of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 204,905 232,030 80,750
Cash and cash equivalents at end of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 170,992 $ 204,905 $ 232,030
See accompanying notes to consolidated Ñnancial statements.
F-8
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of SigniÑcant Accounting Policies
Background and Basis of Presentation
GameStop Corp. (""GameStop'' or the ""Company'') was incorporated under the laws of the State of
Delaware in August 2001 as a holding company for GameStop, Inc. GameStop is a publicly held company.
Until November 12, 2004, GameStop was a majority-owned subsidiary of Barnes & Noble, Inc. (""Barnes &
Noble'').
The Company's wholly-owned subsidiary Babbage's Etc. LLC (""Babbage's'') began operations in
November 1996. In October 1999, Babbage's was acquired by, and became a wholly-owned subsidiary of,
Barnes & Noble. In June 2000, Barnes & Noble acquired Funco, Inc. (""Funco'') and thereafter, Babbage's
became a wholly-owned subsidiary of Funco. In December 2000, Funco changed its name to GameStop, Inc.
GameStop is principally engaged in the sale of new and used video game systems and software, personal
computer entertainment software and related accessories primarily through its GameStop trade name, a web
site (gamestop.com) and Game Informer magazine. The Company operates its business as a single segment.
The Company's stores, which totaled 1,826 at January 29, 2005, are located in major regional shopping malls
and strip centers in 50 states, the District of Columbia, Ireland, Northern Ireland, Puerto Rico and Guam.
In February 2002, the Company completed a public oÅering of 20,764 shares of Class A common stock at
$18.00 per share (the ""OÅering''). The net proceeds of the OÅering, after deducting applicable issuance costs
and expenses, were $347,339. A portion of the net proceeds was used to repay $250,000 of intercompany debt
owed to Barnes & Noble. Additionally, upon the eÅective date of the OÅering, Barnes & Noble made a capital
contribution of $150,000 for the remaining balance of the intercompany debt.
Upon the eÅective date of the OÅering, the Company's Board of Directors approved the authorization of
5,000 shares of preferred stock, 300,000 shares of Class A common stock and 100,000 shares of Class B
common stock. At the same time, the Company's common stock outstanding was converted to 36,009 shares
of Class B common stock.
Until October 2004, all of the 36,009 shares of Class B common stock outstanding were held by Barnes &
Noble. In October 2004, the Board of Directors authorized a repurchase of 6,107 shares of Class B common
stock held by Barnes & Noble. The Company repurchased the shares at a price equal to $18.26 per share for
aggregate consideration of $111,520 before costs of $261. The repurchased shares were immediately retired.
On November 12, 2004, Barnes & Noble distributed to its stockholders its remaining 29,902 shares of the
Company's Class B common stock in a tax-free dividend. The Class B shares retained their super voting power
of ten votes per share and are separately listed on the New York Stock Exchange under the symbol GME.B.
Consolidation
The consolidated Ñnancial statements include the accounts of GameStop, its wholly-owned subsidiaries
and its majority-owned subsidiary, Gamesworld Group Limited (""Gamesworld''). All signiÑcant intercom-
pany accounts and transactions have been eliminated in consolidation. All dollar and share amounts in the
consolidated Ñnancial statements and notes to the consolidated Ñnancial statements are stated in thousands
unless otherwise indicated.
Year-End
The Company's Ñscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last
day of January. Fiscal 2004 consisted of the 52 weeks ending on January 29, 2005. Fiscal 2003 consisted of the
52 weeks ending on January 31, 2004. Fiscal 2002 consisted of the 52 weeks ending on February 1, 2003.
F-9
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid instruments purchased with an original maturity of
three months or less to be cash equivalents. The Company's cash and cash equivalents are carried at cost,
which approximates market value, and consist primarily of time deposits and money market investment
accounts.
Merchandise Inventories
Our merchandise inventories are carried at the lower of cost or market using the average cost method.
Used video game products traded in by customers are recorded as inventory at the amount of the store credit
given to the customer. In valuing inventory, management is required to make assumptions regarding the
necessity of reserves required to value potentially obsolete or over-valued items at the lower of cost or market.
Management considers quantities on hand, recent sales, potential price protections and returns to vendors,
among other factors, when making these assumptions. Inventory reserves as of January 29, 2005 and
January 31, 2004 were $14,804 and $12,274, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation
on furniture, Ñxtures and equipment is computed using the straight-line method over estimated useful lives
(ranging from two to eight years). Maintenance and repairs are expensed as incurred, while betterments and
major remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the
shorter of their estimated useful lives or the terms of the respective leases, including option periods in which
the exercise of the option is reasonably assured, (generally ranging from three to ten years). Capitalized lease
acquisition costs are being amortized over the average lease terms of the underlying leases. Costs incurred in
purchasing management information systems are capitalized and included in property and equipment; these
costs are amortized over their estimated useful lives from the date the systems become operational.
The Company periodically reviews its property and equipment when events or changes in circumstances
indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods
should be accelerated. The Company assesses recoverability based on several factors, including management's
intention with respect to its stores and those stores' projected undiscounted cash Öows. An impairment loss
would be recognized for the amount by which the carrying amount of the assets exceeds the present value of
their projected cash Öows. No write-downs have been necessary by the Company through January 29, 2005.
Goodwill
Goodwill, aggregating $339,991, was recorded in the acquisition of Funco and through the application of
""push-down'' accounting in accordance with Securities and Exchange Commission StaÅ Accounting Bulle-
tin No. 54 (""SAB 54'') in connection with the acquisition of Babbage's by a subsidiary of Barnes & Noble.
Goodwill in the amount of $2,931 was recorded in connection with the acquisition of Gamesworld in June
2003. Goodwill represents the excess purchase price over tangible net assets and identiÑable intangible assets
acquired.
EÅective February 3, 2002, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, ""Goodwill and Other Intangible Assets'' (""SFAS 142''). SFAS 142 requires, among other
things, that companies no longer amortize goodwill, but instead evaluate goodwill for impairment on at least
an annual basis. Prior to the adoption of the provisions of SFAS 142, the Company's goodwill was amortized
on a straight-line basis over a 30-year period. At February 2, 2002, accumulated amortization was $22,034.
In accordance with the requirements of SFAS 142, the Company completed the initial impairment test of
the goodwill attributable to its reporting unit as of February 3, 2002, and concluded that none of its goodwill
F-10
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
was impaired. As part of this analysis, the Company determined that it has one reporting unit based upon the
similar economic characteristics of its operations. Fair value of this reporting unit was estimated using market
capitalization methodologies. Subsequent to the acquisition of Gamesworld, the Company determined that it
still has one reporting unit based upon the similar economic characteristics of its operations. The Company
also evaluates the goodwill of its reporting unit for impairment at least annually, which the Company has
elected to perform during the fourth quarter of each Ñscal year. For Ñscal 2004 and 2003, the Company
determined that none of its goodwill was impaired. Note 7 provides additional information concerning
goodwill.
Revenue Recognition
Revenue from the sales of the Company's products is recognized at the time of sale. The sales of used
video game products are recorded at the retail price charged to the customer. Sales returns (which are not
signiÑcant) are recognized at the time returns are made.
Subscription and advertising revenues are recorded upon release of magazines for sale to consumers and
are stated net of sales discounts. Magazine subscription revenue is recognized on a straight-line basis over the
subscription period.
Customer Liabilities
The Company establishes a liability upon the issuance of merchandise credits and the sale of gift cards.
Revenue is subsequently recognized when the credits and gift cards are redeemed. In addition, income
(""breakage'') is recognized quarterly on unused customer liabilities older than three years to the extent that
the Company believes the likelihood of redemption by the customer is remote, based on historical redemption
patterns. Breakage has historically been immaterial. To the extent that future redemption patterns diÅer from
those historically experienced, there will be variations in the recorded breakage.
Pre-Opening Expenses
All costs associated with the opening of new stores are expensed as incurred. Pre-opening expenses are
included in selling, general and administrative expenses in the accompanying consolidated statements of
operations.
Closed Store Expenses
Upon a formal decision to close or relocate a store, the Company charges unrecoverable costs to expense.
Such costs include the net book value of abandoned Ñxtures and leasehold improvements and a provision for
future lease obligations, net of expected sublease recoveries. Costs associated with store closings are included
in selling, general and administrative expenses in the accompanying consolidated statements of operations.
Advertising Expenses
The Company expenses advertising costs for newspapers and other media when the advertising takes
place. Advertising expenses for newspapers and other media during the 52 weeks ended January 29, 2005,
January 31, 2004 and February 1, 2003, were $8,881, $7,044 and $4,258, respectively.
Income Taxes
For the periods prior to the OÅering, GameStop was included in the consolidated federal tax return of
Barnes & Noble. Following the closing of the OÅering, Barnes & Noble owned less than 80% of GameStop
and, accordingly, was no longer permitted to consolidate GameStop's operations for income tax purposes.
Since the close of the OÅering, GameStop has Ñled income tax returns as a ""C'' corporation on a stand-alone
F-11
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
basis. Accordingly, the Ñnancial statements reÖect income tax expense as if GameStop had Ñled separate
income tax returns as a ""C'' corporation on a stand-alone basis. The Company accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards No. 109 ""Accounting for
Income Taxes'' (""SFAS 109''). SFAS 109 utilizes an asset and liability approach, and deferred taxes are
determined based on the estimated future tax eÅect of diÅerences between the Ñnancial reporting and tax
bases of assets and liabilities using enacted tax rates.
Lease Accounting
The Company, similar to many other retailers, has revised its method of accounting for rent expense (and
related deferred rent liability) and leasehold improvements funded by landlord incentives for allowances under
operating leases (tenant improvement allowances) to conform to generally accepted accounting principles
(""GAAP''), as recently clariÑed by the Chief Accountant of the SEC in a February 7, 2005 letter to the
American Institute of CertiÑed Public Accountants. For all stores opened since the beginning of Ñscal 2002,
the Company had calculated straight-line rent expense using the initial lease term, but was generally
depreciating leasehold improvements over the shorter of their estimated useful lives or the initial lease term
plus the option periods. The Company corrected its calculation of straight-line rent expense to include the
impact of escalating rents for periods in which it is reasonably assured of exercising lease options and to
include in the lease term any period during which the Company is not obligated to pay rent while the store is
being constructed (""rent holiday''). The Company also corrected its calculation of depreciation expense for
leasehold improvements for those leases which do not include an option period. Because the eÅects of the
correction were not material to any previous years, a non-cash, after-tax adjustment of $3,312 was made in the
fourth quarter of Ñscal 2004 to correct the method of accounting for rent expense (and related deferred rent
liability). Of the $3,312 after-tax adjustment, $1,761 pertained to the accounting for rent holidays, $1,404
pertained to the calculation of straight-line rent expense to include the impact of escalating rents for periods in
which the Company is reasonably assured of exercising lease options and $147 pertained to the calculation of
depreciation expense for leasehold improvements for the small portion of leases which do not include an option
period. The aggregate eÅect of these corrections relating to prior years was $1,929 ($948 for Ñscal 2003, $397
for Ñscal 2002 and $584 for years prior to Ñscal 2002). The correction does not aÅect historical or future cash
Öows or the timing of payments under related leases.
In addition, the Company has changed its classiÑcation of tenant improvement allowances on its balance
sheets and statements of cash Öows. Like many other retailers, the Company had historically classiÑed tenant
improvement allowances as reductions of property and equipment on the Company's balance sheets, as
reductions in depreciation and amortization in the Company's statements of operations and as reductions in
capital expenditures, an investing activity, on the Company's statements of cash Öows. In order to comply with
the provisions of FASB Technical Bulletin No. 88-1, ""Issues Relating to Accounting for Leases''
(""FTB 88-1''), however, the Company has reclassiÑed tenant improvement allowances as deferred rent
liabilities (in long-term liabilities) on the Company's balance sheets, as a reduction of rent expense (in selling,
general and administrative expenses) in the statements of operations and as an operating activity on the
statements of cash Öows. The eÅect of this reclassiÑcation increased property and equipment and deferred rent
and other long-term liabilities on the Company's balance sheets by $4,671 as of January 29, 2005 and $3,265
as of January 31, 2004, decreased selling, general and administrative expense and increased depreciation
expense in the Company's statements of operations by $671, $540 and $601 in Ñscal 2004, 2003 and 2002,
respectively, and increased net cash Öows provided by operating activities and increased net cash Öows used in
investing activities in the Company's statements of cash Öows by $2,315, $1,477 and $1,099 in Ñscal 2004,
2003 and 2002, respectively.
F-12
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Foreign Currency Translation
Gamestop has determined that the functional currency of its foreign subsidiary is the subsidiary's local
currency (the EURO). The assets and liabilities of the subsidiary are translated at the applicable exchange
rate as of the end of the balance sheet date and revenue and expenses are translated at an average rate over the
period. Currency translation adjustments are recorded as a component of other comprehensive income.
Net Earnings Per Common Share
Net earnings per Class A and Class B common share is presented in accordance with Statement of
Financial Accounting Standards No. 128, ""Earnings Per Share'' (""SFAS 128''). Basic earnings per Class A
and Class B common share is computed using the weighted average number of common shares outstanding
during the period and excludes any dilutive eÅects of the Company's outstanding options.
Diluted earnings per Class A and Class B common share is computed using the weighted average number
of common and dilutive common shares outstanding during the period. Note 4 provides additional information
regarding net earnings per common share.
Stock Options
Statement of Financial Accounting Standards No. 123, ""Accounting for Stock Based Compensation,''
(""SFAS 123'') encourages but does not require companies to record compensation cost for stock based
employee compensation plans at fair value. As permitted under Statement of Financial Accounting Standards
No. 148, ""Accounting for Stock Based Compensation Ì Transition and Disclosure,'' (""SFAS 148'') which
amended SFAS 123, the Company has elected to continue to account for stock based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, ""Accounting for Stock
Issued to Employees,'' and related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over
the amount an employee must pay to acquire the stock. Note 13 provides additional information regarding the
Company's stock option plan.
F-13
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following table illustrates the eÅect on net earnings and net earnings per Class A and Class B
common share if the Company had applied the fair value recognition provisions of SFAS 123 to stock based
employee compensation for the options granted under its plans:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands, except per share data)
Net earnings, as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $60,926 $63,467 $52,404
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,405 7,888 8,287
Pro forma net earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $51,521 $55,579 $44,117
Net earnings per Class A and Class B common share Ì
basic, as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.11 $ 1.13 $ 0.93
Net earnings per Class A and Class B common share Ì
basic, pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.94 $ 0.99 $ 0.78
Net earnings per Class A and Class B common share Ì
diluted, as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.05 $ 1.06 $ 0.87
Net earnings per Class A and Class B common share Ì
diluted, pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.89 $ 0.93 $ 0.73
The weighted-average fair value of the options granted during the 52 weeks ended January 29, 2005,
January 31, 2004 and February 1, 2003 were estimated at $7.86, $5.30 and $8.08, respectively, using the
Black-Scholes option pricing model with the following assumptions:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
Volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60.1% 61.6% 61.9%
Risk-free interest rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.3% 3.2% 4.6%
Expected life (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.0 6.0 6.0
Expected dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0% 0% 0%
In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (Revised
2004), Share-Based Payment, (""FAS 123(R)''). This Statement requires companies to expense the
estimated fair value of stock options and similar equity instruments issued to employees. The fair value
concepts were not changed signiÑcantly in FAS 123(R), however, in adopting this Standard, companies must
choose among alternative valuation models and amortization assumptions. The valuation model and amortiza-
tion assumption the Company has used above continue to be available, but the Company has not yet
completed its assessment of the alternatives. FAS 123(R) will be eÅective for the Company beginning with
the third quarter of 2005. Transition options allow companies to choose whether to adopt prospectively, restate
results to the beginning of the year, or to restate prior periods with the amounts on a basis consistent with pro
forma amounts that have been included in the footnotes. The Company has not yet concluded which transition
option it will select.
F-14
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Use of Estimates
The preparation of Ñnancial statements in conformity with GAAP requires management to make
estimates and assumptions that aÅect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the Ñnancial statements and the reported amounts of revenues
and expenses during the reporting period. In preparing these Ñnancial statements, management has made its
best estimates and judgments of certain amounts included in the Ñnancial statements, giving due consideration
to materiality. Changes in the estimates and assumptions used by management could have signiÑcant impact
on the Company's Ñnancial results. Actual results could diÅer from those estimates.
Fair Values of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and the note
payable reported in the accompanying consolidated balance sheets approximate fair value due to the short-
term maturities of these assets.
Vendor Concentration
The Company's largest vendors are Electronic Arts, Inc., Nintendo of America, Inc. and Microsoft Corp.,
which accounted for 14%, 13% and 12%, respectively, of the Company's new product purchases in Ñscal 2004.
ClassiÑcations
The Company includes purchasing, receiving and distribution costs in selling, general and administrative
expenses, rather than cost of goods sold, in the statement of operations. For the 52 weeks ended January 29,
2005, January 31, 2004 and February 1, 2003 these purchasing, receiving and distribution costs amounted to
$9,203, $9,480 and $10,123, respectively.
The Company includes processing fees associated with purchases made by check and credit cards in cost
of sales, rather than selling, general and administrative expenses, in the statement of operations. For the
52 weeks ended January 29, 2005, January 31, 2004 and February 1, 2003 these processing fees amounted to
$12,014, $10,703 and $10,705, respectively.
ReclassiÑcations
Certain reclassiÑcations have been made to conform the prior period data to the current year
presentation.
2. Vendor Arrangements
The Company and approximately 75 of its vendors participate in cooperative advertising programs and
other vendor marketing programs in which the vendors provide the Company with cash consideration in
exchange for marketing and advertising the vendors' products. Our accounting for cooperative advertising
arrangements and other vendor marketing programs, in accordance with FASB Emerging Issues Task Force
Issue 02-16 or ""EITF 02-16,'' results in a portion of the consideration received from our vendors reducing the
product costs in inventory rather than as an oÅset to our marketing and advertising costs as in years prior to
Ñscal 2003. The consideration serving as a reduction in inventory is recognized in cost of sales as inventory is
sold. The amount of vendor allowances to be recorded as a reduction of inventory was determined by
calculating the ratio of vendor allowances in excess of speciÑc, incremental and identiÑable advertising and
promotional costs to merchandise purchases. The Company then applied this ratio to the value of inventory in
determining the amount of vendor reimbursements to be recorded as a reduction to inventory reÖected on the
balance sheet.
F-15
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The cooperate advertising programs and other vendor marketing programs generally cover a period from a
few days up to a few weeks and include items such as product catalog advertising, in-store display promotions,
internet advertising, co-op print advertising, product training and promotion at the Company's annual store
managers conference. The allowance for each event is negotiated with the vendor and requires speciÑc
performance by the Company to be earned.
Vendor allowances received in the amount of $21,913 and $20,035 were netted against advertising
expenses in the 52 weeks ended January 29, 2005 and January 31, 2004, respectively. Vendor allowances
received in excess of advertising expenses were recorded as a reduction of cost of sales of $29,917 and $26,779
for the 52 weeks ended January 29, 2005 and January 31, 2004, respectively, less $66 and $5,210, respectively,
for the eÅect of the amounts deferred as a reduction in inventory.
Because prior periods have not been restated, the following table presents the 52 weeks ended January 31,
2004 and February 1, 2003 on a pro forma basis as if EITF 02-16 had been implemented prior to the beginning
of Ñscal 2002:
52 Weeks 52 Weeks
Ended Ended
January 31, February 1,
2004 2003
(In thousands, except per
share data)
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,578,838 $1,352,791
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,142,225 987,184
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 436,613 365,607
Selling, general and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 299,193 255,757
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29,368 23,114
Operating earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 108,052 86,736
Interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,467) (1,998)
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 663 1,368
Earnings before income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 108,856 87,366
Income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43,108 35,160
Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 65,748 $ 52,206
Net earnings per Class A and Class B common share Ì basic ÏÏÏÏÏÏÏ $ 1.17 $ 0.93
Weighted average shares of common stock Ì basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 56,330 56,289
Net earnings per Class A and Class B common share Ì diluted ÏÏÏÏÏ $ 1.10 $ 0.86
Weighted average shares of common stock Ì dilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 59,764 60,419
3. Acquisitions
On June 23, 2003, the Company acquired a controlling interest in Gamesworld, an Ireland-based
electronic games retailer, for approximately $3,340. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the results of operations for the period subsequent to the acquisition
are included in the consolidated Ñnancial statements. The excess of purchase price over the net assets
acquired, in the amount of approximately $2,931, has been recorded as goodwill. The pro forma eÅect
assuming the acquisition of Gamesworld at the beginning of Ñscal 2002 and Ñscal 2003 is not material.
F-16
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
4. Computation of Net Earnings per Common Share
The Company has two classes of common stock and computes earnings per share using the two-class
method in accordance with Financial Accounting Standard No. 128 Earnings per Share. As discussed in
Note 19, the holders of the Company's Class A and Class B common stock have identical rights to dividends
or to distributions in the event of a liquidation, dissolution or winding up of the Company. Accordingly, the
earnings per common share for the two classes of common stock are the same. A reconciliation of shares used
in calculating basic and diluted net earnings per common share follows:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands, except per share data)
Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $60,926 $63,467 $52,404
Weighted average common shares outstanding
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,683 20,321 20,280
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33,979 36,009 36,009
Weighted common shares outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 54,662 56,330 56,289
Dilutive eÅect of options and warrants on Class A common
stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,134 3,434 4,130
Common shares and dilutive potential common shares ÏÏÏÏÏ 57,796 59,764 60,419
Net earnings per Class A and Class B common share:
BasicÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.11 $ 1.13 $ 0.93
DilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.05 $ 1.06 $ 0.87
The following table contains information on options to purchase shares of Class A common stock which
were excluded from the computation of diluted earnings per share because they were anti-dilutive:
Anti- Range of
Dilutive Exercise Expiration
Shares Prices Dates
(In thousands, except per share data)
52 Weeks Ended January 29, 2005ÏÏÏÏÏÏÏÏÏÏÏ 30 $21.25 2012
52 Weeks Ended January 31, 2004ÏÏÏÏÏÏÏÏÏÏÏ 3,831 $18.00-$21.25 Through 2013
52 Weeks Ended February 1, 2003 ÏÏÏÏÏÏÏÏÏÏÏ 4,372 $16.48-$21.25 Through 2012
5. Receivables, Net
Receivables represent primarily bankcard and other receivables as follows:
January 29, January 31,
2005 2004
(In thousands)
Bankcard receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,946 $5,147
Other receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,259 4,787
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (393) (389)
Total receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $9,812 $9,545
F-17
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
6. Accrued Liabilities
Accrued liabilities consist of the following:
January 29, January 31,
2005 2004
(In thousands)
Customer liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $35,213 $26,797
Deferred revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,484 7,255
Accrued rent ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,090 7,378
Employee compensation and related taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,750 6,525
Other taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,129 5,033
Other accrued liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33,317 26,851
Total accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $94,983 $79,839
7. Goodwill
The Company adopted the transitional disclosures of SFAS 142 eÅective February 3, 2002 (see Note 1).
The changes in the carrying amount of goodwill for the Company's business segment for the 52 weeks ended
January 29, 2005 and January 31, 2004 were as follows:
Goodwill
(In thousands)
Balance at February 1, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $317,957
Addition for the acquisition of Gamesworld Group Limited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,869
Impairment for the 52 weeks ended January 31, 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Balance at January 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 320,826
Additional cost relating to the acquisition of Gamesworld Group Limited ÏÏÏÏÏÏÏÏ 62
Impairment for the 52 weeks ended January 29, 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Balance at January 29, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $320,888
8. Debt
In June 2004, the Company amended and restated its $75,000 senior secured revolving credit facility,
which now expires in June 2009. The revolving credit facility is governed by an eligible inventory borrowing
base agreement, deÑned as 55% of non-defective inventory, net of certain reserves. Loans incurred under the
credit facility will be maintained from time to time, at the Company's option, as: (1) Prime Rate loans which
bear interest at the prime rate (deÑned in the credit facility as the higher of (a) the administrative agent's
announced prime rate, or (b)
1
/
2
of 1% in excess of the federal funds eÅective rate, each as in eÅect from time
to time); or (2) LIBO Rate loans bearing interest at the LIBO Rate for the applicable interest period, in each
case plus an applicable interest margin. In addition, the Company is required to pay a commitment fee,
currently 0.375%, for any unused amounts of the revolving credit facility. Any borrowings under the revolving
credit facility are secured by the assets of the Company. If availability under the revolving credit facility is less
than $20,000, the revolving credit facility restricts the Company's ability to pay dividends. There have been no
borrowings under the revolving credit facility.
In October 2004, the Company issued a promissory note in favor of Barnes & Noble in the principal
amount of $74,020 in connection with the repurchase of Class B common shares held by Barnes & Noble. A
payment of $37,500 was made on January 15, 2005, as required by the promissory note, which also requires
F-18
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
payments of $12,173 due on October 15, 2005, October 15, 2006 and October 15, 2007. The note is unsecured
and bears interest at 5.5% per annum, payable when principal installments are due.
9. Comprehensive Income
Comprehensive income is net earnings, plus certain other items that are recorded directly to stockholders'
equity and consists of the following:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands)
Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $60,926 $63,467 $52,404
Other comprehensive income:
Foreign currency translation adjustmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 271 296 Ì
Total comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $61,197 $63,763 $52,404
10. Leases
The Company leases retail stores, warehouse facilities, oÇce space and equipment. These are generally
leased under noncancelable agreements that expire at various dates through 2034 with various renewal options
for additional periods. The agreements, which have been classiÑed as operating leases, generally provide for
both minimum and percentage rentals and require the Company to pay all insurance, taxes and other
maintenance costs. Leases with step rent provisions, escalation clauses or other lease concessions are
accounted for on a straight-line basis over the lease term, which includes renewal option periods when the
Company is reasonably assured of exercising the renewal options and includes ""rent holidays'' (periods in
which the Company is not obligated to pay rent). The Company does not have leases with capital
improvement funding or leases with payments dependent upon indexes or rates. Percentage rentals are based
on sales performance in excess of speciÑed minimums at various stores.
Approximate rental expenses under operating leases are as follows:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands)
MinimumÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $77,058 $58,016 $47,316
Percentage rentalsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,471 7,418 10,704
$81,529 $65,434 $58,020
F-19
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Future minimum annual rentals, excluding percentage rentals, required under leases that had initial,
noncancelable lease terms greater than one year, as of January 29, 2005 are approximately:
Year Ended Amount
(In thousands)
January 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 70,045
January 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 63,084
January 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57,756
January 2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 53,162
January 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45,689
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 154,646
$444,382
11. Litigation
On May 29, 2003, former Store Manager Carlos Moreira (""Moreira'') Ñled a class action lawsuit against
the Company and its wholly-owned subsidiary Gamestop, Inc. (collectively ""GameStop'') in Los Angeles
County Superior Court alleging that GameStop's salaried retail managers were misclassiÑed as exempt and
should have been paid overtime. Moreira was seeking to represent a class of current and former salaried retail
managers who were employed by GameStop in California at any time between May 29, 1999 and
September 30, 2004. Moreira alleged claims for violation of California Labor Code sections 203, 226 and 1194
and California Business and Professions Code section 17200. Moreira was seeking recovery of unpaid
overtime, interest, penalties, attorneys' fees and costs. During court-ordered mediation in March 2004, the
parties reached a settlement which deÑned the class of current and former salaried retail managers and will
result in a cost to the Company of approximately $2,750. On January 28, 2005, the court granted approval of
the settlement. The matter is now in the claims administration process. A provision for this proposed
settlement was recorded in the 13 weeks ended May 1, 2004. Management expects that the Ñnal settlement
and resolution of this case will take place in the second quarter of Ñscal 2005.
On October 20, 2004, former Store Manager John P. Kurtz (""Kurtz'') Ñled a collective action lawsuit
against the Company in U.S. District Court, Western District of Louisiana, Lafayette/Opelousas Division,
alleging that GameStop's salaried retail managers were misclassiÑed as exempt and should have been paid
overtime, in violation of the Fair Labor Standards Act. Kurtz is seeking to represent all current and former
salaried retail managers who were employed by GameStop for the three years before October 20, 2004. Kurtz
is seeking recovery of unpaid overtime, interest, penalties, attorneys' fees and costs. On January 12, 2005,
GameStop Ñled an answer to the complaint and a motion to transfer the action to the Northern District of
Texas, Fort Worth Division. GameStop is awaiting the court's decision on the motion. Management intends to
vigorously defend this action and does not believe there is suÇcient information to estimate the amount of the
possible loss, if any, resulting from the lawsuit.
On February 14, 2005, Steve Strickland, as personal representative of the Estate of Arnold Strickland,
deceased, and Henry Mealer, as personal representative of the Estate of Ace Mealer, deceased, Ñled a
wrongful death lawsuit against GameStop, Sony, Take-Two Interactive and Wal-Mart (collectively, the
""Defendants'') and Devin Moore in the Circuit Court of Fayette County, Alabama, alleging that Defendants'
actions in designing, manufacturing, marketing and supplying Defendant Moore with violent video games were
negligent and contributed to Defendant Moore killing Arnold Strickland and Ace Mealer. PlaintiÅs are
seeking damages in excess of $600 million under the Alabama wrongful death statute. GameStop and the
other defendants are in the process of preparing an initial response and intend to vigorously defend this action.
F-20
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
In the ordinary course of our business, we are from time to time subject to various other legal
proceedings. We do not believe that any such other legal proceedings, individually or in the aggregate, will
have a material adverse eÅect on our operations or Ñnancial condition.
12. Income Taxes
The provision for income tax consisted of the following:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands)
Current tax expense (beneÑt):
FederalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $24,330 $21,671 $22,945
StateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,455 4,733 5,736
ForeignÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (634) (98) Ì
28,151 26,306 28,681
Deferred tax expense:
FederalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,578 4,690 3,768
StateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 1,023 942
ForeignÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 168 Ì Ì
4,752 5,713 4,710
Charge in lieu of income taxes, relating to the tax eÅect of
stock option tax deductionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,082 9,702 1,906
Total income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $37,985 $41,721 $35,297
The diÅerence in income tax provided and the amounts determined by applying the statutory rate to
income before income taxes result from the following:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
Federal statutory tax rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35.0% 35.0% 35.0%
State income taxes, net of federal eÅect ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.5 4.6 5.2
Foreign income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.4 (0.1) 0.0
Other (including permanent diÅerences) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (0.5) 0.2 0.0
38.4% 39.7% 40.2%
F-21
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
DiÅerences between Ñnancial accounting principles and tax laws cause diÅerences between the bases of
certain assets and liabilities for Ñnancial reporting purposes and tax purposes. The tax eÅects of these
diÅerences, to the extent they are temporary, are recorded as deferred tax assets and liabilities under
SFAS 109 and consisted of the following components:
January 29, January 31,
2005 2004
(In thousands)
Deferred tax asset:
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 59 $ 62
Inventory capitalization costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,827 1,694
Inventory obsolescence reserve ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,640 4,200
Organization costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32 Ì
Accrued liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,511 273
Gift certiÑcate liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,124 1,912
Deferred rentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,438 1,353
Accrued state taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (196) (480)
Total deferred tax beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,435 9,014
Deferred tax liabilities:
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (20,131) (15,814)
Prepaid expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,561) Ì
Translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (368) (200)
Fixed assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,073) (4,170)
Accrued state taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 876 1,100
Total deferred tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (26,257) (19,084)
NetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(14,822) $(10,070)
Financial statements:
Current deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 5,435 $ 7,661
Non-current deferred tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(20,257) $(17,731)
13. Stock Option Plan
EÅective August 2001, Barnes & Noble approved the 2001 Incentive Plan of GameStop Corp, which was
amended by stockholder vote on July 2, 2003 (the ""Option Plan'').
The Option Plan provides a maximum aggregate amount of 20,000 shares of Class A common stock with
respect to which options may be granted and provides for the granting of incentive stock options, non-qualiÑed
stock options, and restricted stock, which may include, without limitation, restrictions on the right to vote such
shares and restrictions on the right to receive dividends on such shares. The options to purchase Class A
common shares generally are issued at fair market value on the date of grant. Generally, the options vest and
become exercisable ratably over a three-year period, commencing one year after the grant date, and expire ten
years from issuance.
F-22
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
A summary of the status of the Company's stock options is presented below:
Weighted-Average
Shares Exercise Price
(Thousands
of shares)
Balance, February 2, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,811 $ 4.03
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,545 $18.02
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (287) $ 3.53
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (309) $12.10
Balance, February 1, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12,760 $ 8.83
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,119 $12.19
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,943) $ 3.55
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (629) $16.55
Balance, January 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,307 $ 9.63
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,676 $18.40
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,196) $ 7.93
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (381) $16.81
Balance, January 29, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,406 $10.86
The options granted in Ñscal 2002 included 4,500 options granted to employees on February 12, 2002, in
connection with the OÅering, at an exercise price of $18.00 per share (the per share oÅering price).
The following table summarizes information as of January 29, 2005 concerning outstanding and
exercisable options:
Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Number Average Average Number Average
Outstanding Remaining Contractual Exercisable Exercise
Range of Exercise Prices (000s) Life Price (000s) Price
$ 3.53 Ì $ 4.51 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,643 6.26 $ 4.31 5,643 $ 4.31
$11.80 Ì $12.71 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 740 8.18 $11.89 194 $11.84
$15.10 Ì $16.48 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 199 8.98 $15.28 43 $15.53
$18.00 Ì $21.25 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,824 7.66 $18.19 2,220 $18.03
$ 3.53 Ì $21.25 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,406 7.03 $10.86 8,100 $ 8.31
14. Employees' DeÑned Contribution Plan
The Company sponsors a deÑned contribution plan (the ""Savings Plan'') for the beneÑt of substantially
all of its employees who meet certain eligibility requirements, primarily age and length of service. The Savings
Plan allows employees to invest up to 15% of their current gross cash compensation invested on a pre-tax basis,
at their option. The Company's optional contributions to the Savings Plan are generally in amounts based
upon a certain percentage of the employees' contributions. The Company's contributions to the Savings Plan
during the 52 weeks ended January 29, 2005, January 31, 2004 and February 1, 2003, were $992, $849 and
$715, respectively.
F-23
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
15. Certain Relationships and Related Transactions
The Company operates departments within ten bookstores operated by Barnes & Noble. The Company
pays a license fee to Barnes & Noble in amounts equal to 7.0% of the gross sales of such departments.
Management deems the license fee to be reasonable and based upon terms equivalent to those that would
prevail in an arm's length transaction. During the 52 weeks ended January 29, 2005, January 31, 2004 and
February 1, 2003, these charges amounted to $859, $974 and $1,103, respectively.
The Company participates in Barnes & Noble's worker's compensation, property and general liability
insurance programs. The costs incurred by Barnes & Noble under these programs are allocated to the
Company based upon the Company's total payroll expense, property and equipment, and insurance claim
history. Management deems the allocation methodology to be reasonable. During the 52 weeks ended
January 29, 2005, January 31, 2004 and February 1, 2003, these allocated charges amounted to $2,662, $2,363
and $1,726, respectively. The Company's participation in Barnes & Noble's insurance programs will expire in
Ñscal 2005 and the Company will secure new insurance coverage.
In July 2003, the Company purchased an airplane from a company controlled by a member of the Board
of Directors. The purchase price was $9,500 and was negotiated through an independent third party following
an independent appraisal.
In October 2004, the Board of Directors authorized a repurchase of Class B common stock held by
Barnes & Noble. The Company repurchased 6,107 shares of Class B common stock at a price equal to
$18.26 per share for aggregate consideration before expenses of $111,520. The repurchase price per share was
determined by using a discount of 3.5% on the last reported trade of the Company's Class A common stock on
the New York Stock Exchange prior to the time of the transaction. The Company paid $37,500 in cash and
issued a promissory note in the principal amount of $74,020, which is payable in installments over the next
three years and bears interest at 5.5% per annum, payable when principal installments are due. The Company
made a principal payment of $37,500 on the promissory note in January 2005. Interest expense on the
promissory note for the 52 weeks ended January 29, 2005 totaled $1,271.
16. SigniÑcant Products
The following table sets forth sales (in millions) by signiÑcant product category for the periods indicated:
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 29, 2005 January 31, 2004 February 1, 2003
Percent Percent Percent
Sales of Total Sales of Total Sales of Total
Sales:
New video game hardware ÏÏÏÏ $ 209.2 11.4% $ 198.1 12.6% $ 216.8 16.0%
New video game software ÏÏÏÏÏ 776.7 42.1% 647.9 41.0% 524.7 38.8%
Used video game products ÏÏÏÏ 511.8 27.8% 403.3 25.5% 296.4 21.9%
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 345.1 18.7% 329.5 20.9% 314.9 23.3%
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,842.8 100.0% $1,578.8 100.0% $1,352.8 100.0%
F-24
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following table sets forth gross proÑt (in millions) and gross proÑt percentages by signiÑcant product
category for the periods indicated:
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 29, 2005 January 31, 2004 February 1, 2003
Gross Gross Gross
Gross ProÑt Gross ProÑt Gross ProÑt
ProÑt Percent ProÑt Percent ProÑt Percent
Gross ProÑt:
New video game hardware ÏÏÏÏÏÏÏÏÏÏÏ $ 8.5 4.1% $ 10.6 5.3% $ 4.4 2.0%
New video game software ÏÏÏÏÏÏÏÏÏÏÏÏ 151.9 19.6% 128.6 19.9% 93.7 17.9%
Used video game products ÏÏÏÏÏÏÏÏÏÏÏ 231.6 45.3% 179.3 44.5% 142.8 48.2%
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 117.3 34.0% 114.4 34.7% 99.7 31.7%
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $509.3 27.6% $432.9 27.4% $340.6 25.2%
17. Supplemental Cash Flow Information
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 29, January 31, February 1,
2005 2004 2003
(In thousands)
Cash paid during the period for:
InterestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,447 $ 308 $ 47,236
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,903 56,555 14,641
Subsidiaries acquired:
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 62 2,869 Ì
Cash received in acquisition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 252 Ì
Net assets acquired (or liabilities assumed) ÏÏÏÏÏÏÏÏÏÏÏÏ Ì 158 Ì
Cash paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 62 $ 3,279 $ Ì
Non-cash Ñnancing activity:
Barnes & Noble capital contribution ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $ Ì $150,000
18. Repurchase of Equity Securities
In March 2003, the Board of Directors authorized a common stock repurchase program for the purchase
of up to $50,000 of the Company's Class A common shares. The Company was authorized to repurchase
shares from time to time in the open market or through privately negotiated transactions, depending on
prevailing market conditions and other factors. During the 52 weeks ended January 29, 2005, the Company
repurchased 959 shares at an average share price of $15.64. During the 52 weeks ended January 30, 2004, the
Company repurchased 2,304 shares at an average share price of $15.19. From the inception of this repurchase
program through January 29, 2005, the Company repurchased 3,263 shares at an average share price of
$15.32, totaling $50,000, and, as of January 29, 2005, had no amount remaining available for purchases under
this repurchase program. The repurchased shares will be held in treasury.
In October 2004, the Board of Directors authorized a repurchase of Class B common stock held by
Barnes & Noble. The Company repurchased 6,107 shares of Class B common stock at a price equal to
F-25
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
$18.26 per share for aggregate consideration before expenses of $111,520. The repurchased shares were
immediately retired.
19. Shareholders' Equity
The holders of Class A common stock and Class B common stock generally have identical rights except
that holders of Class A common stock are entitled to one vote per share while holders of Class B common
stock are entitled to ten votes per share on all matters to be voted on by stockholders. Holders of Class A
common stock and Class B common stock will share in an equal amount per share in any dividend declared by
the board of directors, subject to any preferential rights of any outstanding preferred stock. In the event of our
liquidation, dissolution or winding up, all holders of common stock, regardless of class, are entitled to share
ratably in any assets available for distribution to holders of shares of common stock after payment in full of any
amounts required to be paid to holders of preferred stock.
On October 25, 2004, the Board of Directors of the Company declared a dividend of one right (a
""Right'') for each outstanding share of the Company's Class A common stock and Class B common stock
(together the ""Common Stock''). The distribution of the Rights was made on October 28, 2004 to
stockholders of record on that date. Each Right entitles the holder to purchase from the Company one one-
thousandth of a share of a new series of preferred stock, designated as Series A Junior Participating Preferred
Stock (the ""Series A Preferred Stock''), at a price of $100.00 per one one-thousandth of a share. The Rights
will be exercisable only if a person or group acquires 15% or more of the voting power of the Company's
outstanding Common Stock or announces a tender oÅer or exchange oÅer, the consummation of which would
result in such person or group owning 15% or more of the voting power of the Company's outstanding
Common Stock.
If a person or group acquires 15% or more of the voting power of the Company's outstanding Common
Stock, each Right will entitle a holder (other than such person or any member of such group) to purchase, at
the Right's then current exercise price, a number of shares of Common Stock having a market value of twice
the exercise price of the Right. In addition, if the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning power are sold at any time after
the Rights have become exercisable, each Right will entitle its holder to purchase, at the Right's then current
exercise price, a number of the acquiring company's common shares having a market value at that time of
twice the exercise price of the Right. Furthermore, at any time after a person or group acquires 15% or more of
the voting power of the outstanding Common Stock of the Company but prior to the acquisition of 50% of
such voting power, the Board of Directors may, at its option, exchange part or all of the Rights (other than
Rights held by the acquiring person or group) at an exchange rate of one one-thousandth of a share of
Series A Preferred Stock or one share of the Company's Common Stock for each Right.
The Company will be entitled to redeem the Rights at any time prior to the acquisition by a person or
group of 15% or more of the voting power of the outstanding Common Stock of the Company, at a price of
$.01 per Right. The Rights will expire on October 28, 2014.
The Company has 5,000 shares of $.001 par value preferred stock authorized for issuance, of which
500 shares have been designated by the Board of Directors as Series A Preferred Stock and reserved for
issuance upon exercise of the Rights. Each such share of Series A Preferred Stock will be nonredeemable and
junior to any other series of preferred stock the Company may issue (unless otherwise provided in the terms of
such stock) and will be entitled to a preferred dividend equal to the greater of $1.00 or one thousand times any
dividend declared on the Company's Common Stock. In the event of liquidation, the holders of Series A
Preferred Stock will receive a preferred liquidation payment of $1,000.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon. Each share of Series A Preferred Stock will have ten
thousand votes, voting together with the Company's Common Stock. However, in the event that dividends on
the Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, holders
F-26
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
of the Series A Preferred Stock shall have the right, voting as a class, to elect two of the Company's Directors.
In the event of any merger, consolidation or other transaction in which the Company's Common Stock is
exchanged, each share of Series A Preferred Stock will be entitled to receive one thousand times the amount
and type of consideration received per share of the Company's Common Stock. At January 29, 2005 there
were no shares of Series A Preferred Stock outstanding.
20. Unaudited Quarterly Financial Information
The following table sets forth certain unaudited quarterly consolidated statement of operations informa-
tion for the Ñscal years ended January 29, 2005 and January 31, 2004. The unaudited quarterly information
includes all normal recurring adjustments that management considers necessary for a fair presentation of the
information shown.
Fiscal Year Ended January 29, 2005 Fiscal Year Ended January 31, 2004
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(In thousands)
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $371,736 $345,593 $416,737 $708,740 $321,741 $305,674 $326,042 $625,381
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 104,642 106,286 118,959 179,413 84,640 88,032 97,783 162,490
Operating earnings(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,770 12,545 19,852 55,980 10,689 10,849 17,891 64,955
Net earnings(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,678 7,672 12,059 34,517 6,611 6,606 10,693 39,557
Net earnings per Class A and Class B
common share Ì basic(3) ÏÏÏÏÏÏÏÏ 0.12 0.14 0.22 0.68 0.12 0.12 0.19 0.71
Net earnings per Class A and Class B
common share Ì diluted(3)ÏÏÏÏÏÏÏ 0.11 0.13 0.21 0.64 0.11 0.11 0.18 0.67
(1) Includes the following pre-tax charges:
‚ $2,750 in the Ñrst quarter of the Ñscal year ended January 29, 2005 attributable to the California labor
litigation settlement,
‚ $2,800 in the third quarter of the Ñscal year ended January 29, 2005 attributable to the professional fees
related to the spin-oÅ by Barnes & Noble of the Company's Class B common shares, and
‚ $5,373 in the fourth quarter of the Ñscal year ended January 29, 2005 attributable to correcting the
Company's method of accounting for rent expense and depreciation expense on leasehold improve-
ments for those leases that do not contain a renewal option.
(2) Includes the following after-tax charges:
‚ $1,708 in the Ñrst quarter of the Ñscal year ended January 29, 2005 attributable to the California labor
litigation settlement,
‚ $1,739 in the third quarter of the Ñscal year ended January 29, 2005 attributable to the professional fees
related to the spin-oÅ by Barnes & Noble of the Company's Class B common shares, and
‚ $3,312 in the fourth quarter of the Ñscal year ended January 29, 2005 attributable to correcting the
Company's method of accounting for rent expense and depreciation expense on leasehold improve-
ments for those leases that do not contain a renewal option.
(3) Includes the following charges per basic and diluted share:
‚ $0.03 per basic and diluted share in the Ñrst quarter of the Ñscal year ended January 29, 2005
attributable to the California labor litigation settlement,
‚ $0.03 per basic and diluted share in the third quarter of the Ñscal year ended January 29, 2005
attributable to the professional fees related to the spin-oÅ by Barnes & Noble of the Company's
Class B common shares, and
F-27
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
‚ $0.07 and $0.06 per basic and diluted share, respectively, in the fourth quarter of the Ñscal year ended
January 29, 2005 attributable to correcting the Company's method of accounting for rent expense and
depreciation expense on leasehold improvements for those leases that do not contain a renewal option.
F-28
EXHIBIT INDEX
Exhibit
Number Description
3.1 Amended and Restated CertiÑcate of Incorporation.(1)
3.2 Bylaws.(1)
3.3 CertiÑcate of Designation of Preferences and Rights of Preferred Stock, Series A of the Company.(2)
4.1 Rights Agreement, dated October 25, 2004, between the Company and The Bank of New York, as
Rights Agent.(2)
10.1 Separation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(3)
10.2 Tax DisaÇliation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(1)
10.3 Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(1)
10.4 Operating Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop
Corp.(1)
10.5 Amended and Restated 2001 Incentive Plan.(7)
10.6 Supplemental Compensation Plan.(7)
10.7 Form of Option Agreement.(7)
10.8 Lease, dated as of March 6, 1997, between RREEF Mid-Cities Industrial L.P. and Babbage's Etc.
LLC.(1)
10.9 First Amendment to Lease, dated as of December 30, 1999, between RREEF Mid-Cities Industrial
L.P. and Babbage's Etc. LLC.(1)
10.10 Amended and Restated Credit Agreement, dated as of June 21, 2004.(4)
10.11 Amended and Restated Security Agreement, dated as of June 21, 2004.(4)
10.12 Amended and Restated Securities Collateral Pledge Agreement, dated as of June 21, 2004, between
GameStop Corp. and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.13 Amended and Restated Securities Collateral Pledge Agreement, dated as of June 21, 2004, between
GameStop, Inc. and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.14 Securities Collateral Pledge Agreement, dated as of June 21, 2004, between GameStop of Texas
(GP), LLC and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.15 Securities Collateral Pledge Agreement, dated as of June 21, 2004, between GameStop (LP), LLC
and Fleet Retail Group, Inc., as Administrative Agent.(4)
10.16 Amended and Restated Patent and Trademark Securities Agreement, dated as of June 21, 2004.(4)
10.17 Stock Purchase Agreement, dated as of October 1, 2004, by and among the Company, B&N
Gamestop Holding Corp. and Barnes & Noble.(5)
10.18 Promissory Note, dated as of October 1, 2004, made by the Company in favor of B&N GameStop
Holding Corp.(5)
14.1 Code of Ethics for Senior Financial OÇcers.(6)
21.1 Subsidiaries.(7)
23.1 Consent of BDO Seidman, LLP.
31.1 CertiÑcation of Chief Executive OÇcer pursuant to Rule 13a-14(a)/15(d)-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 CertiÑcation of Chief Financial OÇcer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securi-
ties Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit
Number Description
32.1 CertiÑcation of Chief Executive OÇcer pursuant to Rule 13a-14(b) under the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 CertiÑcation of Chief Financial OÇcer pursuant to Rule 13a-14(b) under the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(1) Incorporated by reference to the Registrant's Amendment No. 3 to Form S-1 Ñled with the Securities
and Exchange Commission on January 24, 2002 (No. 333-68294).
(2) Incorporated by reference to the Registrant's Form 8-K Ñled with the Securities and Exchange
Commission on October 28, 2004.
(3) Incorporated by reference to the Registrant's Amendment No. 4 to Form S-1 Ñled with the Securities
and Exchange Commission on February 5, 2002 (No. 333-68294).
(4) Incorporated by reference to the Registrant's Form 10-Q for the Ñscal quarter ended July 31, 2004 Ñled
with the Securities and Exchange Commission on September 7, 2004.
(5) Incorporated by reference to the Registrant's Form 8-K Ñled with the Securities and Exchange
Commission on October 5, 2004.
(6) Incorporated by reference to the Registrant's Form 10-K for the Ñscal year ended January 31, 2004 Ñled
with the Securities and Exchange Commission on April 14, 2004.
(7) Incorporated by reference to the Registrant's Form 10-K for the Ñscal year ended January 29, 2005 Ñled
with the Securities and Exchange Commission on April 11, 2005.
1,826 Retail Locations throughout the U.S., Puerto Rico and Ireland.
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Distribution Center
located in Grapevine, Texas
Headquarters
Retail Locations
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systems are all available for actual game play.
Road Warrior Tour
Redemption Cards
Shopping Guides
The GameStop shopping guides are a great catalog resource for customers to see many
of the hot new releases and upcoming pre-release titles. They showcase games for all
console, PC and handheld platforms. These catalogs are distributed in store each month
to our customers.
Game Informer Magazine was founded in 1991 as the fi nal word on computer & video
games. Today Game Informer (GI) has achieved greater circulation growth more
rapidly than any games magazine in history to become North America’s largest paid
circulation games publication, nearly 200% larger in total paid circulation than its
closest competitor.
The monthly publication covers PC, Sony
PlayStation 2, Nintendo Game Cube,
Microsoft Xbox, online and handheld
games and peripherals across a number
of departments including GI News, Etc.,
Classic GI and Secret Access.
Game Informer Magazine
Sunrise Publications, Inc.
724 First Street North, 4th Floor
Minneapolis, Minnesota 55401
Circulation Growth
*UNE
.UMBERSINTHOUSANDS
$EC
*UNE
$EC
Game Informer Magazine
R. Richard Fontaine
Chairman of the Board and
Chief Executive Offi cer
Joseph DePinto
President
Ronald Freeman
Executive Vice President
Distribution
William Chinn
Senior Vice President
Stores
Jeff Donaldson
Vice President
Chief Information Offi cer
Roxanne Koepsell
Vice President
Marketing
Robert Lloyd
Vice President
Finance
Daniel A. DeMatteo
Vice Chairman and
Chief Operating Offi cer
David W. Carlson
Executive Vice President and
Chief Financial Offi cer
Jack Beuttell
Senior Vice President
Marketing and Merchandising
Marc Summey
Senior Vice President
Real Estate
Doreen McKenzie
Vice President
Merchandising
Robert McKenzie
Vice President
Merchandising
David Shuart
Vice President
Human Resources
R. Richard Fontaine
Chairman of the Board and
Chief Executive Offi cer
Leonard Riggio
Chairman
Barnes & Noble, Inc.
Michael N. Rosen
Partner
Bryan Cave LLP
Daniel A. DeMatteo
Vice Chairman and
Chief Operating Offi cer
Gerald R. Szczepanski
Chairman of Gadzooks
Retired
Stephanie M. Shern
Chief Executive Offi cer
Shern & Associates, LLC
Edward A. Volkwein
President and
Chief Operating Offi cer
Hydro-Photon, Inc.
GameStop Management
GameStop Board of Directors
Corporate Offi ces
GameStop Corp.
625 Westport Parkway
Grapevine, TX 76051
817-424-2000
www.gamestop.com
Stock Listing
New York Stock Exchange
Market Symbol GME; GME.B
Auditors
BDO Seidman, LLP
700 North Pearl Street
Suite 2000
Dallas, TX 75201
Company Counsel
Bryan Cave LLP
1290 Avenue of the Americas
New York, NY 10104
Transfer Agent and Registrar
The Bank of New York
1-800-524-4458
http://www.stockbny.com
Address Stockholder Inquiries to:
The Bank of New York
Shareholder Relations Department
P.O. Box 11258
Church Street Station
New York, NY 10286
E-Mail Address
shareowner-svcs@bankofny.com
Send Certifi cates for Transfer and
Address Change To:
The Bank of New York
Receive and Deliver Department
P.O. Box 11002
Church Street Station
New York, NY 10286
General Information
The Certifi cations of the Company’s Chief Executive Offi cer and
Chief Financial Offi cer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, have been fi led as exhibits
to the Company’s Form 10-K/A for the fi scal year ended January
29, 2005.
This Annual Report contains trademarks and other intellectual
property of other parties.
625 Westport Parkway
Grapevine, TX 76051
(817) 424-2000
