UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q


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

FOR THE QUARTERLY PERIOD ENDED AUGUST 3, 2013

2, 2014

OR

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

FOR THE TRANSITION PERIOD FROM                      TO

FOR THE TRANSITION PERIOD FROM                      TO                     
COMMISSION FILE NO. 1-32637

GameStop Corp.

(Exact name of registrant as specified in its Charter)

Delaware 20-2733559

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

625 Westport Parkway,

76051

(Zip Code)

Grapevine, Texas 
625 Westport Parkway,
76051
(Zip Code)
Grapevine, Texas
(Address of principal executive offices) 

Registrant’s telephone number, including area code:

(817) 424-2000


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ

  
Accelerated filer  ¨
  
Non-accelerated filer  ¨
  
Smaller reporting company  ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

Number of shares of $.001 par value Class A Common Stock outstanding as of September 4, 2013: 116,896,851

August 29, 2014: 112,667,338



TABLE OF CONTENTS

 Page No.
PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

1
  1
 

Condensed Consolidated Balance Sheets (unaudited) — August 2, 2014, August 3, 2013 July 28, 2012 and February 2, 20131, 2014

1
  1
 

Condensed Consolidated Statements of Operations (unaudited) — For the 13 weeks and 26 weeks ended August 2, 2014 and August 3, 2013 and July 28, 2012

2
  2
 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) — For the 13 weeks and 26 weeks ended August 2, 2014 and August 3, 2013 and July 28, 2012

3
  3
 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) — For the 26 weeks ended August 2, 2014 and August 3, 2013 and July 28, 2012

4
  4
 

Condensed Consolidated Statements of Cash Flows (unaudited) — For the 26 weeks ended August 2, 2014 and August 3, 2013 and July  28, 2012

5
  5
 

Notes to Condensed Consolidated Financial Statements (unaudited)

6
  6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16
  15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29
  29

Item 4.

Controls and Procedures

29
29
 
PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

  
Item 1.
Legal Proceedings
30
 

Item 1A.

Risk Factors

30
  30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30
  
Item 6.
Exhibits
30
 
SIGNATURES
31

Item 6.

Exhibits

31 

SIGNATURES

32

EXHIBIT INDEX

33
32



Table of Contents

PART I — FINANCIAL INFORMATION

ITEM
Item 1.Financial Statements

GAMESTOP CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

   August 3,
2013		   July 28,
2012		   February 2,
2013		 
   (In millions, except per share data) 
   (Unaudited) 
ASSETS:  

Current assets:

    

Cash and cash equivalents

  $199.5    $138.7    $635.8  

Receivables, net

   55.7     40.2     73.6  

Merchandise inventories, net

   1,004.4     980.2     1,171.3  

Deferred income taxes – current

   55.2     43.3     61.7  

Prepaid taxes

   50.9     61.5     —  

Prepaid expenses

   96.2     88.4     61.2  

Other current assets

   2.6     27.1     7.3  
  

 

 

   

 

 

   

 

 

 

Total current assets

   1,464.5     1,379.4     2,010.9  
  

 

 

   

 

 

   

 

 

 

Property and equipment:

    

Land

   20.7     22.1     22.5  

Buildings and leasehold improvements

   594.3     594.5     606.4  

Fixtures and equipment

   939.2     889.7     926.0  
  

 

 

   

 

 

   

 

 

 

Total property and equipment

   1,554.2     1,506.3     1,554.9  

Less accumulated depreciation and amortization

   1,074.8     976.9     1,030.1  
  

 

 

   

 

 

   

 

 

 

Net property and equipment

   479.4     529.4     524.8  

Goodwill

   1,365.1     1,981.8     1,383.1  

Other intangible assets, net

   144.4     189.5     153.4  

Other noncurrent assets

   57.0     51.7     61.4  
  

 

 

   

 

 

   

 

 

 

Total noncurrent assets

   2,045.9     2,752.4     2,122.7  
  

 

 

   

 

 

   

 

 

 

Total assets

  $3,510.4    $4,131.8    $4,133.6  
  

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY:  

Current liabilities:

      

Accounts payable

  $356.8    $462.1    $870.9  

Accrued liabilities

   843.1     721.2     741.0  

Income taxes payable

   —     —     103.4  

Revolver debt outstanding

   50.0     —     —  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

   1,249.9     1,183.3     1,715.3  
  

 

 

   

 

 

   

 

 

 

Deferred income taxes

   27.3     60.9     31.5  

Other long-term liabilities

   76.5     98.3     100.5  
  

 

 

   

 

 

   

 

 

 

Total long-term liabilities

   103.8     159.2     132.0  
  

 

 

   

 

 

   

 

 

 

Total liabilities

   1,353.7     1,342.5     1,847.3  
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies (Note 7)

      

Stockholders’ equity:

      

Preferred stock — authorized 5.0 shares; no shares issued or outstanding

   —     —     —  

Class A common stock — $.001 par value; authorized 300.0 shares; 127.1, 134.5 and 128.2 shares issued, 117.1, 124.5 and 118.2 shares outstanding, respectively

   0.1     0.1     0.1  

Additional paid-in-capital

   286.3     479.1     348.3  

Accumulated other comprehensive income

   98.3     111.4     164.4  

Retained earnings

   1,772.0     2,198.7     1,773.5  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

   2,156.7     2,789.3     2,286.3  
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $3,510.4    $4,131.8    $4,133.6  
  

 

 

   

 

 

   

 

 

 

  August 2,
2014		 August 3,
2013		 February 1,
2014
  
(In millions, except per share data)
(Unaudited)
ASSETS
Current assets:      
Cash and cash equivalents $193.0
 $127.4
 $536.2
Receivables, net 91.2
 55.7
 84.4
Merchandise inventories, net 1,061.0
 1,004.4
 1,198.9
Deferred income taxes 59.2
 55.2
 51.7
Income taxes receivable 83.0
 50.9
 —
Prepaid expenses and other current assets 98.9
 98.8
 78.4
Total current assets 1,586.3
 1,392.4
 1,949.6
Property and equipment:      
Land 21.0
 20.7
 20.4
Buildings and leasehold improvements 621.9
 594.3
 609.6
Fixtures and equipment 864.0
 939.2
 841.8
Total property and equipment 1,506.9
 1,554.2
 1,471.8
Less accumulated depreciation and amortization 1,057.2
 1,074.8
 995.6
Net property and equipment 449.7
 479.4
 476.2
Goodwill 1,420.6
 1,365.1
 1,414.7
Other intangible assets, net 222.0
 144.4
 194.3
Other noncurrent assets 84.9
 57.0
 56.6
Total noncurrent assets 2,177.2
 2,045.9
 2,141.8
Total assets $3,763.5
 $3,438.3
 $4,091.4
       
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:      
Accounts payable $460.8
 $315.8
 $783.9
Accrued liabilities 743.1
 812.0
 861.7
Income taxes payable 29.7
 —
 78.0
Current portion of debt 214.1
 50.0
 2.4
Total current liabilities 1,447.7
 1,177.8
 1,726.0
Deferred income taxes 58.9
 27.3
 37.4
Other long-term liabilities 75.2
 76.5
 75.0
Notes payable - long-term 0.3
 —
 1.6
Total long-term liabilities 134.4
 103.8
 114.0
Total liabilities 1,582.1
 1,281.6
 1,840.0
Commitments and contingencies (Note 7) 
 
 
Stockholders’ equity:      
Preferred stock — authorized 5.0 shares; no shares issued or outstanding —
 —
 —
Class A common stock — $.001 par value; authorized 300.0 shares; 112.8, 127.1 and 115.3 shares issued, 112.8, 117.1 and 115.3 shares outstanding, respectively 0.1
 0.1
 0.1
Additional paid-in-capital 65.8
 286.3
 172.9
Accumulated other comprehensive income 104.1
 98.3
 82.5
Retained earnings 2,011.4
 1,772.0
 1,995.9
Total stockholders’ equity 2,181.4
 2,156.7
 2,251.4
Total liabilities and stockholders’ equity $3,763.5
 $3,438.3
 $4,091.4
See accompanying notes to unaudited condensed consolidated financial statements.


1
Table of Contents

GAMESTOP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  13 Weeks Ended  26 Weeks Ended 
  August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 
  (In millions, except per share data) 
     (Unaudited)    

Net sales

 $1,383.7   $1,550.2   $3,249.0   $3,552.4  

Cost of sales

  902.3    1,030.9    2,189.3    2,433.2  
 

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

  481.4    519.3    1,059.7    1,119.2  

Selling, general and administrative expenses

  421.6    440.9    870.8    881.3  

Depreciation and amortization

  41.0    43.9    82.9    88.4  
 

 

 

  

 

 

  

 

 

  

 

 

 

Operating earnings

  18.8    34.5    106.0    149.5  

Interest income

  (0.1)   (0.2)   (0.2)   (0.4) 

Interest expense

  1.4    1.1    2.4    1.7  
 

 

 

  

 

 

  

 

 

  

 

 

 

Earnings before income tax expense

  17.5    33.6    103.8    148.2  

Income tax expense

  7.0    12.6    38.7    54.8  
 

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net income

  10.5    21.0    65.1    93.4  

Net loss attributable to noncontrolling interests

  —    —    —    0.1  
 

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net income attributable to GameStop Corp.

 $10.5   $21.0   $65.1   $93.5  
 

 

 

  

 

 

  

 

 

  

 

 

 

Basic net income per common share attributable to GameStop Corp.

 $0.09   $0.16   $0.55   $0.71  
 

 

 

  

 

 

  

 

 

  

 

 

 

Diluted net income per common share attributable to GameStop Corp.

 $0.09   $0.16   $0.55   $0.71  
 

 

 

  

 

 

  

 

 

  

 

 

 

Dividends per common share

 $0.275   $0.15   $0.55   $0.30  
 

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average shares of common stock outstanding — basic

  117.9    128.7    118.1    131.3  
 

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average shares of common stock outstanding — diluted

  119.2    129.1    119.3    132.0  
 

 

 

  

 

 

  

 

 

  

 

 

 

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
  
(In millions, except per share data)
(Unaudited)
Net sales $1,731.4
 $1,383.7
 $3,727.7
 $3,249.0
Cost of sales 1,180.5
 902.3
 2,550.4
 2,189.3
Gross profit 550.9
 481.4
 1,177.3
 1,059.7
Selling, general and administrative expenses 475.4
 421.6
 956.4
 870.8
Depreciation and amortization 38.8
 41.0
 78.3
 82.9
Operating earnings 36.7
 18.8
 142.6
 106.0
Interest income (0.1) (0.1) (0.3) (0.2)
Interest expense 1.2
 1.4
 2.0
 2.4
Earnings before income tax expense 35.6
 17.5
 140.9
 103.8
Income tax expense 11.0
 7.0
 48.3
 38.7
Net income $24.6
 $10.5
 $92.6
 $65.1
Basic net income per common share $0.22
 $0.09
 $0.81
 $0.55
Diluted net income per common share $0.22
 $0.09
 $0.80
 $0.55
Dividends per common share $0.33
 $0.275
 $0.66
 $0.55
Weighted average shares of common stock outstanding — basic 113.6
 117.9
 114.3
 118.1
Weighted average shares of common stock outstanding — diluted 114.3
 119.2
 115.1
 119.3

See accompanying notes to unaudited condensed consolidated financial statements.



2
Table of Contents

GAMESTOP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

   13 Weeks Ended  26 Weeks Ended 
   August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 
   (In millions) 
   (Unaudited) 

Consolidated net income

  $10.5   $21.0   $65.1   $93.4  

Other comprehensive income:

     

Foreign currency translation adjustment

   (48.0)   (59.0)   (66.1)   (58.4) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

   (37.5)   (38.0)   (1.0)   35.0  

Comprehensive loss attributable to noncontrolling interests

   —    —    —    0.2  
  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) attributable to GameStop Corp.

  $(37.5)  $(38.0)  $(1.0)  $35.2  
  

 

 

  

 

 

  

 

 

  

 

 

 

(LOSS)

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
  (In millions)
(Unaudited)
Net income $24.6
 $10.5
 $92.6
 $65.1
Other comprehensive income (loss):        
Foreign currency translation adjustment (7.6) (48.0) 21.6
 (66.1)
Total comprehensive income (loss) $17.0
 $(37.5) $114.2
 $(1.0)

See accompanying notes to unaudited condensed consolidated financial statements.



3
Table of Contents

GAMESTOP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

   Class A
Common Stock		   Additional
Paid-in
Capital		  Accumulated
Other
Comprehensive
Income		  Retained
Earnings		  Total 
        
   Shares  Common
Stock		      
   (In millions) 
   (Unaudited) 

Balance at February 2, 2013

   118.2   $0.1    $348.3   $164.4   $1,773.5   $2,286.3  

Net income for the 26 weeks ended August 3, 2013

   —    —     —    —    65.1    65.1  

Foreign currency translation

   —    —     —    (66.1)   —    (66.1) 

Dividends1

   —    —     —    —    (66.6)   (66.6) 

Stock-based compensation

   —    —     11.5    —    —    11.5  

Purchase of treasury stock

   (3.4)   —     (114.4)   —    —    (114.4) 

Exercise of stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $1.6)

   2.3    —     40.9    —    —    40.9  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance at August 3, 2013

   117.1   $0.1    $286.3   $98.3   $1,772.0   $2,156.7  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

  
Class A
Common Stock
        
  Shares 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 Total
  
(In millions)
(Unaudited)
Balance at February 2, 2014 115.3
 $0.1
 $172.9
 $82.5
 $1,995.9
 $2,251.4
Net income for the 26 weeks ended August 2, 2014 —
 —
 —
 —
 92.6
 92.6
Foreign currency translation —
 —
 —
 21.6
 —
 21.6
Dividends(1)
 —
 —
 —
 —
 (77.1) (77.1)
Stock-based compensation —
 —
 12.6
 —
 —
 12.6
Repurchase of common shares (3.2) —
 (127.7) —
 —
 (127.7)
Exercise of stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $4.4) 0.7
 —
 8.0
 —
 —
 8.0
             
Balance at August 2, 2014 112.8
 $0.1
 $65.8
 $104.1
 $2,011.4
 $2,181.4
             
1

(1)
Dividends declared per common share were $0.66 in the 26 weeks ended August 2, 2014.
  
Class A
Common Stock
        
  Shares 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 Total
  
(In millions)
(Unaudited)
Balance at February 3, 2013 118.2
 $0.1
 $348.3
 $164.4
 $1,773.5
 $2,286.3
Net income for the 26 weeks ended August 3, 2013 —
 —
 —
 —
 65.1
 65.1
Foreign currency translation —
 —
 —
 (66.1) —
 (66.1)
Dividends(2)
 —
 —
 —
 —
 (66.6) (66.6)
Stock-based compensation —
 —
 11.5
 —
 —
 11.5
Repurchase of common shares (3.4) —
 (114.4) —
 —
 (114.4)
Exercise of stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $1.6) 2.3
 —
 40.9
 —
 —
 40.9
             
Balance at August 3, 2013 117.1
 $0.1
 $286.3
 $98.3
 $1,772.0
 $2,156.7
             
(2)
Dividends declared per common share were $0.55 in the 26 weeks ended August 3, 2013.

   GameStop Corp. Stockholders  Noncontrolling
Interest		  Total 
   Class A
Common Stock		   Additional
Paid-in
Capital		  Accumulated
Other
Comprehensive
Income		  Retained
Earnings		   
   Shares  Common
Stock		       
   (In millions) 
   (Unaudited) 

Balance at January 28, 2012

   136.8   $0.1    $726.6   $169.7   $2,145.7   $(1.9)  $3,040.2  

Purchase of subsidiary shares from noncontrolling interest

   —    —     (2.1)   —    —    2.1    —  

Comprehensive income:

         

Net income (loss) for the 26 weeks ended July 28, 2012

   —    —     —    —    93.5    (0.1)   93.4  

Foreign currency translation

   —    —     —    (58.3)   —    (0.1)   (58.4) 

Dividends2

   —    —     —    —    (40.5)   —    (40.5) 

Stock-based compensation

   —    —     10.4    —    —    —    10.4  

Purchase of treasury stock

   (13.0)   —     (257.9)   —    —    —    (257.9) 

Exercise of stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $0.4)

   0.7    —     2.1    —    —    —    2.1  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at July 28, 2012

   124.5   $0.1    $479.1   $111.4   $2,198.7   $—   $2,789.3  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

2

Dividends declared per common share were $0.30 in the 26 weeks ended July 28, 2012.

See accompanying notes to unaudited condensed consolidated financial statements.


4
Table of Contents

GAMESTOP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   26 Weeks Ended 
   August 3,
2013		  July 28,
2012		 
   (In millions) 
   (Unaudited) 

Cash flows from operating activities:

   

Consolidated net income

  $65.1   $93.4  

Adjustments to reconcile net income to net cash flows used in operating activities:

   

Depreciation and amortization (including amounts in cost of sales)

   84.2    89.6  

Stock-based compensation expense

   11.5    10.4  

Deferred income taxes

   1.0    (3.4) 

Loss on disposal of property and equipment

   3.4    2.0  

Other, net

   (2.5)   0.2  

Changes in other long-term liabilities

   (22.4)   (6.7) 

Changes in operating assets and liabilities, net:

   

Receivables, net

   16.9    23.5  

Merchandise inventories

   142.2    133.6  

Prepaid expenses and other current assets

   (31.8)   (20.9) 

Prepaid income taxes and accrued income taxes payable

   (152.9)   (145.2) 

Accounts payable and accrued liabilities

   (389.3)   (350.3) 
  

 

 

  

 

 

 

Net cash flows used in operating activities

   (274.6)   (173.8) 
  

 

 

  

 

 

 

Cash flows from investing activities:

   

Purchase of property and equipment

   (47.3)   (53.6) 

Acquisitions, net of cash acquired

   —    (1.5) 

Other

   1.4    (2.1) 
  

 

 

  

 

 

 

Net cash flows used in investing activities

   (45.9)   (57.2) 
  

 

 

  

 

 

 

Cash flows from financing activities:

   

Purchase of treasury shares

   (114.4)   (246.6) 

Dividends paid

   (66.2)   (40.3) 

Borrowings from the revolver

   130.0    36.0  

Repayments of revolver borrowings

   (80.0)   (36.0) 

Issuance of shares relating to stock options

   39.3    1.6  

Excess tax benefits realized from exercise of stock-based awards

   3.1    0.4  
  

 

 

  

 

 

 

Net cash flows used in financing activities

   (88.2)   (284.9) 

Exchange rate effect on cash and cash equivalents

   (27.6)   (0.4) 
  

 

 

  

 

 

 

Net decrease in cash and cash equivalents

   (436.3)   (516.3) 

Cash and cash equivalents at beginning of period

   635.8    655.0  
  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $199.5   $138.7  
  

 

 

  

 

 

 

  26 Weeks Ended
  August 2,
2014		 August 3,
2013
  
(In millions)
(Unaudited)
Cash flows from operating activities:    
Net income $92.6
 $65.1
Adjustments to reconcile net income to net cash flows used in operating activities:    
Depreciation and amortization (including amounts in cost of sales) 79.4
 84.2
Stock-based compensation expense 12.6
 11.5
Deferred income taxes (13.2) 1.0
Excess tax benefits related to stock-based awards (4.4) (1.6)
Loss on disposal of property and equipment 2.1
 3.4
Other 20.1
 (0.9)
Changes in operating assets and liabilities:    
Receivables, net (4.8) 16.9
Merchandise inventories 125.8
 142.2
Prepaid expenses and other current assets (19.9) (31.8)
Income tax payable/receivable (115.7) (152.9)
Accounts payable and accrued liabilities (450.1) (200.0)
Changes in other long-term liabilities 0.2
 (22.4)
Net cash flows used in operating activities (275.3) (85.3)
Cash flows from investing activities:    
Purchase of property and equipment (51.5) (47.3)
Acquisitions, net of cash acquired of $2.5 (43.1) —
Other (0.9) 1.4
Net cash flows used in investing activities (95.5) (45.9)
Cash flows from financing activities:    
Repurchase of common shares (123.8) (114.4)
Dividends paid (75.7) (66.2)
Proceeds from the revolver 476.0
 130.0
Repayments of revolver borrowings (266.0) (80.0)
Payments of financing costs (1.3) —
Issuance of common stock, net of share repurchases for withholdings taxes (2.0) 39.3
Excess tax benefits related to stock-based awards 4.4
 3.1
Net cash flows provided by (used in) financing activities 11.6
 (88.2)
Exchange rate effect on cash and cash equivalents 16.0
 (27.6)
Net decrease in cash and cash equivalents (343.2) (247.0)
Cash and cash equivalents at beginning of period 536.2
 374.4
Cash and cash equivalents at end of period $193.0
 $127.4
See accompanying notes to unaudited condensed consolidated financial statements.


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GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.

1.Nature of Operations and Summary of Significant Accounting Policies

Background
Basis of Presentation

GameStop Corp. (together with its predecessor companies, “GameStop,(“GameStop,” “we,” “us,” “our,” or the “Company”), is a Delaware corporation, isglobal family of specialty retail brands that makes the world’smost popular technologies affordable and simple. As the world's largest multichannel video game retailer. Weretailer, we sell new and pre-owned video game hardware, physical and digital video game software, video game accessories, as well as PC entertainment software, new and pre-owned mobile and consumer electronics products and other merchandise. merchandise primarily through our GameStop, EB Games and Micromania stores. We sell consumer electronics, mobile products and wireless services primarily through our Simply Mac, Spring Mobile and Cricket Wireless stores. As of August 2, 2014, we operated 6,698 stores, in the United States, Australia, Canada and Europe, which are primarily located in major shopping malls and strip centers. We also operate electronic commerce Web sites www.gamestop.com, www.ebgames.com.au, www.ebgames.co.nz, www.gamestop.ca, www.gamestop.it, www.gamestop.es, www.gamestop.ie, www.gamestop.de, www.gamestop.co.uk and www.micromania.fr. The network also includes: www.kongregate.com, a leading browser-based game site; Game Informer magazine, the world's leading print and digital video game publication; a digital PC game distribution platform available at www.gamestop.com/pcgames; iOS and Android mobile applications; and an online consumer electronics marketplace available at www.buymytronics.com. We also own and operate a certified Apple reseller selling Apple products in the United States under the name Simply Mac; Spring Mobile, an authorized AT&Treseller operating AT&T branded wireless retail stores in the United States; and pre-paid wireless stores under the name Cricket Wireless (an AT&T brand) as part of our expanding relationship with AT&T. We operate our business in four Video Game Brands segments: United States, Canada, Australia and Europe, and a Technology Brands segment, which was added in the fourth quarter of the fiscal year comprised of the 52 weeks ended February 1, 2014 ("fiscal 2013") and includes the operations of our Simply Mac, Spring Mobile and Cricket Wireless businesses.

Basis of Presentation and Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of the Company and itsour subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Additionally, certain reclassifications have been made to prior period amounts reflected in the condensed consolidated statements of cash flows to conform to the current period presentation. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in our opinion, necessary for a fair presentation of the information for the periods presented. These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required under GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our annual report on Form 10-K for the 5352 weeks ended February 2, 2013 (“fiscal 2012”1, 2014 (the “2013 Annual Report on Form 10-K”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by us could have a significant impact on our financial results. Actual results could differ from those estimates.

Due to the seasonal nature of theour business, the results of operations for the 13 and 26 weeks ended August 3, 20132, 2014 are not indicative of the results to be expected for the 52 weeks ending February 1, 2014January 31, 2015 (“fiscal 2013”2014”).

We have revised the presentation of outstanding checks in our prior period financial statements as indicated in the tables below. Previously, we reduced cash and liabilities when the checks were presented for payment and cleared our bank accounts. We now reduce cash and liabilities when the checks are released for payment. The impacts of revising our financial statements for the specified prior periods are as follows:

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GAMESTOP CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Consolidated Balance Sheets as of August 3, 2013: As Previously Reported Revision As Revised
  (In millions)
Cash and cash equivalents $199.5
 $(72.1) $127.4
Total current assets 1,464.5
 (72.1) 1,392.4
Total assets 3,510.4
 (72.1) 3,438.3
Accounts payable 356.8
 (41.0) 315.8
Accrued liabilities 843.1
 (31.1) 812.0
Total current liabilities 1,249.9
 (72.1) 1,177.8
Total liabilities 1,353.7
 (72.1) 1,281.6
Consolidated Statements of Cash Flows for the 26 weeks ended August 3, 2013: As Previously Reported Revision As Revised
  (In millions)
Changes in operating assets and liabilities:      
Accounts payable and accrued liabilities $(389.3) $189.3
 $(200.0)
Net cash flows provided by operating activities (274.6) 189.3
 (85.3)
Cash and cash equivalents at beginning of period 635.8
 (261.4) 374.4
Cash and cash equivalents at end of period 199.5
 (72.1) 127.4
Restricted Cash

Restricted cash of $13.6 million, $10.4 million $12.0 million and $13.4$16.4 million as of August 2, 2014, August 3, 2013 July 28, 2012 and February 2, 2013,1, 2014, respectively, consists primarily of bank deposits serving as collateral for bank guarantees issued on behalf of our foreign subsidiaries and is included in other noncurrent assets in our unaudited condensed consolidated balance sheets.

Revenue Recognition
Revenue from the sales of our products is recognized at the time of sale, net of sales discounts and net of an estimated sales return reserve, based on historical return rates, with a corresponding reduction in cost of sales. Our sales return policy is generally limited to less than 30 days and as such our sales returns are, and have historically been, immaterial.
Recently Issued Accounting Standards

Pronouncements

In July 2013, accounting standards updateMay 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards (“IFRS”), the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11“Income Taxes (Topic 740): Presentation2014-09 related to revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,amount that reflects what it expects in exchange for the goods or a Tax Credit Carryforward Exists” was issued requiring an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presentedservices. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or useprior accounting guidance. The ASU provides alternative methods of an operating loss carry forward, a similar tax loss, or a tax credit carry forward. This ASU will beinitial adoption and is effective for usannual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is not permitted. We are currently evaluating the first quarter of 2014. We do not expectimpact that this ASUstandard will have an impact on our condensed consolidated financial statements as we currently do not have any unrecognized tax benefits inwell as the same jurisdictions in which we have tax loss or credit carryovers.

appropriate method of adoption.


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GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

In March 2013,April 2014, the FASB issued ASU 2013-05“Foreign Currency Matters (Topic 830)” was issued providing guidance with respect2014-08 related to reporting discontinued operations and disclosures of disposals of components of an entity. Specifically, the ASU amends the definition of a discontinued operation, expands disclosure requirements for transactions that meet the definition of a discontinued operation and requires entities to disclose additional information about individually significant components that are disposed of or held for sale and do not qualify as discontinued operations. Additionally, entities will be required to reclassify assets and liabilities of a discontinued operation for all comparative periods presented in the statement of financial position and to separately present certain information related to the releaseoperating and investing cash flows of cumulative translation adjustments into net income when a parent company sells either a part orthe discontinued operation, for all comparative periods, in the statement of an investment in a foreign entity.cash flows. The ASU requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a foreign subsidiary or a group of assets that constitutes a business within a foreign entity. This ASU will beis effective for us beginning in the first quarter of 2014.our fiscal year ending January 30, 2016 and will be adopted on a prospective basis for all disposals (except disposals classified as held for sale prior to the adoption date) or components initially classified as held for sale in periods beginning on or after the adoption date, with early adoption permitted. We are currently evaluating the effect ofimpact that this ASU, but do not expect it tostandard will have a significant impact on our condensed consolidated financial statements.

In February 2013, ASU 2013-02“Comprehensive Income (Topic 220): Reporting


2.Acquisitions
Technology Brands
During the first half of Amounts Reclassified Outfiscal 2014, in connection with the continued expansion of Accumulated Other Comprehensive Income” was issued regarding disclosureour Technology Brands business, Spring Mobile completed acquisitions of amounts reclassified outcertain AT&T resellers and Simply Mac completed an acquisition of accumulated other comprehensive income by component. An entity is requiredan authorized Apple retailer for total consideration of $45.6 million ($43.1 million net of cash acquired). We recorded an immaterial amount of goodwill related to present either onthese acquisitions. We continue to believe that our Spring Mobile and Simply Mac businesses represent important strategic growth opportunities for us within the face of the statement ofspecialty retail marketplace and also provide avenues for diversification relative to our core operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU was effective for our annual and interim periods beginning in fiscal 2013. The ASU had no effect on our condensed consolidated financial statements.

video game retail marketplace.
2.

3.Accounting for Stock-Based Compensation

The following is a summary of the stock-based awards granted during the periods indicated:

   26 Weeks Ended August 3, 2013   26 Weeks Ended July 28, 2012 
   Shares   Weighted Average
Grant Date Fair
Value		   Shares   Weighted Average
Grant Date Fair
Value		 
   (In thousands, except per share data) 

Stock options – time-vested

   457    $7.10     —     —  

Restricted stock awards – time-vested

   916    $24.82     784    $23.66  

Restricted stock awards – performance-based

   262    $24.82     626    $23.66  
  

 

 

     

 

 

   

Total stock-based awards

   1,635       1,410    
  

 

 

     

 

 

   

  26 Weeks Ended August 2, 2014 26 Weeks Ended August 3, 2013
  Shares 
Weighted Average
Grant Date Fair
Value
 Shares 
Weighted Average
Grant Date Fair
Value
  (In thousands, except per share data)
Stock options – time-vested 283
 $12.37
 457
 $7.10
Restricted stock awards – time-vested 437
 38.64
 916
 24.82
Restricted stock awards – performance-based 182
 38.52
 262
 24.82
Total stock-based awards 902
   1,635
  
For stock options granted, we record stock-based compensation expense in earnings based on the grant-date fair value. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. This valuation model requires the use of subjective assumptions, including expected option life, expected volatility, expected dividend yield and expected employee forfeiture rate. We use historical data to estimate the option life, dividend yield and the employee forfeiture rate, and use historical volatility when estimating the stock price volatility. The following assumptions were used with respect to the stock options granted:

26 Weeks Ended
August  3,
2013

Volatility

46.4% 

Risk-free interest rate

1.0% 

Expected life (years)

5.6

Expected dividend yield

4.3% 

 26 Weeks Ended
 August 2,
2014		 August 3,
2013
Volatility46.5% 46.4%
Risk-free interest rate1.7% 1.0%
Expected life (years)5.5
 5.6
Expected dividend yield3.4% 4.3%

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GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Total stock-based compensation recognized in selling, general and administrative expenses was as follows for the periods indicated:

   13 Weeks Ended   26 Weeks Ended 
   August 3,
2013		   July 28,
2012		   August 3,
2013		   July 28,
2012		 
   (In millions) 

Stock-based compensation expense

  $6.0    $5.5    $11.5    $10.4  

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
  (In millions)
Stock-based compensation expense $6.8
 $6.0
 $12.6
 $11.5
As of August 3, 2013,2, 2014, the unrecognized compensation expense related to the unvested portion of our stock–basedstock-based awards was $44.9$43.3 million, which is expected to be recognized over a weighted average period of 2.22 years. The total intrinsic value of options exercised during the 13 weeks ended August 2, 2014 and the 13 weeks ended August 3, 2013 and July 28, 2012 was $10.5$5.1 million and $0.7$10.5 million, respectively. The total intrinsic value of options exercised during the 26 weeks ended August 2, 2014 and the 26 weeks ended August 3, 2013 was $6.3 million and July 28, 2012 was $21.1 million, and $1.1 million, respectively.


3.

4.Computation of Net Income Perper Common Share

Basic net income per common share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding and potentially dilutive securities outstanding during the period. Under the treasury stock method, potentially dilutive securities include stock options and unvested restricted stock outstanding during the period. Potentially dilutive securities are excluded from the computations of diluted earnings per share if their effect would be antidilutive.
A reconciliation of shares used in calculatingthe computation of basic and diluted net income per common share is as follows:

   13 Weeks Ended   26 Weeks Ended 
   August 3,
2013		   July 28,
2012		   August 3,
2013		   July 28,
2012		 
   (In millions, except per share data) 

Consolidated net income attributable to GameStop Corp.

  $10.5    $21.0    $65.1    $93.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

   117.9     128.7     118.1     131.3  

Dilutive effect of options and restricted shares on common stock(1)

   1.3     0.4     1.2     0.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Common shares and dilutive potential common shares

   119.2     129.1     119.3     132.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic

  $0.09    $0.16    $0.55    $0.71  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $0.09    $0.16    $0.55    $0.71  
  

 

 

   

 

 

   

 

 

   

 

 

 

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
  (In millions, except per share data)
Net income $24.6
 $10.5
 $92.6
 $65.1
Weighted average common shares outstanding 113.6
 117.9
 114.3
 118.1
Dilutive effect of options and restricted shares on common stock(1)
 0.7
 1.3
 0.8
 1.2
Common shares and dilutive potential common shares 114.3
 119.2
 115.1
 119.3
Net income per common share:        
Basic $0.22
 $0.09
 $0.81
 $0.55
Diluted $0.22
 $0.09
 $0.80
 $0.55
(1)

(1)
Excludes 1.5 million, 1.6 million, 5.5 million, 1.81.6 million, and 3.91.8 million share-based awards for the 13 weeks ended August 3, 2013,2, 2014, the 13 weeks ended July 28, 2012,August 3, 2013, the 26 weeks ended August 2, 2014 and the 26 weeks ended August 3, 2013, and the 26 weeks ended July 28, 2012, respectively, because their effects were antidilutive.



4.

5.Fair Value Measurements and Financial Instruments

Recurring Fair Value Measurements and Derivative Financial Instruments

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting guidance applies to our foreign currency contracts, which include forward exchange contracts, foreign currency options and cross-currency swaps, (together, the “Foreign Currency Contracts”),our Company-owned

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GAMESTOP CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

life insurance policies with a cash surrender value and certain nonqualified deferred compensation liabilities that are measured at fair value on a recurring basis in periods subsequent to initial recognition.

GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair value accounting guidance requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.

We value our Foreign Currency Contracts,foreign currency contracts, Company-owned life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities based on Level 2 inputs using quotations provided by major market news services, such as Bloomberg, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

The following table provides the fair value of our assets and liabilities measured at fair value on a recurring basis and recorded on our unaudited condensed consolidated balance sheets (in millions):

   August 3,
2013		   July 28,
2012		   February 2,
2013		 

Assets

      

Foreign Currency Contracts

      

Other current assets

  $2.6    $27.1    $7.3  

Other noncurrent assets

   0.3     6.0     0.9  

Company-owned life insurance(1)

   5.4     3.2     3.5  
  

 

 

   

 

 

   

 

 

 

Total assets

   8.3     36.3     11.7  
  

 

 

   

 

 

   

 

 

 

Liabilities

    

Foreign Currency Contracts

      

Accrued liabilities

   12.8     1.7     9.1  

Other long-term liabilities

   8.0     —     4.4  

Nonqualified deferred compensation(2)

   1.0     0.9     0.9  
  

 

 

   

 

 

   

 

 

 

Total liabilities

  $21.8    $2.6    $14.4  
  

 

 

   

 

 

   

 

 

 

  August 2,
2014		 August 3,
2013		 February 1,
2014
Assets      
Foreign currency contracts      
Other current assets $2.0
 $2.6
 $0.9
Other noncurrent assets 3.2
 0.3
 0.5
Company-owned life insurance(1) 7.2
 5.4
 7.1
Total assets 12.4
 8.3
 8.5
Liabilities      
Foreign currency contracts      
Accrued liabilities 7.6
 12.8
 21.3
Other long-term liabilities 1.6
 8.0
 2.2
Nonqualified deferred compensation(2) 1.1
 1.0
 1.1
Total liabilities $10.3
 $21.8
 $24.6
(1)

(1)
Recognized in other non-current assets in our unaudited condensed consolidated balance sheets.

(2)

(2)
Recognized in accrued liabilities in our unaudited condensed consolidated balance sheets.

We use Foreign Currency Contractsforeign currency contracts to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. These Foreign Currency Contractsforeign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. The total gross notional value of derivatives related to our Foreign Currency Contractsforeign currency contracts was $713.4 million, $692.3 million and $576.4$640.6 million as of August 3, 2013 and July 28, 2012, respectively. The total net notional value of derivatives related to our Foreign Currency Contracts was $60.5 million and $91.5 million as of2, 2014, August 3, 2013 and July 28, 2012,February 1, 2014, respectively.

GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Activity related to the trading of derivative instruments and the offsetting impact of related intercompany loans and foreign currency assets and liabilities recognized in selling, general and administrative expense is as follows (in millions):

   13 Weeks Ended  26 Weeks Ended 
   August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 

Gains (losses) on the changes in fair value of derivative instruments

  $(19.7)  $18.7   $(10.3)  $16.9  

Gains (losses) on the re-measurement of related intercompany loans and foreign currency assets and liabilities

   22.2    (20.5)   13.4    (18.0) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total, net

  $2.5   $(1.8)  $3.1   $(1.1) 
  

 

 

  

 

 

  

 

 

  

 

 

 

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
Gains (losses) on the change in fair value of derivative instruments $9.1
 $(19.7) $10.4
 $(10.3)
Gains (losses) on the re-measurement of related intercompany loans and foreign currency assets and liabilities (8.4) 22.2
 (9.1) 13.4
Total $0.7
 $2.5
 $1.3
 $3.1

10
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GAMESTOP CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. We manage counterparty risk according to the guidelines and controls established under our comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.

Nonrecurring Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. We did not record any significant impairment charges related to assets measured at fair value on a nonrecurring basis during the 13 and 26 weeks ended August 2, 2014 or August 3, 2013, or July 28, 2012.

respectively.

Other Fair Value Disclosures

The carrying valuevalues of our cash equivalents, receivables, net and accounts payable and revolver debt outstanding approximatesapproximate the fair value due to their shortshort-term maturities.

5.

6.Debt

On January 4, 2011, we entered into a $400 million credit agreement, (the “Revolver”), which we amended and restated in its entirety, our prior credit agreement entered into in October 2005on March 25, 2014 (the “Credit Agreement”“Revolver”). The Revolver provides foris a five-year, $400 million asset-based facility includingthat is secured by substantially all of our assets and the assets of our domestic subsidiaries. Availability under the Revolver is subject to a monthly borrowing base calculation. The Revolver includes a $50 million letter of credit sublimit, secured by substantially allsublimit. Prior to the March 2014 amendments, the Revolver was scheduled to mature in January 2016. The amendments extended the maturity date to March 25, 2019; increased the expansion feature under the Revolver from $150 million to $200 million, subject to certain conditions; and revised certain other terms, including a reduction of the Company’s and its domestic subsidiaries’ assets.fee we are required to pay on the unused portion of the total commitment amount. We havebelieve the ability to increaseextension of the facility, which matures in January 2016, by $150 million under certain circumstances. The extensionmaturity date of the Revolver to 2016 reducesMarch 2019 helps to limit our exposure to potential tightening or other adverse changes in the credit markets.

The


Borrowing availability under the Revolver is limited to a borrowing base which allows us to borrow up to 90% of the appraisal value of the inventory, in each case plus 90% of eligible credit card receivables, net of certain reserves. The borrowing base provides for borrowing up to 92.5% of the appraisal value during the fiscal months of August through October. Letters of credit reduce the amount available to borrow under the Revolver by theiran amount equal to the face value.value of the letters of credit. Our ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if Revolvereither 1) excess availability under the Revolver is less than 20%30%, or is projected to be within 12 months after such

GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

payment. In addition, payment or 2) if excess availability under the Revolver usageis less than 15%, or is projected to be equal to or greater than 25% of total commitments duringwithin 12 months after such payment, and the prospective 12-month period, we are subject to meeting a fixed charge coverage ratio, ofas calculated on a pro-forma basis for the prior 12 months is 1.1:1.0 prior to making such payments.or less. In the event that excess availability under the Revolver is at any time less than the greater of (1) $40.0$30 million or (2) 12.5%10% of the lesser of the total commitment or the borrowing base, we will be subject to a fixed charge coverage ratio covenant of 1.1:1.0:1.0.

The Revolver places certain restrictions on us and our subsidiaries, including limitations on asset sales, additional liens, investments, loans, guarantees, acquisitions and the incurrence of additional indebtedness. Absent consent from our lenders, we may not incur more than $1 billion of senior secured debt and $750 million of additional unsecured indebtedness to be limited to $250 million in general unsecured obligations and $500 million in unsecured obligations to finance acquisitions valued at $500 million or more.

The per annum interest rate under the Revolver is variable and is calculated by applying a margin (1) for prime rate loans of 1.25%0.25% to 1.50%0.75% above the highest of (a) the prime rate of the administrative agent, (b) the federal funds effective rate plus 0.50% or (c) the London Interbank Offered (“LIBO”) rate for a 30-day interest period as determined on such day plus 1.00%, and (2) for LIBO rate loans of 2.25%1.25% to 2.50%1.75% above the LIBO rate. The applicable margin is determined quarterly as a function of our average daily excess availability under the facility. In addition, we are required to pay a commitment fee of 0.375% or 0.50%, depending on facility usage,0.25% for any unused portion of the total commitment under the Revolver. As of August 3, 2013,2, 2014, the applicable margin was 1.25%0.25% for prime rate loans and 2.25%1.25% for LIBO rate loans, while the required commitment fee was 0.50% for the unused portion of the Revolver.

loans.

The Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with covenants, any material representation or warranty made by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting us or our subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or the liquidation of the Company or certain of its subsidiaries. During the 26 weeks ended August 3, 2013,2, 2014, we borrowed $130.0$476 million and subsequently

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GAMESTOP CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

repaid $266 million under the Revolver and repaid $80.0 million, leaving an outstanding balance of $50.0 million as of August 3, 2013.Revolver. During the 26 weeks ended July 28, 2012,August 3, 2013, we borrowedhad borrowings of $130 million and repaid $36.0repayments of $80 million under the Revolver. Average borrowings under the Revolver for the 13 weeks and 26 weeks ended August 3, 20132, 2014 were $44.2 million and $22.1 million, respectively.$91.1 million. Our average interest ratesrate on those outstanding borrowings for the 13 weeks and 26 weeks ended August 3, 2013 were 2.9% for both periods.2, 2014 was 1.7%. As of August 3, 2013,2, 2014, total availability under the Revolver was $253.3$181.4 million, there was $50.0with outstanding borrowings of $210 million of borrowingsand outstanding and standby letters of credit outstanding totaled $9.0of $8.3 million. We are currently in compliance with the requirements of the Revolver.

In September 2007, our Luxembourg subsidiary entered into a discretionary $20.0 million Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit is available to our foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of August 3, 2013,2, 2014, there were no cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $4.6$4.1 million.


6.

Income Taxes

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining our U.S. income tax returns for the fiscal years ended on January 28, 2012, January 29, 2011, January 30, 2010 and January 31, 2009. We do not anticipate any adjustments that would result in a material impact on our condensed consolidated financial statements as a result of these audits.

GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We accrue for the effects of uncertain tax positions and the related potential penalties and interest. Our recorded liability for unrecognized tax benefits decreased by $8.5 million during the 13 weeks ended August 3, 2013 and by $17.9 million during the 26 weeks ended August 3, 2013. The decrease in the liability for unrecognized tax benefits was primarily the result of payments made to settle certain U.S. federal income tax items and did not have a material impact on our income tax provision. There were no material adjustments to our recorded liability for unrecognized tax benefits during the 13 and 26 weeks ended July 28, 2012. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions could significantly increase or decrease during the next 12 months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.

The income tax provisions for the 13 weeks and 26 weeks ended August 3, 2013 and July 28, 2012 are based upon management’s estimate of our annualized effective tax rate.

7.

Commitments and Contingencies

In the ordinary course of business, we are, from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions and consumer class actions. We may enter into discussions regarding settlement of these and other types of lawsuits, and may enter into settlement agreements, if we believe settlement is in the best interest of our stockholders. We do not believe that any such existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on our financial condition, results of operations or liquidity.

8.

8.Significant Products

The


Beginning with our 2013 Annual Report on Form 10-K, we expanded the categories included in our disclosures on sales and gross profit by category to reflect recent changes in our business, the expansion of categories previously included in Other and our management emphasis as we operate in the future. Our previous categories of New Video Game Hardware and New Video Game Software remain unchanged.

We have expanded our previous category of Pre-owned Video Game Products to include value-priced, or closeout, products and this category is now referred to as the Pre-owned and Value Video Game Products category. We believe there is an opportunity to purchase closeout and overstocked inventory from publishers, distributors and other retailers which is older new product but can be acquired for less than typical new release product costs. This product can then be resold in our Video Game Brands stores and on our websites as value-priced product. Our sales of this product in the past have yielded significantly higher margins than new video game products, yet lower margins than pre-owned video game products.

In the past, all other products we sold were categorized into “Other,” which included video game accessories, digital products, new and pre-owned mobile products, consumer electronics, revenues from our PowerUp Rewards program and Game Informer subscription sales, strategy guides, toys and PC entertainment software. We are separating our historical Other category into the following table sets forth netnew categories:

Video Game Accessories, which includes new accessories for use with video game consoles and hand-held devices and software, such as controllers, gaming headsets and memory cards;
Digital, which includes revenues from the sale of DLC, full game downloads, Xbox Live, PlayStation Plus and Nintendo network points and subscription cards, other prepaid digital currencies and time cards, Kongregate, Game Informer digital subscriptions and PC digital downloads;
Mobile and Consumer Electronics, which includes revenues from selling new and pre-owned mobile devices and consumer electronics in Video Game Brands stores and all revenues from our Technology Brands stores;
Other, which includes revenues from the sales (in millions) by significant product category for the periods indicated:

   13 Weeks Ended  26 Weeks Ended 
   August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 
   Net
Sales		   Percent
of Total		  Net
Sales		   Percent
of Total		  Net
Sales		   Percent
of Total		  Net
Sales		   Percent
of Total		 

Net Sales:

        

New video game hardware

  $147.8     10.7%  $183.3     11.8%  $389.6     12.0%  $531.8     15.0% 

New video game software

   429.8     31.1%   473.8     30.6%   1,133.0     34.9%   1,204.9     33.9% 

Pre-owned video game products

   528.7     38.2%   562.3     36.3%   1,101.3     33.9%   1,181.4     33.3% 

Other

   277.4     20.0%   330.8     21.3%   625.1     19.2%   634.3     17.8% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $1,383.7     100.0%  $1,550.2     100.0%  $3,249.0     100.0%  $3,552.4     100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

of PC entertainment software, toys, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.


12
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GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table setstables set forth net sales and gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:

   13 Weeks Ended  26 Weeks Ended 
   August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 
   Gross
Profit		   Gross
Profit
Percent		  Gross
Profit		   Gross
Profit
Percent		  Gross
Profit		   Gross
Profit
Percent		  Gross
Profit		   Gross
Profit
Percent		 

Gross Profit:

             

New video game hardware

  $15.5     10.5%  $16.4     8.9%  $35.7     9.2%  $39.3     7.4% 

New video game software

   98.9     23.0%   107.7     22.7%   247.1     21.8%   257.7     21.4% 

Pre-owned video game products

   250.6     47.4%   269.5     47.9%   521.4     47.3%   573.8     48.6% 

Other

   116.4     42.0%   125.7     38.0%   255.5     40.9%   248.4     39.2% 
  

 

 

    

 

 

    

 

 

    

 

 

   

Total

  $481.4     34.8%  $519.3     33.5%  $1,059.7     32.6%  $1,119.2     31.5% 
  

 

 

    

 

 

    

 

 

    

 

 

   

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
  
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
Net Sales:                
New video game hardware $332.3
 19.2% $147.8
 10.7% $770.3
 20.7% $389.6
 12.0%
New video game software 497.0
 28.7% 429.8
 31.1% 1,056.9
 28.4% 1,133.0
 34.9%
Pre-owned and value video game products 558.0
 32.2% 528.7
 38.2% 1,160.9
 31.1% 1,101.3
 33.9%
Video game accessories 107.5
 6.2% 92.0
 6.6% 252.6
 6.8% 218.4
 6.7%
Digital 52.3
 3.0% 49.4
 3.6% 108.4
 2.9% 105.6
 3.3%
Mobile and consumer electronics 112.1
 6.5% 60.6
 4.4% 214.3
 5.7% 111.6
 3.4%
Other 72.2
 4.2% 75.4
 5.4% 164.3
 4.4% 189.5
 5.8%
Total $1,731.4
 100.0% $1,383.7
 100.0% $3,727.7
 100.0% $3,249.0
 100.0%

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
  
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
Gross Profit:                
New video game hardware $31.6
 9.5% $15.5
 10.5% $76.2
 9.9% $35.7
 9.2%
New video game software 115.7
 23.3% 98.9
 23.0% 242.9
 23.0% 247.1
 21.8%
Pre-owned and value video game products 262.1
 47.0% 250.6
 47.4% 560.5
 48.3% 521.4
 47.3%
Video game accessories 41.9
 39.0% 38.4
 41.7% 96.9
 38.4% 88.3
 40.4%
Digital 34.0
 65.0% 35.1
 71.1% 69.8
 64.4% 72.4
 68.6%
Mobile and consumer electronics 40.5
 36.1% 16.3
 26.9% 77.6
 36.2% 28.9
 25.9%
Other 25.1
 34.8% 26.6
 35.3% 53.4
 32.5% 65.9
 34.8%
Total $550.9
 31.8% $481.4
 34.8% $1,177.3
 31.6% $1,059.7
 32.6%

9.

9.Segment Information

We operate our business in the followingfour Video Game Brands segments: United States, Canada, Australia and Europe.Europe, and a Technology Brands segment, which was added in the fourth quarter of fiscal 2013 and includes the operations of our Simply Mac, Spring Mobile and Cricket Wireless businesses. We identify segments based on a combination of geographic areas and management responsibility. Each of the segments includes significant retail operations with all Video Game Brands stores engaged in the sale of new and pre-owned video game systems and software and related accessories and Technology Brand stores engaged in the sale of consumer electronics and wireless products and services. Segment results for the United States include retail operations in 50 states, the District of Columbia, Guam and Puerto Rico,Rico; the electronic commerce Web sitewww.gamestop.com,www.gamestop.com;Game Informer magazine, magazine; the online video gaming Web sitewww.kongregate.com,www.kongregate.com; a digital PC game distribution platform available atwww.gamestop.com/pcgames, the streaming technology company Spawn Labs,pcgames; and an online consumer electronics marketplace available atwww.buymytronics.com. Segment results for Canada include retail and e-commerce operations in Canada and segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Segment results for Europe include retail operations in 11 European countries and e-commerce operations in six countries. The Technology Brands segment includes retail operations in the United States. We measure segment profit using operating earnings, which is defined as income from continuing operations before intercompany

13
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GAMESTOP CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

royalty fees, net interest expense and income taxes. There has been no material change in total assets by segment since February 2, 2013. Transactions between reportable segments consist primarily of royalties, management fees, intersegment loans and related interest. Information on segments appears inThere were no intersegment sales during the following tables.

Net sales by13 weeks ended August 2, 2014 and August 3, 2013 or the 26 weeks ended August 2, 2014 and August 3, 2013.

The reconciliation of segment wereprofit to earnings before income taxes for the 13 weeks ended August 2, 2014 and August 3, 2013, respectively, is as follows (in millions):

   13 Weeks Ended   26 Weeks Ended 
   August 3,
2013		   July 28,
2012		   August 3,
2013		   July 28,
2012		 

United States

  $942.4    $1,058.5    $2,295.3    $2,517.8  

Canada

   67.7     76.9     155.7     174.5  

Australia

   112.4     128.9     226.5     235.4  

Europe

   261.2     285.9     571.5     624.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,383.7    $1,550.2    $3,249.0    $3,552.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

13 weeks ended August 2, 2014 
United
States
 Canada Australia Europe Technology Brands Consolidated
Net sales $1,101.0
 $82.9
 $142.1
 $335.3
 $70.1
 $1,731.4
Segment operating earnings (loss) 35.6
 1.2
 4.8
 (12.0) 7.1
 36.7
Interest income           0.1
Interest expense           (1.2)
Earnings before income taxes           35.6
13 weeks ended August 3, 2013 
United
States
 Canada Australia Europe Technology Brands Consolidated
Net sales $942.4
 $67.7
 $112.4
 $261.2
 $—
 $1,383.7
Segment operating earnings (loss) 43.4
 (0.7) 1.1
 (25.0) —
 18.8
Interest income           0.1
Interest expense           (1.4)
Earnings before income taxes           17.5

The reconciliation of segment profit to earnings before income taxes for the 26 weeks ended August 2, 2014 and August 3, 2013, respectively, is as follows (in millions):
26 weeks ended August 2, 2014 
United
States
 Canada Australia Europe Technology Brands Consolidated
Net sales $2,498.7
 $173.2
 $258.6
 $667.0
 $130.2
 $3,727.7
Segment operating earnings (loss) 142.2
 3.6
 6.5
 (22.8) 13.1
 142.6
Interest income           0.3
Interest expense           (2.0)
Earnings before income taxes           140.9

26 weeks ended August 3, 2013 
United
States
 Canada Australia Europe Technology Brands Consolidated
Net sales $2,295.3
 $155.7
 $226.5
 $571.5
 $—
 $3,249.0
Segment operating earnings (loss) 136.2
 1.8
 2.6
 (34.6) —
 106.0
Interest income           0.2
Interest expense           (2.4)
Earnings before income taxes           103.8

14
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GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Operating earnings (loss) by segment were as follows (in millions):

   13 Weeks Ended  26 Weeks Ended 
   August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 

United States

  $43.4   $40.6   $136.2   $155.7  

Canada

   (0.7)   0.4    1.8    2.9  

Australia

   1.1    3.7    2.6    2.3  

Europe

   (25.0)   (10.2)   (34.6)   (11.4) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating earnings

   18.8    34.5    106.0    149.5  

Interest income

   0.1    0.2    0.2    0.4  

Interest expense

   (1.4)   (1.1)   (2.4)   (1.7) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings before income tax expense

  $17.5   $33.6   $103.8   $148.2  
  

 

 

  

 

 

  

 

 

  

 

 

 

(Unaudited)


10.

Supplemental Cash Flow Information

10.Subsequent Events

   26 Weeks Ended 
   August 3,
2013		   July 28,
2012		 

Cash paid (in millions) during the period for:

    

Interest

  $1.2    $1.1  
  

 

 

   

 

 

 

Income taxes

  $206.1    $199.8  
  

 

 

   

 

 

 

11.

Subsequent Events

Dividend

On August 20, 2013,19, 2014, our Board of Directors approved a quarterly cash dividend to our stockholders of $0.275$0.33 per share of Class A Common Stock payable on September 19, 201316, 2014 to stockholders of record at the close of business on September 3, 2013.2014. Future dividends will be subject to approval by our Board of Directors.

Share Repurchase

Repurchases

As of September 4, 2013,August 29, 2014, we have purchased an additional 0.30.1 million shares of our Class A Common Stock for an average price per share of $50.27$41.48 since August 3, 2013.

2, 2014.




15
Table of Contents

ITEM
Item 2.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 unaudited condensed consolidated financial 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. See our Annual Report on Form 10-K for the fiscal year ended February 2, 20131, 2014 filed with the Securities and Exchange Commission (the “SEC”) on April 3, 20132, 2014 (the “Form“2013 Annual Report on Form 10-K”), including the factors disclosed under “Item 1A. Risk Factors,” as well as “Disclosure Regarding Forward-looking Statements” and “Item 1A. RisksRisk Factors” below, for certain factors which may cause actual results to vary materially from these forward-looking statements.

General

GameStop Corp. (together with its predecessor companies, “GameStop,(“GameStop,” “we,” “us,” “our,” or the “Company”) is a global family of specialty retail brands that makes the world’smost popular technologies affordable and simple. As the world's largest multichannel video game retailer. Weretailer, we sell new and pre-owned video game hardware, physical and digital video game software, video game accessories, as well as PC entertainment software, new and pre-owned mobile and consumer electronics products and other merchandise primarily through our GameStop, EB Games and Micromania stores. We sell consumer electronics, mobile products and wireless services primarily through our Simply Mac, Spring Mobile and Cricket Wireless stores. As of August 3, 2013,2, 2014, we operated 6,5056,698 stores in the United States, Australia, Canada and Europe.Europe, which are primarily located in major shopping malls and strip centers. We also operate electronic commerce Web sites includingwww.gamestop.com,www.ebgames.com.au,www.ebgames.co.nz,www.gamestop.ca,www.gamestop.it,www.gamestop.es, www.gamestop.iewww.gamestop.ie,www.gamestop.de,www.gamestop.co.uk andwww.micromania.fr.www.micromania.fr. The network also includes:www.kongregate.com, a leading browser-based game site;Game Informermagazine, the world's leading multi-platformprint and digital video game publication; Spawn Labs, a streaming technology company; a digital PC game distribution platform available at www.gamestop.com/pcgames; iOS and Android mobile applications; and an online consumer electronics marketplace available atwww.buymytronics.com. We also operate a certified Apple reseller selling Apple products in the United States under the name Simply Mac; Spring Mobile, an authorized AT&T

reseller operating AT&T branded wireless retail stores in the United States; and pre-paid wireless stores under the name Cricket Wireless (an AT&T brand) as part of our expanding relationship with AT&T. Our Simply Mac, Spring Mobile and Cricket Wireless business comprise our Technology Brands segment.

Our fiscal year is composed of 52 or 53 weeks ending on the Saturday closest to January 31. The fiscal year ending January 31, 2015 (“fiscal 2014”) and the fiscal year ended February 1, 2014 (“fiscal 2013”) each consists of 52 weeks and the fiscal year ended February 2, 2013 (“fiscal 2012”) consisted of 53 weeks.

Growth in the electronic game industry is generally driven by the introduction of new technology. Gaming consoles are typically launched in cycles as technological developments in both chip processing speeds and data storage provide significant improvements in advanced graphics, audio quality, game play, Internet connectivity and other entertainment capabilities beyond video gaming. The current generation of consoles (the Sony PlayStation 4, the Microsoft Xbox One and the Nintendo Wii U) was introduced between November 2012 and November 2013. The previous generation of consoles (the Sony PlayStation 3, the Microsoft Xbox 360 and the Nintendo Wii) waswere introduced between 2005 and 2007. The Nintendo 3DS was introduced in March 2011, and the Sony PlayStation Vita was introduced in February 2012. A new console cycle is developing as2012 and the Nintendo launched the Wii U2DS was introduced in November 2012 as the next generation of the Wii and Sony and Microsoft have announced their next generation of consoles with the PlayStation 4 and Xbox One, respectively. These new consoles are expected to come to market by the holiday period ofOctober 2013. Typically, following the introduction of new video game platforms, sales of new video game hardware increase as a percentage of total sales in the first 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 subsequent years. The net effect is generally a decline in gross margin percentagepercent in the first full year following new platform releases and an increase in gross margin percentagepercent in the years subsequent to the first full year following the launch period. The planned launchesperiod; therefore, the launch of the next-generationcurrent-generation Sony PlayStation 4 and the Microsoft Xbox One by the holiday period of 2013 are anticipated to reducecould negatively impact our overall gross margin percentage in the fourth quarter of fiscal 2013.2014. Unit sales of maturing video game platforms, like the Sony PlayStation 3 and the Microsoft Xbox 360, are typically also driven by manufacturer-funded retail price reductions, further driving sales of related software and accessories. Historically,With the introduction of the new consoles in the fourth quarter of fiscal 2013, sales of new hardware consoles are typically introduced every four to five years. However, the current generation of hardware consoles is now over six years old and consumer demand is declining. We have seen declines in new hardware and software sales in fiscal 2012 and fiscal 2013 before the next-generation product launches due to the age of the current console cycle. The introduction of new consoles or further price cuts on the current generation of consoles could partially offset these sales declines.

increased.

We expect that future growth in the electronic game industry will also be driven by the sale of video games delivered in digital form and the expansion of other forms of gaming. We currently sell various types of products that relate to the digital category, including digitally downloadable content (“DLC”), full game downloads, Xbox LIVE, PlayStation Plus and Nintendo network points cards, as well as prepaid digital and online timecards. We expect our sales of digital products to continue to increase in the second half of fiscal 2013. We have made significant investments in e-commerce and in-store and Web site functionality to enable our customers to access digital content easily and facilitate the digital sales and delivery process. We plan to continue to invest in these types of processes and channels to grow our digital sales base and enhance our market leadership position in the electronic game industry and in the digital aggregation and distribution category. We currently sell tablets and accessories in most of our video game stores. We also sell and accept trades of pre-owned mobile devices in our stores. In addition, we intend to continue to invest in customer loyalty programs designed to attract and retain customers.

In


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Over the last year, we have acquired two authorized Apple resellers selling Apple products and services in 33 stores. Additionally, we acquired Spring Mobile, an authorized AT&T reseller currently operating 238 stores selling wireless services and products. We also operate 48 stores under the Cricket Wireless brand (formerly operated under the Aio Wireless name prior to AT&T's acquisition of Leap Wireless). Cricket Wireless is an AT&T brand selling pre-paid wireless services and products. Collectively these businesses comprise our Technology Brands segment. We expect to expand the number of Technology Brands stores which we operate in future years.
Recent Developments
Acquisition activity. During the first half of fiscal 2011,2014, in connection with the continued expansion of our Technology Brands business, Spring Mobile and Simply Mac completed acquisitions of certain AT&T resellers and authorized Apple retailers for total consideration of $45.6 million ($43.1 million net of cash acquired). We continue to seek out opportunities to extend our core competencies to other products and retail categories in order to continue to grow and to help mitigate the financial impact from the cyclical nature of the video game console cycle. As a result of our acquisition activity in the Technology Brands segment over the past two fiscal quarters, we also launchedare currently experiencing higher gross margins in that segment in comparison to the margins in our mobileVideo Game Brands segments, which has had the impact of offsetting potential margin erosion associated with the recent launch of the current generation video game consoles. We continue to seek avenues for growth in our Technology Brands business, and began selling an assortment of tablets and accessories. We currently sell tablets and accessories in allwe expect to pursue similar acquisitions moving forward.
Additionally, as part of our storesefforts to drive long-term shareholder value, we have accomplished the following return of capital activities in the United States and in a majorityfirst half of storesfiscal 2014:
Quarterly cash dividend. On March 4, 2014, our Board of Directors authorized an increase in our international markets. We also sellannual cash dividend from $1.10 to $1.32 per share of Class A Common Stock, which represents an increase of 20%. On March 25, 2014 and accept tradesJune 17, 2014, we made quarterly dividend payments of pre-owned mobile devices in$0.33 per share of Class A Common Stock to stockholders of record on March 17, 2014 and June 4, 2014, respectively. Additionally, on August 19, 2014, our stores.

Board of Directors declared a quarterly cash dividend of $0.33 per common share payable on September 16, 2014, to shareholders of record as of the close of business on September 3, 2014.

Share repurchase activity. During the first two quarters of fiscal 2014, we repurchased 3.2 million shares of our Class A Common Stock at an average price per share of $39.51 for a total of $127.7 million. Between August 3, 2014 and August 29, 2014, we repurchased an additional 0.1 million shares of our Class A Common Stock for an average price per share of $41.48.
Critical Accounting Policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and do not include all disclosures required under GAAP for complete financial statements. Preparation of these statements requires managementus to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. For a summary of significant accounting policies and the means by which we develop estimates thereon, see “Item“Part 2 - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2013 Annual Report on Form 10-K.

There have been no material changes to our critical accounting policies from those included in our 2013 Annual Report on Form 10-K.


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Consolidated Results of Operations

The following table sets forth certain statement of operations items as a percentage of net sales for the periods indicated:

   13 Weeks Ended  26 Weeks Ended 
   August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 

Statement of Operations Data:

     

Net sales

   100.0%   100.0%   100.0%   100.0% 

Cost of sales

   65.2    66.5    67.4    68.5  
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   34.8    33.5    32.6    31.5  

Selling, general and administrative expenses

   30.5    28.4    26.8    24.8  

Depreciation and amortization

   2.9    2.8    2.5    2.5  
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating earnings

   1.4    2.3    3.3    4.2  

Interest expense, net

   0.1    0.1    0.1    —  
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings before income tax expense

   1.3    2.2    3.2    4.2  

Income tax expense

   0.5    0.8    1.2    1.6  
  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net income

   0.8    1.4    2.0    2.6  
  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net income attributable to GameStop Corp.

   0.8%   1.4%   2.0%   2.6% 
  

 

 

  

 

 

  

 

 

  

 

 

 

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
Statement of Operations Data:        
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.2
 65.2
 68.4
 67.4
Gross profit 31.8
 34.8
 31.6
 32.6
Selling, general and administrative expenses 27.5
 30.5
 25.7
 26.8
Depreciation and amortization 2.2
 2.9
 2.1
 2.5
Operating earnings 2.1
 1.4
 3.8
 3.3
Interest expense, net 0.1
 0.1
 —
 0.1
Earnings before income tax expense 2.0
 1.3
 3.8
 3.2
Income tax expense 0.6
 0.5
 1.3
 1.2
Net income 1.4% 0.8% 2.5% 2.0%

We include purchasing, receiving and distribution costs in selling, general and administrative expenses, rather than in cost of sales, in the statement of operations. We include processing fees associated with purchases

made by credit cards in cost of sales, rather than selling, general and administrative expenses, in the statement of operations. As a result of these classifications, 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 credit cards in selling, general and administrative expenses. The net effect of these classifications as a percentage of net sales has not historically been material.


Beginning with our 2013 Annual Report on Form 10-K, we expanded the categories included in our disclosures on sales and gross profit by category to reflect recent changes in our business, the expansion of categories previously included in Other and our management emphasis as we operate in the future. Our previous categories of New Video Game Hardware and New Video Game Software remain unchanged.

We have expanded our previous category of Pre-owned Video Game Products to include value-priced, or closeout, products and this category is now referred to as the Pre-owned and Value Video Game Products category. We believe there is an opportunity to purchase closeout and overstocked inventory from publishers, distributors and other retailers which is older new product but can be acquired for less than typical new release product costs. This product can then be resold in our Video Game Brands stores and on our Web sites as value-priced product. Our limited sales of this product in the past have yielded significantly higher margins than new video game products, yet slightly lower margins than pre-owned video game products.

In the past, all other products we sold were categorized into “Other,” which included video game accessories, digital products, new and pre-owned mobile products, consumer electronics, revenues from our PowerUp Rewards program and Game Informer subscription sales, strategy guides, toys and PC entertainment software. We are separating our historical Other category into the following new categories:

Video Game Accessories, which includes new accessories for use with video game consoles and hand-held devices and software, such as controllers, gaming headsets and memory cards;
Digital, which includes revenues from the sale of DLC, full game downloads, Xbox Live, PlayStation Plus and Nintendo network points and subscription cards, other prepaid digital currencies and time cards, Kongregate, Game Informer digital subscriptions and PC digital downloads;
Mobile and Consumer Electronics, which includes revenues from selling new and pre-owned mobile devices and consumer electronics in Video Game Brands stores and all revenues from our Technology Brands stores;
Other, which includes revenues from the sales of PC entertainment software, toys, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.

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The following table setstables set forth net sales (in millions) and percentage of total net sales by significant product category for the periods indicated:

   13 Weeks Ended  26 Weeks Ended 
   August 3, 2013  July 28, 2012  August 3, 2013  July 28, 2012 
   Net
Sales		   Percent
of Total		  Net
Sales		   Percent
of Total		  Net
Sales		   Percent
of Total		  Net
Sales		   Percent
of Total		 

Net Sales:

      

New video game hardware

  $147.8     10.7%  $183.3     11.8%  $389.6     12.0%  $531.8     15.0% 

New video game software

   429.8     31.1%   473.8     30.6%   1,133.0     34.9%   1,204.9     33.9% 

Pre-owned video game products

   528.7     38.2%   562.3     36.3%   1,101.3     33.9%   1,181.4     33.3% 

Other(1)

   277.4     20.0%   330.8     21.3%   625.1     19.2%   634.3     17.8% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $1,383.7     100.0%  $1,550.2     100.0%  $3,249.0     100.0%  $3,552.4     100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

(1)

Other products include PC entertainment and other software, digital products and currency, mobile products, including tablets and refurbished mobile devices, accessories and revenues associated withGame Informer magazine and our PowerUp Rewards and other loyalty programs.

The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:

   13 Weeks Ended  26 Weeks Ended 
   August 3, 2013  July 28, 2012  August 3, 2013  July 28, 2012 
   Gross
Profit		   Gross
Profit
Percent		  Gross
Profit		   Gross
Profit
Percent		  Gross
Profit		   Gross
Profit
Percent		  Gross
Profit		   Gross
Profit
Percent		 

Gross Profit:

             

New video game hardware

  $15.5     10.5%  $16.4     8.9%  $35.7     9.2%  $39.3     7.4% 

New video game software

   98.9     23.0%   107.7     22.7%   247.1     21.8%   257.7     21.4% 

Pre-owned video game products

   250.6     47.4%   269.5     47.9%   521.4     47.3%   573.8     48.6% 

Other

   116.4     42.0%   125.7     38.0%   255.5     40.9%   248.4     39.2% 
  

 

 

    

 

 

    

 

 

    

 

 

   

Total

  $481.4     34.8%  $519.3     33.5%  $1,059.7     32.6%  $1,119.2     31.5% 
  

 

 

    

 

 

    

 

 

    

 

 

   

  13 Weeks Ended 26 Weeks Ended
  August 2, 2014 August 3, 2013 August 2, 2014 August 3, 2013
  
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
Net Sales:                
New video game hardware $332.3
 19.2% $147.8
 10.7% $770.3
 20.7% $389.6
 12.0%
New video game software 497.0
 28.7% 429.8
 31.1% 1,056.9
 28.4% 1,133.0
 34.9%
Pre-owned and value video game products 558.0
 32.2% 528.7
 38.2% 1,160.9
 31.1% 1,101.3
 33.9%
Video game accessories 107.5
 6.2% 92.0
 6.6% 252.6
 6.8% 218.4
 6.7%
Digital 52.3
 3.0% 49.4
 3.6% 108.4
 2.9% 105.6
 3.3%
Mobile and consumer electronics 112.1
 6.5% 60.6
 4.4% 214.3
 5.7% 111.6
 3.4%
Other 72.2
 4.2% 75.4
 5.4% 164.3
 4.4% 189.5
 5.8%
Total $1,731.4
 100.0% $1,383.7
 100.0% $3,727.7
 100.0% $3,249.0
 100.0%
  13 Weeks Ended 26 Weeks Ended
  August 2, 2014 August 3, 2013 August 2, 2014 August 3, 2013
  
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
Gross Profit:                
New video game hardware $31.6
 9.5% $15.5
 10.5% $76.2
 9.9% $35.7
 9.2%
New video game software 115.7
 23.3% 98.9
 23.0% 242.9
 23.0% 247.1
 21.8%
Pre-owned and value video game products 262.1
 47.0% 250.6
 47.4% 560.5
 48.3% 521.4
 47.3%
Video game accessories 41.9
 39.0% 38.4
 41.7% 96.9
 38.4% 88.3
 40.4%
Digital 34.0
 65.0% 35.1
 71.1% 69.8
 64.4% 72.4
 68.6%
Mobile and consumer electronics 40.5
 36.1% 16.3
 26.9% 77.6
 36.2% 28.9
 25.9%
Other 25.1
 34.8% 26.6
 35.3% 53.4
 32.5% 65.9
 34.8%
Total $550.9
 31.8% $481.4
 34.8% $1,177.3
 31.6% $1,059.7
 32.6%
13 weeks ended August 3, 20132, 2014 compared with the 13 weeks ended July 28, 2012August 3, 2013

Net Sales

Net sales decreasedincreased by $166.5$347.7 million, or 10.7%25.1%, from $1,550.2 million in the 13 weeks ended July 28, 2012 to $1,383.7 million in the 13 weeks ended August 3, 2013.2013 to $1,731.4 million in the 13 weeks ended August 2, 2014. The decreaseincrease in net sales was primarily attributable to a decreaseincreases in comparable store sales of 10.7%21.9% for the second quarter of fiscal 2013 offset slightly by changes related to foreign exchange rates, which had the effect of increasing net sales by $2.0 million13 weeks ended August 2, 2014 when compared to the second quarter of fiscal 2012.13 weeks ended August 3, 2013. The decreaseincrease in comparable store sales was primarily due to a decreasestrong sales performance during the 13 weeks ended August 2, 2014 associated with the new video game console launches and related video game accessories, as well as strong new video game software sales. In addition, our Technology Brands segment added $70.1 million in net sales in the 13 weeks ended August 2, 2014. The increase in sales across all categories relatedalso included a favorable impact of $9.8 million from foreign exchange rate fluctuations for the 13 weeks ended August 2, 2014 when compared to the late stages of the current console cycle. Refer to the note to the Selected

Financial Data table in “Item 6. Selected Financial Data” in our Form 10-K for a discussion of the calculation of comparable store sales.

13 weeks ended August 3, 2013.

New video game hardware sales decreased $35.5increased $184.5 million, or 19.4%124.8%, from $183.3 million in the 13 weeks ended July 28, 2012 to $147.8 million in the 13 weeks ended August 3, 2013.2013 to $332.3 million in the 13 weeks ended August 2, 2014. The decreaseincrease in new video game hardware sales is primarily dueattributable to a decreasean increase in hardware unit sell-through related to being in the late stagesas a result of the current console cycle. The new video game hardware saleslaunches of the Microsoft Xbox One and the Sony PlayStation 4 in November 2013. These increases were partially offset by declines were offset partially byin sales of the Nintendo Wii U which launched in the fourth quarter of fiscal 2012.

previous generation hardware. New video game software sales decreased $44.0increased by $67.2 million, or 9.3%15.6%, from $473.8 million in the 13 weeks ended July 28, 2012 to $429.8 million in the 13 weeks ended August 3, 2013 primarily due to a reduced number of new title releases in the second quarter of fiscal 2013 as compared to the prior year quarter coupled with a reduction in consumer demand due to the late stages of the current console cycle.

Pre-owned video game product sales decreased by $33.6 million, or 6.0%, from $562.3$497.0 million in the 13 weeks ended July 28, 2012August 2, 2014, due to a stronger lineup of new releases such as Ubisoft's Watch Dogs, Nintendo's Mario Kart 8 and The Last of Us Remastered for PlayStation 4. Pre-owned and value video game product sales increased $29.3 million, or 5.5%, from $528.7 million in the 13 weeks ended August 3, 2013. The decrease2013 to $558.0 million in pre-owned video game product salesthe 13 weeks ended August


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2, 2014. This increase was primarily dueattributable to a decreasean increase in store traffic related to lowerhigher video game demand due to the late stageslaunch of the current console cycle.

Other product sales decreased $53.4new consoles. Sales of video game accessories increased $15.5 million, or 16.1%,16.8% from $330.8 million in the 13 weeks ended July 28, 2012August 3, 2013 to $277.4the 13 weeks ended August 2, 2014 due to sales of accessories for use with the recently launched consoles. Digital revenues increased by 5.9%, or $2.9 million, when comparing the 13 weeks ended August 3, 2013 to the 13 weeks ended August 2, 2014. Mobile and consumer electronics sales increased $51.5 million, or 85.0%, from the 13 weeks ended August 3, 2013 to the 13 weeks ended August 2, 2014, due to continued growth from our Technology Brands, both organically and from acquisitions during the second quarter. Sales of other product categories decreased by $3.2 million, or 4.2%, from the 13 weeks ended August 3, 2013 to the 13 weeks ended August 2, 2014.

Our new video game hardware and mobile and consumer electronics categories increased as a percentage of net sales while all other product categories declined as a percentage of net sales for the 13 weeks ended August 2, 2014 in comparison to the 13 weeks ended August 3, 2013. The decrease in other product sales was primarily due to decreases in accessories sales associated with hardware sales declines and lower PC entertainment software sales due to the launch ofDiablo III in the prior year comparable quarter, partially offset by increases in sales of mobile and digital products as we continue to focus on expanding these lines of business.

As a percentage of net sales, new video game hardware sales and other product sales decreased and new video game software sales and pre-owned video game product sales increased in the 13 weeks ended August 3, 2013 compared to the 13 weeks ended July 28, 2012. The change in the mix of sales was primarily due to the decreaseslaunch of the new consoles and the related increased traffic in new video game hardware sales and other product sales discussed above.

our stores, as well as meaningful contributions from our Technology Brands segment in the mobile category.

Cost of Sales

Cost of sales decreasedincreased by $128.6$278.2 million, or 12.5%30.8%, from $1,030.9 million in the 13 weeks ended July 28, 2012 to $902.3 million in the 13 weeks ended August 3, 2013 to $1,180.5 million in the 13 weeks ended August 2, 2014, primarily as a result of the decreaseincrease in sales discussed above and the changes in gross profit discussed below.

Gross Profit

Gross profit decreasedincreased by $37.9$69.5 million, or 7.3%14.4%, from $519.3 million in the 13 weeks ended July 28, 2012 to $481.4 million in the 13 weeks ended August 3, 2013. Gross2013 to $550.9 million in the 13 weeks ended August 2, 2014; however, gross profit as a percentage of net sales increaseddecreased from 33.5% in the 13 weeks ended July 28, 2012 to 34.8% in the 13 weeks ended August 3, 2013. The gross profit percentage increase was primarily due2013 to a shift in sales from new hardware to pre-owned and an increase in sales of our mobile and digital products.

Gross profit as a percentage of sales on new video game hardware increased from 8.9% in the 13 weeks ended July 28, 2012 to 10.5%31.8% in the 13 weeks ended August 3, 2013,2, 2014. The gross profit percentage decrease was primarily due to an increasedriven by the changes in sales mix discussed above and, specifically, the attachment rategrowth in sales of product replacement plan sales on new video game hardware units when compared toassociated with the prior year. Gross profitnew consoles, which carry lower margins, as a percentage of sales on new video game software increased slightly from 22.7% in the 13 weeks ended July 28, 2012 to 23.0%total sales. Additionally, our digital gross profit percentage declined in the 13 weeks ended August 3, 2013. Gross profit as a percentage of sales on pre-owned video game products decreased from 47.9%2, 2014 in the 13 weeks ended July 28, 2012comparison to 47.4% in the 13 weeks ended August 3, 2013 due to an increase in promotional activities when compared to the prior year.mix of underlying products. Gross profit as a percentage of sales on other product sales increasedvideo game accessories decreased from 38.0% in the 13 weeks ended July 28, 2012 to 42.0%41.7% in the 13 weeks ended August 3, 2013 to 39.0% in the 13 weeks ended August 2, 2014 primarily due to the high mix of PC entertainmentcurrent generation accessories sales, in the prior year

comparable quarter duewhich carry lower gross margins relative to the launch ofDiablo III in that quarter. New PC entertainment software has a lowertotal video game accessories category. These decreases were partially offset by the sales and gross profit percentage than accessories,growth in the mobile or digital sales.

and consumer electronics category related to our Technology Brands segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreasedincreased by $19.3$53.8 million, or 4.4%, from $440.9 million in the 13 weeks ended July 28, 2012 to $421.6 million in the 13 weeks ended August 3, 2013.2013 to $475.4 million in the 13 weeks ended August 2, 2014. This decreaseincrease was primarily due to cost control activities$26.1 million of additional costs associated with our Technology Brands segment, as a result ofwell as the declinehigher variable costs associated with the increase in comparable store sales atduring the end of the current console cycle and lower store count. This was partially offset by changes in foreign exchange rates which had the effect of increasing expenses by $1.4 million when compared to the second quarter of fiscal 2012.13 weeks ended August 2, 2014. Selling, general and administrative expenses as a percentage of net sales increaseddecreased from 28.4% in the 13 weeks ended July 28, 2012 to 30.5% in the 13 weeks ended August 3, 2013. The2013 to 27.5% in the 13 weeks ended August 2, 2014 due to our ability to effectively leverage the increase in sales in the Video Game Brands segments. These improvements were partially offset by the Technology Brands segment, which generally has higher selling, general and administrative expenses as a percentage of net sales was primarily due to deleveraging of fixed costs as a result of the decrease in comparable store sales during the second quarter of fiscal 2013.sales. Included in selling, general and administrative expenses is $6.8 million and $6.0 million and $5.4 million inof stock-based compensation expense for the 13-week periods13 weeks ended August 2, 2014 and 13 weeks ended August 3, 2013, and July 28, 2012, respectively.

Depreciation and Amortization

Depreciation and amortization expense decreased $2.9$2.2 million, or 6.6%5.4%, from $43.9 million in the 13 weeks ended July 28, 2012 to $41.0 million in the 13 weeks ended August 3, 2013.2013 to $38.8 million in the 13 weeks ended August 2, 2014. This decrease was primarily due to a decrease in capital expenditures in recent years when compared to prior years, which included significant investments in our loyalty and digital initiatives, as well as a decrease in new store openings and investmentslower overall store count in management information systems.

our Video Game Brands segments.

Interest Income and Expense

Interest income from the investment of excess cash balances decreased slightly from $0.2 million inremained the 13 weeks ended July 28, 2012 tosame at $0.1 million infor both the 13 weeks ended August 3, 2013. Interest expense increased slightly from $1.1 million in2013 and the 13 weeks ended July 28, 2012 toAugust 2, 2014. Interest expense decreased from $1.4 million in the 13 weeks ended August 3, 2013.

2013 to $1.2 million in the 13 weeks ended August 2, 2014.


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Income Tax

Income tax expense for the 13 weeks ended August 3, 2013 and the 13 weeks ended August 2, 2014 was based upon an estimate of our annualized effective income tax rate. Income tax expense was $7.0 million, or 40.0% of earnings before income tax expense, for the 13 weeks ended August 3, 2013 compared to $12.6$11.0 million, or 37.5%30.9% of earnings before income tax expense, for the 13 weeks ended July 28, 2012 and was based upon an estimate ofAugust 2, 2014. Generally, our annualized effective tax rate. The higherrate varies primarily based on our profitability level and the relative mix of earnings across the jurisdictions in which we operate. Our effective tax rate for the second quarter13 weeks ended August 2, 2014 was further impacted by the release of fiscal 2013 was a result of the earnings mix in the foreign countries where we operate against overall lower earnings before income taxes.

reserve related to an uncertain tax position.

Operating Earnings and Net Income

The factors described above led to a decreasean increase in operating earnings of $15.7$17.9 million from $34.5 million in the 13 weeks ended July 28, 2012 to $18.8 million in the 13 weeks ended August 3, 2013 and a decrease in consolidated net income of $10.5 million from $21.0to $36.7 million in the 13 weeks ended July 28, 2012 toAugust 2, 2014, and an increase in net income of $14.1 million from $10.5 million in the 13 weeks ended August 3, 2013.

2013 to $24.6 million in the 13 weeks ended August 2, 2014. The increase in operating earnings and net income is primarily attributable to the launch of the new console systems, which has driven year-over-year gross profit growth in our new video game hardware and video game accessories categories, as well as continued growth in our pre-owned and value category. Additionally, our Technology Brands segment generated $7.1 million of operating earnings in the 13 weeks ended August 2, 2014.

26 weeks ended August 3, 20132, 2014 compared with the 26 weeks ended July 28, 2012August 3, 2013

Net Sales

Net sales decreasedincreased by $303.4$478.7 million, or 8.5%14.7%, from $3,552.4 million in the 26 weeks ended July 28, 2012 to $3,249.0 million in the 26 weeks ended August 3, 2013.2013 to $3,727.7 million in the 26 weeks ended August 2, 2014. The decreaseincrease in net sales was primarily attributable to a decreasean increase in comparable store sales of 8.4%12.7% for the 26 weeks ended August 2, 2014 when compared to the 26 weeks ended August 3, 2013 when compared, which was primarily due to strong sales performance during the 26 weeks ended July 28, 2012August 2, 2014 associated with the new video game console launches and changes related tovideo game accessories. In addition, our Technology Brands segment added $130.2 million in net sales in the 26 weeks ended August 2, 2014. These increases were partially offset by the impact of foreign exchange rates,rate fluctuations, which had the effect of decreasing net sales by $4.1 million for the 26 weeks ended August 2, 2014 when compared to the 26 weeks ended August 3, 2013 when compared to the 26 weeks ended July 28, 2012. The decrease in comparable store sales was primarily due to a decrease in sales across all categories related to the late stages of the current console cycle.

.

New video game hardware sales decreased $142.2increased $380.7 million, or 26.7%97.7%, from $531.8 million in the 26 weeks ended July 28, 2012 to $389.6 million in the 26 weeks ended August 3, 2013.2013 to $770.3 million in the 26 weeks ended August 2, 2014. The decreaseincrease in new video game hardware sales is primarily dueattributable to a decreasean increase in hardware unit sell-through related to being in the late stagesas a result of the current console cyclelaunches of the Microsoft Xbox One and higher sales of the Sony PlayStation Vita4 in the first half of fiscal 2012 due to its launchNovember 2013. These increases were partially offset by declines in the first quarter of that year. These sales declines were offset partially by sales of the Nintendo Wii U which launched in the fourth quarter of fiscal 2012.

previous generation hardware. New video game software sales decreased $71.9$76.1 million, or 6.0%6.7%, from $1,204.9 million in the 26 weeks ended July 28, 2012 to $1,133.0 million in the 26 weeks ended August 3, 2013 to $1,056.9 million in the 26 weeks ended August 2, 2014, primarily due to declines in sales of catalog software (software beyond its initial launch period) due tofewer new titles that were released during the late stages of26 weeks ended August 2, 2014 versus the console cycle, partially offset by stronger sales of new releasecomparable prior year period. Pre-owned and value video game titlesproduct sales increased $59.6 million, or 5.4%, from $1,101.3 million in the 26 weeks ended August 3, 2013 when compared to the 26 weeks ended July 28, 2012.

Pre-owned video game product sales decreased $80.1 million, or 6.8%, from $1,181.4$1,160.9 million in the 26 weeks ended July 28, 2012 to $1,101.3 million in the 26 weeks ended August 3, 2013.2, 2014. The decreaseincrease in pre-owned and value video game product sales was primarily due to a decrease inincreased store traffic during the quarter related to lowerhigher video game demand due to the late stageslaunch of the current console cycle.

Other product sales decreased by $9.2new consoles. Sales of video game accessories increased $34.2 million, or 1.5%,15.7% from $634.3 million in the 26 weeks ended July 28, 2012 to $625.1 million in the 26 weeks ended August 3, 2013. The slight decrease2013 to the 26 weeks ended August 2, 2014 due to sales of accessories for use with the recently launched consoles. Digital revenues in the 26 weeks ended August 2, 2014 increased $2.8 million, or 2.7%, as compared to the 26 weeks ended August 3, 2013, driven primarily by growth in PC digital. Mobile and consumer electronics sales increased $102.7 million, or 92.0%, from the 26 weeks ended August 3, 2013 to the 26 weeks ended August 2, 2014, due to the Technology Brands stores acquired or opened in the fourth quarter of fiscal 2013 and the first half of fiscal 2014. Sales of other product sales wascategories decreased $25.2 million, or 13.3%, from the 26 weeks ended August 3, 2013 to the 26 weeks ended August 2, 2014, primarily due to decreases in accessories sales associated with hardware sales declines and lowerfewer new titles of PC entertainment software sales due toreleased during the launch ofDiablo III in26 weeks ended August 2, 2014 versus the comparable prior year second quarter, almost entirely offset by increases in sales of mobile and digital products as we continue to focus on expanding these lines of business.period.

As a percentage of net sales, sales of new video game hardware, video game accessories and mobile and consumer electronics increased, and sales of new video game software, sales, pre-owned and value video game product salesproducts, digital and other product sales increased and new video game hardware salesproducts decreased in the 26 weeks ended August 2, 2014 in comparison to the 26 weeks ended August 3, 2013 compared to the 26 weeks ended July 28, 2012.. The change in the mix of sales was primarily due to the decreases inlaunch of the new video game hardware salesconsoles, as discussedwell as meaningful contributions from our Technology Brands segment as described above.


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Cost of Sales

Cost of sales decreasedincreased by $243.9$361.1 million, or 10.0%16.5%, from $2,433.2 million in the 26 weeks ended July 28, 2012 to $2,189.3 million in the 26 weeks ended August 3, 2013 to $2,550.4 million in the 26 weeks ended August 2, 2014, primarily as a result of the decreaseincrease in sales discussed above and the changes in gross profit discussed below.

Gross Profit

Gross profit decreasedincreased by $59.5$117.6 million, or 5.3%11.1%, from $1,119.2 million in the 26 weeks ended July 28, 2012 to $1,059.7 million in the 26 weeks ended August 3, 2013.2013 to $1,177.3 million in the 26 weeks ended August 2, 2014. Gross profit as a percentage of net sales increaseddecreased from 31.5% in the 26 weeks ended July 28, 2012 to 32.6% in the 26 weeks ended August 3, 2013.2013 to 31.6% in the 26 weeks ended August 2, 2014. The gross profit percentage increasedecrease was primarily due todriven by the changechanges in sales mix driven bydiscussed above and specifically the decreasegrowth in sales of new video

game hardware salesassociated with the new consoles, which carry lower margins, as a percentage of total net sales and the increase in gross profit as a percentage of sales on new video game hardware products and other video game products. Gross profit as a percentage of sales on new video game hardware increased from 7.4% in the 26 weeks ended July 28, 2012 to 9.2% in the 26 weeks ended August 3, 2013 primarily due to an increase in the attachment rate of product replacement plan sales on new hardware units when compared to the prior year. Gross profit as a percentage of sales on new video game software increased slightly from 21.4% in the 26 weeks ended July 28, 2012 to 21.8% in the 26 weeks ended August 3, 2013.sales. Gross profit as a percentage of sales on pre-owned and value video game products decreasedincreased from 48.6% in the 26 weeks ended July 28, 2012 to 47.3% in the 26 weeks ended August 3, 2013 to 48.3% in the 26 weeks ended August 2, 2014, primarily due to anthe increase in promotional activities when comparedgross profit percentage that occurs as prior generation hardware and software matures. Gross profit as a percentage of sales on video game accessories decreased from 40.4% in the 26 weeks ended August 3, 2013 to 38.4% in the 26 weeks ended August 2, 2014 primarily due to the prior year.mix of current generation accessories sales, which carry lower gross margins relative to the total video game accessories category. Gross profit as a percentage of sales on digital decreased from 68.6% in the 26 weeks ended August 3, 2013 to 64.4% in the 26 weeks ended August 2, 2014 primarily due to the mix of underlying products we sell. Gross profit as a percentage of sales on mobile and consumer electronics increased from 25.9% in the 26 weeks ended August 3, 2013 to 36.2% in the 26 weeks ended August 2, 2014 primarily due to the addition of Technology Brands beginning in November 2013 and the gross margin percentage in that segment, which is higher than in the Video Game Brands segments. Gross profit as a percentage of sales on other product sales increaseddecreased from 39.2%34.8% in the 26 weeks ended July 28, 2012 to 40.9% in the 26 weeks ended August 3, 2013 to 32.5% in the 26 weeks ended August 2, 2014 primarily due to the increase in mobile and digital sales and a decreasechange in sales of PC entertainment softwaremix in this category, and the second quarter of 2013 when compared to the second quarter of 2012. New PC entertainment software has a lowerrelative gross profit percentage than accessories, mobile or digitalmargins associated with those sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreasedincreased by $10.5$85.6 million, or 1.2%, from $881.3 million in the 26 weeks ended July 28, 2012 to $870.8 million in the 26 weeks ended August 3, 2013.2013 to $956.4 million in the 26 weeks ended August 2, 2014. This decreaseincrease was primarily due to cost control activities$47.6 million of additional costs associated with our Technology Brands segment, as a result ofwell as the declinehigher variable costs associated with the increase in comparable store sales atin our Video Game Brands segments during the end of the current console cycle and lower store count.26 weeks ended August 2, 2014. Selling, general and administrative expenses as a percentage of net sales increaseddecreased from 24.8% in26.8% for the 26 weeks ended July 28, 2012 to 26.8% in the 26 weeks ended August 3, 2013. The2013 to 25.7% in the 26 weeks ended August 2, 2014 due to our ability to effectively leverage the increase in sales in the Video Game Brands segments, offset by the Technology Brands segment, which generally has higher selling, general and administrative expenses as a percentage of net sales was primarily due to deleveraging of fixed costs as a result of the decrease in comparable store sales. Included in selling, general and administrative expenses is $12.6 million and $11.5 million and $10.4 million inof stock-based compensation expense for the 26 weeks ended August 2, 2014 and August 3, 2013, respectively.
Depreciation and Amortization
Depreciation and amortization expense decreased $4.6 million, or 5.5%, from $82.9 million in the 26 weeks ended August 3, 2013 and July 28, 2012, respectively.

Depreciation and Amortization

Depreciation and amortization expense decreased $5.5 million, or 6.2%, from $88.4 to $78.3 million in the 26 weeks ended July 28, 2012 to $82.9 million in the 26 weeks ended August 3, 2013.2, 2014. This decrease was primarily due to a decrease in capital expenditures in recent years when compared to prior years, which included significant investments in our loyalty and digital initiatives, as well as a decrease in new store openings and investmentslower overall store count in management information systems.

our Video Game Brands segments.

Interest Income and Expense

Interest income from the investment of excess cash balances decreased slightlyincreased from $0.4 million in the 26 weeks ended July 28, 2012 to $0.2 million in the 26 weeks ended August 3, 2013. Interest expense increased from $1.72013 to $0.3 million in the 26 weeks ended July 28, 2012 toAugust 2, 2014. Interest expense decreased from $2.4 million in the 26 weeks ended August 3, 2013.

2013 to $2.0 million million in the 26 weeks ended August 2, 2014.

Income Tax
Income Taxtax expense for the

26 weeks ended August 3, 2013 and the 26 weeks ended August 2, 2014 was based upon management’s estimate of the Company’s annualized effective income tax rate. Income tax expense was $38.7$38.7 million, or 37.3% of earnings before income tax expense, for the 26 weeks ended August 3, 2013 compared to $54.8$48.3 million, or 37.0%34.3% of earnings before income tax expense, for the 26 weeks ended July 28, 2012 and was based upon an estimate ofAugust 2, 2014. Generally, our annualized effective tax rate.

rate varies primarily based on our profitability level and the relative mix of earnings across the jurisdictions in which we operate.



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Operating Earnings and Net Income

The factors described above led to a decreasean increase in operating earnings of $43.5$36.6 million from $149.5 million in the 26 weeks ended July 28, 2012 to $106.0 million in the 26 weeks ended August 3, 2013 to $142.6 million in the 26 weeks ended August 2, 2014, and a decreasean increase in consolidated net income of $28.3$27.5 million from $93.4 million in the 26 weeks ended July 28, 2012 to $65.1 million in the 26 weeks ended August 3, 2013.

2013Noncontrolling Interests

The $0.1 to $92.6 million net loss attributable to noncontrolling interests forin the 26 weeks ended July 28, 2012 representsAugust 2, 2014. The increase in operating earnings and net income is primarily attributable to the portionlaunch of the minority interest stockholders’ net loss of our non-wholly owned subsidiaries includednew console systems, which has driven year-over-year gross profit growth in our consolidated net income. The remaining noncontrolling interests were purchased duringnew video game hardware and video game accessories categories, as well as continued growth in our pre-owned and value category. Additionally, our Technology Brands segment generated operating earnings of $13.1 million in the second quarter of fiscal 2012.

26 weeks ended August 2, 2014.

Segment Performance

We operate our business in the following segments: Video Game Brands, which consists of four segments in the United States, Australia, Canada and Europe.Europe, and Technology Brands. The following tables provide a summary of our net sales and operating earnings (loss) by reportable segment:

Net sales by operating segment are as follows:

   13 Weeks Ended   26 Weeks Ended 
   August 3,
2013		   July 28,
2012		   August 3,
2013		   July 28,
2012		 
   (In millions) 

United States

  $942.4    $1,058.5    $2,295.3    $2,517.8  

Canada

   67.7     76.9     155.7     174.5  

Australia

   112.4     128.9     226.5     235.4  

Europe

   261.2     285.9     571.5     624.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,383.7    $1,550.2    $3,249.0    $3,552.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

follows (in millions):

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
Video Game Brands:        
  United States $1,101.0
 $942.4
 $2,498.7
 $2,295.3
  Canada 82.9
 67.7
 173.2
 155.7
  Australia 142.1
 112.4
 258.6
 226.5
  Europe 335.3
 261.2
 667.0
 571.5
Technology Brands 70.1
 —
 130.2
 —
Total $1,731.4
 $1,383.7
 $3,727.7
 $3,249.0
Operating earnings (loss) by segment are as follows:

   13 Weeks Ended  26 Weeks Ended 
   August 3,
2013		  July 28,
2012		  August 3,
2013		  July 28,
2012		 
   (In millions) 

United States

  $43.4   $40.6   $136.2   $155.7  

Canada

   (0.7)   0.4    1.8    2.9  

Australia

   1.1    3.7    2.6    2.3  

Europe

   (25.0)   (10.2)   (34.6)   (11.4) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  $18.8   $34.5   $106.0   $149.5  
  

 

 

  

 

 

  

 

 

  

 

 

 

follows (in millions):

  13 Weeks Ended 26 Weeks Ended
  August 2,
2014		 August 3,
2013		 August 2,
2014		 August 3,
2013
Video Game Brands:        
  United States $35.6
 $43.4
 $142.2
 $136.2
  Canada 1.2
 (0.7) 3.6
 1.8
  Australia 4.8
 1.1
 6.5
 2.6
  Europe (12.0) (25.0) (22.8) (34.6)
Technology Brands 7.1
 —
 13.1
 —
Total $36.7
 $18.8
 $142.6
 $106.0
Video Game Brands
United States

Segment resultsResults for the United States Video Game Brands segment include retail operations in all 50 states, the District of Columbia, Puerto Rico and Guam, the electronic commerce Web sitewww.gamestop.com,Game Informermagazine,www.kongregate.com, a digital PC game distribution platform available atwww.gamestop.com/pcgames, Spawn Labs and an online consumer electronics marketplace available atwww.buymytronics.com. As of August 3, 2013,2, 2014, the United States Video Game Brands segment included 4,290 GameStop4,197 stores, compared to 4,4484,290 stores on July 28, 2012.August 3, 2013.

Net sales for the 13 weeks ended August 3, 2013 decreased $116.12, 2014 increased $158.6 million, or 11.0%16.8%, compared to the 13 weeks ended July 28, 2012August 3, 2013 due primarily to a 10.2% decrease19.7% increase in comparable store sales. The decreaseincrease in comparable store sales was primarily due to a decrease in sales across all categories due to the late stageslaunch of the current console cycle. The decrease in new video game hardware sales is primarily due to a decrease in hardware unit sell-through related to being in the late stages of the current console cycleMicrosoft Xbox One and higher sales of the Sony PlayStation Vita which launched in the first quarter of fiscal 2012. These sales declines were partially offset by the sales of the Nintendo Wii U which launched4 in the fourth quarter of fiscal 2012. The decrease2013, along with a stronger line-up of new software titles. Net sales were also positively impacted by an increase in new video

game softwarepre-owned sales, driven by an increase in the second quarternumber of fiscal 2013 is primarily due to a reduction intrades and higher in-store traffic associated with the new software title launches as compared to the second quarter of fiscal 2012 coupled with declining consumer demand due to the late stages of the console cycle. The decrease in pre-owned video game product sales in the second quarter of fiscal 2013 was primarily due to a decrease in store traffic related to lower video game demand due to the late stages of the current console cycle. The decrease in other product sales in the second quarter of fiscal 2013 was primarily due to decreases in sales of accessories and lower sales of PC entertainment software as compared to the second quarter of fiscal 2012 due to the launch ofDiablo III, offset partially by increases in sales of mobile and digital products.

launch. Net sales for the 26 weeks ended August 2, 2014 increased $203.4 million, or 8.9%, compared to the 26 weeks ended August 3, 2013 decreased $222.5 million, or 8.8%, compared to the 26 weeks ended July 28, 2012 due primarily to a 8.2% decreasean 11.4% increase in comparable store sales. The decreaseincrease in comparable store sales was primarily due to a decrease in sales across all categories. The decrease in new video game hardware sales is primarily due to a decrease in hardware unit sell-through related to being in the late stageslaunch of the current console cycleMicrosoft Xbox One and higher sales


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the Sony PlayStation Vita which launched4 in the firstfourth quarter of fiscal 2012. The decrease in new video game software sales is primarily due to declines in sales of catalog software due to the late stages of the current console cycle in the 26 weeks ended August 3, 2013 when compared to the 26 weeks ended July 28, 2012. The decrease in pre-owned video game product sales is due primarily to a decrease in store traffic related to the lack of new release video game titles in the 26 weeks ended August 3, 2013 when compared to the 26 weeks ended July 28, 2012 and lower hardware demand due to the late stages of the current console cycle. The decrease in other product sales is due primarily to decreases in sales of accessories and lower sales of PC entertainment software as compared to the second quarter of fiscal 2012 due to the launch ofDiablo III, almost entirely offset by increases in sales of mobile and digital products.

2013. Segment operating earnings for the 13 weeks ended August 3, 2013 increased2, 2014 decreased by $2.8$7.8 million compared to the 13 weeks ended July 28, 2012, driven primarilyAugust 3, 2013. Operating earnings for the second quarter of fiscal 2014 were negatively impacted by cost controllower overall gross margins resulting from the change in sales mix and a higher product margin.the relative gross margins associated with those sales, as well as incremental selling, general and administrative expenses associated with the increase in comparable store sales. Segment operating income decreased $19.5 millionearnings for the 26 weeks ended August 2, 2014 increased by $6.0 million in comparison to the 26 weeks ended August 3, 2013 compared to the 26 weeks ended July 28, 2012,, driven primarily by the decreasecurrent year increase in comparable store sales.

Canada

Segment resultsnet sales and our ability to effectively leverage the increase in net sales relative to the selling, general and administrative expenses for this segment.

Canada
Results for the Canadian segment include retail operations in Canada and their e-commerce site. As of August 3, 2013,2, 2014, the Canadian segment had 334333 stores, compared to 341334 stores as of July 28, 2012.at August 3, 2013. Net sales in the Canadian segment in the 13 and 26 weeks ended August 3, 2013 decreased 12.0%2, 2014 increased 22.5% and 10.8%11.2%, respectively compared to the 13 and 26 weeks ended July 28, 2012.August 3, 2013. The decreaseincrease in net sales was primarily due to a decreasean increase in comparable store sales of 8.7%28.7% and 7.3%19.1%, respectively, for the current quarter and year-to-date periods versus the prior year, partially offset by the impact of changes in exchange rates, which had the effect of decreasing sales by $1.0$5.3 million and $3.0$15.4 million, respectively, in the 13 and 26 weeksweek periods ended August 3, 20132, 2014 when compared to the same periods in fiscal 2012. Excluding the impact of changes in exchange rates, net sales in the Canadian segment decreased by 10.7% and 9.1% in the 13 and 26 weeks ended August 3, 2013, respectively, compared to the same periods in fiscal 2012.2013. The decreaseincrease in comparable store sales was primarily due to a decrease in store traffic related to lower video game demand due to the late stageslaunch of the current console cycleMicrosoft Xbox One and a decrease in sales of PC entertainment software due primarily to the release ofDiablo IIISony PlayStation 4 in the secondfourth quarter of fiscal 2012.

2013, along with a stronger line-up of new software titles. Net sales were also positively impacted by an increase in pre-owned sales, driven by an increase in the number of trades and higher in-store traffic associated with the new console launch. Segment operating earnings for bothCanada increased by $1.9 million and $1.8 million in the 13 weeks ended August 2, 2014 and the 26 weeks ended August 3, 2013 decreased by $1.1 million, compared to the 13 and 26 weeks ended July 28, 2012, due primarily to a decrease in gross profit due to lower sales for the 13 and 26 weeks ended August 3, 20132, 2014, respectively, when compared to the prior year periods.

same periods in fiscal 2013, driven by the launch of the new consoles.

Australia
Australia

Segment resultsResults for Australiathe Australian segment include retail operations and e-commerce sites in Australia and New Zealand. As of August 3, 2013,2, 2014, the Australian segment included 414415 stores, compared to 416414 stores as of July 28, 2012.at August 3, 2013. Net sales for the 13 and 26 weeks ended August 3, 2013 decreased 12.8%2, 2014 increased by 26.4% and 3.8%14.2%, respectively, compared to the 13 and 26 weeks ended July 28, 2012.August 3, 2013. The decreaseincrease in net sales for the 13 and 26 weeks ended August 3, 20132, 2014 was

primarily due to a decreasean increase in comparable store sales of 6.5%25.5% and 20.2%, respectively, for the current quarter and year-to-date periods versus the prior year, partially offset by the impact of changes in exchange rates, which had the effect of decreasing sales by $7.3$9.4 million when compared to the same period in fiscal 2012. The decrease in comparable store sales in the second quarter of fiscal 2013 was primarily due to a decrease in store traffic related to lower video game demand due to the late stages of the current console cycle and a decrease in sales of PC entertainment software due primarily to the release ofDiablo III in the second quarter of fiscal 2012. The decrease in net sales for the 26 weeks ended August 3, 2013 was attributable to the impact of exchange rates, which had the effect of decreasing sales by $9.2$25.9 million, when compared to the same period in fiscal 2012. Excluding the impact of changes in exchange rates, net sales in the Australian segment decreased by 7.1% and increased by 0.1%respectively, in the 13 and 26 weeksweek periods ended August 3, 2013, respectively,2, 2014 when compared to the same periods in fiscal 2012.

2013. The increase in comparable store sales was primarily due to the launch of the Microsoft Xbox One and the Sony PlayStation 4 in the fourth quarter of fiscal 2013, along with a stronger line-up of new software titles. Net sales were also positively impacted by an increase in pre-owned sales, driven by an increase in the number of trades and higher in-store traffic associated with the new console launch. Segment operating incomeearnings for Australia increased by $3.7 million and $3.9 million in the 13 weeks ended August 2, 2014 and the 26 weeks ended August 3, 2013 decreased by $2.6 million and increased by $0.3 million,2, 2014, respectively, when compared to the 13 and 26 weeks ended July 28, 2012. The decreasesame periods in segment operating incomefiscal 2013, driven by the launch of the new consoles.

Europe
Results for the 13 weeks ended August 3, 2013 when compared to the same period of the prior year is primarily due to a decrease in gross margin due to lower sales for the 13 weeks ended August 3, 2013. Segment operating income for the 26 weeks ended August 3, 2013 was relatively flat when compared to the same period in fiscal 2012.

Europe

Segment results for EuropeEuropean segment include retail store operations in 11 European countries and e-commerce sites in six countries. As of August 3, 2013,2, 2014, the European segment included 1,467operated 1,434 stores compared to 1,4231,467 stores as of July 28, 2012.August 3, 2013. For the 13 and 26 weeks ended August 3, 2013,2, 2014, European net sales decreased 8.6%increased 28.4% and 8.5%16.7%, respectively, compared to the 13 and 26 weeks ended July 28, 2012. Excluding the impact of changesAugust 3, 2013. The increase in exchange rates, net sales in the European segment decreased 12.2% and 9.8%, respectively, in the 13 and 26 weeks ended August 3, 2013 when compared to the prior year periods. This decrease in sales iswas primarily due to a decreasean increase in comparable store sales of 14.5%25.9% and 12.5%13.0%, respectively, for the current quarter and year-to-date periods versus the prior year. The increase in the 13 and 26 weeks ended August 3, 2013. The decrease incomparable store sales at comparable stores was primarily due to weak consumer trafficthe launch of the Microsoft Xbox One and a slow-down in hardware unit sell-through as a result of beingthe Sony PlayStation 4 in the late stages of the current console cycle, and a decrease in sales of PC entertainment software due primarily to the release ofDiablo III in the secondfourth quarter of fiscal 2012.

The segment operating loss2013, along with a stronger line-up of new software titles. Net sales were also positively impacted by an increase in Europe in the 13 and 26 weeks ended August 3, 2013 compared to the operating loss in the 13 and 26 weeks ended July 28, 2012 increasedpre-owned sales, driven by $14.8 million and $23.2 million, respectively. Thean increase in the operating loss fornumber of trades and higher in-store traffic associated with the 13 and 26 weeks ended August 3, 2013 compared to the 13 and 26 weeks ended July 28, 2012 is primarily due to the decrease in comparable storenew console launch. Additionally, net sales discussed above. The operating loss also included the unfavorable impact ofwere favorably impacted by changes in exchange rates, which had the effect of increasing the operating losssales by $0.7$24.5 million and $0.5$37.1 million, respectively, forin the 13 and 26 week periods ended August 2, 2014 when compared to the same periods in fiscal 2013. The segment operating loss in Europe was $12.0 million and $22.8 million in the 13 weeks ended August 2, 2014 and 26 weeks ended August 2, 2014, respectively, compared to operating losses of $25.0 million and $34.6 million in the 13 weeks ended August 3, 2013 and 26 weeks ended August 3, 2013.

2013. The improvement in operating earnings was primarily attributable to the positive sales impact from continued consumer demand for the new video game consoles.


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Technology Brands
Segment results for the Technology Brands segment include our Simply Mac, Spring Mobile and Cricket Wireless stores. As of August 2, 2014, the Technology Brands segment operated 319 stores. For the 13 and 26 weeks ended August 2, 2014, Technology Brands net sales totaled $70.1 million and $130.2 million, respectively, with operating earnings of $7.1 million and $13.1 million, respectively.
Seasonality

Our business, like that of many retailers, is seasonal, with the major portion of the net sales and operating profit realized during the fourth fiscal quarter which includes the holiday selling season.


Liquidity and Capital Resources

Cash Flows

During

Overview
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our $400 million asset-based revolving credit facility (the “Revolver”) together will provide sufficient liquidity to fund our operations, store openings and remodeling activities and corporate capital expenditure programs, including the payment of dividends declared by the Board of Directors, for at least the next 12 months. As of August 2, 2014, we had total cash on hand of $193.0 million and an additional $181.4 million of available borrowing capacity under the Revolver. As we continue to pursue acquisitions, divestitures and other strategic transactions to expand and grow our business, while also enhancing shareholder value through share repurchases and dividend payments, we regularly monitor capital market conditions and consider raising additional funds through secured and unsecured borrowings and public or private sales of debt securities, which may be issued in transactions registered under the Securities Act of 1933, in one or more transactions exempt from registration, or a combination of one or more of the foregoing. The amount, nature and timing of any borrowings of debt securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
We have revised the presentation of outstanding checks in our prior period financial statements. Previously, we reduced cash and liabilities when the checks were presented for payment and cleared our bank accounts. We now reduce cash and liabilities when the checks are released for payment.
The impact of this revision on our consolidated statements of cash flows for the 26 weeks ended August 3, 2013 are as follows:
  As Previously Reported Revision As Revised
  (In millions)
Changes in operating assets and liabilities:      
Accounts payable and accrued liabilities $(389.3) $189.3
 $(200.0)
Net cash flows provided by operating activities (274.6) 189.3
 (85.3)
Cash and cash equivalents at beginning of period 635.8
 (261.4) 374.4
Cash and cash equivalents at end of period 199.5
 (72.1) 127.4
Cash Flows
During the 26 weeks ended August 2, 2014, cash used in operations was $274.6$275.3 million, compared to cash used in operations of $173.8$85.3 million during the 26 weeks ended July 28, 2012.August 3, 2013. The increase in cash flow used in operations of $100.8$190.0 million was primarily due to an increase in cash used in operations for working capital purposes, which increased $55.6$239.1 million from $359.3a use of $225.6 million in the 26 weeks ended July 28, 2012 to $414.9 million in the 26 weeks ended August 3, 2013.2013 to a use of $464.7 million in the 26 weeks ended August 2, 2014. Our business is highly seasonal, with a disproportionate amount of sales occurring in the fourth quarter of each year. We purchase inventory in anticipation of these fourth quarter sales and, as a result, have higher accounts payable at year-end compared to the end of the second quarter. The increase in cash used in operations for working capital was due primarily to

the changeincrease in inventory purchases at the end of fiscal 2013 associated with the launch of the new consoles. These changes were partially offset by a decrease in cash related to accounts payablepayments for income taxes and accrued liabilities and the changeprepaid expenses in the payment of income taxes from year26 weeks ended August 2, 2014 as compared to year. The increase in cash used related to accounts payable and accrued liabilities for the 26 weeks ended August 3, 2013 compared to as well as consolidated net income, adjusted for non-cash items, that was $26.5 million higher in the 26 weeks ended July 28, 2012 was primarily due to changes inAugust 2, 2014 versus the timingcomparable prior-year period.


25
Table of trade payable payments. Our business is highly seasonal, with a disproportionate amount of sales and purchases occurring in the fourth quarter of each year. During the first 26 weeks of each fiscal year, we have traditionally had a significant use of cash associated with the pay down of accounts payable from year-end. Due to the late stages of the current console cycle, we have decreased purchases of new products and our inventory mix is shifting towards more pre-owned products, including pre-owned mobile products that do not have offsetting accounts payable. These factors also negatively impacted our accounts payable leverage during the quarter. Contents

Cash used in operationsinvesting activities was also impacted by a $15.7$95.5 million and $45.9 million during the 26 weeks ended August 2, 2014 and the 26 weeks ended August 3, 2013, respectively. The $49.6 million increase in cash used for other long-term liabilities. This increaseinvesting activities is primarily a resultattributable to $43.1 million of a $17.9cash that was used to fund our Technology Brands acquisitions during the 26 weeks ended August 2, 2014.
Cash provided by financing activities was $11.6 million payment madefor the 26 weeks ended August 2, 2014, in comparison to settle certain U.S. federal income tax items. Additionally, the increase in cash used in operations was also attributed to a $29.5 million decrease in net income adjusted for noncash items.

Cash used in investingfinancing activities was $45.9 million and $57.2of $88.2 million during the 26 weeks ended August 3, 2013. The $99.8 million increase in the cash provided by financing activities is due to an increase in net cash proceeds from the revolver of $160.0 million, partially offset by an increase of $9.4 million used in the repurchase of common stock and July 28, 2012, respectively. Duringan increase of $9.5 million in cash payments for dividends. Additionally, cash provided by the issuance of shares related to stock option exercises decreased $41.3 million during the 26 weeks ended August 2, 2014 in comparison to the 26 weeks ended August 3, 2013 $47.3 million, which is primarily a function of cash was used primarily to invest in information systems, invest in digital initiatives and open new stores and remodel existing stores infewer stock option exercises during the U.S. and internationally. During the 26 weeks ended July 28, 2012, $53.6 million of cash was used primarily to invest in information systems, invest in digital initiatives and open new stores and remodel existing stores inAugust 2, 2014 when compared against the U.S. and internationally.

Cash used in financing activities was $88.2 million and $284.9 million for the 26 weeks ended August 3, 2013 and July 28, 2012, respectively. The cash used in financing activities for the 26 weeks ended August 3, 2013 was primarily due to the purchase of $114.4 million of treasury shares and the payment of dividends on our Class A Common Stock of $66.2 million, offset partially by the cash received from net Revolver (as defined below) borrowings of $50 million and the issuance of shares associated with stock option exercises of $39.3 million. The cash used in financing activities for the 26 weeks ended July 28, 2012 was primarily due to the purchase of $246.6 million of treasury shares and the payment of dividends on our Class A Common Stock of $40.3 million. In addition, we borrowed and repaid $36.0 million against our Revolver during the 26 weeks ended July 28, 2012.

.

Sources of Liquidity

We utilize cash generated from operations and have funds available to us under our revolving credit facility to cover seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost and consist primarily of time deposits with highly rated commercial banks.

On January 4, 2011, we entered into a $400 million credit agreement, (the “Revolver”), which we amended and restated in its entirety, our prior credit agreement entered into in October 2005on March 25, 2014 (the “Credit Agreement”“Revolver”). The Revolver provides foris a five-year, $400 million asset-based facility includingthat is secured by substantially all of our assets and the assets of our domestic subsidiaries. Availability under the Revolver is subject to a monthly borrowing base calculation. The Revolver includes a $50 million letter of credit sublimit, secured by substantially allsublimit. Prior to the March 2014 amendments, the Revolver was scheduled to mature in January 2016. The amendments extended the maturity date to March 25, 2019; increased the expansion feature under the Revolver from $150 million to $200 million, subject to certain conditions; and revised certain other terms, including a reduction of the Company’s and its domestic subsidiaries’ assets.fee we are required to pay on the unused portion of the total commitment amount. We havebelieve the ability to increaseextension of the facility, which matures in January 2016, by $150 million under certain circumstances. The extensionmaturity date of the Revolver to 2016 reducesMarch 2019 helps to limit our exposure to potential tightening or other adverse changes in the credit markets.

The


Borrowing availability under the Revolver is limited to a borrowing base which allows us to borrow up to 90% of the appraisal value of the inventory, in each case plus 90% of eligible credit card receivables, net of certain reserves. The borrowing base provides for borrowing up to 92.5% of the appraisal value during the fiscal months of August through October. Letters of credit reduce the amount available to borrow under the Revolver by theiran amount equal to the face value.value of the letters of credit. Our ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if Revolvereither 1) excess availability under the Revolver is less than 20%30%, or is projected to be within 12 months after such payment. In addition,payment or 2) if excess availability under the Revolver usageis less than 15%, or is projected to be equal to or greater than 25% of total commitments duringwithin 12 months after such payment, and the prospective 12-month period, we are subject to meeting a fixed charge coverage ratio, ofas calculated on a pro-forma basis for the prior 12 months is 1.1:1.0 prior to making such payments.or less. In the event that excess availability under the Revolver is at any time less than the

greater of (1) $40.0$30 million or (2) 12.5%10% of the lesser of the total commitment or the borrowing base, we will be subject to a fixed charge coverage ratio covenant of 1.1:1.0:1.0.

The Revolver places certain restrictions on us and our subsidiaries, including limitations on asset sales, additional liens, investments, loans, guarantees, acquisitions and the incurrence of additional indebtedness. Absent consent from our lenders, we may not incur more than $1 billion of senior secured debt and $750 million of additional unsecured indebtedness to be limited to $250 million in general unsecured obligations and $500 million in unsecured obligations to finance acquisitions valued at $500 million or more.
The per annum interest rate under the Revolver is variable and is calculated by applying a margin (1) for prime rate loans of 1.25%0.25% to 1.50%0.75% above the highest of (a) the prime rate of the administrative agent, (b) the federal funds effective rate plus 0.50% or (c) the London Interbank Offered (“LIBO”) rate for a 30-day interest period as determined on such day plus 1.00%, and (2) for LIBO rate loans of 2.25%1.25% to 2.50%1.75% above the LIBO rate. The applicable margin is determined quarterly as a function of our average daily excess availability under the facility. In addition, we are required to pay a commitment fee of 0.375% or 0.50%, depending on facility usage,0.25% for any unused portion of the total commitment under the Revolver. As of August 3, 2013,2, 2014, the applicable margin was 1.25%0.25% for prime rate loans and 2.25%1.25% for LIBO rate loans, while the required commitment fee was 0.50% for the unused portion of the Revolver.

loans.

The Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with covenants, any material representation or warranty made by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting us or our subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or the liquidation of the Company or certain of its subsidiaries. As of August 3, 2013, total availability under the Revolver was $253.3 million, there was $50.0 million of borrowings outstanding under the Revolver and standby letters of credit outstanding totaled $9.0 million. During the 26 weeks ended July 28, 2012,August 2, 2014, we borrowed $476 million and subsequently repaid $36.0$266 million under the Revolver. During the 26 weeks ended August 3, 2013, we had borrowings of $130 million and repayments of $80 million under the Revolver. Average borrowings under the Revolver for the 13 weeks and 26 weeks ended August 3, 20132, 2014 were $44.2 million and $22.1 million, respectively.$91.1 million. Our average interest rate on those outstanding borrowings for the 13 weeks and 26 weeks ended August 3, 20132, 2014 was 2.9% for both periods.1.7%.

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As of August 2, 2014, total availability under the Revolver was $181.4 million, outstanding borrowings were $210 million and standby letters of credit outstanding totaled $8.3 million. We are currently in compliance with the requirements of the Revolver.

In September 2007, our Luxembourg subsidiary entered into a discretionary $20.0 million Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit is available to our foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of August 3, 2013,2, 2014, there were no cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $4.6$4.1 million.

As we continue to pursue acquisitions, divestitures and other strategic transactions to expand and grow our business, while also enhancing shareholder value through share repurchases and dividend payments, we regularly monitor capital market conditions and consider raising additional funds through secured and unsecured borrowings and public or private sales of debt securities, which may be issued in transactions registered under the Securities Act of 1933, in one or more transactions exempt from registration, or a combination of one or more of the foregoing.
Uses of Capital

Our future capital requirements will depend on the number of new stores we open and the timing of those openings within a given fiscal year, as well as the investments we will make in e-commerce, digital and other strategic initiatives. We opened 7221 Video Game Brands stores and opened or acquired 101 Technology Brands stores in the 26 weeks ended August 3, 20132, 2014, and we expect to open or acquire approximately 115350 to 450 stores in fiscal 2013,2014, including the 44 stores acquiredinvestments in France during the first quarter.our Technology Brands business. Capital expenditures for fiscal 20132014 are projected to be approximately $135$160 million, to be used primarily to fund continued digital initiatives, new store openings and store remodels and invest in distribution and information systems in support of operations.

Since January 2010, our Board of Directors has from timeauthorized several share repurchase programs authorizing management to time authorized the repurchase of our common stock. Our current authorization, made in November 2012, allows us to repurchase up to $500 million of shares. During the 26 weeks ended August 3, 2013,2, 2014, we repurchased 3.43.2 million shares forat an average price per share of $33.58, leaving $310.9 million available under the November 2012 authorization. As$39.51 for a total of September 4, 2013,$127.7 million. Between August 3, 2014 and August 29, 2014, we have purchased an additional 0.3repurchased 0.1 million shares of our Class A Common Stock forat an average price per share of $50.27 since August 3, 2013, leaving $296.9$41.48 for a total of $5.4 million availableand we have $324.0 million remaining under this authorization. The amounts, timing and

prices of share repurchases that are effected under the Company’s share repurchase programs, pursuant to such authorizations, are directed by our senior management.

During the first quarter of fiscal 2012,latest authorization from November 2013.

On March 4, 2014, our Board of Directors approved the initiation of a quarterlyauthorized an increase in our annual cash dividend from $1.10 to our stockholders$1.32 per share of Class A Common Stock. During the 26 week periods ended August 3, 2013On March 25, 2014 and July 28, 2012,June 17, 2014, we paid $66.2 million and $40.3 million, respectively, in dividends. During the first and second quartersmade quarterly dividend payments of fiscal 2012, we declared cash dividends of $0.15$0.33 per share for each quarter. During the firstof Class A Common Stock to stockholders of record on March 17, 2014 and second quarters of fiscal 2013, we declared cash dividends of $0.275 per share for each quarter. OurJune 4, 2014, respectively. Additionally, on August 19, 2014, our Board of Directors approveddeclared a quarterly cash dividend to our stockholders of $0.275$0.33 per Class A common share payable on September 19, 201316, 2014, to stockholdersshareholders of record atas of the close of business on September 3, 2013.2014. Future dividends will be subject to approval by our Board of Directors.

Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under the Revolver will be sufficient to fund our operations, digital initiatives, store openings and remodeling activities and corporate capital expenditure programs, including the payment of dividends declared by the Board of Directors, for at least the next 12 months.

Recent

Contractual Obligations
There have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations from those disclosed in our 2013 Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements

In July 2013, accounting standards updateMay 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards (“IFRS”), the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11“Income Taxes (Topic 740): Presentation2014-09 related to revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,amount that reflects what it expects in exchange for the goods or a Tax Credit Carryforward Exists” was issued requiring an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presentedservices. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or useprior accounting guidance. The ASU provides alternative methods of an operating loss carry forward, a similar tax loss, or a tax credit carry forward. This ASU will beinitial adoption and is effective for usannual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is not permitted. We are currently evaluating the first quarter of 2014. We do not expectimpact that this ASUstandard will have an impact on our consolidated financial statements as we currentlywell as the appropriate method of adoption.

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In April 2014, the FASB issued ASU 2014-08 related to reporting discontinued operations and disclosures of disposals of components of an entity. Specifically, the ASU amends the definition of a discontinued operation, expands disclosure requirements for transactions that meet the definition of a discontinued operation and requires entities to disclose additional information about individually significant components that are disposed of or held for sale and do not have any unrecognized tax benefitsqualify as discontinued operations. Additionally, entities will be required to reclassify assets and liabilities of a discontinued operation for all comparative periods presented in the same jurisdictions in which we have tax loss or credit carryovers.

In March 2013, ASU 2013-05“Foreign Currency Matters (Topic 830)” was issued providing guidance with respectstatement of financial position and to separately present certain information related to the releaseoperating and investing cash flows of cumulative translation adjustments into net income when a parent company sells either a part orthe discontinued operation, for all comparative periods, in the statement of an investment in a foreign entity.cash flows. The ASU requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a foreign subsidiary or a group of assets that constitutes a business within a foreign entity. This ASU will beis effective for us beginning in the first quarter of 2014.our fiscal year ending January 30, 2016 and will be adopted on a prospective basis for all disposals (except disposals classified as held for sale prior to the adoption date) or components initially classified as held for sale in periods beginning on or after the adoption date, with early adoption permitted. We are currently evaluating the effect ofimpact that this ASU, but do not expect it tostandard will have a significant impact on our condensed consolidated financial statements.

In February 2013, ASU 2013-02“Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” was issued regarding disclosure of amounts reclassified out of accumulated other comprehensive income by component. An entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU was effective for our annual and interim periods beginning in fiscal 2013. The ASU had no effect on our condensed consolidated financial statements.

Disclosure Regarding Forward-looking Statements

This reportQuarterly Report on Form 10-Q and other oral and written statements made by the Companyus to the public contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).amended. 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 different from any future results, performance or

achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to:

the introduction ofdemand for next-generation consoles and other product releases which impact sales of new products and old products, the current or future features of such consoles, including anymanufacturer-imposed or regulatory restrictions, changes or conditions that may adversely affect our pre-owned business or thebusiness;

our ability to play prior generation video games on such consoles,respond quickly to technological changes and the impact on demand for existing products;

evolving consumer preferences;

our reliance on a limited number of suppliers and vendors for timely delivery of sufficient quantities of their products;

our dependence on the production of new, innovative and popular product releases and enhanced video game platforms and accessories by developers and manufacturers;
our dependence in large part on our relationship with AT&T for the continued growth of our Technology Brands segment and the impact that potential adverse changes to this relationship, including any restrictions on our ability to offer products and for new product releases;

services in the United States that compete with AT&T in wireless and wireline communications and a variety of technology businesses, could have on this component of our business;

general economic conditions in the U.S. and internationally, specifically Europe, which impact consumer confidence and specifically, economic conditions affecting Europe, consumer spending;

seasonality of sales;
the electronic game industry and the retail industry;

proliferation of alternate sources of distribution of video game hardware, software and content;

content, including through digital downloads;

the growth of alternate means to play video games;

games, including mobile, social networking sites and browser gaming;

the competitive environmentintense competition in the electronicvideo game industry;

the growth of mobile, social and browser gaming;

our ability to open and operate new stores and to efficiently close underperforming stores;

our ability to attract and retain qualified personnel;

the failure to achieve the anticipated benefits from new ventures and transactions and our ability to effectively integrate and operate acquired companies, including digital gaming, and technology-based, mobile, wireless or consumer electronics companies that are outside of the Company’sour historical operating expertise;

the impact and costs of litigation and regulatory compliance;

unanticipated litigation results, including third-party litigation;

the amounts, timing and prices of any share repurchases made by the Companyus under itsour share repurchase programs;

the risks involved with our international operations, including continued effortsdepressed local economic conditions, political risks, currency risks, tax rates and regulatory risks;

the efficiency of our management information systems and back-office functions;
data breaches involving customer or employee data and failure of our cyber security infrastructure which could expose us to consolidate back-office supportlitigation;

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restrictions under our credit agreement which may impose operating and close under-performing stores;financial restrictions on us; 
the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and

our ability to pursue strategic acquisitions and divestitures, share repurchases, dividend declarations and other transactions to enhance shareholder value; and

other factors described in thethis Form 10-K,10-Q, including those set forth under the caption “Item“Part II - Item 1A. Risk Factors.”

In some cases, forward-looking statements can be identified by the use of terms such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “pro forma,” “seeks,” “should,” “will” 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 different 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 reflected 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-Q. In light of these risks and uncertainties, the forward-looking events and circumstances contained in this Form 10-Q may not occur, causing actual results to differ materially from those anticipated or implied by our forward-looking statements.


ITEM
Item 3.Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Exposure

Our Revolver’s per annum interest rate is variable and is based on one of (i) the U.S. prime rate, (ii) the LIBO rate or (iii) the U.S. federal funds rate. We do not use derivative financial instruments to hedge interest rate exposure. We limit our interest rate risk by investing our excess cash balances in short-term, highly-liquid instruments with a maturity of one year or less. We do not expect any

There have been no material losses from our invested cash balances, and we believe that our interest rate exposure is modest.

Foreign Currency Risk

We use forward exchange contracts, foreign currency options and cross-currency swaps (together, the “Foreign Currency Contracts”) to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. The Foreign Currency Contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognizedour quantitative and qualitative disclosures about market risk as set forth in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. For the 13 and 26 weeks ended August 3,our 2013 we recognized losses of $19.7 million and $10.3 million, respectively, in selling, general and administrative expenses related to the trading of derivative instruments. These losses were offset by gains related to the re-measurement of intercompany loans and foreign currency assets and liabilities of $22.2 million and $13.4 million, respectively. The aggregate fair value of the Foreign Currency Contracts as of August 3, 2013 was a net liability of $17.9 million as measured by observable inputs obtained from Bloomberg and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. A hypothetical strengthening or weakening of 10% in the foreign exchange rates underlying the Foreign Currency Contracts from the market rate as of August 3, 2013 would result in a gain or loss in value of the forwards, options and swaps of $9.2 million.

We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit riskAnnual Report on all of our derivative financial instruments and cash equivalent investments. We manage counterparty risk according to the guidelines and controls established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.

Form 10-K.
ITEM
Item 4.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company’sour management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at the reasonable assurance level. Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’sour disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that the Company’sour disclosure controls and procedures are effective at the reasonable assurance level. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’sour periodic reports.

(b) Changes in Internal Control Over Financial Reporting

There was no change in the Company’sour internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’sour most recently completed fiscal

quarter that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.



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PART II — OTHER INFORMATION


ITEM
Item 1.Legal Proceedings

In the ordinary course of the Company’sour business, the Company is,we are, from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions and consumer class actions. The CompanyWe may enter into discussions regarding settlement of these and other types of lawsuits, and may enter into settlement agreements, if we believe settlement is in the best interest of the Company’sour stockholders. Management doesWe do not believe that any such existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on the Company’sour financial condition, results of operations or liquidity.


ITEM
Item 1A.    RiskRisk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in our 2013 Annual Report on Form 10-K for the fiscal year ended February 2, 2013 filed with the SEC on April 3, 2013.10-K. These risks could materially and adversely affect our business, financial condition and results of operations. The risks describedThere have been no material changes from the risk factors disclosed in our 2013 Annual Report on Form 10-K have not changed materially other than as set forth below:

The introduction of next-generation consoles could negatively impact the demand for existing products or our pre-owned business.

The introduction of next-generation consoles, the features of such consoles, including any restrictions or conditions that may adversely affect our pre-owned business or the ability to play prior generation video games on such consoles, and the impact on demand for existing products could have a negative impact on our sales and earnings.

These are not the only risks we face. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

10-K.

ITEM
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of our equity securities during the fiscal quarter ended August 3, 20132, 2014 were as follows:


ISSUER PURCHASES OF EQUITY SECURITIES

 

  (a)
Total
Number of
Shares
Purchased		   (b)
Average
Price Paid per
Share		   (c)
Total Number  of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs		   (d)
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs(1)		 
               (In millions of dollars) 

May 5 through June 1, 2013

   —   $—     —    $399.8  

June 2 through July 6, 2013

   2,000,600   $35.97    2,000,600   $327.8  

July 7 through August 3, 2013

   389,200   $43.58    389,200   $310.9  
  

 

 

     

 

 

   

Total

   2,389,800   $37.21    2,389,800   
  

 

 

     

 

 

   

  
Total
Number of
Shares
Purchased
 
Average
Price Paid per
Share
 
Total Number of
Shares
Purchased as
Part of  Publicly
Announced Plans
or Programs
 
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs
        (In millions of dollars)
May 4 through May 31, 2014 536,759
 $37.20
 536,759
 $385.0
June 1 through July 5, 2014 761,029
 38.89
 761,029
 355.4
July 6 through August 2, 2014 606,150
 42.86
 606,150
 329.4
Total 1,903,938
 $39.67
 1,903,938
  


(1)

In November 2012, our Board of Directors authorized $500 million to be used for share repurchases. The authorization has no expiration date.

Item 6.Exhibits

See Index to Exhibits.

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Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ITEM 6.
GAMESTOP CORP.
By:
Exhibits/s/    ROBERT A. LLOYD
Robert A. Lloyd
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: September 8, 2014
GAMESTOP CORP.
By:
/s/    TROY W. CRAWFORD
Troy W. Crawford
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date: September 8, 2014

Exhibits



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Table of Contents

EXHIBIT INDEX

Exhibit

Number

 

Description

    3.1
Exhibit
Number
 Third Amended and Restated Certificate of Incorporation.Description
    3.2Third Amended and Restated Bylaws.
  10.1Amended and Restated 2011 Incentive Plan.(1)
  10.2Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Daniel A. DeMatteo.(2)
  10.3Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and J. Paul Raines.(2)
  10.4Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Tony D. Bartel.(2)
  10.5Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Robert A. Lloyd.(2)
  10.6Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Michael K. Mauler.(2)
  16.1Letter of BDO USA LLP, dated July 18, 2013, to the Securities and Exchange Commission regarding statements included in the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2013.(3)
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
32.1 Certification of Chief Executive Officer 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 2002.2002
32.2 Certification of Chief Financial Officer 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 2002.2002
101.INS XBRL Instance Document.Document (1)
101.SCH XBRL Taxonomy Extension Schema.Schema (1)
101.CAL XBRL Taxonomy Extension Calculation Linkbase.Linkbase (1)
101.DEF XBRL Taxonomy Extension Definition Linkbase.Linkbase (1)
101.LAB XBRL Taxonomy Extension Label Linkbase.Linkbase (1)
101.PRE XBRL Taxonomy Extension Presentation Linkbase.Linkbase (1)


(1)

Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 27, 2013.

(2)

Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 13, 2013.

(3)

Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 19, 2013.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GAMESTOP CORP.
By:/s/    ROBERT A. LLOYD
ROBERT A. LLOYD
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: September 11, 2013

GAMESTOP CORP.

By:/s/    TROY W. CRAWFORD
TROY W. CRAWFORD
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date: September 11, 2013

GAMESTOP CORP.

EXHIBIT INDEX

Exhibit

Number

Description

    3.1(1)Third Amended and Restated Certificate of Incorporation.
    3.2Third Amended and Restated Bylaws.
  10.1Amended and Restated 2011 Incentive Plan.(1)
  10.2Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Daniel A. DeMatteo.(2)
  10.3Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and J. Paul Raines.(2)
  10.4Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Tony D. Bartel.(2)
  10.5Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Robert A. Lloyd.(2)
  10.6Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Michael K. Mauler.(2)
  16.1Letter of BDO USA LLP, dated July 18, 2013, to the Securities and Exchange Commission regarding statements included in the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2013.(3)
  31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1Certification of Chief Executive Officer 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.
  32.2Certification of Chief Financial Officer 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.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.Submitted electronically herewith.

(1)

Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 27, 2013.

(2)

Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 13, 2013.

(3)

Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 19, 2013.

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