Document
false--02-01Q320190001326380In addition, the indentures restrict payments of dividends to stockholders (other than dividends payable in shares of capital stock) if one of the following conditions exist: (i) an event of default has occurred, (ii) we could not incur additional debt under the general debt covenant of the indentures or (iii) the sum of the proposed dividend and all other dividends and other restricted payments made under the indentures from the date of the indentures governing the Senior Notes exceeds the sum of 50% of consolidated net income plus 100% of net proceeds from capital stock sales and other amounts set forth in and determined as provided in the indentures. These restrictions are subject to exceptions and qualifications, including that we can pay up to $175 million in dividends to stockholders in each fiscal year and we can pay dividends and make other restricted payments in an unlimited amount if our leverage ratio on a pro forma basis after giving effect to the dividend payment and other restricted payments would be less than or equal to 1.0:1.0. 2007-092022-030.380.380.380.380.0010.0010.0013000000003000000003000000001020000001020000006790000010200000010200000067900000The indentures governing the 2019 Senior Notes and the 2021 Senior Notes (together, the "Senior Notes") do not contain financial covenants but do contain covenants which place certain restrictions on us and our subsidiaries, including limitations on asset sales, additional liens, investments, stock repurchases, the incurrence of additional debt and the repurchase of debt that is junior to the Senior Notes. Borrowing availability under the Amended Revolver is limited to a borrowing base which allows us to borrow up to 90% of the appraisal value of the inventory, plus 90% of eligible credit card receivables, net of certain reserves. The borrowing base provides for borrowing of up to 92.5% of the appraisal value during the period between July 15 and October 15 of each year. Letters of credit reduce the amount available to borrow under the Amended Revolver by an amount equal to the face value of the letters of credit. In the event that excess availability under the Amended Revolver is at any time less than the greater of (1) $30 million or (2) 10% of the lesser of the total commitment or the borrowing base, we will be subject to a fixed charge coverage ratio covenant of 1.0:1.0.Our ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if either 1) excess availability under the Amended Revolver is less than 20%, or is projected to be within six months after such payment or 2) excess availability under the Amended Revolver is less than 15%, or is projected to be within six months after such payment, and the fixed charge coverage ratio, as calculated on a pro-forma basis for the prior 12 months, is 1.0:1.0 or less. 850000000 0001326380 2019-02-03 2019-11-02 0001326380 2018-02-04 2018-11-03 0001326380 2019-08-04 2019-11-02 0001326380 2019-12-04 0001326380 2019-11-02 0001326380 2019-02-02 0001326380 2018-11-03 0001326380 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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q

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

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 2019

OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-32637
GameStop Corp.
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-2733559
(State or other jurisdiction of
incorporation or organization)
https://cdn.kscope.io/cda5a6f01809d02f0d97130535788855-gslogocolor2a01a01a15.jpg
(I.R.S. Employer
Identification No.)
 
 
 
625 Westport Parkway
76051
Grapevine,
Texas
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(817) 424-2000

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 
Number of shares of $.001 par value Class A Common Stock outstanding as of December 4, 2019: 65,922,283



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




PART I — FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value per share)
 
 
November 2,
2019
 
November 3,
2018
 
February 2,
2019
ASSETS
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
290.3

 
$
448.6

 
$
1,624.4

Receivables, net
 
145.7

 
152.3

 
134.2

Merchandise inventories, net
 
1,286.7

 
1,881.5

 
1,250.5

Prepaid expenses and other current assets
 
127.6

 
149.0

 
118.6

Assets held for sale
 
12.8


631.6

 

Total current assets
 
1,863.1

 
3,263.0

 
3,127.7

Property and equipment, net
 
287.1

 
323.9

 
321.3

Operating lease right-of-use assets
 
758.1

 

 

Deferred income taxes
 
157.8

 
189.0

 
147.3

Goodwill
 

 
777.0

 
363.9

Other noncurrent assets
 
79.5

 
103.8

 
84.1

Total assets
 
$
3,145.6

 
$
4,656.7

 
$
4,044.3

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
 
 
Accounts payable
 
$
709.9

 
$
1,452.8

 
$
1,051.9

Accrued and other current liabilities
 
625.1

 
700.8

 
780.0

Current portion of operating lease liabilities
 
238.5

 

 

Current portion of debt, net
 

 
348.8

 
349.2

Liabilities held for sale
 

 
54.3

 

Total current liabilities
 
1,573.5

 
2,556.7

 
2,181.1

Long-term debt, net
 
419.4

 
471.2

 
471.6

Operating lease liabilities
 
516.5

 

 

Other long-term liabilities
 
19.1

 
63.7

 
55.4

Total liabilities
 
2,528.5

 
3,091.6

 
2,708.1

Commitments and contingencies (Note 8)
 

 

 

Stockholders’ equity:
 
 
 
 
 
 
Class A common stock — $.001 par value; 300 shares authorized; 67.9, 102.0 and 102.0 shares issued and outstanding
 
0.1

 
0.1

 
0.1

Additional paid-in capital
 

 
29.8

 
27.7

Accumulated other comprehensive loss
 
(71.5
)
 
(54.0
)
 
(54.3
)
Retained earnings
 
688.5

 
1,589.2

 
1,362.7

Total stockholders’ equity
 
617.1

 
1,565.1

 
1,336.2

Total liabilities and stockholders’ equity
 
$
3,145.6

 
$
4,656.7

 
$
4,044.3




See accompanying condensed notes to unaudited consolidated financial statements.

1


GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net sales
 
$
1,438.5

 
$
1,935.4

 
$
4,271.9

 
$
5,222.3

Cost of sales
 
997.4

 
1,377.2

 
2,960.5

 
3,663.0

Gross profit
 
441.1

 
558.2

 
1,311.4

 
1,559.3

Selling, general and administrative expenses
 
451.8

 
463.6

 
1,341.7

 
1,361.2

Depreciation and amortization
 
23.6

 
25.0

 
69.3

 
80.5

Goodwill impairments
 

 
557.3

 
363.9

 
557.3

Asset impairments
 
11.3

 
30.2

 
11.3

 
30.2

Operating loss
 
(45.6
)
 
(517.9
)
 
(474.8
)
 
(469.9
)
Interest income
 
(2.0
)
 
(1.1
)
 
(9.9
)
 
(2.1
)
Interest expense
 
8.0

 
14.1

 
30.6

 
42.7

Loss from continuing operations before income taxes
 
(51.6
)
 
(530.9
)
 
(495.5
)
 
(510.5
)
Income tax expense (benefit)
 
31.6

 
(24.0
)
 
(6.2
)
 
15.8

Net loss from continuing operations
 
(83.2
)
 
(506.9
)
 
(489.3
)
 
(526.3
)
(Loss) income from discontinued operations, net of tax
 
(0.2
)
 
18.3

 
(2.6
)
 
41.0

Net loss
 
$
(83.4
)
 
$
(488.6
)
 
$
(491.9
)
 
$
(485.3
)
 
 
 
 
 
 
 
 
 
Basic (loss) earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(1.01
)
 
$
(4.96
)
 
$
(5.16
)
 
$
(5.16
)
Discontinued operations
 

 
0.18

 
(0.03
)
 
0.40

Basic loss per share
 
$
(1.02
)
 
$
(4.78
)
 
$
(5.19
)
 
$
(4.76
)
 
 
 
 
 
 
 
 
 
Diluted (loss) earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(1.01
)
 
$
(4.96
)
 
$
(5.16
)
 
$
(5.16
)
Discontinued operations
 

 
0.18

 
(0.03
)
 
0.40

Diluted loss per share
 
$
(1.02
)
 
$
(4.78
)
 
$
(5.19
)
 
$
(4.76
)
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
82.1

 
102.2

 
94.8

 
102.0

Diluted
 
82.1

 
102.2

 
94.8

 
102.0


















See accompanying condensed notes to unaudited consolidated financial statements.

2


GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net loss
 
$
(83.4
)
 
$
(488.6
)
 
$
(491.9
)
 
$
(485.3
)
Other comprehensive loss:
 

 

 

 

Foreign currency translation adjustment
 
3.6

 
(13.6
)
 
(17.2
)
 
(66.2
)
Total comprehensive loss
 
$
(79.8
)
 
$
(502.2
)
 
$
(509.1
)
 
$
(551.5
)

















































See accompanying condensed notes to unaudited consolidated financial statements.

3


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

 
$
0.1

 
$
27.7

 
$
(54.3
)
 
$
1,362.7

 
$
1,336.2

Net income

 

 

 

 
6.8

 
6.8

Foreign currency translation

 

 

 
(13.9
)
 

 
(13.9
)
Dividends declared, $0.38 per common share

 

 

 

 
(38.7
)
 
(38.7
)
Stock-based compensation expense

 

 
1.9

 

 

 
1.9

Settlement of stock-based awards
0.3

 

 
(0.6
)
 

 

 
(0.6
)
Balance at May 4, 2019
102.3

 
0.1

 
29.0

 
(68.2
)
 
1,330.8

 
1,291.7

Net loss

 

 

 

 
(415.3
)
 
(415.3
)
Foreign currency translation

 

 

 
(6.9
)
 

 
(6.9
)
Stock-based compensation expense

 

 
3.3

 

 

 
3.3

Repurchase of common shares
(12.0
)
 

 
(32.1
)
 

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

 

 
(0.2
)
 

 

 
(0.2
)
Balance at August 3, 2019
90.5

 
0.1

 

 
(75.1
)
 
884.7

 
809.7

Net loss

 

 

 

 
(83.4
)
 
(83.4
)
Foreign currency translation

 

 

 
3.6

 

 
3.6

Stock-based compensation expense

 

 
2.9

 

 

 
2.9

Repurchase of common shares
(22.6
)
 

 
(2.9
)
 

 
(112.8
)
 
(115.7
)
Balance at November 2, 2019
67.9

 
$
0.1

 
$

 
$
(71.5
)
 
$
688.5

 
$
617.1



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

 
$
0.1

 
$
22.1

 
$
12.2

 
$
2,180.1

 
$
2,214.5

Adoption of ASU 2014-09

 

 

 

 
11.5

 
11.5

Net income

 

 

 

 
28.2

 
28.2

Foreign currency translation

 

 

 
(35.2
)
 

 
(35.2
)
Dividends declared, $0.38 per common share

 

 

 

 
(38.9
)
 
(38.9
)
Stock-based compensation expense

 

 
7.6

 

 

 
7.6

Settlement of stock-based awards
0.6

 

 
(4.2
)
 

 

 
(4.2
)
Balance at May 5, 2018
101.9

 
0.1

 
25.5

 
(23.0
)
 
2,180.9

 
2,183.5

Net loss

 

 

 

 
(24.9
)
 
(24.9
)
Foreign currency translation

 

 

 
(17.4
)
 

 
(17.4
)
Dividends declared, $0.38 per common share

 

 

 

 
(39.0
)
 
(39.0
)
Stock-based compensation expense

 

 
2.0

 

 

 
2.0

Balance at August 4, 2018
101.9

 
0.1

 
27.5

 
(40.4
)
 
2,117.0

 
2,104.2

Net loss

 

 

 

 
(488.6
)
 
(488.6
)
Foreign currency translation

 

 

 
(13.6
)
 

 
(13.6
)
Dividends declared, $0.38 per common share

 

 

 

 
(39.2
)
 
(39.2
)
Stock-based compensation expense

 

 
3.2

 

 

 
3.2

Settlement of stock-based awards
0.1

 

 
(0.9
)
 

 

 
(0.9
)
Balance at November 3, 2018
102.0

 
$
0.1

 
$
29.8

 
$
(54.0
)
 
$
1,589.2

 
$
1,565.1





See accompanying condensed notes to unaudited consolidated financial statements.

4


GAMESTOP CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
 
39 Weeks Ended
 
 
November 2,
2019
 
November 3,
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(491.9
)
 
$
(485.3
)
Adjustments to reconcile net loss to net cash flows from operating activities:
 

 

Depreciation and amortization (including amounts in cost of sales)
 
70.1

 
97.4

Goodwill and asset impairments
 
375.2

 
587.5

Stock-based compensation expense
 
8.1

 
12.8

Deferred income taxes
 
(11.8
)
 
(46.5
)
Loss on disposal of property and equipment
 
1.9

 
1.4

Loss on divestitures
 
1.3

 

Other
 
(13.1
)
 
(4.8
)
Changes in operating assets and liabilities:
 
 
 
 
Receivables, net
 
(6.7
)
 
20.5

Merchandise inventories
 
(61.6
)
 
(705.3
)
Prepaid expenses and other current assets
 
(10.7
)
 
(20.1
)
Prepaid income taxes and income taxes payable
 
(44.2
)
 
(1.4
)
Accounts payable and accrued liabilities
 
(472.2
)
 
365.2

Operating lease right-of-use assets and lease liabilities
 
0.7

 

Changes in other long-term liabilities
 
0.1

 
(0.6
)
Net cash flows used in operating activities
 
(654.8
)
 
(179.2
)
Cash flows from investing activities:
 
 
 
 
Purchase of property and equipment
 
(61.4
)
 
(65.9
)
Proceeds from divestitures
 
5.2

 

Other
 
(0.7
)
 
(0.3
)
Net cash flows used in investing activities
 
(56.9
)
 
(66.2
)
Cash flows from financing activities:
 
 
 
 
Repayment of acquisition-related debt
 

 
(12.2
)
Repurchase of common shares
 
(176.9
)
 

Dividends paid
 
(40.5
)
 
(118.7
)
Borrowings from the revolver
 

 
154.0

Repayments of revolver borrowings
 

 
(154.0
)
Repayments of senior notes
 
(404.5
)
 

Settlement of stock-based awards
 
(0.8
)
 
(5.1
)
Net cash flows used in financing activities
 
(622.7
)
 
(136.0
)
Exchange rate effect on cash and cash equivalents and restricted cash
 
(1.7
)
 
(28.4
)
Decrease in cash held for sale
 

 
4.3

Decrease in cash and cash equivalents and restricted cash
 
(1,336.1
)
 
(405.5
)
Cash and cash equivalents and restricted cash at beginning of period
 
1,640.5

 
869.1

Cash and cash equivalents and restricted cash at end of period
 
$
304.4

 
$
463.6








See accompanying condensed notes to unaudited consolidated financial statements.

5


GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.    General Information
The Company
GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global, multichannel video game, consumer electronics and collectibles retailer. GameStop operates over 5,600 stores across 14 countries. Our consumer product network also includes www.gamestop.com and Game Informer® magazine, the world's leading print and digital video game publication.
We operate our business in four geographic segments: United States, Canada, Australia and Europe. Our former Technology Brands segment primarily consisted of Spring Mobile and Simply Mac. We sold Spring Mobile in January 2019. In September 2019, we closed on the sale of Simply Mac. See Note 2, "Discontinued Operations and Dispositions," for further information.
Simply Mac is included in the United States segment in these consolidated financial statements and accompanying condensed notes. The historical results of Spring Mobile are reported as discontinued operations in our consolidated statements of operations for all periods presented. The assets and liabilities held for sale as of November 3, 2018, relate to Spring Mobile. The consolidated statement of cash flows is presented on a combined basis for all periods presented and, therefore, does not segregate cash flows from continuing and discontinued operations. The information contained in these condensed notes to our consolidated financial statements refers to continuing operations unless otherwise noted.
Basis of Presentation and Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in our opinion, necessary for a fair presentation of the information as of and for the periods presented. These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required under GAAP for complete consolidated financial statements.
These unaudited condensed consolidated financial statements should be read in conjunction with our annual report on Form 10-K for the 52 weeks ended February 2, 2019, as filed with the Securities and Exchange Commission on April 2, 2019, (the “2018 Annual Report on Form 10-K”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, and changes in the estimates and assumptions used by us could have a significant impact on our financial results. Actual results could differ from those estimates. Due to the seasonal nature of our business, the results of operations for the 39 weeks ended November 2, 2019 are not indicative of the results to be expected for the 52 weeks ending February 1, 2020 ("fiscal 2019").
Reclassifications
In our unaudited consolidated statements of cash flows, we reclassified the prior period provision for inventory reserves of $42.4 million from other operating activities to changes in merchandise inventories in order to conform to the current year presentation.
Significant Accounting Policies
Except for the accounting policy for leases, which is discussed below within "—Adoption of New Accounting Pronouncements" and within Note 6, "Leases," there have been no material changes to our significant accounting policies included in Note 1, "Nature of Operations and Summary of Significant Accounting Policies," within our 2018 Annual Report on Form 10-K.
Restricted Cash
Restricted cash of $14.1 million, $15.0 million and $16.1 million as of November 2, 2019November 3, 2018 and February 2, 2019, respectively, consists primarily of bank deposits serving as collateral for bank guarantees issued on behalf of our foreign subsidiaries and is included in other noncurrent assets in our unaudited condensed consolidated balance sheets.

6

GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of cash and cash equivalents in the condensed consolidated balance sheets to total cash and cash equivalents and restricted cash in the condensed consolidated statements of cash flows (in millions):
 
 
November 2,
2019
 
November 3,
2018
 
February 2,
2019
Cash and cash equivalents
 
$
290.3

 
$
448.6

 
$
1,624.4

Restricted cash (included in prepaid expenses and other current assets)
 
0.3

 
2.7

 
2.7

Restricted cash (included in other noncurrent assets)
 
13.8

 
12.3

 
13.4

Total cash and cash equivalents and restricted cash in the statements of cash flows
 
$
304.4

 
$
463.6

 
$
1,640.5

Property and Equipment, Net
Accumulated depreciation related to our property and equipment totaled $1,230.4 million, $1,237.9 million and $1,235.8 million as of November 2, 2019November 3, 2018 and February 2, 2019, respectively.
We periodically review our property and equipment when events or changes in circumstances indicate that its carrying amounts may not be recoverable or its depreciation or amortization periods should be accelerated. We assess recoverability based on several factors, including our intention with respect to our stores and those stores’ projected undiscounted cash flows. An impairment loss is recognized for the amount by which the carrying amount of the assets exceeds its fair value, determined based on an estimate of discounted future cash flows. We recorded impairment losses totaling $3.6 million during the third quarter of fiscal 2019.
Share Repurchases
On June 11, 2019, we commenced a modified Dutch auction tender offer for up to 12.0 million shares of our Class A common stock with a price range between $5.20 and $6.00 per share. The tender offer expired on July 10, 2019. Through the tender offer, we accepted for payment 12.0 million shares at a purchase price of $5.20 per share for a total of $62.9 million, including fees and commissions. The shares purchased through the tender offer were immediately retired. The excess purchase price over par value was recorded as a reduction to additional paid-in capital and retained earnings in our unaudited consolidated balance sheet.
In addition to the equity tender offer describe above, during the third quarter of fiscal 2019, we executed a series of open market repurchases for an aggregate of 22.6 million shares of our Class A common stock totaling $115.7 million, including fees and commissions. Included in these amounts are repurchases of 0.3 million shares for $1.7 million that were initiated prior to November 2, 2019, but not settled until the fourth quarter of fiscal 2019. As of November 2, 2019, we have $121.4 million remaining under our share repurchase program.
Income Tax Expense (Benefit)
We have historically calculated the provision or benefit for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate ("AETR") for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. For the 13 weeks ended November 2, 2019, we determined we could no longer reliably estimate income taxes utilizing an AETR. The AETR estimate is highly sensitive to estimates of ordinary income (loss) and permanent differences such that minor fluctuations in these estimates could result in significant fluctuations of the Company’s AETR. Accordingly, we used our actual year-to-date effective tax rate to calculate income taxes for the 13 and 39 weeks ended November 2, 2019.

We recognized income tax expense of $31.6 million, representing an effective tax rate of (61.2)%, for the 13 weeks ended November 2, 2019, and an income tax benefit of $6.2 million, representing an effective tax rate of 1.3%, for the 39 weeks ended November 2, 2019. The difference between our effective tax rates and the U.S. Federal statutory tax rate of 21% primarily relate to discrete items recognized in the 13 and 39 weeks ended November 2, 2019, and the relative mix of earnings across the jurisdictions within which we operate, including increases in valuation allowances and losses not benefited in certain foreign jurisdictions during the 13 and 39 weeks ended November 2, 2019.
Adoption of New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standard Update ("ASU") 2016-02, Leases, which requires a lessee to recognize a liability related to lease payments and a corresponding right-of-use asset representing a right to use the underlying asset for the lease term. Entities are required to use a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period presented in the financial statements, with certain reliefs available. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides clarifications and improvements to ASU 2016-02 including allowing entities to elect an additional transition method with which to adopt ASU 2016-02.

7

GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The approved transition method enables entities to apply the transition requirements in this ASU at the effective date of ASU 2016-02 (rather than at the beginning of the earliest comparative period presented) with the effect of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840. In March 2019, the FASB issued ASU 2019-01, Leases which clarifies the disclosure requirements for interim periods.
We adopted the new lease standard, Accounting Standards Codification Topic 842, Leases ("ASC 842"), effective February 3, 2019, using the modified-retrospective transition approach as outlined in ASU 2018-11, with no restatement of comparative periods. As permitted by the standard, we elected certain practical expedients, including the "package of practical expedients," under which we did not reassess our prior conclusions regarding lease identification, lease classification, or capitalization of initial lease direct costs for existing or expired contracts. For our real estate leases, we elected the practical expedient to not separate lease and non-lease components. For our non-real estate leases, we elected to separate lease and non-lease components. We did not elect to exclude short-term leases from our right-of-use asset and liability balances, nor did we elect the hindsight practical expedient.
Under the modified-retrospective transition approach, we have recorded adjustments to our fiscal 2019 opening balance sheet (as of February 3, 2019) to recognize an initial operating lease right-of-use asset and corresponding initial lease liability of approximately $850 million. See Note 6, "Leases" for further details.
2.    Discontinued Operations and Dispositions
Discontinued Operations
On January 16, 2019, we completed the sale of all of the equity interest in our former wholly-owned subsidiary Spring Communications Holding, Inc. ("Spring Mobile") to Prime Acquisition Company, LLC, a wholly-owned subsidiary of Prime Communications, L.P., pursuant to an Equity Purchase Agreement dated as of November 21, 2018. The net cash proceeds received from the sale totaled $727.9 million, which is subject to customary post-closing adjustments. The net proceeds received consisted of the purchase price of $700.0 million less $10.5 million of transaction costs, plus preliminary adjustments totaling $38.4 million for working capital and indebtedness. We recognized a gain on sale of $100.8 million ($65.4 million, net of tax) during the fourth quarter of fiscal 2018. Except for customary post-closing adjustments and transition services, we have no contingencies or continuing involvement with Spring Mobile subsequent to the completion of the sale.
The historical results of Spring Mobile are reported as discontinued operations in our consolidated statements of operations for all periods presented. The results of our discontinued operations for the 13 and 39 weeks ended November 2, 2019 and November 3, 2018 are as follows (in millions):
 
13 Weeks Ended
 
39 Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Net sales
$

 
$
149.0

 
$

 
$
442.8

Cost of sales

 
16.4

 

 
57.9

Gross profit

 
132.6

 

 
384.9

Selling, general and administrative expenses
0.2

 
103.0

 
3.2

 
313.8

Depreciation and amortization

 
5.2

 

 
16.0

(Loss) income from discontinued operations before income taxes
(0.2
)
 
24.4

 
(3.2
)
 
55.1

Income tax (benefit) expense

 
6.1

 
(0.6
)
 
14.1

Net (loss) income from discontinued operations
$
(0.2
)
 
$
18.3

 
$
(2.6
)
 
$
41.0


There were no significant operating noncash items for our discontinued operations for the 39 weeks ended November 2, 2019. The following table presents capital expenditures, depreciation and amortization and other significant operating noncash items of our discontinued operations for the 39 weeks ended November 3, 2018 (in millions):
 
 
 
 
 
November 3, 2018
Capital expenditures
 
$
6.1

Depreciation and amortization
 
16.0

Provision for inventory reserves
 
9.5



8

GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Disposition of Simply Mac
On May 9, 2019, we entered into a definitive agreement to sell our Simply Mac business to Cool Holdings, Inc., which closed on September 25, 2019, for total consideration of $12.9 million. The consideration received is subject to customary post-closing adjustments and consisted of $5.2 million in cash and a note receivable of $7.7 million. We recognized a loss on sale of $1.3 million, net of tax, during the third quarter of fiscal 2019.
Assets and Liabilities Held for Sale
As of November 2, 2019, we classified our corporate aircraft, with an estimated fair value, less costs to sell, of $12.8 million as assets held for sale. The assets and liabilities classified as held for sale as of November 3, 2018 relate to our former Spring Mobile business, which we sold in the fourth quarter of fiscal 2018. The major classes of assets and liabilities held for sale as of November 3, 2018 are as follows (in millions):
 
 
November 3, 2018
Assets:
 
 
Cash and cash equivalents
 
$
5.9

Receivables, net
 
5.2

Merchandise inventories, net
 
145.9

Prepaid expenses and other current assets
 
8.7

Property and equipment, net
 
69.6

Goodwill
 
316.9

Other intangible assets, net
 
77.0

Other assets
 
2.4

Total assets held for sale
 
$
631.6

 
 
 
Liabilities:
 
 
Accounts payable
 
$
16.1

Accrued liabilities
 
23.3

Other liabilities
 
14.9

Total liabilities held for sale
 
$
54.3


3.    Revenue
Net sales by significant product category for the periods indicated is as follows (in millions):
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
New video game hardware (1)
 
$
189.0

 
$
349.0

 
$
598.1

 
$
1,006.5

New video game software
 
485.9

 
720.7

 
1,217.3

 
1,488.3

Pre-owned and value video game products
 
344.2

 
396.9

 
1,112.6

 
1,344.7

Video game accessories
 
156.5

 
180.8

 
526.3

 
567.2

Digital
 
37.0

 
45.4

 
111.4

 
128.6

Collectibles
 
161.2

 
154.6

 
490.3

 
438.7

Other (2)
 
64.7

 
88.0

 
215.9

 
248.3

Total
 
$
1,438.5

 
$
1,935.4

 
$
4,271.9

 
$
5,222.3


__________________________________________________
(1)
Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.
(2)
Includes mobile and consumer electronics sold through our Simply Mac branded stores, which were sold in September 2019. Also includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics, and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in print form.
See Note 10, "Segment Information," for net sales by geographic location.


9

GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Performance Obligations
We expect to recognize revenue in future periods for remaining performance obligations related to unredeemed gift cards, trade-in credits, reservation deposits and our PowerUp Rewards loyalty program (collectively, “unredeemed customer liabilities”), extended warranties and subscriptions to our Game Informer magazine.
Performance obligations associated with unredeemed customer liabilities are primarily satisfied at the time our customers redeem gift cards, trade-in credits, reservation deposits or loyalty program points for products that we offer. Unredeemed customer liabilities are generally redeemed within one year of issuance. As of November 2, 2019, our unredeemed customer liabilities totaled $250.5 million.
We offer extended warranties on certain new and pre-owned video game products with terms generally ranging from 12 to 24 months, depending on the product. Revenues for extended warranties sold are recognized on a straight-line basis over the life of the contract. As of November 2, 2019, our deferred revenue liability related to extended warranties totaled $58.9 million.
Performance obligations associated with subscriptions to our Game Informer magazine are satisfied when monthly magazines are delivered in print form or made available in digital format. The significant majority of our customers’ subscriptions is for 12 monthly issues. As of November 2, 2019, we had deferred revenue of $39.2 million associated with our Game Informer magazine.
Contract Balances
Our contract liabilities primarily consist of unredeemed customer liabilities and deferred revenues associated with extended warranties and subscriptions to our Game Informer magazine. The opening balance, current period changes and ending balance of our contract liabilities are as follows (in millions):
 
 
Contract Liabilities
Balance at February 2, 2019
 
$
376.9

Increase to contract liabilities (1)
 
677.1

Decrease to contract liabilities (2)
 
(705.0
)
Other adjustments (3)
 
(0.4
)
Balance at November 2, 2019
 
$
348.6

__________________________________________________
(1)
Includes issuances of gift cards, trade-in credits and loyalty points, new reservation deposits, new subscriptions to Game Informer and extended warranties sold.
(2)
Includes redemptions of gift cards, trade-in credits, loyalty points and reservation deposits as well as revenues recognized for Game Informer and extended warranties. During the 39 weeks ended November 2, 2019, there were $47.3 million of gift cards redeemed that were outstanding as of February 2, 2019.
(3)
Primarily includes foreign currency translation adjustments.
4.    Fair Value Measurements and Financial Instruments
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Applicable accounting standards require disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis include our foreign currency contracts, life insurance policies we own that have a cash surrender value, and certain nonqualified deferred compensation liabilities.
We value our foreign currency contracts, our life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities based on Level 2 inputs using quotations provided by major market news services, such as Bloomberg, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures, all of which are observable in active markets. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

10

GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Our assets and liabilities measured at fair value on a recurring basis as of November 2, 2019, November 3, 2018 and February 2, 2019, utilize Level 2 inputs and include the following (in millions):
 
 
November 2, 2019
 
November 3, 2018
 
February 2, 2019
Assets
 
 
 
 
 
 
Foreign currency contracts(1)
 
$
1.2

 
$
4.6

 
$
1.0

Company-owned life insurance(2)
 
16.2

 
14.4

 
14.6

Total assets
 
$
17.4

 
$
19.0

 
$
15.6

Liabilities
 
 
 
 
 
 
Foreign currency contracts(3)
 
$
0.5

 
$
0.5

 
$
1.2

Nonqualified deferred compensation(3)
 
0.8

 
1.1

 
1.1

Total liabilities
 
$
1.3

 
$
1.6

 
$
2.3


__________________________________________________
(1)
Recognized in prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets.
(2)
Recognized in other non-current assets in our unaudited condensed consolidated balance sheets.
(3)
Recognized in accrued liabilities in our unaudited condensed consolidated balance sheets.
We use forward exchange contracts to manage currency risk primarily related to intercompany loans denominated in foreign currencies. The foreign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans denominated in foreign currencies. The total gross notional value of derivatives related to our foreign currency contracts was $147.1 million, $319.5 million and $240.0 million as of November 2, 2019, November 3, 2018 and February 2, 2019, respectively.
Activity related to the trading of derivative instruments and the offsetting impact of intercompany loans denominated in foreign currencies recognized in selling, general and administrative expense is as follows (in millions):
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Gains on the change in fair value of derivative instruments
 
$
0.4

 
$
0.6

 
$
3.2

 
$
10.0

Gains (losses) on the re-measurement of related intercompany loans denominated in foreign currencies
 
0.1

 
(0.2
)
 
(2.7
)
 
(7.7
)
Net gains
 
$
0.5

 
$
0.4

 
$
0.5

 
$
2.3


We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. We manage counterparty risk according to the guidelines and controls established under our comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.
Assets that are Measured at Fair Value on a Nonrecurring Basis
Assets that are measured at fair value on a nonrecurring basis relate primarily to property and equipment, right-of-use assets and intangible assets, which are remeasured when the estimated fair value is below its carrying value. For these assets, we do not periodically adjust carrying value to fair value; rather, when we determine that impairment has occurred, the carrying value of the asset is reduced to its fair value.
During the 39 weeks ended November 2, 2019, we recognized impairment charges totaling $3.6 million related to store-level property and equipment, to reflect their estimated fair value of zero. We also recognized an impairment charge of $7.7 million related to our corporate aircraft, to reflect the fair value of $12.8 million. The corporate aircraft is classified as assets held-for-sale in our consolidated balance sheet as of November 2, 2019.
During the 39 weeks ended November 3, 2018, we recognized impairment charges totaling $30.2 million related to intangible assets. We recognized impairment charges of $19.0 million and $5.3 million associated with our Micromania and ThinkGeek trade names, respectively, to reflect their fair values of $19.0 million and $2.8 million, respectively. We also recognized an impairment charge of $5.9 million associated with other ThinkGeek intangible assets, to reflect their fair values of zero.

11

GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The fair value estimates of the store-level property and equipment, trade names and other intangible assets are based on significant unobservable inputs (Level 3) developed from company-specific information. These assets were valued using variations of the discounted cash flow method, which require assumptions associated with, among others, projected sales and cost estimates, capital expenditures, royalty rates, discount rates, terminal values and remaining useful lives. The fair value of the corporate aircraft was estimated by evaluating significant unobservable inputs (Level 3), including recent sales of similar assets, market statistics and fleet information.
Other Fair Value Disclosures
The carrying values of our cash equivalents, receivables, net, accounts payable and notes payable approximate the fair value due to their short-term maturities.
As of November 2, 2019 our unsecured 6.75% senior notes due in 2021 had a net carrying value of $419.4 million and a fair value of $422.9 million. The fair value of our 6.75% senior notes were determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined this to be a Level 2 measurement as all significant inputs into the quote provided by our pricing source are observable in active markets.
5.    Goodwill
Goodwill represents the excess purchase price over tangible net assets and identifiable intangible assets acquired. Intangible assets are recorded apart from goodwill if they arise from a contractual right and are capable of being separated from the entity and sold, transferred, licensed, rented or exchanged individually. We are required to evaluate goodwill and other intangible assets not subject to amortization for impairment at least annually. This annual test is completed at the beginning of the fourth quarter of each fiscal year or when circumstances indicate the carrying value of the goodwill or other intangible assets might be impaired. Goodwill has been assigned to reporting units for the purpose of impairment testing. We have four operating segments, including the United States, Canada, Australia and Europe, which also define our reporting units based upon the similar economic characteristics of operations within each segment, including the nature of products, product distribution and the type of customer and separate management within these businesses. In order to test goodwill for impairment, we compare a reporting unit's carrying amount to its estimated fair value. If the reporting unit’s carrying value exceeds its estimated fair value, then an impairment charge is recorded in the amount of the excess.
The changes in the carrying amounts of goodwill, by reportable segment, for fiscal 2019 were as follows (in millions):
 
 
United States
 
Canada
 
Australia
 
Europe
 
Total
Balance at February 2, 2019
 
$
363.9

 
$

 
$

 
$

 
$
363.9

Impairment charge
 
(363.9
)
 

 

 

 
(363.9
)
Balance at November 2, 2019
 
$

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Cumulative goodwill impairment charges
 
$
1,173.0

 
$
129.1

 
$
173.5