10-K 1 form10k-fy14.htm FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 2015 10K - FY14Q4
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File No. 1-32637 
 
 
 
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
Grapevine, Texas
(Zip Code)
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code:
(817) 424-2000
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class)
 
(Name of Exchange on Which Registered)
Class A Common Stock, $.001 par value per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ        No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨        No  þ
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 Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ        No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $4.58 billion, based upon the closing market price of $41.22 per share of Class A Common Stock on the New York Stock Exchange as of August 2, 2014. (For purposes of this calculation all of the registrant's directors and officers are deemed affiliates of the registrant.)
Number of shares of $.001 par value Class A Common Stock outstanding as of March 19, 2015:107,768,713
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, for the 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.




TABLE OF CONTENTS
 
 
 
Page
PART I
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
PART II
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
PART III
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
PART IV
 
Item 15.
 

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Disclosure Regarding Forward-looking Statements
This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. All forward-looking statements included in this Form 10-K are based upon information available to us as of the filing date of this Form 10-K, and we undertake no obligation to update or revise any of these forward-looking statements for any reason, whether as a result of new information, future events or otherwise after the date of this Form 10-K, except as required by law. You should not place undue reliance on these forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. 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. 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. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors,” which are incorporated herein by reference. You should carefully consider the risks and uncertainties described in this Form 10-K.

PART I
 
Item 1.
Business
General
GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global family of specialty retail brands that makes the most popular technologies affordable and simple. As the world’s largest multichannel video game retailer, we sell new and pre-owned video game hardware, physical and digital video game software, video game accessories, as well as new and pre-owned mobile and consumer electronics products and other merchandise. As of January 31, 2015, GameStop's retail network and family of brands include 6,690 company-operated stores in the United States, Australia, Canada and Europe, primarily under the names GameStopTM (“GameStop”), EB GamesTM (“EB Games”), and Micromania. We also operate electronic commerce websites under the names www.gamestop.com, www.ebgames.com.au, www.ebgames.co.nz, www.gamestop.ca, www.gamestop.it, www.gamestop.ie, www.gamestop.de, www.gamestop.co.uk and www.micromania.fr. The network also includes: www.kongregate.com, a leading browser-based game site; Game InformerTM (“Game Informer”) magazine, the world's leading print and digital video game publication; and iOS and Android mobile applications. We also operate Simply Mac©, a U.S. based, certified Apple© (“Apple”) products reseller and Spring Mobile©, an authorized AT&T® (“AT&T”) reseller operating AT&T branded wireless retail stores and pre-paid wireless stores under the name Cricket WirelessTM (“Cricket Wireless,” an AT&T brand) in the United States.
We are a Delaware corporation which, through a predecessor, began operations in November 1996. Our corporate office is located in Grapevine, Texas.
Developments Since February 1, 2014
Strategic Activities
The following key strategic activities had an impact on our operations during the 52 weeks ended January 31, 2015 (“fiscal 2014”):
Issuance of 5.50% Senior Notes due 2019. In September 2014, we issued $350.0 million aggregate principal amount of unsecured 5.50% senior notes due October 1, 2019 (the "Senior Notes"). The Senior Notes bear interest at the rate of 5.50% per annum with interest payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2015. The Senior Notes were sold in a private placement and will not be registered under the U.S. Securities Act of 1933. The net proceeds from the offering were used to pay down the remaining outstanding balance of our revolving credit facility and will be used for general corporate purposes, which may include acquisitions, dividends and stock buybacks.
Technology Brands acquisition activity. In connection with the continued expansion of our Technology Brands business, Spring Mobile and Simply Mac completed acquisitions of additional AT&T resellers and authorized Apple retailers for total consideration of $93.3 million ($89.7 million net of cash acquired) in fiscal 2014.

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Divestiture activity. In October 2014, we entered into a sale and purchase agreement to transfer certain retail locations and most of the inventory owned by our Spain subsidiary, GameStop Iberia, to a local video game specialty retailer. We made the decision to exit these operations, which were part of our Europe segment, due to continued operating losses and limited market share. As a result of the divestiture, we recorded a net pre-tax loss in continuing operations of $14.8 million during fiscal 2014, primarily related to inventory write-downs, involuntary termination benefits and lease obligations, of which $7.1 million was recorded in cost of sales and $7.7 million was recorded in selling, general and administrative expenses in our consolidated statements of operations.
Return of Capital
In an effort to continue our commitment to drive long-term shareholder value, we have accomplished the following initiatives in fiscal 2014 and thus far in the 52 weeks ending January 30, 2016 (“fiscal 2015”).
Quarterly cash dividend. In fiscal 2014, we paid dividends of $1.32 per share of Class A Common Stock, totaling approximately $148.8 million for the year. On March 3, 2015, our Board of Directors authorized an increase in our annual cash dividend from $1.32 to $1.44 per share of Class A Common Stock, which represents an increase of 9%. Additionally, on March 3, 2015, we declared our first quarterly dividend of fiscal 2015 of $0.36 per share of Class A Common Stock, payable on March 24, 2015 to stockholders of record on March 17, 2015.
Share repurchase activity. In fiscal 2014, we repurchased 8.4 million shares of our Class A Common Stock at an average price per share of $39.50 for a total of $333.4 million. On November 11, 2014, our Board of Directors authorized $500.0 million of funds to be used to repurchase shares of our Class A Common Stock, replacing the $176.4 million remaining under our previous authorization. Between February 1 and March 19, 2015, we repurchased an additional 0.5 million shares of our Class A Common Stock for an average price per share of $38.26.
Our Reportable Segments
We operate our business in four Video Game Brands segments: United States, Canada, Australia and Europe; and a Technology Brands segment. The Video Game Brands segments include 6,206 stores, 4,138 of which are included in the United States segment. There are 331, 421, and 1,316 stores in the Canadian, Australian and European segments, respectively. Each of the Video Game Brands segments consists primarily of retail operations, with all stores engaged in the sale of new and pre-owned video game systems, software and accessories, which we refer to as video game products. Our Video Game Brands stores sell various types of digital products, including downloadable content, network points cards, prepaid digital, online timecards and digitally downloadable software. They may also carry mobile and consumer electronics products, which consist primarily of pre-owned mobile devices, tablets and related accessories. Our buy-sell-trade program creates a unique value proposition to our customers by providing them with an opportunity to trade in their pre-owned video game and consumer electronics products for store credits and apply those credits towards other merchandise, which in turn, increases sales. The products in our Video Games Brands segments are substantially the same regardless of geographic location, with the primary differences in merchandise carried being the timing of release of new products in the various geographies, language translations and the timing of roll-outs of newly developed technology enabling the sale of new digital products. Stores in all Video Games Brands segments are similar in size at an average of approximately 1,400 square feet.
Results for the Video Games Brands United States segment include retail operations in the 50 states, the District of Columbia, Guam and Puerto Rico; the electronic commerce website www.gamestop.com; Game Informer magazine; and Kongregate, our leading web and mobile gaming platform. Segment results for Canada include retail and e-commerce operations in stores throughout Canada and segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Segment results for Europe include retail store operations in 10 European countries and e-commerce sites in five countries.
Our Technology Brands segment includes our Spring Mobile and Simply Mac businesses. Spring Mobile sells post-paid AT&T services and wireless products through its 361 AT&T branded stores, as well as related accessories and other consumer electronics products. Spring Mobile also sells pre-paid AT&T services, wireless devices and related accessories through its 63 Cricket-branded stores. Simply Mac operates 60 stores which sell Apple products, including desktop computers, laptops, tablets and smart phones and related accessories and other consumer electronics products. As an authorized Apple reseller, Simply Mac also offers certified training, warranty and repair services to its customers.
Additional information, including financial information, regarding our reportable segments can be found in “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K and in Note 17, "Segment Information," to our consolidated financial statements.

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Video Game Industry
Based upon estimates compiled by various market research firms, including NPD Group, Inc. ("NPD") and International Development Group ("IDG"), we estimate that the combined market for new physical video game products and PC entertainment software was approximately $21.5 billion in 2014 in the countries in which we operate.
Market
 
Market Size (in billions)
 
Data Source
United States
 
$
13.1

 
NPD
Canada
 
1.0

 
NPD
Australia
 
1.1

 
NPD
Europe
 
6.3

 
IDG
Total
 
$
21.5

 
 
The electronic game industry referred to above consists of new physical video game products, such as hardware, video game and PC software and accessories, but excludes sales of pre-owned video game products, which are not currently measured by any third party research firms. Additionally, based on estimates compiled by various market research firms, we estimate that the market in North America for content in digital format (full game and add-on content downloads for console and PC, subscriptions, mobile games and social network games) was between $8 billion and $10 billion in 2014.
New Video Game Products. Video game products appeal to a wide array of consumers, from avid gamers spending many hours per week playing console gaming systems to casual game players enjoying social and mobile games on smart phones, tablets and other devices. The average game player is 31 years old, 71% of gamers are age 18 or older and 48% are female. We expect the following trends in sales of video game products:
Video Game Hardware. Gaming consoles are typically launched in cycles as technological developments provide significant improvements in graphics, audio quality, gameplay, internet connectivity, social features and other entertainment capabilities beyond video gaming. The most recent cycle of consoles (referred to as “next generation”) includes the Sony PlayStation 4 and Microsoft Xbox One, which both launched in most of the countries in which we operate in November 2013, and the Nintendo Wii U, which launched in November 2012. The demand for the previous generation hardware has been in decline since 2011 and we expect that demand will continue to decline as consumers continue to move to the next generation consoles.
In addition, portable handheld video game devices have evolved to the Nintendo 3DS and 2DS, which were introduced in 2011 and 2013, respectively, and the Sony PlayStation Vita, which was introduced in February 2012. The market for handheld devices has declined in recent years as the proliferation of smart-phones, tablets and other mobile devices offer video game players alternative ways to play games.
Video Game Software.  Sales of video game software generally increase as gaming platforms mature and gain wider acceptance. Sales of video game software are dependent upon manufacturers and third-party publishers developing and releasing game titles for existing game platforms. In recent years the number of new games introduced each year has generally declined and as a result, the market for video game sales has also declined. With the introduction of the next generation consoles, we expect the number of new games introduced to increase and we expect demand for software for those devices to grow and demand for software for the previous generation of consoles to continue to decline.
Video Game Accessories.  Sales of video game hardware also drive sales of video game accessories for use with the hardware and software. The most common video game accessories are controllers and gaming headsets. We expect demand for video game accessories for use on the next generation of consoles to increase as the installed base of these consoles increases. We expect the demand for accessories for use with the previous generation of consoles to decline as the sales of those consoles decline.
Pre-owned and Value Video Game Products. The installed base of video game hardware platforms continues to increase each year and continues to fuel the market for pre-owned video game hardware and software. Based on reports published by NPD, we believe that, as of December 2014, the installed base of next generation and the most recent previous generation video game hardware systems in the United States, based on original sales, totaled approximately 217 million units of handheld and console video game systems and grew by 16 million units in 2014. According to IDG, the installed base of active hardware systems of the same generations as of December 2014 in Europe was approximately 172 million units and grew by 14 million units in 2014. Hardware manufacturers and third-party software publishers have produced a wide variety of software titles for each of these hardware platforms. Based on internal estimates, we believe that 2.1 billion console video game and portable game units have been sold over the last 10 years. This fact, combined with the growth of the next-generation video game hardware and software, drives ongoing demand for pre-owned video game products. We believe that we are the leader in sales of pre-owned and value video game products.

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Digital Gaming. The digital game market consists of both immersive and casual games delivered over the internet to consoles, computers, tablets, smart phones and other devices. We sell a variety of digitally downloadable content in our video game stores and on our websites. The recent generations of video game consoles contain the technology to digitally download video game software content and a growing market has developed for the sale of digitally downloadable add-on content for physical games, which the electronic game industry calls “DLC” and, more recently, full game downloads. The next generation consoles increase the availability and ease of downloading game content and we expect the demand for downloadable video games to continue to grow as the installed base of the next generation of consoles grows.
Casual Games. The casual game market consists primarily of digital games and has grown rapidly over the last few years. Casual games are generally defined as simple, easy-to-use, free or very low-priced games played through the internet in web browsers, on dedicated gaming websites, and increasingly, on mobile phones or other mobile devices. Casual games cost less to develop and distribute than a traditional console video game and are often supported by in-game advertising or user-purchased premium content. We earn revenues from browser-based games and mobile games through our Kongregate business, which is a leading platform for web and mobile gaming.
Mobile and Consumer Electronics Industry
Mobile and Consumer Electronics. The mobile and consumer electronics market, as we refer to it, consists primarily of wireless services, new and pre-owned mobile devices, such as smart phones and tablets, consumer electronics such as Apple products and services, non-gaming headsets and accessories.
Wireless Services and Products. Our Spring Mobile businesses are exclusive resellers of AT&T’s pre-paid and post-paid services, respectively, and a variety of phones, tablets and other wireless devices manufactured for use on AT&T’s network. The market for wireless devices and services is estimated by CTIA - The Wireless Association® to be approximately $180 billion with growth projected over the next five years between 3-5% annually. We expect that the market for AT&T services and products and the wireless market in general will continue to grow as more and more wireless devices connect to the internet through wireless networks.
Mobile Devices. We define mobile devices as smart phones, tablets and related accessories. We sell new mobile devices in our Technology Brands stores. We buy, sell and trade pre-owned mobile devices and tablets in many of our Video Game Brands and Technology Brands stores.
Consumer Electronics. Our Simply Mac stores are authorized Apple resellers and also offer certified training, warranty and repair services to customers. Based on Apple public statements and filings, we expect the market for Apple products sold at retail in the U.S. to grow 5-10% annually over the next five years.
Business and Growth Strategy
Our vision is to continue to expand our business as a global family of specialty retail brands that makes the most popular technologies affordable and simple. Our mission is to continue to be the world’s largest multichannel retailer of new and pre-owned and value video game products and to strategically expand our Spring Mobile and Simply Mac businesses to diversify our revenue streams. Additionally, following on the success of extending our core competencies into our mobile business, we continue to seek other opportunities to extend these competencies to other businesses and retail categories to continue to grow our company. We have a broad-based executive management team with substantial experience in the retail sector in merchandising, marketing, supply chain management, store operations and real estate. Our strategy is to leverage our management team and core competencies to identify other retail concepts that we can acquire and rapidly expand. We believe our core competencies include the following:
Real estate knowledge, including extensive relationships with landlords, portfolio management, negotiating skills and risk mitigation;
Human resource management, including hiring, training, systems and processes, particularly in multi-unit management of small, limited staffing, specialty retail stores with expert staff in assisted-selling;
Knowledge of buy-sell-trade programs, including pricing algorithms, inventory balancing, refurbishment capabilities and secondhand dealer laws;
Customer retention programs, including using our loyalty programs to drive consumer awareness of new retail concepts and promote new products; and
The ability to deploy capital in ways that diversify the underlying business, manage financial risk and increase shareholder value, including finding acquisitions that have a high return on invested capital and are accretive to earnings.

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Our competencies in real estate and human resource management stem from our experience in rapid growth retail environments with a history of opening 300-400 stores annually.
We have anchored our strategy and growth plans upon the following pillars, each of which are described more fully below:
Maximize brick and mortar stores;
Expand our pre-owned business;
Own the customer;
Expand our digital growth strategy; and
Disciplined capital allocation.
Maximize Brick and Mortar Stores
Maximizing our brick and mortar stores includes capturing and retaining the leading market share of the new console cycle, utilizing our stores to grow digital sales and applying our retail expertise to our Technology Brands businesses. Our ability to execute this pillar of our strategic growth plan is dependent in part upon the following:
Consistently Achieving High New Release Market Share.  We focus marketing efforts and store associates on driving the sale of new release video game products, both physical and digital. We employ a variety of rapid-response distribution methods in our efforts to be the first-to-market and consistently in-stock for new physical and digital video game products. This highly efficient distribution network is essential, as a significant portion of a new title’s sales will be generated in the first few days and weeks following its release. As the world’s largest retailer of video game products with a proven capability to distribute new releases to our customers quickly and capture market share immediately following new product launches, we believe we regularly receive larger allocations of popular new video game products. On a daily basis, we actively monitor sales trends, customer reservations and store manager feedback to ensure a high in-stock position for each store. To assist our customers in obtaining immediate access to new releases, we offer our customers the opportunity to pre-order products in our stores or through our websites prior to their release.
Enhancing our Image as a Destination Location.  Our video game stores serve as destination locations for game players, mobile electronics consumers and gift givers due to our broad selection of products, compelling loyalty program offers, game-oriented environment, trade-in programs and unique pricing proposition. We offer all major video game platforms, provide a broad assortment of new and pre-owned video game products and offer a larger and more current selection of merchandise than other retailers. In our video game stores, we provide a high level of customer service by hiring game enthusiasts and providing them with ongoing sales training, including training in the latest technical and functional elements of our products and services, making them the most knowledgeable associates in the video game retail market. Our video game stores are equipped with several video game sampling areas, which provide our customers with the opportunity to view upcoming game trailers and play games before purchase.
Targeting a Broad Audience of Game Players.  We have created store environments targeting a broad audience, including the video game enthusiast, the casual gamer and the seasonal gift giver. Our video game stores focus on the video game enthusiast who demands the latest merchandise featuring the “hottest” technology immediately on the day of release and the value-oriented customer who wants a wide selection of value-priced pre-owned video game products. Our buy-sell-trade program offers consumers the opportunity to trade-in pre-owned video game products in exchange for store credits applicable to future purchases, which, in turn, drives more sales.
Expanding our Technology Brands Businesses. We have entered into a strategic partnership with AT&T and are selling AT&T products and services in our Spring Mobile managed AT&T and Cricket Wireless branded stores and in some of our Simply Mac and U.S. GameStop stores. We acquired Spring Mobile in November 2013. Spring Mobile has grown from approximately 90 stores at the end of 2012 to 361 stores at January 31, 2015, through a program with two primary focuses. The first of these is opening what we refer to as “whitespace” stores, or new stores in retail locations identified by either AT&T or Spring Mobile management and agreed to by both parties. AT&T supports the opening of new whitespace stores by its resellers in an effort to increase the size of its retail distribution channel. The second focus is on acquiring smaller AT&T resellers. Both of these represent opportunities for strong growth in the near term for Spring Mobile.
AT&T acquired Leap Wireless in 2014, including the Cricket Wireless brand, to compete in the pre-paid wireless market. The pre-paid sector of the wireless market is experiencing higher growth than the traditional post-paid market. Pre-paid customers are generally interested in paying for wireless service on a month-to-month basis without a longer-term contract. We began opening pre-paid wireless stores in a few markets in November 2013 and have expanded to over 60 Cricket Wireless stores operated by Spring Mobile as of the end of fiscal 2014 and expect to continue to expand our prepaid stores with AT&T.

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Simply Mac has grown from 8 stores in the fall of 2012, when we acquired 49.9% of the company, to 60 stores as of the end of fiscal 2014. We completed the acquisition of the remaining ownership in Simply Mac in November 2013. Simply Mac’s primary focus for store expansions is in U.S. markets which generally do not have the size and demographics to make them attractive for an Apple-owned store. We intend to continue to open new Simply Mac stores in fiscal 2015 and the coming years.
In connection with the continued expansion of our Technology Brands business, Spring Mobile and Simply Mac completed acquisitions of several additional AT&T resellers and authorized Apple retailers, respectively, in fiscal 2014. We continue to seek out opportunities to extend 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.
Successfully Executing our Store Opening/Closing Strategy.  We have an analysis-driven approach to store opening and closing decisions. We intend to continue to open a limited number of new Video Game Brands stores in targeted markets where we can take market share from uncontested competitors, as well as in markets in which we already operate where we have realized returns on invested capital that have exceeded our internal targets. We analyze each market relative to target population and other demographic indices, real estate availability, competitive factors and past operating history, if available. On average, our new stores opened in the past three fiscal years have had a return of original investment of less than two years. We are aggressive in the analysis of our existing store base to determine optimal levels of profitability and close stores where profitability goals are not being met or where we can attempt to transfer sales to other nearby existing stores and increase overall profits. We utilize our PowerUp Rewards loyalty program information to determine areas that are currently underserved and also utilize our database to ensure a high customer transfer rate from closing locations to existing locations. We opened 49 new Video Game Brands stores and closed 300 Video Game Brands stores in fiscal 2014, reducing our Video Game Brands store count by 3.9%, in excess of stated targets as we exited Spain and sold or closed 108 stores. We opened 109 new Video Game Brands stores and closed 254 Video Game Brands stores in the 52 weeks ended February 1, 2014 ("fiscal 2013"), reducing our Video Game Brands store count by 2.2%, in line with stated targets. We plan to open approximately 50 new Video Game Brands stores and close approximately 200-300 Video Game Brands stores worldwide in fiscal 2015.
Expand our Pre-Owned Business
We believe we are the largest retailer of pre-owned video game products in the world and carry the broadest selection of pre-owned and value video game products for both current and previous generation platforms, giving us a unique advantage in the video game retail industry. The opportunity to trade-in and purchase pre-owned and value video game products offers our customers a unique value proposition generally unavailable at most mass merchants, toy stores and consumer electronics retailers. We obtain most of our pre-owned video game products from trade-ins made in our stores by our customers. We also obtain value-priced, or close-out, video game products at favorable prices from publishers, other retailers or distributors and can sell those products to value-conscious consumers in our stores. Pre-owned and value video game products generate significantly higher gross margins than new video game products.
Our primary objectives in our pre-owned and value business are to continue to expand our product assortment to drive sales and gross profit growth and to gain market share in the value channel. Our strategy consists of increasing consumer awareness of the benefits of trading in and buying pre-owned video game products and value-priced video game products at our stores through increased marketing activities and the use of both broad and targeted marketing to our loyalty program members. The supply of value-priced video game products and trade-ins of video game products, and the demand for resale of these products, is affected by overall demand for video game products and the introduction of new software and hardware by our suppliers. We expect the continued adoption of next-generation consoles and software to drive close-out availability and trade-ins of older video game products, thereby expanding our supply of pre-owned and value video game products.
Own the Customer
Sustaining and growing our existing customer base is dependent upon our ability to increase GameStop brand awareness, to drive membership in our loyalty programs, to engage with customers through social media and our mobile apps, and to expand our market leadership position by offering a variety of new and pre-owned video game products and continuing to enhance our mobile and digital product and service offerings.
Substantially all of GameStop’s U.S. and European video game stores are operated under the GameStop name, with the exception of the Micromania stores in France. Our Canadian and Australian video game stores operate under the EB Games name. We operate loyalty programs in each of the countries in which we operate our Video Game Brands stores. The Micromania stores introduced a loyalty program in the 1990s. Using this program as a model, we introduced our U.S. loyalty program called PowerUp RewardsTM ("PowerUp Rewards") in 2010. We introduced other loyalty programs in our video game stores in remaining countries between 2011 and 2014. Building our brands has enabled us to leverage the increased awareness to capture advertising and marketing efficiencies. Our loyalty programs generally offer our customers the ability to sign up for a free or paid membership

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which gives our customers access to exclusive video game related rewards. The programs' paid memberships may also include a subscription to Game Informer magazine, additional discounts on pre-owned merchandise in our stores and additional credit on trade-ins of pre-owned products. As of January 31, 2015, we had over 30 million members in our U.S. PowerUp Rewards program, approximately 7 million of which were paid members. In total, our loyalty programs around the world had approximately 41 million members. Our branding strategy is further supported by our websites which allow our customers to buy games online, reserve or pick up merchandise in our stores, order in-store for home delivery and to learn about the latest video game products and their availability in our stores. Together, our loyalty programs, websites, mobile applications, magazine and other properties are a part of our multi-channel retail strategy designed to enhance our relationships with our customers, make it easier for our customers to transact with us and increase brand loyalty. In fiscal 2015, we plan to continue to aggressively promote our loyalty programs and increase brand awareness over a broader demographic area in order to promote our unique buying experience in-store for new and pre-owned hardware and software, trade-ins of pre-owned video game and mobile consumer electronics products and to leverage our websites.
Expand our Digital Growth Strategy
We expect that future growth in the electronic game industry will be driven by the sale of video games delivered in digital form and the expansion of other forms of gaming. The proliferation of online game play through Microsoft Xbox Live, the PlayStation Network and PC gaming websites has led to consumer demand for subscription, time and points cards (“digital currency”) as well as DLC, for existing console video games. To respond to this demand, we currently sell various types of products that relate to the digital category, including Xbox Live, PlayStation Plus and Nintendo network points cards, as well as prepaid digital and online timecards and DLC. We believe we are the only significant brick-and-mortar retail seller of DLC and that we are frequently the leading seller of DLC for most major game titles.
Additionally, we operate Kongregate, which is a leading platform for web and mobile gaming that has attracted over 3.3 billion web gameplays and over 600 million mobile gameplays since its launch. Kongregate is also a publisher of mobile games and has several titles available in both the Apple and Google app stores, which have received over 36 million mobile installs. While all Kongregate games are free to play, the website features a proprietary virtual currency called "Kreds" that can be used to unlock upgrades and features, and mobile games may also include items available for purchase. We intend to continue investing in the expansion of Kongregate's mobile game publishing platform through the development of new games designed to appeal to core gamers across the Kongregate and GameStop networks.
We will continue to make strategic investments in multichannel, digital delivery systems, mobile applications and in-store and website functionality to enable our customers to access digital content and eliminate friction in the digital sales and delivery process. We also plan to continue to grow our digital sales base through our in-store offerings as well as through our online and mobile gaming platforms.
Disciplined Capital Allocation
Our objective is to return a significant portion of our free cash flow to our shareholders through share repurchases and dividends unless more strategic opportunities arise that we believe would create more meaningful shareholder returns. In an effort to continue our commitment to drive long-term shareholder value we have accomplished the following in fiscal 2014 and thus far in fiscal 2015:
Quarterly Cash Dividend. In fiscal 2014, we paid dividends of $1.32 per share of Class A Common Stock, totaling approximately $148.8 million for the year. Additionally, on March 3, 2015, our Board of Directors authorized an increase in our annual cash dividend from $1.32 to $1.44 per share of Class A Common Stock, which represents an increase of 9%. On March 3, 2015, we declared our first quarterly dividend of fiscal 2015 of $0.36 per share of Class A Common Stock, payable on March 24, 2015 to stockholders of record on March 17, 2015.
Share Repurchase Program. In fiscal 2014, we repurchased 8.4 million shares of our Class A Common Stock at an average price per share of $39.50 for a total of $333.4 million. On November 11, 2014, our Board of Directors authorized $500.0 million of funds to be used to repurchase shares of our Class A Common Stock, replacing the $176.4 million remaining under our previous authorization.
Strategic Capital Opportunities. In order to create more meaningful shareholder returns, as we evaluate investments in strategic opportunities, we target internal rates of return (“IRR”) in excess of 20% for whitespace store expansion and acquisitions. For fiscal 2014, the collective target IRR of the stores we opened and the AT&T and Apple resellers we acquired was 24%.


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Merchandise
Substantially all of our revenues are derived from the sale of tangible products; however, we also sell downloadable software and subscription, time and points cards, which do not involve physical product. Our product offerings consist of new and pre-owned video game products, and related products, such as video game accessories, headsets, interactive toys and licensed merchandise and strategy guides, as well as new and pre-owned mobile devices such as tablets, phones and music players. Our in-store inventory generally consists of a constantly changing selection of over 5,000 SKUs. We have buying groups in each of our segments that negotiate terms, discounts and cooperative advertising allowances for the stores in their respective geographic areas. We use customer requests and feedback, pre-orders, industry magazines and product reviews to determine which new releases are expected to be hits. Pre-orders are tracked at individual stores to distribute titles and capture demand effectively. This merchandise management is essential because a significant portion of a game’s sales are usually generated in the first days and weeks following its release.
We categorize our sale of products and services as follows:
New Video Game Hardware.  We offer the video game platforms of all major manufacturers, including the Sony PlayStation 4, PlayStation 3, PlayStation Vita, Microsoft Xbox One, Xbox 360 and Kinect and the Nintendo Wii U, Wii and DS line. We also offer extended service agreements on video game hardware and software. In support of our strategy to be the destination location for electronic game players, we aggressively promote the sale of video game platforms. Video game hardware sales are generally driven by the introduction of new platform technology and the reduction in price points as platforms mature. We are in a new console cycle beginning with the Nintendo Wii U launch in November 2012 and the launches of the PlayStation 4 and Xbox One in November 2013. We believe that selling video game hardware increases store traffic and promotes customer loyalty, leading to increased sales of video game software and accessories, which have higher gross margins than video game hardware.
New Video Game Software.  We purchase new video game software from the leading manufacturers, including Sony, Nintendo and Microsoft, as well as all other major third-party game publishers, such as Electronic Arts and Activision. We are one of the largest customers of video game titles sold by these publishers. We generally carry over 600 SKUs of new video game software at any given time across a variety of genres, including Sports, Action, Strategy, Adventure/Role Playing and Simulation.
Pre-owned and Value Video Game Products.  We believe we are the largest retailer of pre-owned video games in the world. We provide our customers with an opportunity to trade in their pre-owned video game products in our stores in exchange for store credits which can be applied towards the purchase of other products, primarily new merchandise. We have the largest selection (approximately 3,000 SKUs) of pre-owned and value video game titles which have an average price of $23 as compared to an average price of $45 for new video game titles and which generate significantly higher gross margins than new video game products. Our trade-in program provides our customers with a unique value proposition which is generally unavailable at mass merchants, toy stores and consumer electronics retailers. From time to time we have purchased value-priced, or closeout, video game products from publishers, distributors or other retailers and we can resell these products for gross margins that are more similar to pre-owned video game products than margins on new software. We refer to these as "value" products. These programs provide us with an inventory of pre-owned and value video game products which we resell to our more value-oriented customers. In addition, our highly-customized inventory management system allows us to actively manage the pricing and product availability of our pre-owned and value video game products across our store base and to reallocate our inventory as necessary. Our trade-in program also allows us to be one of the only suppliers of previous generation platforms and related video games. We also operate refurbishment centers in the U.S., Canada, Australia and Europe, where defective video game products can be tested, repaired, relabeled, repackaged and redistributed back to our stores.
Video Game Accessories. Video game accessories consist primarily of controllers, gaming headsets, memory cards and other add-ons for use with video game hardware and software.
Digital.  The proliferation of online game play through Microsoft Xbox Live, the PlayStation Network and PC gaming websites has led to consumer demand for subscription, time and points cards (“digital currency”) as well as DLC, for existing console video games. We sell a wide variety of digital currency and we have developed technology to sell DLC and full-game downloads in our stores and on our U.S. website. We believe we are the worldwide leading retailer of digital currency sales and the sale of DLC for Xbox Live and the PlayStation Network. We believe that we are frequently the leading seller of DLC for most major game titles.
Mobile and Consumer Electronics.  Our mobile and consumer electronics business consists of the sale of new smart phones, tablets, headphones and accessories and buying, selling and trading of select pre-owned smart phones, tablets and MP3 players in a majority of stores in our U.S. and international markets. Beginning in November 2013, this product category also includes the revenues generated in our Spring Mobile managed AT&T and Cricket Wireless branded stores and Simply Mac stores from the sales of wireless products and services and Apple and other consumer electronics.
Other Products.  We purchase PC entertainment software from many of the largest PC publishers, including Electronic Arts, Take Two and Activision. We offer PC entertainment software across a variety of genres, including Sports, Action, Strategy, Adventure/Role Playing and Simulation. We also carry strategy guides, magazines and gaming-related toys, such as Amiibos from

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Nintendo, Skylanders from Activision and licensed merchandise and collectibles primarily related to the video game, television and movie industries.
Store Operations
As of January 31, 2015, we operated 6,690 stores, primarily under the names GameStop, EB Games and Micromania. We design our stores to provide an electronic gaming atmosphere with an engaging and visually captivating layout. Our stores are typically equipped with several video game sampling areas, which provide our customers the opportunity to play games before purchase, as well as equipment to play video game clips. We use store configuration, in-store signage and product demonstrations to produce marketing opportunities both for our vendors and for us.
Our Video Game Brands stores average approximately 1,400 square feet and carry a balanced mix of new and pre-owned and value video game products and mobile products. Our Technology Brands stores vary in size, with an average size of approximately 1,800 square feet. Our Spring Mobile managed AT&T and Cricket Wireless branded stores carry wireless products and accessories, and our Simply Mac stores carry Apple and other consumer electronics. Our stores are generally located in high-traffic “power strip centers,” local neighborhood strip centers, high-traffic shopping malls and pedestrian areas, primarily in major metropolitan areas. These locations provide easy access and high frequency of visits and, in the case of strip centers and high-traffic pedestrian stores, high visibility. We target strip centers that are conveniently located, have a mass merchant or supermarket anchor tenant and have a high volume of customers.
Site Selection and Locations
Site Selection.  Site selections for new stores are made after an extensive review of demographic data, including data from our PowerUp Rewards loyalty program, and other information relating to market potential, competitor access and visibility, compatible nearby tenants, accessible parking, location visibility, lease terms and the location of our other stores. Spring Mobile managed AT&T and Cricket Wireless branded stores are selected after approval from AT&T. Simply Mac stores are selected with input from Apple. Most of our stores are located in highly visible locations within malls and strip centers. In each of our geographic segments, we have a dedicated staff of real estate personnel experienced in selecting store locations.

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Domestic Locations.  The table below sets forth the number and locations of our domestic stores included in the U.S. Video Game Brands and Technology Brands segments as of January 31, 2015: 
 
Number of Stores

U.S. Video Game Brands
Technology Brands
Alabama
67

1

Alaska
7


Arizona
78

25

Arkansas
32

1

California
422

73

Colorado
62

23

Connecticut
51

16

Delaware
15

11

District of Columbia
3


Florida
260

3

Georgia
130

38

Guam
2


Hawaii
21


Idaho
16

6

Illinois
168

17

Indiana
89

29

Iowa
32

7

Kansas
33


Kentucky
71

8

Louisiana
70

1

Maine
11


Maryland
95

2

Massachusetts
87

1

Michigan
108

1

Minnesota
50

12

Mississippi
45


Missouri
71

2

Montana
10

10

Nebraska
20

3

Nevada
40

4

New Hampshire
27


New Jersey
135

21

New Mexico
26

3

New York
241

31

North Carolina
134

1

North Dakota
9

1

Ohio
177

7

Oklahoma
47


Oregon
38

1

Pennsylvania
205

19

Puerto Rico
37


Rhode Island
13


South Carolina
72

4

South Dakota
10

2

Tennessee
96

5


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Number of Stores
 
U.S. Video Game Brands
Technology Brands
Texas
366

29

Utah
28

34

Vermont
5


Virginia
131

8

Washington
78

7

West Virginia
29


Wisconsin
60

8

Wyoming
8

9

   Total Domestic Stores
4,138

484

International Locations.  The table below sets forth the number and locations of our international stores included in the Video Game Brands segments in Canada, Europe and Australia as of January 31, 2015: 
 
Number
of Stores
Canada
331

   Total Stores - Canada Video Game Brands
331

 
 
Australia
381

New Zealand
40

Total Stores - Australia Video Game Brands
421

 
 
Austria
30

Denmark
37

Finland
18

France
434

Germany
209

Ireland
50

Italy
419

Norway
39

Sweden
61

Switzerland
19

Total Stores - Europe Video Game Brands
1,316

Total International Stores
2,068

Total Stores
6,690


Game Informer
We publish Game Informer, the world’s largest print and digital video game publication and website featuring reviews of new title releases, game tips and news regarding current developments in the electronic game industry. Print and digital versions of the monthly magazine are sold through subscriptions, digitally and through displays in our stores throughout most of the world. Game Informer magazine is the fourth largest consumer publication in the U.S. and for its December 2014 issue, the magazine had approximately 7 million paid subscribers, including over 2.7 million paid digital magazine subscribers. The digital version of the magazine is the largest subscription digital magazine in the world. Game Informer is a part of the PowerUp Rewards Pro loyalty program as a key feature of each paid PowerUp Rewards membership. We also operate the website www.gameinformer.com, which is the premier destination for moment-by-moment news, features and reviews related to video gaming. In 2014, the website averaged over 2.9 million monthly unique visitors. Game Informer revenues are also generated through the sale of advertising space in Game Informer magazine and on www.gameinformer.com. Operating results from the English version of Game Informer are included in the United States segment as this represents where the majority of subscriptions and sales are generated. Other international version results from Game Informer operations are included in the segment in which the sales are generated.

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Multichannel
We operate several electronic commerce websites in various countries, including www.gamestop.com, www.ebgames.com.au, www.ebgames.co.nz, www.gamestop.ca, www.gamestop.it, www.gamestop.ie, www.gamestop.de, www.gamestop.co.uk and www.micromania.fr, that allow our customers to buy video game products and other merchandise online and, in some cases, allow customers to reserve merchandise online and then pick it up in stores, or order products that may not be in-stock in stores and have it shipped to their homes. The sites also offer customers information and content about available games, release dates for upcoming games, and access to store information, such as location and product availability. Additionally, we offer over 1,500 titles of digitally downloadable PC video games at www.gamestop.com. E-commerce results are included in the geographic segment where the sales originate. Additionally, with the launch of our new GameStop mobile app in 2014, smart phone users can browse our extensive product selection and experience an enhanced PowerUp Rewards dashboard. We estimate that the GameStop mobile app has been installed over 5 million times.
Additionally, in 2014, we launched the GameStop Technology Institute to partner with leading technology corporations and academic institutions to enhance consumer interaction technologies and develop business solutions that help to drive traffic to all of our retail channels.
Kongregate
We operate Kongregate, which is a leading web and mobile gaming platform. Over 25,000 developers have uploaded more than 90,000 games to www.kongregate.com that have seen over 3.3 billion gameplays since its launch. The majority of Kongregate’s revenues come from its mobile apps and in-game transactions utilizing a proprietary virtual currency called Kreds. Kongregate’s mobile publishing division has several titles available in both the Apple and Google app stores.
Advertising
Our stores are primarily located in high traffic, high visibility areas of regional shopping malls, strip centers and pedestrian shopping areas. Given the high foot traffic drawn past the stores themselves, we use in-store marketing efforts such as window displays and “coming soon” signs to attract customers, as well as to promote our products. Inside our stores, we feature selected products through the use of vendor displays, “coming soon” or preview videos, signs, catalogs, point-of-purchase materials and end-cap displays. These advertising efforts are designed to increase the initial sales of new titles upon their release.
On a global basis, we receive cooperative advertising and market development funds from most of our manufacturers, distributors, software publishers and accessory suppliers to promote their respective products. Generally, vendors agree to purchase advertising space in one of our advertising vehicles. Once we run the advertising, the vendor pays us an agreed amount.
We have loyalty programs in all of the markets in which we operate. Our various loyalty programs total over 41 million members worldwide. These programs are designed to incent our customers to shop more often at our stores and to allow us to market directly to our customers based on their individual tastes and preferences. Our loyalty programs provide members with the opportunity to earn unique video game related rewards not available through any other retailer. Vendors also participate in these programs to increase the sales of their individual products. Our PowerUp Rewards program in the United States gives our customers the ability to sign up for a free or paid membership that offers points earned on purchases in our stores, on our U.S. website and on our Kongregate website, which can be redeemed for discounts or merchandise. The program’s paid tier also includes a subscription to Game Informer magazine, additional discounts on selected merchandise and additional credit on trade-ins in our stores.
In the last several years, as part of our brand-building efforts and targeted growth strategies, we expanded our advertising and promotional activities in certain targeted markets at certain key times of the year. In addition, we expanded our use of television and radio advertising in certain markets to promote brand awareness and store openings. We expect our investment in advertising through our loyalty programs to increase as we continue to expand our membership base and build our brand.
Information Management and Distribution
Our operating strategy involves providing a broad merchandise selection to our customers as quickly and as cost-effectively as possible. We use our inventory management systems to maximize the efficiency of the flow of products to our stores, enhance store efficiency and optimize store in-stock and overall investment in inventory.
Distribution.  We operate distribution facilities in various locations throughout the world, with each location strategically located to support the operations in a particular country or region. In order to enhance our first-to-market distribution network, we also utilize the services of several off-site, third-party operated distribution centers that pick up products from our suppliers, repackage the products for each of our stores and ship those products to our stores by package carriers. Our ability to rapidly process incoming shipments of new release titles at our facilities and third-party facilities and deliver those shipments to all of our stores, either that day or by the next morning, enables us to meet peak demand and replenish stores. Inventory is shipped to each

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store at least twice a week, or daily, if necessary, in order to keep stores in supply of products. Our distribution facilities also typically support refurbishment of pre-owned products to be redistributed to our stores.
We distribute video game products to our U.S. stores through a 353,000 square foot distribution center in Grapevine, Texas and a 260,000 square foot distribution center in Louisville, Kentucky. We currently use the center in Louisville, Kentucky to support our first-to-market distribution efforts, while our Grapevine, Texas facility supports efforts to replenish stores. The state-of-the-art facilities in both U.S. locations are designed to effectively control and minimize inventory levels. Technologically-advanced conveyor systems and flow-through racks control costs and improve speed of fulfillment in both facilities. The technology used in the distribution centers allows for high-volume receiving, distributions to stores and returns to vendors.
We distribute merchandise to our Canadian segment from two distribution centers in Brampton, Ontario. We have a distribution center near Brisbane, Australia which supports our Australian operations and a small distribution facility in New Zealand which supports the stores in New Zealand. European segment operations are supported by five regionally-located distribution centers in Milan, Italy; Memmingen, Germany; Arlov, Sweden; Dublin, Ireland; and Paris, France. We continue to invest in state-of-the-art facilities in our distribution centers as the distribution volume, number of stores supported and returns on such investments permit.
Digital Distribution.  We have developed proprietary technology to work in conjunction with developers, as well as Microsoft and Sony, to enable us to sell DLC and full-game downloads in our stores and on our e-commerce sites. The DLC typically available today consists of add-on content developed by publishers for existing games.
Management Information Systems.  Our proprietary inventory management systems and point-of-sale technology show daily sales and in-store stock by title by store. Our systems use this data to automatically generate replenishment shipments to each store from our distribution centers, enabling each store to carry a merchandise assortment uniquely tailored to its own sales mix and rate of sale. Our call lists and reservation system also provide our buying staff with information to determine order size and inventory management for store-by-store inventory allocation. We constantly review and edit our merchandise categories with the objective of ensuring that inventory is up-to-date and meets customer needs.
To support most of our operations, we use a large-scale, Intel-based computing environment with a state-of-the-art storage area network and a wired and wireless corporate network installed at our U.S. and regional international headquarters, and a secure, virtual private network to access and provide services to computing assets located in our stores, distribution centers and satellite offices and to our mobile workforce. This strategy has proven to minimize initial outlay of capital while allowing for flexibility and growth as operations expand. Computing assets and our mobile workforce around the globe access this environment via a secure, virtual private network. Regional communication links exist to each of our distribution centers and offices in international locations with connectivity to our U.S. data center as required by our international, distributed applications.
Our in-store point-of-sale system enables us to efficiently manage in-store transactions. This proprietary point-of-sale system has been enhanced to facilitate trade-in transactions, including automatic look-up of trade-in prices and printing of machine-readable bar codes to facilitate in-store restocking of pre-owned video games. In addition, our central database of all pre-owned and value video game products allows us to actively manage the pricing and product availability of our pre-owned video game products across our store base and reallocate our pre-owned and value video game products as necessary.
Field Management and Staff
Each of our Video Game Brands stores employs, on average, one manager, one assistant manager and between two and ten sales associates, many of whom are part-time employees. Each store manager is responsible for managing their personnel and the economic performance of their store. We have cultivated a work environment that attracts employees who are actively interested in electronic games. We seek to hire and retain employees who know and enjoy working with our products so that they are better able to assist customers. To encourage them to sell the full range of our products and to maximize our profitability, we provide our employees with targeted incentive programs to drive overall sales and sales of higher margin products. In certain locations, we also provide certain employees with the opportunity to take home and try new video games, which enables them to better discuss those games with our customers. In addition, employees are casually dressed to encourage customer access and increase the “game-oriented” focus of the stores.
Our stores communicate with our corporate offices daily via e-mail. This e-mail allows for better tracking of trends in upcoming titles, competitor strategies and in-stock inventory positions. In addition, this electronic communication allows title selection in each store to be continuously updated and tailored to reflect the tastes and buying patterns of the store’s local market. These communications also give field management access to relevant inventory levels and loss prevention information and the opportunity to communicate directly with our executives. We have invested in significant management training programs for our store managers and our district managers to enhance their business management skills. We also sponsor annual store managers’ conferences at which we operate intense educational training programs to provide our employees with information about the video game products that will be released by publishers in the holiday season. All video game software publishers are invited to attend the conferences.
Our U.S. Video Game Brands store operations are managed by four market vice presidents of stores and 30 regional store operations directors. The regions are further divided into districts, each with a district manager covering an average of 14 stores.

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In total, there are approximately 300 districts. Our international operations are managed by a senior executive. The stores in Europe are managed by a senior vice president and three vice presidents, who each manage a region or country in the European segment. We also employ a vice president in Europe who assists the regions in leveraging the purchasing and merchandising of our products. Our stores in Australia and Canada are each managed by a vice president.
We operate the Technology Brands stores with a field management and store management structure similar to that of our Video Game Brands stores. Our Spring Mobile AT&T branded stores are managed by a senior vice president of stores who manages three vice presidents. These vice presidents manage nine regional directors, each of whom manages between four and eight district managers. These district managers manage between five and 13 stores. Our Spring Mobile managed Cricket Wireless branded stores are managed by a vice president who oversees three regional managers, each of whom manages a geographic market containing between 14 and 30 stores. Simply Mac stores operate with a vice president of stores overseeing eight district managers, each of whom supervises between six and 12 store managers.
Customer Service
Our store personnel provide value-added services to each customer, such as maintaining lists of regular customers and reserving new releases for customers with a down payment to ensure product availability. In addition, our store personnel readily provide product reviews and ratings to ensure customers are making informed purchasing decisions and inform customers of available resources, including Game Informer and our e-commerce sites, to increase a customer’s enjoyment of the product upon purchase.
Vendors
We purchase substantially all of our new products worldwide from over 80 manufacturers, software publishers and several distributors. Purchases from the top ten vendors accounted for approximately 85% of our new product purchases in fiscal 2014. Sony, Microsoft, Nintendo and Activision accounted for 24%, 17%, 11% and 10%, respectively, of our new product purchases during fiscal 2014. We have established price protections and return privileges with our primary vendors in order to reduce our risk of inventory obsolescence. In addition, we have few purchase contracts with trade vendors and generally conduct business on an order-by-order basis, a practice that is typical throughout the industry. We believe that maintaining and strengthening our long-term relationships with our vendors is essential to our operations and continued expansion. We believe that we have very good relationships with our vendors.
Competition
The electronic game industry is intensely competitive and subject to rapid changes in consumer preferences and frequent new product introductions. We compete with mass merchants and regional chains; computer product and consumer electronics stores; other video game and PC software specialty stores; toy retail chains; direct sales by software publishers; and online retailers and game rental companies. Video game products are also distributed through other methods such as digital delivery. We also compete with sellers of pre-owned and value video game products. Additionally, we compete with other forms of entertainment activities, including casual and mobile games, movies, television, theater, sporting events and family entertainment centers.
In the U.S., we compete with Wal-Mart Stores, Inc. (“Wal-Mart”); Target Corporation (“Target”); Amazon.com, Inc. (“Amazon.com”); and Best Buy Co., Inc. (“Best Buy”), among others. Throughout Europe we compete with major consumer electronics retailers such as Media Markt, Saturn and FNAC, major hypermarket chains like Carrefour and Auchan, and online retailer Amazon.com. Competitors in Canada include Wal-Mart, Best Buy and its subsidiary Future Shop. In Australia, competitors include K-Mart, Target and JB HiFi stores.
Our Spring Mobile AT&T branded stores compete with AT&T corporate-owned stores, other AT&T authorized resellers, mass market retailers such as Wal-Mart, Best Buy and Target, among others, as well as other pre-paid and post-paid wireless carriers and their distribution channels, including Verizon, Sprint and T-Mobile. Our Simply Mac stores compete with Apple, including online and corporate owned Apple stores, mass-market retailers as noted above, and other authorized Apple resellers. Our Spring Mobile managed Cricket Wireless branded stores compete with the pre-paid and post-paid wireless service offerings of AT&T, Verizon, T-Mobile, Sprint and other prepaid brands including Boost, GoPhone and MetroPCS.
Seasonality
Our business, like that of many retailers, is seasonal, with the major portion of our sales and operating profit realized during the fourth fiscal quarter, which includes the holiday selling season. During fiscal 2014, we generated approximately 37% of our sales during the fourth quarter. During fiscal 2013, we generated approximately 41% of our sales during the fourth quarter.

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Trademarks
We have a number of trademarks and servicemarks, including “GameStop,” “Game Informer,” “EB Games,” “Electronics Boutique,” “Spring Mobile,” “Simply Mac,” “Kongregate,” “Power to the PlayersTM” and “PowerUp Rewards,” which have been registered by us with the United States Patent and Trademark Office. For many of our trademarks and servicemarks, including “Micromania,” we also have registered or have registrations pending with the trademark authorities throughout the world. We maintain a policy of pursuing registration of our principal marks and opposing any infringement of our marks.
Employees
We have approximately 18,000 full-time salaried and hourly employees and between 29,000 and 55,000 part-time hourly employees worldwide, depending on the time of year. Fluctuation in the number of part-time hourly employees is due to the seasonality of our business. We believe that our relationship with our employees is excellent. Some of our international employees are covered by collective bargaining agreements, while none of our U.S. employees are represented by a labor union or are members of a collective bargaining unit.
Available Information
We make available on our corporate website (www.gamestopcorp.com), under “Investor Relations — SEC Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material to the Securities and Exchange Commission (“SEC”). You may read and copy this information or obtain copies of this information by mail from the Public Reference Room of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Further information on the operation of the SEC’s Public Reference Room in Washington, D.C. can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, like GameStop, who file electronically with the SEC. The address of that site is http://www.sec.gov. In addition to copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, our Code of Standards, Ethics and Conduct is available on our website under “Investor Relations — Corporate Governance” and is available to our stockholders in print, free of charge, upon written request to the Investor Relations Department at GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051.

Item 1A.
Risk Factors
An investment in our company involves a high degree of risk. You should carefully consider the risks below, together with the other information contained in this report, before you make an investment decision with respect to our company. The risks described below are not the only ones facing us. Additional risks not presently known to us, or that we consider immaterial, may also impair our business operations. Any of the following risks could materially adversely affect our business, operating results or financial condition, and could cause a decline in the trading price of our common stock and the value of your investment.
Risks Related to Our Business
If economic conditions do not improve, demand for the products we sell may decline.
Sales of our products involve discretionary spending by consumers. Consumers are typically more likely to make discretionary purchases, including purchasing video game products, when there are favorable economic conditions. In recent years, poor worldwide economic conditions have led consumers to delay or reduce discretionary spending, including purchases of the products we sell. If conditions do not continue to improve, or deteriorate, these delays or reductions may continue, which could negatively impact our business, results of operations and financial condition.
The electronic game industry is cyclical and affected by the introduction of next-generation consoles, which could negatively impact the demand for existing products or our pre-owned business.
The electronic game industry has been cyclical in nature in response to the introduction and maturation of new technology. Following the introduction of new video game platforms, sales of these platforms and related software and accessories generally increase due to initial demand, while sales of older platforms and related products generally decrease as customers migrate toward the new platforms. A new console cycle began when Nintendo launched the Wii U in November 2012 and Sony and Microsoft launched their next generation of consoles, the PlayStation 4 and Xbox One, in November 2013. If the new video game platforms are not successful, our sales of video game products could decline. The introduction of these next-generation consoles could negatively impact the demand for existing products or our pre-owned business, which could have a negative impact on our sales and earnings.

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The introduction of another new generation of consoles could negatively impact the demand for existing products or our pre-owned business.
The introduction of another new generation of consoles, the features of such consoles or changes to the existing generations of consoles, including any future 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.
We depend upon the timely delivery of new and innovative products from our vendors.
We depend on major hardware manufacturers, primarily Microsoft, Sony and Nintendo, to deliver new and existing video game platforms and new innovations on a timely basis and in anticipated quantities. In addition, we depend on software publishers to introduce new and updated software titles. We have experienced sales declines in the past due to a reduction in the number of new software titles available for sale. Any material delay in the introduction or delivery, or limited allocations, of hardware platforms or software titles could result in reduced sales.
If we fail to keep pace with changing industry technology and consumer preferences, we will be at a competitive disadvantage.
The interactive entertainment industry is characterized by swiftly changing technology, evolving industry standards, frequent new and enhanced product introductions, rapidly changing consumer preferences and product obsolescence. Video games are now played on a wide variety of products, including mobile phones, tablets, social networking websites and other devices. In order to continue to compete effectively in the electronic game industry, we need to respond quickly to technological changes and to understand their impact on our customers’ preferences. It may take significant time and resources to respond to these technological changes. If we fail to keep pace with these changes, our business may suffer.
Technological advances in the delivery and types of video games and PC entertainment software, as well as changes in consumer behavior related to these new technologies, could lower our sales.
While it is currently possible to download video game content to the current generation video game systems, downloading is somewhat constrained by bandwidth capacity and video game file sizes. However, broadband speeds are increasing and downloading technology is becoming more prevalent and continues to evolve rapidly. The new consoles from Sony and Microsoft have improved download technology. If these consoles and other advances in technology continue to expand our customers’ ability to access and download the current format of video games and incremental content for their games through these and other sources, our customers may no longer choose to purchase video games in our stores or reduce their purchases in favor of other forms of game delivery. As a result, our sales and earnings could decline.
We may not compete effectively as browser, mobile and social gaming becomes more popular.
Gaming continues to evolve rapidly. The popularity of browser, mobile and social gaming has increased greatly and this popularity is expected to continue to grow. Browser, mobile and social gaming is accessed through hardware other than the consoles and traditional hand-held video game devices we currently sell. If we are unable to respond to this growth in popularity of browser, mobile and social games and transition our business to take advantage of these new forms of gaming, our financial position and results of operations could suffer. We have been and are currently pursuing various strategies to integrate these new forms of gaming into our business model, but we can provide no assurances that these strategies will be successful or profitable.
Our ability to obtain favorable terms from our suppliers may impact our financial results.
Our financial results depend significantly upon the business terms we can obtain from our suppliers, including competitive prices, unsold product return policies, advertising and market development allowances, freight charges and payment terms. We purchase substantially all of our products directly from manufacturers, software publishers and, in some cases, distributors. Our largest vendors worldwide are Sony, Microsoft, Nintendo and Activision, which accounted for 24%, 17%, 11% and 10%, respectively, of our new product purchases in fiscal 2014. If our suppliers do not provide us with favorable business terms, we may not be able to offer products to our customers at competitive prices.
If our vendors fail to provide marketing and merchandising support at historical levels, our sales and earnings could be negatively impacted.
The manufacturers of video game hardware and software have typically provided retailers with significant marketing and merchandising support for their products. Additionally, AT&T and Apple provide our Technology Brands stores with similar support. As part of this support, we receive cooperative advertising and market development payments from these vendors. These

17


cooperative advertising and market development payments enable us to actively promote and merchandise the products we sell and drive sales at our stores and on our websites. We cannot assure you that vendors will continue to provide this support at historical levels. If they fail to do so, our sales and earnings could be negatively impacted.
The continued growth of our Technology Brands segment is dependent in large part on our relationship with AT&T and any material adverse change to this relationship would affect our results.
We continue to grow our Technology Brands segment as a way to diversify our business in order to continue to grow and to help mitigate the financial impact from the cyclical nature of the video game console business. Gross margins in our Technology Brands segment are higher than in our Video Game Brands segment and as a result, a growing portion of our profits is due to the growth of our Technology Brands segment. Our Technology Brands segment is primarily conducted through Spring Mobile, an authorized AT&T reseller currently operating 361 AT&T branded stores selling post-paid wireless services and products, and 63 Cricket Wireless branded stores selling pre-paid wireless services and products. Therefore, we depend in large part on our relationship with AT&T for the continued growth of our Technology Brands segment. In particular, we depend on AT&T for constant innovation and the timely delivery of products and services to our stores. Any material adverse change in our relationship with AT&T, including the lack of innovation or failure to timely supply products or competitive service plans, or changes in the manner in which AT&T compensates its resellers, could materially affect the continued growth of our Technology Brands segment and our financial condition and results of operations.
Our growing relationship with AT&T could have an adverse impact on our business, including as a result of restrictions on our ability to offer products and services in the United States that compete with AT&T in wireless and wireline communications and a variety of technology businesses.
We are a significant reseller of AT&T products and services through our Technology Brands segment. We also sell certain AT&T products and services through our Video Game Brands stores. Our agreements with AT&T and its affiliates impose significant restrictions on our ability to offer products and services in the United States that compete with AT&T in wireless and wireline communications and a variety of technology businesses, including several that are adjacent to markets in which we participate or are considering entering, which could materially adversely impact this component of our business.
We have made and may make investments and acquisitions which could negatively impact our business if we fail to successfully complete and integrate them, or if they fail to perform in accordance with our expectations.
To enhance our efforts to grow and compete, we have made and continue to make investments and acquisitions. These activities include investments in and acquisitions of digital, browser, social and mobile gaming and technology-based companies as the delivery methods for video games continue to evolve, and investments in new retail categories like wireless and consumer electronics. Our plans to pursue future transactions are subject to our ability to identify potential candidates and negotiate favorable terms for these transactions. Accordingly, we cannot assure you that future investments or acquisitions will be completed. In addition, to facilitate future transactions, we may take actions that could dilute the equity interests of our stockholders, increase our debt or cause us to assume contingent liabilities, all of which may have a detrimental effect on the price of our common stock. Also, companies that we have acquired, and that we may acquire in the future, could have products that are in development, and there is no assurance that these products will be successfully developed. Finally, if any acquisitions are not successfully integrated with our business, or fail to perform in accordance with our expectations, our ongoing operations could be adversely affected. Integration of digital, browser, social and mobile gaming and mobile phone and technology-based companies or other retailers may be particularly challenging to us as these companies are outside of our historical operating expertise.
Pressure from our competitors may force us to reduce our prices or increase spending, which could decrease our profitability.
The electronic game industry is intensely competitive and subject to rapid changes in consumer preferences and frequent new product introductions. We compete with mass merchants and regional chains, including Wal-Mart and Target; computer product and consumer electronics stores, including Best Buy; internet-based retailers such as Amazon.com; other U.S. and international video game and PC software specialty stores located in malls and other locations, such as Carrefour and Media Markt; toy retail chains; direct sales by software publishers; and online retailers and game rental companies. Some of our competitors have longer operating histories and may have greater financial resources than we do or other advantages, including non-taxability of sold merchandise. In addition, video game products and content are increasingly being digitally distributed and new competitors built to take advantage of these new capabilities are entering the marketplace, and other methods may emerge in the future. We also compete with other sellers of pre-owned video game products and other PC software distribution companies, including Steam. Certain of our mass-merchants competitors are expanding in the market for pre-owned video games through aggressive pricing which may negatively affect our margins, sales and earnings for these products. Additionally, we compete with other forms of entertainment activities, including browser, social and mobile games, movies, television, theater, sporting events and family

18


entertainment centers. Our Technology Brands stores compete with a wide variety of other wireless carriers and retailers and consumer electronics retailers, including AT&T, which competes with our Spring Mobile managed AT&T and Cricket Wireless branded stores. If we lose customers to our competitors, or if we reduce our prices or increase our spending to maintain our customers, we may be less profitable.
We depend upon our key personnel and they would be difficult to replace.
Our success depends upon our ability to attract, motivate and retain a highly trained and engaged workforce, including key management for our stores and skilled merchandising, marketing, financial and administrative personnel. The turnover rate in the retail industry is relatively high, and there is an ongoing need to recruit and train new store employees. Factors that affect our ability to maintain sufficient numbers of qualified employees include employee morale, our reputation, unemployment rates, competition from other employers and our ability to offer appropriate compensation packages. Additionally, we depend upon the continued services of our key executive officers, including our Executive Chairman, Chief Executive Officer, Chief Operating Officer and Executive Vice Presidents. Our inability to recruit a sufficient number of qualified individuals or our failure to retain key employees in the future may have a negative impact on our business.
International events could delay or prevent the delivery of products to our suppliers.
Our suppliers rely on foreign sources, primarily in Asia, to manufacture a portion of the products we purchase from them. As a result, any event causing a disruption of imports, including natural disasters or the imposition of import restrictions or trade restrictions in the form of tariffs or quotas, could increase the cost and reduce the supply of products available to us, which could lower our sales and profitability.
Our international operations expose us to numerous risks.
We have international retail operations in Australia, Canada and Europe. Because release schedules for hardware and software introduction in these markets can sometimes differ from release schedules in the United States, the timing of increases and decreases in foreign sales may differ from the timing of increases and decreases in domestic sales. We are also subject to a number of other factors that may affect our current or future international operations. These include:
economic downturns, specifically in the regions in which we operate;
currency exchange rate fluctuations;
international incidents;
natural disasters;
government instability; and
competitors entering our current and potential markets.
Our operations in Europe are also subject to risks associated with the current economic conditions and uncertainties in the European Union (“EU”). European and global economic conditions have already been negatively impacted by the ability of certain EU member states to service their sovereign debt obligations. Additionally, there continues to be uncertainty over the possibility that other EU member states may experience similar financial troubles, the ultimate outcome of the EU governments’ financial support programs, the possible breakup or restructuring of the EU and the possible elimination or restructuring of the EU monetary system. These continued uncertainties could further disrupt European and global economic conditions. Unfavorable economic conditions could negatively impact consumer demand for our products. These factors could have an adverse effect on our business, results of operations and financial condition.
We are also subject to risks that our operations outside the United States could be conducted by our employees, contractors, representatives or agents in ways that violate the Foreign Corrupt Practices Act or other similar anti-bribery laws. While we have policies and procedures intended to ensure compliance with these laws, our employees, contractors, representatives and agents may take actions that violate our policies. Moreover, it may be more difficult to oversee the conduct of any such persons who are not our employees, potentially exposing us to greater risk from their actions. Any violations of those laws by any of those persons could have a negative impact on our business.
Unfavorable changes in our global tax rate could have a negative impact on our business, results of operations and cash flows.
As a result of our operations in many foreign countries, our global tax rate is derived from a combination of applicable tax rates in the various jurisdictions in which we operate. Depending upon the sources of our income, any agreements we may have with taxing authorities in various jurisdictions and the tax filing positions we take in various jurisdictions, our overall tax rate may

19


be higher than other companies or higher than our tax rates have been in the past. We base our estimate of an annual effective tax rate at any given point in time on a calculated mix of the tax rates applicable to our business and to estimates of the amount of income to be derived in any given jurisdiction. A change in the mix of our business from year to year and from country to country, changes in rules related to accounting for income taxes, changes in tax laws in any of the multiple jurisdictions in which we operate or adverse outcomes from the tax audits that regularly are in process in any jurisdiction in which we operate could result in an unfavorable change in our overall tax rate, which could have a material adverse effect on our business and results of our operations.
If we are unable to renew or enter into new leases on favorable terms, our revenue growth may decline.
All of our retail stores are located in leased premises. If the cost of leasing existing stores increases, we cannot assure you that we will be able to maintain our existing store locations as leases expire. In addition, we may not be able to enter into new leases on favorable terms or at all, or we may not be able to locate suitable alternative sites or additional sites for new store expansion in a timely manner. Our revenues and earnings may decline if we fail to maintain existing store locations, enter into new leases, locate alternative sites or find additional sites for new store expansion.
Restrictions on our ability to take trade-ins of and sell pre-owned video game products or pre-owned mobile devices could negatively affect our financial condition and results of operations.
Our financial results depend on our ability to take trade-ins of, and sell, pre-owned video game products and pre-owned mobile devices within our stores. Actions by manufacturers or publishers of video game products or mobile devices, wireless carriers or governmental authorities to prohibit or limit our ability to take trade-ins or sell pre-owned video game products or mobile devices, or to limit the ability of consumers to play pre-owned video games or use pre-owned mobile devices, could have a negative impact on our sales and earnings.
Sales of video games containing graphic violence may decrease as a result of actual violent events or other reasons, and our financial results may be adversely affected as a result.
Many popular video games contain material with graphic violence. These games receive an “M” or “T” rating from the Entertainment Software Ratings Board. As actual violent events occur and are publicized, or for other reasons, public acceptance of graphic violence in video games may decline. Consumer advocacy groups may increase their efforts to oppose sales of graphically-violent video games and may seek legislation prohibiting their sales. As a result, our sales of those games may decrease, which could adversely affect our financial results.
An adverse trend in sales during the holiday selling season could impact our financial results.
Our business, like that of many retailers, is seasonal, with the major portion of our sales and operating profit realized during the fourth fiscal quarter, which includes the holiday selling season. During fiscal 2014, we generated approximately 37% of our sales during the fourth quarter. Any adverse trend in sales during the holiday selling season could lower our results of operations for the fourth quarter and the entire fiscal year.
Our results of operations may fluctuate from quarter to quarter.
Our results of operations may fluctuate from quarter to quarter depending upon several factors, some of which are beyond our control. These factors include, but are not limited to:
the timing and allocations of new product releases including new console launches;
the timing of new store openings or closings;
shifts in the timing or content of certain promotions or service offerings;
the effect of changes in tax rates in the jurisdictions in which we operate;
acquisition costs and the integration of companies we acquire or invest in;
the mix of earnings in the countries in which we operate;
the costs associated with the exit of unprofitable markets or stores; and
changes in foreign currency exchange rates.
These and other factors could affect our business, financial condition and results of operations, and this makes the prediction of our financial results on a quarterly basis difficult. Also, it is possible that our quarterly financial results may be below the expectations of public market analysts.

20


Failure to effectively manage our new store openings could lower our sales and profitability.
Our growth strategy depends in part upon opening new stores and operating them profitably. We opened 49 Video Game Brands stores and opened or acquired 284 Technology Brands stores in fiscal 2014. We expect to open or acquire approximately 400-600 new stores in fiscal 2015, including 50 Video Game Brands stores and 350-550 Technology Brands stores. Our ability to open new stores and operate them profitably depends upon a number of factors, some of which may be beyond our control. These factors include:
the ability to identify new store locations, negotiate suitable leases and build out the stores in a timely and cost efficient manner;
the ability to hire and train skilled associates;
the ability to integrate new stores into our existing operations; and
the ability to increase sales at new store locations.
If we fail to manage new store openings in a timely and cost efficient manner, our growth or profits may decrease.
Failure to successfully execute our strategy to close stores and transfer customers and sales to nearby stores could adversely impact our financial results.
Our strategy includes closing stores which are not meeting our performance standards or stores at the end of their lease terms and transferring sales to other nearby GameStop locations. We closed approximately 300 Video Game Brands stores worldwide in fiscal 2014 and plan to close approximately 200-300 Video Game Brands stores worldwide in fiscal 2015. We believe that we can ultimately increase profitability by successfully transferring customers and sales to other stores by marketing directly to the PowerUp Rewards members who have shopped in the stores that we plan to close. If we are unsuccessful in marketing to customers of the stores that we plan to close or in transferring sales to nearby stores, our sales and profitability could be adversely affected.
We rely on centralized facilities for refurbishment of our pre-owned products. Any disruption to these facilities could adversely affect our profitability.
We rely on centralized facilities for the refurbishment of all pre-owned products that we sell. If any disruption occurred at these facilities, whether due to natural disaster or severe weather, or events such as fire, accidents, power outages, systems failures, or other unforeseen causes, sales of our pre-owned products could decrease. Since we generally obtain higher margins on our pre-owned products, any adverse effect on their sales could adversely affect our profitability.
If our management information systems fail to perform or are inadequate, our ability to manage our business could be disrupted.
We rely on computerized inventory and management systems to coordinate and manage the activities in our distribution centers, as well as to communicate distribution information to the off-site, third-party operated distribution centers with which we work. The third-party distribution centers pick up products from our suppliers, repackage the products for each of our stores and ship those products to our stores by package carriers. We use inventory replenishment systems to track sales and inventory. Our ability to rapidly process incoming shipments of new release titles and deliver them to all of our stores, either that day or by the next morning, enables us to meet peak demand and replenish stores at least twice a week, to keep our stores in stock at optimum levels and to move inventory efficiently. If our inventory or management information systems fail to adequately perform these functions, our business could be adversely affected. In addition, if operations in any of our distribution centers were to shut down or be disrupted for a prolonged period of time or if these centers were unable to accommodate the continued store growth in a particular region, our business could suffer.
Data breaches involving customer or employee data stored by us could adversely affect our reputation and revenues.
We store confidential information with respect to our customers and employees. A compromise of our data security systems or those of businesses we interact with could result in information related to our customers or employees being obtained by unauthorized persons. Any such breach of our systems could lead to fraudulent activity resulting in claims and lawsuits against us or other operational problems or interruptions in connection with such breaches. Consequently, despite our efforts, our security measures have been breached in the past and may be breached in the future due to cyber attack, team member error, malfeasance, fraudulent inducement or other acts; and unauthorized parties have in the past obtained, and may in the future obtain, access to our data or our customers’ data. While costs associated with past security breaches have not been significant, any breach or unauthorized access in the future could result in significant legal and financial exposure and damage to our reputation that could potentially have an adverse effect on our business. While we also seek to obtain assurances that others we interact with will protect confidential information, there is a risk the confidentiality of data held or accessed by others may be compromised. If a compromise

21


of our data security or function of our computer systems or website were to occur, it could have a material adverse effect on our operating results and financial condition and, possibly, subject us to additional legal, regulatory and operating costs and damage our reputation in the marketplace.
Also, the interpretation and enforcement of data protection laws in the United States, Europe and elsewhere are uncertain and, in certain circumstances, contradictory. These laws may be interpreted and enforced in a manner that is inconsistent with our policies and practices. If we are subject to data security breaches or government-imposed fines, we may have a loss in sales or be forced to pay damages or other amounts, which could adversely affect profitability, or be subject to substantial costs related to compliance.
Litigation and the outcomes of such litigation could negatively impact our future financial condition and results of operations.
In the ordinary course of our business, we are, from time to time, subject to various litigation and legal proceedings. In the future, the costs or results of such legal proceedings, individually or in the aggregate, could have a negative impact on our financial condition, results of operations and cash flows.
Legislative actions and changes in accounting rules may cause our general and administrative and compliance costs to increase and impact our future financial condition and results of operations.
In order to comply with laws adopted by the U.S. government or other U.S. or foreign regulatory bodies, we may be required to increase our expenditures and hire additional personnel and additional outside legal, accounting and advisory services, all of which may cause our general and administrative and compliance costs to increase. Significant workforce-related legislative changes could increase our expenses and adversely affect our operations. Examples of possible workforce-related legislative changes include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements, and health care mandates. In addition, changes in the regulatory environment affecting Medicare reimbursements, product safety, supply chain transparency, and increased compliance costs related to enforcement of federal and state wage and hour statutes and common law related to overtime, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. Environmental legislation or other regulatory changes could impose unexpected costs or impact us more directly than other companies due to our operations as a global retailer. Specifically, environmental legislation or international agreements affecting energy, carbon emissions, and water or product materials are continually being explored by governing bodies. Increasing energy and fuel costs, supply chain disruptions and other potential risks to our business, as well as any significant rule making or passage of any such legislation, could materially increase the cost to transport our goods and materially adversely affect our results of operations. Additionally, regulatory and enforcement activity focused on the retail industry has increased in recent years, increasing the risk of fines and additional operational costs associated with compliance. 
Our Board of Directors could change our dividend policy at any time.
We initiated our first cash dividend on our common stock during fiscal 2012. Notwithstanding the foregoing, there is no assurance that we will continue to pay cash dividends on our common stock in the future. Certain provisions in our credit facility and covenants under the indenture for our Senior Notes may restrict our ability to pay dividends in certain circumstances. In addition, subject to any financial covenants in current or future financing agreements that directly or indirectly restrict our ability to pay dividends, the payment of dividends is within the discretion of our Board of Directors and will depend upon our future earnings and cash flow from operations, our capital requirements, our financial condition and any other factors that the Board of Directors may consider. Unless we continue to pay cash dividends on our common stock in the future, the success of an investment in our common stock will depend entirely upon its future appreciation. Our common stock may not appreciate in value or even maintain the price at which it was purchased.
We may record future goodwill impairment charges or other asset impairment charges which could negatively impact our future results of operations and financial condition.
In recent periods we have recorded significant non-cash charges relating to the impairment of goodwill and other tangible and intangible assets that had a material adverse effect on our consolidated statements of operations and consolidated balance sheets. Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion of our assets. We also have long-lived assets consisting of property and equipment and other identifiable intangible assets which we review both on an annual basis as well as when events or circumstances indicate that the carrying amount of an asset may not be recoverable. If a determination is made that a significant impairment in value of goodwill, other intangible assets or long-lived assets has occurred, such determination could require us to impair a substantial portion of our assets. Asset impairments could have a material adverse effect on our financial condition and results of operations.

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Risks Relating to Indebtedness
Because of our floating rate credit facility, we may be adversely affected by interest rate changes.
Our financial position may be affected by fluctuations in interest rates, as our senior credit facility is subject to floating interest rates.
Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. If we were to borrow against our senior credit facility, a significant increase in interest rates could have an adverse effect on our financial position and results of operations.
The terms of our Senior Notes and senior credit facility may impose significant operating and financial restrictions on us.
The terms of our Senior Notes and senior credit facility may impose significant operating and financial restrictions on us in certain circumstances. These restrictions, among other things, limit our ability to:
incur, assume or permit to exist additional indebtedness or guaranty obligations;
incur liens or agree to negative pledges in other agreements;
engage in sale and leaseback transactions;
make loans and investments;
declare dividends, make payments or redeem or repurchase capital stock;
engage in mergers, acquisitions and other business combinations;
prepay, redeem or purchase certain indebtedness;
amend or otherwise alter the terms of our organizational documents and indebtedness;
sell assets; and
engage in transactions with affiliates.
We cannot assure you that these covenants will not adversely affect our ability to finance our future operations or capital needs or to pursue available business opportunities and may affect our ability to grow in accordance with our strategy. A breach of the covenants or restrictions under the indenture for the Senior Notes, or under our senior credit facility, could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the repayment of the related debt and may result in the acceleration of the repayment of any other debt to which a cross-acceleration or cross-default provision applied. In addition, an event of default under our senior credit facility would permit the lenders to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our senior credit facility, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event that our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. See Note 10, "Debt," to our consolidated financial statements for a description of our Senior Notes and senior credit facility.
To service our indebtedness, we will require a significant amount of cash. We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to generate sufficient cash flow from operations to make scheduled payments on our indebtedness, including without limitation any payments required to be made under our senior credit facility or to holders of our Senior Notes, and to fund our operations, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, including the Senior Notes, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or if that additional financing would be permitted under the terms of our various debt instruments, then in effect. Our senior credit facility and the indenture governing the Senior Notes restrict our ability to dispose of assets and use the proceeds from those sales and raise debt or equity to meet any debt service obligations then due. Our ability to refinance would also depend upon the condition of the finance and credit markets. Our inability to generate sufficient cash flow to satisfy our debt obligations, including the Senior Notes, or to refinance our obligations on commercially reasonable terms or on a timely basis, would have an adverse effect on our business, results of operations and financial condition.

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Despite current indebtedness levels, we and our subsidiaries may still be able to incur additional debt. This could further increase the risks associated with our leverage.
We are able to incur additional indebtedness. Although our senior credit facility and the indenture for our Senior Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. Such future indebtedness or obligations may have restrictions similar to, or more restrictive than, those included in the indenture for our Senior Notes or our senior credit facility. The incurrence of additional indebtedness could impact our financial condition and results of operations.
 
Item 1B.
Unresolved Staff Comments
None.
 
Item 2.
Properties
All of our stores are leased. Store leases typically provide for an initial lease term of three to five years, plus renewal options. This arrangement gives us the flexibility to pursue extension or relocation opportunities that arise from changing market conditions. We believe that, as current leases expire, we will be able to obtain either renewals at present locations, leases for equivalent locations in the same area, or be able to close the stores with expiring leases and transfer enough of the sales to other nearby stores to improve, if not at least maintain, profitability. We expect to open or acquire approximately 400-600 new stores in fiscal 2015, including 50 Video Game Brands stores and 350-550 Technology Brands stores. We also plan to close approximately 200-300 Video Game Brands stores worldwide in fiscal 2015.
The terms of the store leases for the 6,690 leased stores open as of January 31, 2015 expire as follows:
Lease Terms to Expire During (12 Months Ending on or About January 30)
 
Number
of Stores
2016
 
1,984

2017
 
1,589

2018
 
1,199

2019
 
764

2020 and later
 
1,154

Total
 
6,690

As of January 31, 2015, we owned eight and leased 13 office and distribution facilities, totaling approximately 1.8 million square feet. The lease expiration dates for the leased facilities range from 2015 to 2024, with an average remaining lease life of approximately five years. Our principal facilities are as follows:
Location
 
Square
Footage
 
Owned or
Leased
 
Use
Grapevine, Texas, USA
 
519,000

 
Owned
 
Distribution and administration
Grapevine, Texas, USA
 
182,000

 
Owned
 
Manufacturing and distribution
Louisville, Kentucky, USA
 
260,000

 
Leased
 
Distribution
Brampton, Ontario, Canada
 
119,000

 
Owned
 
Distribution and administration
Eagle Farm, Queensland, Australia
 
185,000

 
Owned
 
Distribution and administration
Milan, Italy
 
123,000

 
Owned
 
Distribution and administration
Additional information regarding our properties can be found in “Item 1. Business - Store Operations” and “Item 1. Business - Site Selection and Locations” elsewhere in this Form 10-K.

Item 3.
Legal Proceedings
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 adverse effect on our financial condition, results of operations or cash flows.

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Item 4.
Mine Safety Disclosures
Not applicable.

25


PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Price Range of Common Stock
Our Class A Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “GME.”
The following table sets forth, for the periods indicated, the high and low sales prices of the Class A Common Stock on the NYSE Composite Tape: 
 
 
Fiscal 2014
 
 
High
 
Low
Fourth Quarter
 
$
44.84

 
$
31.69

Third Quarter
 
$
45.45

 
$
35.82

Second Quarter
 
$
46.59

 
$
35.10

First Quarter
 
$
45.48

 
$
33.10

 
 
 
Fiscal 2013
 
 
High
 
Low
Fourth Quarter
 
$
57.74

 
$
34.70

Third Quarter
 
$
56.08

 
$
47.04

Second Quarter
 
$
51.36

 
$
30.94

First Quarter
 
$
37.23

 
$
23.36

Approximate Number of Holders of Common Equity
As of March 19, 2015, there were approximately 1,514 record holders of our Class A Common Stock.
Dividends
During fiscal 2013, we paid quarterly dividends of $0.275 per share of Class A Common Stock during each of the four fiscal quarters. During fiscal 2014, we paid quarterly dividends of $0.33 per share of Class A Common Stock during each of the four fiscal quarters.
On March 3, 2015, our Board of Directors authorized an increase in our annual cash dividend from $1.32 to $1.44 per share of Class A Common Stock. Our payment of dividends is and will continue to be restricted by or subject to, among other limitations, applicable provisions of federal and state laws, our earnings and various business considerations, including our financial condition, results of operations, cash flow, the level of our capital expenditures, our future business prospects, our status as a holding company and such other matters that our Board of Directors deems relevant. In addition, the terms of the senior credit facility and of the indenture governing our Senior Notes restrict our ability to pay dividends under certain circumstances. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” herein for further information regarding restrictions on our dividend payments.

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Issuer Purchases of Equity Securities
Our purchases of our equity securities during the fourth quarter of the fiscal year ended January 31, 2015 were as follows:
Period
 
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 (1)
 
 
 
 
(In millions of dollars)
November 2, 2014 through November 29, 2014
 
748,859

 
$
41.44

 
748,859

 
$
478.0

November 30, 2014 through January 3, 2015
 
480,406

 
$
34.21

 
480,406

 
$
461.5

January 4, 2015 through January 31, 2015
 
400,476

 
$
35.41

 
400,476

 
$
447.3

Total
 
1,629,741

 
$
37.83

 
1,629,741

 
 
___________________
(1)
In November 2014, the Board of Directors authorized $500.0 million to be used for share repurchases, replacing the previous November 2013 authorization. The November 2014 authorization has no expiration date.

27


GameStop Stock Comparative Performance Graph
The following graph compares the cumulative total stockholder return on our Class A Common Stock for the period commencing January 29, 2010 through January 30, 2015 (the last trading date of fiscal 2014) with the cumulative total return on the Standard & Poor’s 500 Stock Index (the “S&P 500”) and the Dow Jones Retailers, Other Specialty Industry Group Index (the “Dow Jones Specialty Retailers Index”) over the same period. Total return values were calculated based on cumulative total return assuming (i) the investment of $100 in our Class A Common Stock, the S&P 500 and the Dow Jones Specialty Retailers Index on January 29, 2010 and (ii) reinvestment of dividends.
The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor should such information be incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference in such filing.


 
 
 
1/29/2010
 
 
1/28/2011
 
 
1/27/2012
 
 
2/1/2013
 
 
1/31/2014
 
 
1/30/15
GME
 
 
$100.00
 
 
$106.12
 
 
$123.01
 
 
$129.60
 
 
$189.86
 
 
$197.49
S&P 500 Index
 
 
100.00
 
 
118.85
 
 
122.58
 
 
140.91
 
 
166.00
 
 
185.78
Dow Jones Specialty Retailers Index
 
 
100.00
 
 
132.87
 
 
145.22
 
 
154.29
 
 
197.19
 
 
245.56
Securities Authorized for Issuance under Equity Compensation Plans
For information regarding securities authorized for issuance under equity compensation plans, refer to “Part III —Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
 

28


Item 6.
Selected Financial Data
The following table sets forth our selected consolidated financial and operating data for the periods ended and as of the dates indicated. Our fiscal year is composed of 52 or 53 weeks ending on the Saturday closest to January 31. The fiscal year ended February 2, 2013 consisted of 53 weeks. The fiscal years ended January 31, 2015, February 1, 2014, January 28, 2012 and January 29, 2011 consisted of 52 weeks. The “Statement of Operations Data” for the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013 and the “Balance Sheet Data” as of January 31, 2015 and February 1, 2014 are derived from our audited consolidated financial statements which are included elsewhere in this Form 10-K. The “Statement of Operations Data” for fiscal years ended January 28, 2012 and January 29, 2011 and the “Balance Sheet Data” as of February 2, 2013, January 28, 2012 and January 29, 2011 are derived from our audited consolidated financial statements which are not included elsewhere in this Form 10-K.
The selected financial data set forth below should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in this Form 10-K.

29


 
 
52 Weeks Ended January 31, 2015
 
52 Weeks Ended February 1, 2014
 
53 Weeks Ended February 2, 2013
 
52 Weeks Ended January 28, 2012
 
52 Weeks Ended
January 29,
2011
 
 
(In millions, except per share data and statistical data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
9,296.0

 
$
9,039.5

 
$
8,886.7

 
$
9,550.5

 
$
9,473.7

Cost of sales
 
6,520.1

 
6,378.4

 
6,235.2

 
6,871.0

 
6,936.1

Gross profit
 
2,775.9

 
2,661.1

 
2,651.5

 
2,679.5

 
2,537.6

Selling, general and administrative expenses
 
2,001.0

 
1,892.4

 
1,835.9

 
1,842.1

 
1,698.8

Depreciation and amortization
 
154.4

 
166.5

 
176.5

 
186.3

 
174.7

Goodwill impairments(1)
 

 
10.2

 
627.0

 

 

Asset impairments and restructuring charges(2)
 
2.2

 
18.5

 
53.7

 
81.2

 
1.5

Operating earnings (loss)
 
618.3

 
573.5

 
(41.6
)
 
569.9

 
662.6

Interest expense
 
10.0

 
4.7

 
3.3

 
19.8

 
35.2

Debt extinguishment expense
 

 

 

 
1.0

 
6.0

Earnings (loss) before income tax expense
 
608.3

 
568.8

 
(44.9
)
 
549.1

 
621.4

Income tax expense
 
215.2

 
214.6

 
224.9

 
210.6

 
214.6

Net income (loss)
 
393.1

 
354.2

 
(269.8
)
 
338.5

 
406.8

Net loss attributable to noncontrolling interests
 

 

 
0.1

 
1.4

 
1.2

Net income (loss) attributable to GameStop Corp.
 
$
393.1

 
$
354.2

 
$
(269.7
)
 
$
339.9

 
$
408.0

Basic net income (loss) per common share
 
$
3.50

 
$
3.02

 
$
(2.13
)
 
$
2.43

 
$
2.69

Diluted net income (loss) per common share
 
$
3.47

 
$
2.99

 
$
(2.13
)
 
$
2.41

 
$
2.65

Dividends per common share
 
$
1.32

 
$
1.10

 
$
0.80

 
$

 
$

Weighted-average common shares outstanding —basic
 
112.2

 
117.2

 
126.4

 
139.9

 
151.6

Weighted-average common shares outstanding —diluted
 
113.2

 
118.4

 
126.4

 
141.0

 
154.0

Store Operating Data:
 
 
 
 
 
 
 
 
 
 
Number of stores by segment
 
 
 
 
 
 
 
 
 
 
United States
 
4,138

 
4,249

 
4,425

 
4,503

 
4,536

Canada
 
331

 
335

 
336

 
346

 
345

Australia
 
421

 
418

 
416

 
411

 
405

Europe
 
1,316

 
1,455

 
1,425

 
1,423

 
1,384

Technology Brands
 
484

 
218

 

 

 

Total
 
6,690

 
6,675

 
6,602

 
6,683

 
6,670

Comparable store sales increase (decrease)(3)
 
3.4
%
 
3.8
%
 
(8.0
)%
 
(2.1
)%
 
1.1
%
Inventory turnover
 
5.7

 
5.3

 
5.0

 
5.1

 
5.1

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Working capital
 
$
415.9

 
$
223.6

 
$
295.6

 
$
363.4

 
$
407.0

Total assets
 
4,246.3

 
4,091.4

 
3,872.2

 
4,608.2

 
4,807.5

Total debt, net(4)
 
355.7

 
4.0

 

 

 
249.0

Total liabilities
 
2,178.6

 
1,840.0

 
1,585.9

 
1,568.0

 
1,911.6

Total equity
 
2,067.7

 
2,251.4

 
2,286.3

 
3,040.2

 
2,895.9


30


___________________
(1) 
Results for fiscal 2013 include a goodwill impairment charge of $10.2 million related to our decision to abandon our investment in Spawn Labs. Results for fiscal 2012 include charges related to goodwill impairments of $627.0 million resulting from our interim goodwill impairment tests performed during the third quarter of fiscal 2012. See Note 9, "Goodwill and Intangible Assets," to our consolidated financial statements for further information regarding our goodwill impairment charges.
(2) 
Results for fiscal 2014 include impairment charges of $2.2 million, comprised of $1.9 million of property and equipment impairments and $0.3 million of intangible asset impairments. Results for fiscal 2013 include impairments of $18.5 million, of which $7.4 million and $2.1 million were related to certain technology assets and other intangible assets, respectively, as a result of our decision to abandon our investment in Spawn Labs and the remaining $9.0 million was related to property and equipment impairments resulting from our evaluation of store property, equipment and other assets. Results for fiscal 2012 include charges related to asset impairments of $53.7 million, of which $44.9 million relates to the impairment of the Micromania trade name and $8.8 million relates to other impairment charges from the evaluations of store property, equipment and other assets. Results for fiscal 2011 include charges related to asset impairments and restructuring charges of $81.2 million, of which $37.8 million relates to the impairment of the Micromania trade name, $22.7 million relates to the impairment of investments in non-core businesses and $20.7 million relates to other impairments, termination benefits and facility closure costs. Results for fiscal 2010 include impairment charges resulting from our evaluation of store property, equipment and other assets.
(3) 
Comparable store sales is a measure commonly used in the retail industry and indicates store performance by measuring the growth in sales for certain stores for a particular period over the corresponding period in the prior year. Our comparable store sales are comprised of sales from our Video Game Brands stores operating for at least 12 full months as well as sales related to our websites and sales we earn from sales of pre-owned merchandise to wholesalers or dealers. Comparable store sales for our international operating segments exclude the effect of changes in foreign currency exchange rates. The calculation of comparable store sales for the 52 weeks ended January 31, 2015 compares the 52 weeks for the period ended January 31, 2015 to the most closely comparable weeks for the prior year period. The method of calculating comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may not be the same as other retailers’ methods. Our Technology Brands stores are excluded from the calculation of comparable store sales. We do not consider comparable store sales to be a meaningful metric in evaluating the performance of our Technology Brands stores due to the frequently changing nature of revenue streams and commission structures associated with this segment of our business. We believe our calculation of comparable store sales best represents our strategy as a multi-channel retailer who provides its consumers several ways to access its products.
(4) 
On September 24, 2014, we issued $350.0 million aggregate principal amount of unsecured 5.50% senior notes due October 1, 2019 (the "Senior Notes"). The Senior Notes bear interest at the rate of 5.50% per annum with interest payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2015. The Senior Notes were sold in a private placement and will not be registered under the U.S. Securities Act of 1933. The Senior Notes were offered in the U.S. to “qualified institutional buyers” pursuant to the exemption from registration under Rule 144A of the Securities Act and in exempted offshore transactions pursuant to Regulation S under the Securities Act. See Note 10, "Debt," to our consolidated financial statements for additional information regarding the Senior Notes.

31





Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the information contained in our 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. Certain factors, which may cause actual results to vary materially from these forward-looking statements, accompany such statements or appear elsewhere in this Form 10-K, including the factors disclosed under “Part I Item 1A. Risk Factors.”
Overview
We are a global family of specialty retail brands that makes the most popular technologies affordable and simple. As the world's largest multichannel video game retailer, we sell new and pre-owned video game hardware, physical and digital video game software, video game accessories, as well as new and pre-owned mobile and consumer electronics products and other merchandise primarily through our GameStop, EB Games and Micromania stores. As of January 31, 2015, we operated 6,690 stores, in the United States, Australia, Canada and Europe, which are primarily located in major shopping malls and strip centers. We also operate electronic commerce websites www.gamestop.com, www.ebgames.com.au, www.ebgames.co.nz, www.gamestop.ca, www.gamestop.it, www.gamestop.ie, www.gamestop.de, www.gamestop.co.uk and www.micromania.fr. The network also includes: www.kongregate.com , our leading web and mobile gaming platform; Game Informer magazine, the world's leading print and digital video game publication; and iOS and Android mobile applications. We also own and operate Spring Mobile, an authorized AT&T reseller operating AT&T branded wireless retail stores and pre-paid wireless stores under the name Cricket Wireless (an AT&T brand) in the United States, as well as a certified Apple reseller selling Apple consumer electronic products in the United States under the name Simply Mac. We operate our business in four Video Game Brands segments: United States, Canada, Australia and Europe; and a Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket Wireless branded stores and our Simply Mac business.
Our fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. Fiscal 2014 consisted of the 52 weeks ended on January 31, 2015 ("fiscal 2014"). Fiscal 2013 consisted of the 52 weeks ended on February 1, 2014 ("fiscal 2013"). Fiscal 2012 consisted of the 53 weeks ended on February 2, 2013 ("fiscal 2012").
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 provide significant improvements in 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. With the introduction of the new consoles in the fourth quarter of fiscal 2013, sales of new hardware have increased; however, sales of the Sony PlayStation 4 and the Microsoft Xbox One have negatively impacted our gross margin percentage in fiscal 2014.
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 have made significant investments in e-commerce and in-store and website 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 continue to diversify our business by seeking out opportunities to extend our core competencies to other businesses and retail categories to continue to grow and to help mitigate the financial impact from the cyclical nature of the video game console cycle. In fiscal 2013, we completed our acquisitions of Simply Mac, an authorized Apple reseller currently operating in 60 stores, and Spring Mobile, an authorized AT&T reseller currently operating in 361 AT&T branded stores and 63 Cricket Wireless branded stores. We intend to continue to expand the number of our Technology Brands stores in the near future. We sell and accept trades of pre-owned mobile devices in most of our stores. In addition, we intend to continue to invest in customer loyalty programs designed to attract and retain our customers.

Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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

32


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, and actual results could differ from those estimates. Our senior management has discussed the development and selection of these critical accounting policies, as well as the significant accounting policies disclosed in Note 1, "Nature of Operations and Summary of Significant Accounting Policies," to our consolidated financial statements, with the Audit Committee of our Board of Directors. We believe the following accounting policies are the most critical to aid in fully understanding and evaluating our reporting of transactions and events, and the estimates these policies involve require our most difficult, subjective or complex judgments.
Estimate Description
Judgment and/or Uncertainty
Potential Impact if Results Differ
Valuation of Merchandise Inventories
Our merchandise inventories are carried at the lower of cost or market generally using the average cost method. Under the average cost method, as new product is received from vendors, its current cost is added to the existing cost of product on-hand and this amount is re-averaged over the cumulative units. Pre-owned video game products traded in by customers are recorded as inventory at the amount of the store credit given to the customer.
In valuing inventory, we are required to make assumptions regarding the necessity of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. We consider quantities on hand, recent sales, potential price protections and returns to vendors, among other factors, when making these assumptions.
Our ability to gauge these factors is dependent upon our ability to forecast customer demand and to provide a well-balanced merchandise assortment. Any inability to forecast customer demand properly could lead to increased costs associated with write-downs of inventory to reflect volumes or pricing of inventory which we believe represents the net realizable value.

A 10% change in our obsolescence reserve percentage at January 31, 2015 would have affected net earnings by approximately $3.1 million in fiscal 2014.
Cash Consideration Received from Vendors
We participate in cooperative advertising programs and other vendor marketing programs in which our vendors provide us with cash consideration in exchange for marketing and advertising the vendors’ products.

The cooperative advertising programs and other vendor marketing programs generally cover a period from a few weeks up to a month and include items such as product in-store display promotions and placement, internet advertising, co-op print advertising and other programs. The allowance for each event is negotiated with the vendor and requires specific performance by us to be earned.
Our accounting for cooperative advertising arrangements and other vendor marketing programs results in a significant portion of the consideration received from our vendors reducing the product costs in inventory rather than as an offset to our marketing and advertising costs. The consideration serving as a reduction in inventory is recognized in cost of sales as inventory is sold.

We estimate the amount of vendor allowances to be deferred as a reduction of inventory based on the nature of the consideration received and the merchandise inventory to which the consideration relates. We apply a sell-through rate to determine the timing in which the consideration should be recognized in cost of sales. Consideration received that relates to video game products that have not yet been released to the public is deferred.
Although we consider our advertising and marketing programs to be effective, we do not believe that we would be able to incur the same level of advertising expenditures if the vendors decreased or discontinued their allowances. Additionally, if actual results are not consistent with our estimated deferrals and sell-through rates, we may be exposed to additional adjustments that could materially impact our gross profit rates and inventory balances.

A 10% difference in our vendor allowances deferral at January 31, 2015 would have affected net earnings by approximately $0.2 million in fiscal 2014.



33


Estimate Description
Judgment and/or Uncertainty
Potential Impact if Results Differ
Customer Liabilities
Our PowerUp Rewards loyalty program allows enrolled members to earn points on purchases in our stores and on some of our websites that can be redeemed for rewards that include discounts or merchandise. We estimate the net cost of the rewards that will be issued and redeemed and record this cost and the associated liability as points are earned by our loyalty program members.

Additionally, we sell gift cards to our customers in our retail stores, through our website and through selected third parties. At the point of sale, a liability is established for the value of the gift card. We recognize revenue from gift cards when the card is redeemed by the customer or the likelihood of the gift card being redeemed by the customer is remote, which is a concept known in the retail industry as breakage. We determine our gift card breakage rate based on historical redemption patterns, which show that, after 60 months, we can determine the portion of the initial liability for which redemption is remote.
The two primary estimates utilized to record the balance sheet liability for loyalty points earned by members are the estimated redemption rate and the estimated weighted-average cost per point redeemed. We use historical redemption rates experienced under our loyalty program as a basis for estimating the ultimate redemption rate of points earned. A weighted-average cost per point redeemed is used to estimate future redemption costs. The weighted-average cost per point redeemed is based on our most recent actual costs incurred to fulfill points that have been redeemed by our loyalty program members and is adjusted as appropriate for recent changes in redemption costs, including the mix of rewards redeemed.

Our estimate of the amount and timing of gift card redemptions is based primarily on historical transaction experience.
We continually evaluate our methodology and assumptions based on developments in redemption patterns, cost per point redeemed and other factors. Changes in the ultimate redemption rate and weighted-average cost per point redeemed have the effect of either increasing or decreasing the liability through the current period expense by an amount estimated to cover the cost of all points previously earned but not yet redeemed by loyalty program members as of the end of the reporting period.

A 10% change in our customer loyalty program redemption rate or weighted-average cost per point redeemed at January 31, 2015 would have affected net earnings by approximately $5.5 million and $5.5 million, respectively, in fiscal 2014.

A 10% change in our gift card breakage rate at January 31, 2015 would have affected net earnings by approximately $11.1 million in fiscal 2014.
Goodwill
Our goodwill results from our acquisitions and represents the excess purchase price over the net identifiable assets acquired. We are required to evaluate our goodwill and other indefinite-lived intangible assets for impairment at least annually or whenever indicators of impairment are present. Our annual test is completed as of the beginning of the fourth fiscal quarter, and interim tests are conducted when circumstances indicate the carrying value of the goodwill or other intangible assets may not be recoverable.

As of January 31, 2015, our goodwill totaled $1,390.4 million. Refer to Note 9, "Goodwill and Intangible Assets," to the consolidated financial statements included in this Form 10-K for a full description of our goodwill.
Considerable management judgment is necessary to initially value intangible assets upon acquisition and to evaluate those assets and goodwill for impairment going forward. We determine fair value using widely acceptable valuation techniques including discounted cash flows and market multiples analyses.

Assumptions used in our valuations, such as forecasted growth rates and our cost of capital, are consistent with our internal projections and operating plans.
Variations in any of the assumptions used in valuing our intangible assets and in our impairment analysis may result in different calculations of fair values that could result in a material impairment charge.

Based on the results of our annual impairment test in fiscal 2014, the fair values for our United States, Canada, Europe and Technology Brands reporting units exceeded their respective carrying values by more than 30% and the fair value of our Australia reporting unit exceeded its carrying value by more than 15%. A reduction in the terminal growth rate assumption of 0.5% or an increase in the discount rate assumption of 1.0% utilized in the test for each respective reporting unit would not have resulted in an impairment.

We can provide no assurance that we will not have impairment charges in future periods as a result of changes in our operating results or our assumptions.


34


Estimate Description
Judgment and/or Uncertainty
Potential Impact if Results Differ
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets were recorded as a result of acquisitions and consist of our dealer agreement assets and our Micromania trade name. As these intangible assets are expected to contribute to cash flows indefinitely, they are not subject to amortization.

We assess our indefinite-lived intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our test is completed as of the beginning of the fourth quarter each fiscal year.

We value our dealer agreements using a discounted cash flow analysis known as the Greenfield Method, which assumes that a business, at its inception, owns only dealer agreements and must make capital expenditure, working capital and other investments to ramp up its operations to a level that is comparable to its current operations.

We value our Micromania trade name using a relief-from-royalty approach, which assumes the value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company. 

As of January 31, 2015, our indefinite-lived intangible assets totaled $179.4 million. Refer to Note 9, "Goodwill and Intangible Assets," to the consolidated financial statements included in this Form 10-K for a full description of our indefinite-lived intangible assets.

In valuing our dealer agreement assets, considerable management judgment is necessary to estimate the cash flows required to build a comparable operation and the available future cash flows from these operations. Specifically, we are required to make certain assumptions about the cost of investment to build a comparable operation, projected net sales, cost of sales, operating expenses and income taxes, as well as the discount rate that is applied to the expected future cash flows to arrive at an estimated fair value.

In valuing our Micromania trade name, we are required to make certain assumptions regarding future cash flow projections to ensure that such projections represent reasonable market participant assumptions, to which the royalty rate is applied. Additionally, management judgment is necessary in selecting an appropriate discount rate which is reflective of the inherent risk of holding a standalone intangible asset.
Changes in the assumptions utilized in estimating the present value of the cash flows attributable to trade names and dealer agreements could materially impact the fair value estimates.

A reduction in the terminal growth rate assumption of 0.5% or an increase in the discount rate assumption of 0.5% utilized in the test would not have resulted in an impairment of the dealer agreement assets.

A reduction in the terminal growth rate assumption of 0.5% or an increase in the discount rate assumption of 0.5% utilized in the test would not have resulted in an impairment of the Micromania trade name.

We can provide no assurance that we will not have impairment charges in future periods as a result of changes in our operating results or our assumptions.

35


Estimate Description
Judgment and/or Uncertainty
Potential Impact if Results Differ
Income Taxes
We account for income taxes utilizing an asset and liability approach, and deferred taxes are determined based on the estimated future tax effect of differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates. As a result of our operations in many foreign countries, our global tax rate is derived from a combination of applicable tax rates in the various jurisdictions in which we operate.

We maintain accruals for uncertain tax positions until examination of the tax year is completed by the taxing authority, available review periods expire or additional facts and circumstances cause us to change our assessment of the appropriate accrual amount. Our liability for uncertain tax positions was $21.4 million as of January 31, 2015.

Additionally, a valuation allowance is recorded against a deferred tax asset if it is not more likely than not that the asset will be realized. Several factors are considered in evaluating the realizability of our deferred tax assets, including the remaining years available for carry forward, the tax laws for the applicable jurisdictions, the future profitability of the specific business units, and tax planning strategies. Our valuation allowance was $24.3 million as of January 31, 2015. See Note 13 to our consolidated financial statements for further information regarding income taxes.
Considerable management judgment is necessary to assess the inherent uncertainties related to the interpretations of complex tax laws, regulations and taxing authority rulings, as well as to the expiration of statutes of limitations in the jurisdictions in which we operate.

We base our estimate of an annual effective tax rate at any given point in time on a calculated mix of the tax rates applicable to our operations and to estimates of the amount of income to be derived in any given jurisdiction. We file our tax returns based on our understanding of the appropriate tax rules and regulations. However, complexities in the tax rules and our operations, as well as positions taken publicly by the taxing authorities, may lead us to conclude that accruals for uncertain tax positions are required.

Additionally, several factors are considered in evaluating the realizability of our deferred tax assets, including the remaining years available for carry forward, the tax laws for the applicable jurisdictions, the future profitability of the specific business units, and tax planning strategies.
Our judgments and estimates concerning uncertain tax positions may change as a result of evaluation of new information, such as the outcome of tax audits or changes to or further interpretations of tax laws and regulations. Our judgments and estimates concerning realizability of deferred tax assets could change if any of the evaluation factors change.
 
If such changes take place, there is a risk that our effective tax rate could increase or decrease in any period, impacting our net earnings.




36


Consolidated Results of Operations
The following table sets forth certain statement of operations items (in millions) and as a percentage of net sales, for the periods indicated: 
 
 
52 Weeks Ended  
 January 31, 2015
 
52 Weeks Ended  
 February 1, 2014
 
53 Weeks Ended  
 February 2, 2013
 
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Dollars
 
Percent
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
9,296.0

 
100.0
%
 
$
9,039.5

 
100.0
 %
 
$
8,886.7

 
100.0
 %
Cost of sales
 
6,520.1

 
70.1

 
6,378.4

 
70.6

 
6,235.2

 
70.2

Gross profit
 
2,775.9

 
29.9

 
2,661.1

 
29.4

 
2,651.5

 
29.8

Selling, general and administrative expenses
 
2,001.0

 
21.6

 
1,892.4

 
21.0

 
1,835.9

 
20.7

Depreciation and amortization
 
154.4

 
1.7

 
166.5

 
1.8

 
176.5

 
2.0

Goodwill impairments
 

 

 
10.2

 
0.1

 
627.0

 
7.0

Asset impairments
 
2.2

 

 
18.5

 
0.2

 
53.7

 
0.6

Operating earnings (loss)
 
618.3

 
6.6

 
573.5

 
6.3

 
(41.6
)
 
(0.5
)
Interest expense, net
 
10.0

 
0.1

 
4.7

 

 
3.3

 

Earnings (loss) before income tax expense
 
608.3

 
6.5

 
568.8

 
6.3

 
(44.9
)
 
(0.5
)
Income tax expense
 
215.2

 
2.3

 
214.6

 
2.4

 
224.9

 
2.5

Net income (loss)
 
393.1

 
4.2

 
354.2

 
3.9

 
(269.8
)
 
(3.0
)
Net loss attributable to noncontrolling interests
 

 

 

 

 
0.1

 

Net income (loss) attributable to GameStop Corp.
 
$
393.1

 
4.2
%
 
$
354.2

 
3.9
 %
 
$
(269.7
)
 
(3.0
)%
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 check and 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 check and credit cards in selling, general and administrative expenses. The net effect of these classifications as a percentage of sales has not historically been material.
The following table sets forth net sales (in millions) and percentages of total net sales by significant product category for the periods indicated:
 
 
52 Weeks Ended  
 January 31, 2015
 
52 Weeks Ended  
 February 1, 2014
 
53 Weeks Ended  
 February 2, 2013
 
 
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
 
Net
Sales
 
Percent
of Total
Net Sales:
 
 
 
 
 
 
 
 
 
 
 
 
New video game hardware(1)
 
$
2,028.7

 
21.8
%
 
$
1,730.0

 
19.1
%
 
$
1,333.4

 
15.0
%
New video game software
 
3,089.0

 
33.2

 
3,480.9

 
38.5

 
3,582.4

 
40.3

Pre-owned and value video game products
 
2,389.3

 
25.7

 
2,329.8

 
25.8

 
2,430.5

 
27.4

Video game accessories
 
653.6

 
7.1

 
560.6

 
6.2

 
611.8

 
6.9

Digital
 
216.3

 
2.3

 
217.7

 
2.4

 
208.4

 
2.3

Mobile and consumer electronics
 
518.8

 
5.6

 
303.7

 
3.4

 
200.3

 
2.3

Other(2)
 
400.3

 
4.3

 
416.8

 
4.6

 
519.9

 
5.8

Total
 
$
9,296.0

 
100.0
%
 
$
9,039.5

 
100.0
%
 
$
8,886.7

 
100.0
%
___________________
(1)
Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.
(2)
Other products include revenues from the sales of PC entertainment software, interactive toys and licensed merchandise, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.
 


37


The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated: 
 
 
52 Weeks Ended  
 January 31, 2015
 
52 Weeks Ended  
 February 1, 2014
 
53 Weeks Ended  
 February 2, 2013
 
 
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
 
Gross
Profit
 
Gross
Profit
Percent
Gross Profit:
 
 
 
 
 
 
 
 
 
 
 
 
New video game hardware(1)
 
$
196.6

 
9.7
%
 
$
176.5

 
10.2
%
 
$
101.7

 
7.6
%
New video game software
 
716.9

 
23.2

 
805.3

 
23.1

 
786.3

 
21.9

Pre-owned and value video game products
 
1,146.3

 
48.0

 
1,093.9

 
47.0

 
1,170.1

 
48.1

Video game accessories
 
246.1

 
37.7

 
220.5

 
39.3

 
237.9

 
38.9

Digital
 
152.0

 
70.3

 
149.2

 
68.5

 
120.9

 
58.0

Mobile and consumer electronics
 
186.7

 
36.0

 
65.1

 
21.4

 
41.3

 
20.6

Other(2)
 
131.3

 
32.8

 
150.6

 
36.1

 
193.3

 
37.2

Total
 
$
2,775.9

 
29.9
%
 
$
2,661.1

 
29.4
%
 
$
2,651.5

 
29.8
%
___________________
(1)
Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.
(2)
Other products include revenues from the sales of PC entertainment software, interactive toys and licensed merchandise, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.

Fiscal 2014 Compared to Fiscal 2013
 
 
52 Weeks Ended  
 January 31, 2015
 
52 Weeks Ended  
 February 1, 2014
 
Change
 
 
Dollars in millions
 
Dollars in millions
 
$
 
%
Statement of Operations Data:
 
 
 
 
 
 
 
 
Net sales
 
$
9,296.0

 
$
9,039.5

 
$
256.5

 
2.8
 %
Cost of sales
 
6,520.1

 
6,378.4

 
141.7

 
2.2

Gross profit
 
2,775.9

 
2,661.1

 
114.8

 
4.3

Selling, general and administrative expenses
 
2,001.0

 
1,892.4

 
108.6

 
5.7

Depreciation and amortization
 
154.4

 
166.5

 
(12.1
)
 
(7.3
)
Goodwill impairments
 

 
10.2

 
(10.2
)
 
(100.0
)
Asset impairments
 
2.2

 
18.5

 
(16.3
)
 
(88.1
)
Operating earnings
 
618.3

 
573.5

 
44.8

 
7.8

Interest expense, net
 
10.0

 
4.7

 
5.3

 
112.8

Earnings before income tax expense
 
608.3

 
568.8

 
39.5

 
6.9

Income tax expense
 
215.2

 
214.6

 
0.6

 
0.3

Net income
 
$
393.1

 
$
354.2

 
$
38.9

 
11.0
 %

38


 
 
52 Weeks Ended  
 January 31, 2015
 
52 Weeks Ended  
 February 1, 2014
 
Change
 
 
Dollars in millions
 
Dollars in millions
 
$
 
%
Net Sales:
 
 
 
 
 
 
 
 
New video game hardware(1)
 
$
2,028.7

 
$
1,730.0

 
$
298.7

 
17.3
 %
New video game software
 
3,089.0

 
3,480.9

 
(391.9
)
 
(11.3
)
Pre-owned and value video game products
 
2,389.3

 
2,329.8

 
59.5

 
2.6

Video game accessories
 
653.6

 
560.6

 
93.0

 
16.6

Digital
 
216.3

 
217.7

 
(1.4
)
 
(0.6
)
Mobile and consumer electronics
 
518.8

 
303.7

 
215.1

 
70.8

Other(2)
 
400.3

 
416.8

 
(16.5
)
 
(4.0
)
Total
 
$
9,296.0

 
$
9,039.5

 
$
256.5

 
2.8
 %
 
 
52 Weeks Ended  
 January 31, 2015
 
52 Weeks Ended  
 February 1, 2014
 
Change
 
 
Dollars in millions
 
Dollars in millions
 
$
 
%
Gross Profit:
 
 
 
 
 
 
 
 
New video game hardware(1)
 
$
196.6

 
$
176.5

 
$
20.1

 
11.4
 %
New video game software
 
716.9

 
805.3

 
(88.4
)
 
(11.0
)
Pre-owned and value video game products
 
1,146.3

 
1,093.9

 
52.4

 
4.8

Video game accessories
 
246.1

 
220.5

 
25.6

 
11.6

Digital
 
152.0

 
149.2

 
2.8

 
1.9

Mobile and consumer electronics
 
186.7

 
65.1

 
121.6

 
186.8

Other(2)
 
131.3

 
150.6

 
(19.3
)
 
(12.8
)
Total
 
$
2,775.9

 
$
2,661.1

 
$
114.8

 
4.3
 %
___________________
(1)
Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.
(2)
Other products include revenues from the sales of PC entertainment software, interactive toys and licensed merchandise, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.
Net Sales
Net sales increased $256.5 million, or 2.8%, in fiscal 2014 compared to fiscal 2013. The increase in net sales during fiscal 2014 was primarily attributable to an increase in comparable store sales of 3.4% compared to fiscal 2013, due to strong sales performance in the current year period associated with the new video game console launches and related video game accessories, as well as the continued growth of the Technology Brands segment. These increases were partially offset by the impact of foreign exchange rate fluctuations, which had the effect of decreasing net sales by $133.9 million for the 52 weeks of fiscal 2014 compared to the prior year period. Refer to the note to the Selected Financial Data table in "Item 6 — Selected Financial Data" for a discussion of the calculation of comparable store sales.
The net increase in net sales was due to the following:
New video game hardware sales increased $298.7 million, or 17.3%, for fiscal 2014 as compared to fiscal 2013, primarily attributable to an increase in hardware unit sell-through due to the launches of the Microsoft Xbox One and the Sony PlayStation 4 in November 2013. This increase was partially offset by declines in sales of previous generation hardware.
Pre-owned and value video game product sales increased $59.5 million, or 2.6%, for fiscal 2014 as compared to fiscal 2013, primarily due to trade growth and an increase in pre-owned hardware sales resulting from the release of Microsoft Xbox One and the Sony PlayStation 4 in November 2013.
Video game accessories sales increased $93.0 million, or 16.6%, for fiscal 2014 as compared to fiscal 2013, due to sales of accessories for use with the recently launched consoles.
Mobile and consumer electronics sales increased $215.1 million, or 70.8%, for fiscal 2014 as compared to fiscal 2013, due to the acquisitions of stores within the Technology Brands segment. Sales related to the Technology Brands segment increased $265.8 million for fiscal 2014 compared to the prior year period.

39


The increases described above were partially offset by the following:
New video game software sales decreased $391.9 million, or 11.3%, for fiscal 2014 as compared to fiscal 2013, primarily due to a decline in prior generation software sales and a weaker lineup of new titles released during fiscal 2014 as compared to fiscal 2013. We expect the decline in prior generation software sales to continue in the near term.
Sales of other product categories decreased $16.5 million, or 4.0%, for fiscal 2014 as compared to fiscal 2013, primarily due to a decrease in Game Informer physical subscriptions as a result of the shift to digital subscriptions, which are reflected in the digital product category, lower sales of strategy guides and fewer new titles of PC entertainment software released during the current year period. These decreases were partially offset by an increase in the sale of interactive toys during fiscal 2014 as compared to fiscal 2013.
As a percentage of net sales, there was a shift in sales mix from new video game software to new video game hardware during the majority of fiscal 2014 compared to fiscal 2013 due to the release of the next-generation consoles in November 2013 and the decline in software sales in fiscal 2014.
Cost of Sales
Cost of sales increased $141.7 million, or 2.2%, in fiscal 2014 compared to fiscal 2013, primarily as a result of the increase in net sales discussed above and the changes in gross profit discussed below.
Gross Profit
Gross profit increased $114.8 million, or 4.3%, in fiscal 2014 compared to fiscal 2013, and gross profit as a percentage of net sales was 29.9% in fiscal 2014 compared to 29.4% in fiscal 2013. The gross profit increase was primarily driven by the growth in the mobile and consumer electronics category related to our Technology Brands segment, which increased gross profit by $151.5 million year-over-year.
The net increase in gross profit as a percentage of net sales was due to the following:
Gross profit as a percentage of sales on pre-owned and value video game products increased to 48.0% in fiscal 2014 from 47.0% in fiscal 2013 due to higher promotional activity in the prior year, as well as the increase in gross profit percentage that occurs as prior generation video game platforms mature.
Gross profit as a percentage of sales on digital sales increased to 70.3% in fiscal 2014 from 68.5% in fiscal 2013 due to the growth of Kongregate, our platform for web and mobile gaming, as well as the conversion of certain digital revenue streams from a full retail price revenue arrangement to commission revenue, which has the effect of decreasing sales with no impact on gross profit.
Gross profit as a percentage of sales on mobile and consumer electronics revenues increased to 36.0% in fiscal 2014 from 21.4% in fiscal 2013 due to the acquisition and opening of new stores within the Technology Brands segment.
The increases described above were partially offset by the following:
Gross profit as a percentage of sales on new video game hardware decreased to 9.7% in fiscal 2014 from 10.2% in fiscal 2013. The gross profit percentage decrease was driven by the mix of next generation console sales, which carry lower margins compared to the prior generation.
Gross profit as a percentage of sales on video game accessories decreased to 37.7% in fiscal 2014 from 39.3% in fiscal 2013, due to the mix of next generation accessories sales, which carry lower gross margins relative to the total video game accessories category.
Gross profit as a percentage of sales on other product categories decreased to 32.8% in fiscal 2014 from 36.1% in fiscal 2013, due to a decrease in Game Informer physical subscriptions as a result of the shift to digital subscriptions, which are reflected in the digital product category.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $108.6 million, or 5.7%, in fiscal 2014 compared to fiscal 2013. The increase was primarily due to the growth of the Technology Brands segment, which carries higher selling, general and administrative expenses as a percentage of sales than the other segments. Technology Brands contributed $111.5 million to the increase for fiscal 2014 compared to fiscal 2013. This increase was offset in part by the impact of foreign exchange rate fluctuations, which had the effect of decreasing selling, general and administrative expenses by $24.3 million for the 52 weeks of fiscal 2014 compared to the prior year period. Included in selling, general and administrative expenses are $21.5 million and $19.4 million in stock-based compensation expense for fiscal 2014 and fiscal 2013, respectively.

40


Depreciation and Amortization
Depreciation and amortization expense decreased $12.1 million, or 7.3%, in fiscal 2014 compared to fiscal 2013. This decrease was primarily due to a decrease in capital initiatives associated with our Video Game Brands segments.
Asset Impairments
During fiscal 2014, we recorded a $2.2 million impairment, comprised of $1.9 million of property and equipment impairments and $0.3 million of intangible asset impairments. During fiscal 2013, we recorded a $28.7 million impairment, comprised of a $10.2 million goodwill impairment, a $7.4 million impairment of technology assets, an impairment of $2.1 million of intangible assets as a result of our decision to abandon Spawn Labs and an impairment of $9.0 million of property and equipment. Refer to Note 2, "Asset Impairments," and Note 9, "Goodwill and Intangible Assets," to the consolidated financial statements in this Form 10-K for further information associated with these impairments.
Interest Income and Expense
Interest income of $0.7 million for fiscal 2014, resulting from the investment of excess cash balances, decreased $0.2 million from $0.9 million in fiscal 2013. Interest expense of $10.7 million for fiscal 2014 increased $5.1 million from $5.6 million in fiscal 2013 primarily due to higher borrowings, including the $350.0 million issuance of Senior Notes in September 2014, which is discussed more fully in Note 10, "Debt," to our consolidated financial statements.
Income Tax
Income tax expense was $215.2 million, representing an effective tax rate of 35.4% in fiscal 2014, compared to $214.6 million, representing an effective tax rate of 37.7% in fiscal 2013. The difference in the effective income tax rate between fiscal 2014 and fiscal 2013 was primarily due to the recognition of tax benefits related to losses in subsidiary investments in fiscal 2014 for which no benefit had previously been recorded. These benefits were partially offset by the recording of valuation allowances against (1) certain deferred tax assets in the European segment and (2) credits in the United States segment. Without the effect of the tax loss benefits and the recording of the valuation allowances, the effective income tax rate in fiscal 2014 would have been 36.7%. Refer to Note 13, "Income Taxes," to our consolidated financial statements for additional information regarding income taxes.
Operating Earnings and Net Income
The factors described above led to operating earnings of $618.3 million for fiscal 2014, or a 7.8% increase from operating earnings of $573.5 million for fiscal 2013. Additionally, net income was $393.1 million for fiscal 2014, which represented an 11.0% increase from net income of $354.2 million for fiscal 2013. The increase in operating earnings is primarily attributable to the growth of our Technology Brands segment, which contributed operating earnings growth of $33.1 million in fiscal 2014 compared to fiscal 2013. Operating earnings in the Video Game Brands segments increased due to the launch of the new consoles, which has driven year-over-year growth in our new video game hardware and video game accessories, as well as continued growth in our pre-owned and value category.

41


Fiscal 2013 Compared to Fiscal 2012
 
 
52 Weeks Ended  
 February 1, 2014
 
53 Weeks Ended  
 February 2, 2013
 
Change
 
 
Dollars in millions
 
Dollars in millions
 
$
 
%
Statement of Operations Data:
 
 
 
 
 
 
 
 
Net sales
 
$
9,039.5

 
$
8,886.7

 
$
152.8

 
1.7
 %
Cost of sales
 
6,378.4

 
6,235.2

 
143.2

 
2.3

Gross profit
 
2,661.1

 
2,651.5

 
9.6

 
0.4

Selling, general and administrative expenses
 
1,892.4

 
1,835.9

 
56.5

 
3.1

Depreciation and amortization
 
166.5

 
176.5

 
(10.0
)
 
(5.7
)
Goodwill impairments
 
10.2

 
627.0

 
(616.8
)
 
(98.4
)
Asset impairments
 
18.5

 
53.7

 
(35.2
)
 
(65.5
)
Operating earnings (loss)
 
573.5

 
(41.6
)
 
615.1

 
nm*

Interest expense, net
 
4.7

 
3.3

 
1.4

 
42.4

Earnings (loss) before income tax expense
 
568.8

 
(44.9
)
 
613.7

 
nm*

Income tax expense
 
214.6

 
224.9

 
(10.3
)
 
(4.6
)
Net income (loss)
 
354.2

 
(269.8
)
 
624.0

 
nm*

Net loss attributable to noncontrolling interests
 

 
0.1

 
(0.1
)
 
(100.0
)
Net income (loss) attributable to GameStop Corp.
 
$
354.2

 
$
(269.7
)
 
$
623.9

 
nm*

___________________
* not meaningful.
 
 
52 Weeks Ended  
 February 1, 2014
 
53 Weeks Ended  
 February 2, 2013
 
Change
 
 
Dollars in millions
 
Dollars in millions
 
$
 
%
Net Sales:
 
 
 
 
 
 
 
 
New video game hardware(1)
 
$
1,730.0

 
$
1,333.4

 
$
396.6

 
29.7
 %
New video game software
 
3,480.9

 
3,582.4

 
(101.5
)
 
(2.8
)
Pre-owned and value video game products
 
2,329.8

 
2,430.5

 
(100.7
)
 
(4.1
)
Video game accessories
 
560.6

 
611.8

 
(51.2
)
 
(8.4
)
Digital
 
217.7

 
208.4

 
9.3

 
4.5

Mobile and consumer electronics
 
303.7

 
200.3

 
103.4

 
51.6

Other(2)
 
416.8

 
519.9

 
(103.1
)
 
(19.8
)
Total
 
$
9,039.5

 
$
8,886.7

 
$
152.8

 
1.7
 %

42


 
 
52 Weeks Ended  
 February 1, 2014
 
53 Weeks Ended  
 February 2, 2013
 
Change
 
 
Dollars in millions
 
Dollars in millions
 
$
 
%
Gross Profit:
 
 
 
 
 
 
 
 
New video game hardware(1)
 
$
176.5

 
$
101.7

 
$
74.8

 
73.5
 %
New video game software
 
805.3

 
786.3

 
19.0

 
2.4

Pre-owned and value video game products
 
1,093.9

 
1,170.1

 
(76.2
)
 
(6.5
)
Video game accessories
 
220.5

 
237.9

 
(17.4
)
 
(7.3
)
Digital
 
149.2

 
120.9

 
28.3

 
23.4

Mobile and consumer electronics
 
65.1

 
41.3

 
23.8

 
57.6

Other(2)
 
150.6

 
193.3

 
(42.7
)
 
(22.1
)
Total
 
$
2,661.1

 
$
2,651.5

 
$
9.6

 
0.4
 %
___________________
(1)
Includes sales of hardware bundles, in which hardware and digital games are generally sold together as a single SKU.
(2)
Other products include revenues from the sales of PC entertainment software, interactive toys and licensed merchandise, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.
Net Sales
Net sales increased $152.8 million, or 1.7%, in fiscal 2013 compared to fiscal 2012. Sales for the 53rd week included in fiscal 2012 were $112.2 million. The increase in net sales during fiscal 2013 was attributable to an increase in comparable store sales of 3.8% compared to fiscal 2012, primarily due to strong sales performance during the second half of fiscal 2013. Additionally, sales included $62.8 million from the new Technology Brands segment. These increases were partially offset by a decline in domestic sales of $185.9 million due to a 4.1% decline in domestic store count, changes in foreign exchange rates, which had the effect of decreasing sales by $23.3 million when compared to the 53 weeks of fiscal 2012, and sales from the 53rd week in fiscal 2012. Refer to the note to the Selected Financial Data table in "Item 6 — Selected Financial Data" for a discussion of the calculation of comparable store sales.
The net increase in net sales was due to the following:
New video game hardware sales increased $396.6 million, or 29.7%, for fiscal 2013 compared to fiscal 2012, primarily attributable to an increase in hardware unit sell-through due to the launches of the Microsoft Xbox One and the Sony PlayStation 4 in November 2013. These increases were partially offset by declines in sales of previous generation hardware.
Digital revenues increased $9.3 million, or 4.5%, for fiscal 2013 compared to fiscal 2012 with growth limited due to the conversion of certain types of digital currency cards from a full retail price revenue arrangement to a commission revenue model.
Mobile and consumer electronics sales increased $103.4 million, or 51.6%, for fiscal 2013 compared to fiscal 2012 due to increased growth of the mobile business within the Video Game Brand stores and due to the Technology Brands stores acquired or opened in the fourth quarter of fiscal 2013.
The increases described above were partially offset by the following:
New video game software sales decreased $101.5 million, or 2.8%, for fiscal 2013 compared to fiscal 2012, primarily due to fewer new titles that were released during fiscal 2013 when compared to fiscal 2012 and by the additional sales for the 53rd week in fiscal 2012.
Pre-owned and value video game product sales decreased $100.7 million, or 4.1%, for fiscal 2013 compared to fiscal 2012, primarily due to less store traffic during the majority of fiscal 2013 because of lower video game demand due to the late stages of the previous console cycle, and also due to sales for the 53rd week in fiscal 2012.
Sales of video game accessories declined $51.2 million, or 8.4% for fiscal 2013 compared to fiscal 2012 due to the decline in demand for video game products in the late stages of the last console cycle, offset slightly by sales of accessories for use with the recently launched consoles.
Sales of other product categories decreased $103.1 million, or 19.8%, for fiscal 2013 compared to fiscal 2012, primarily due to a decrease in sales of PC entertainment software due to strong launches of PC titles during fiscal 2012.