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
GameStop Corp. ("GameStop," "we," "us," "our," or the "Company"), a Delaware
corporation established in 1996, is the world's largest video game retailer,
operates approximately 5,500 stores across 14 countries, and offers the best
selection of new and pre-owned video gaming consoles, accessories and video game
titles, in both physical and digital formats. GameStop also offers fans a wide
variety of POP! vinyl figures, collectibles board games and more. Through
GameStop's unique buy-sell-trade program, gamers can trade in video game
consoles, games, and accessories, as well as consumer electronics for cash or
in-store credit. Our consumer product network also includes www.gamestop.com and
Game Informer magazine, the world's leading print and digital video game
publication. Our corporate office is located in Grapevine, Texas.
We operate our business in four geographic segments: United States, Canada,
Australia and Europe. Our fiscal year is composed of the 52 or 53 weeks ending
on the Saturday closest to the last day of January. Fiscal year 2019 consisted
of the 52 weeks ended on February 1, 2020 ("fiscal 2019"). Fiscal year 2018
consisted of the 52 weeks ended on February 2, 2019 ("fiscal 2018") and fiscal
year 2017 consisted of the 53 weeks ended on February 3, 2018 ("fiscal 2017").
The discussion and analysis of our results of operations refers to continuing
operations unless otherwise noted.

The near-term global economic conditions have been adversely impacted by the
emergence of a novel coronavirus in China, identified as COVID-19, which
continues to spread throughout the United States and other parts of the world.
In March 2020, the World Health Organization declared the outbreak of COVID-19
as a pandemic. In an effort to mitigate the continued spread of the virus,
governments have imposed quarantines, travel restrictions and similar measures.
We have temporarily closed stores on a country-wide basis in Europe, primarily
in Italy and France, as well as in Canada, which became effective in various
points in March 2020. In the United States, effective March 22, 2020, we have
temporarily closed all storefronts to customers but continue to process orders
on a digital only basis, offering curbside pick-up at stores and e-commerce
delivery only. As a result of these actions and restrictions, we expect a
significant reduction in customer traffic and demand.
Growth in the video game industry is generally driven by the introduction of new
technology. Gaming consoles have historically
launched in five to seven-year cycles as technological developments provide
significant improvements in the gaming experience and add other entertainment
capabilities. Consumer demand for gaming consoles are typically the highest in
the early years of the cycle and the weakest in the latter years. The current
generation of consoles include the Sony PlayStation 4 (launched in 2013),
Microsoft Xbox One (launched in 2013) and the Nintendo Switch (launched in
2017). The Sony PlayStation 4 and Microsoft Xbox One are nearing the end of
their cycle as Sony and Microsoft have announced that their next generation
consoles are expected to launch during the holiday period of 2020.
The sale of video games delivered through digital channels and other forms of
gaming continue to grow and take an increasing percentage of physical video game
sales. 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 prepaid subscription cards. We have made significant
investments in e-commerce and in-store and website functionality to enable our
customers to access digital content to 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
video game industry and in the digital aggregation and distribution category.
In our discussion of the results of operations, we refer to comparable store
sales, which is a measure commonly used in the retail industry and indicates
store performance by measuring the growth or decline 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 stores,
including stand-alone collectible 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 compares the
fiscal year ended 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. We believe our calculation of
comparable store sales best represents our strategy as an omnichannel retailer
that provides its consumers several ways to access its products.


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BUSINESS STRATEGY
In May of 2019, we announced our multi-year transformation initiative, which we
refer to as GameStop Reboot, to position GameStop on the correct strategic path
and fully leverage our unique position and brand in the video game industry. Our
strategic plan is anchored on the following four tenets.

Optimize the core business. Improve the efficiency and effectiveness of operations across the organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories, and rationalizing the global store base.

Become the social / cultural hub for gaming. Create the social and cultural hub of gaming across the GameStop platform and offerings.



Build a frictionless digital ecosystem. Develop and deploy a frictionless
consumer facing digital omni-channel environment, including the recent relaunch
of GameStop.com, to reach customers more broadly across all channels and provide
them the full spectrum of content and access to products they desire, anytime,
anywhere.

Transform vendor partnerships. Transform our vendor and partner relationships to
unlock additional high-margin revenue streams and optimize the lifetime value of
every customer.

Connected to our transformation efforts, we have incurred and expect to incur
future costs including, but not limited to, consulting fees, severance and store
closure costs. See "Consolidated Results from Operations-Selling, General and
Administrative Expenses" for further information.

We remain committed to a capital allocation strategy focused on optimizing
long-term value creation. With this approach, we will return capital to
shareholders when the time is right and balance that opportunity against the
need to maintain a strong balance sheet and to invest in responsible growth that
will drive innovation for the business. During fiscal 2019, we repurchased
38.1 million shares for an aggregate purchase price of $198.7 million under our
authorized repurchase program.
STORE COUNT INFORMATION
The following table presents the number of stores by segment that were opened
and disposed of during fiscal 2019:
              February 2, 2019    Opened    Disposed    February 1, 2020
United States            3,846         6       (210 )              3,642
Canada                     311         -        (12 )                299
Australia                  462         2        (38 )                426
Europe                   1,211         4        (73 )              1,142
Total Stores             5,830        12       (333 )              5,509


SEASONALITY
Our business, like that of many retailers, is seasonal, with the major portion
of sales and operating profit realized during the fourth quarter which includes
the holiday selling season. Results for any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year. Quarterly
results may fluctuate materially depending upon, among other factors, the timing
of new product introductions and new store openings, sales contributed by new
stores, increases or decreases in comparable store sales, the nature and timing
of acquisitions, adverse weather conditions, shifts in the timing of certain
holidays or promotions and changes in our merchandise mix.

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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:


                                     Fiscal Year 2019              Fiscal Year 2018              Fiscal Year 2017
                                               Percent of                    Percent of                    Percent of
                                  Amount        Net Sales       Amount        Net Sales       Amount        Net Sales
Net sales                       $ 6,466.0      100.0  %       $ 8,285.3      100.0  %       $ 8,547.1      100.0  %
Cost of sales                     4,557.3       70.5            5,977.2       72.1            6,062.2       70.9
Gross profit                      1,908.7       29.5            2,308.1       27.9            2,484.9       29.1
Selling, general and
administrative expenses           1,922.7       29.8            1,994.2       24.2            2,031.9       23.8
Goodwill impairments                363.9        5.6              970.7       11.7                  -          -
Asset impairments                    21.7        0.3               45.2        0.5               13.8        0.2
Operating (loss) earnings          (399.6 )     (6.2 )           (702.0 )     (8.5 )            439.2        5.1
Interest expense, net                27.2        0.4               51.1        0.6               55.3        0.6
(Loss) earnings from
continuing operations before
income taxes                       (426.8 )     (6.6 )           (753.1 )     (9.1 )            383.9        4.5
Income tax expense                   37.6        0.6               41.7        0.5              153.5        1.8
Net (loss) income from
continuing operations              (464.4 )     (7.2 )           (794.8 )     (9.6 )            230.4        2.7
Income (loss) from
discontinued operations, net
of tax                               (6.5 )     (0.1 )            121.8        1.5             (195.7 )     (2.3 )
Net (loss) income               $  (470.9 )     (7.3 )%       $  (673.0 )     (8.1 )%       $    34.7        0.4  %

The following table sets forth net sales by significant product category for the period indicated (dollars in millions):


                                 Fiscal Year 2019               Fiscal Year 2018               Fiscal Year 2017
                                           Percent of                     Percent of                     Percent of
                            Net Sales       Net Sales      Net Sales       Net Sales      Net Sales       Net Sales
Hardware and accessories   $  2,722.2         42.1 %      $  3,717.8         44.9 %      $  3,651.0         42.7 %
Software                      3,006.3         46.5           3,856.5         46.5           4,257.4         49.8
Collectibles                    737.5         11.4             711.0          8.6             638.7          7.5
Total                      $  6,466.0        100.0 %      $  8,285.3        100.0 %      $  8,547.1        100.0 %

Net sales by reportable segment in U.S. dollars were as follows (in millions):


                              Fiscal Year 2019                                 Fiscal Year 2018                               Fiscal Year 2017
                               Percent of    Comparable Store                  Percent of    Comparable Store                  Percent of      Comparable
                 Net Sales      Net Sales         Sales          Net Sales      Net Sales          Sales          Net Sales     Net Sales     Store Sales
United States   $  4,497.7       69.6 %         (20.9 )%           5,800.2       70.0 %           1.8  %           5,876.0       68.7 %           4.3 %
Canada               344.2        5.3           (18.9 )              434.5        5.2             3.1                434.9        5.1            10.0
Australia            525.4        8.1           (12.0 )              645.4        7.8            (3.4 )              702.2        8.2             8.2
Europe             1,098.7       17.0           (16.8 )            1,405.2       17.0            (7.7 )            1,534.0       18.0             9.5
Total           $  6,466.0      100.0 %         (19.4 )%        $  8,285.3      100.0 %          (0.3 )%           8,547.1      100.0 %           5.8 %




                                       19

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Fiscal 2019 Compared to Fiscal 2018
Net Sales
Net sales decreased $1,819.3 million, or 22.0%, in fiscal 2019 compared to
fiscal 2018. The decrease in net sales was primarily attributable to a decrease
in comparable store sales of 19.4% and the impact of 321 net global store
closures. The decrease in comparable store sales was primarily driven by lower
demand for the current generation consoles from Sony and Microsoft as they near
the end of their console cycle, a decline in software sales as well as a decline
of audio-related and other accessories related to the growth in battle-royale
gaming in fiscal 2018. The decrease in sales of software was primarily due to a
reduction in the number and success of title releases compared to the prior
year. These decreases were partially offset by an increase in sales of Nintendo
Switch products and collectibles.
Net sales for fiscal 2019 in our United States, Canada, Australia and Europe
segments declined by 22.5%, 20.8%, 18.6% and 21.8%, respectively, when compared
to fiscal 2018. Comparable store sales in the United States, Canada, Australia
and Europe decreased by 20.9%, 18.9%, 12.0% and 16.8%, respectively, primarily
due to the same factors described above. In addition, Australia and Europe were
negatively impacted by foreign exchange rate fluctuations of $32.7 million and
$52.8 million, respectively.
Gross Profit
Gross profit decreased $399.4 million, or 17.3%, in fiscal 2019 compared to
fiscal 2018, and gross profit as a percentage of net sales increased to 29.5% in
fiscal 2019 compared to 27.9% in fiscal 2018. The increase in gross profit as a
percentage of net sales was primarily due to a shift in product mix to higher
margin products, driven by the decline in lower margin video game hardware
sales, as well as lower promotional activity in the fiscal 2019 holiday season
compared to the fiscal 2018 holiday season.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses decreased $71.5 million,
or 3.6%, in fiscal 2019 compared to fiscal 2018, primarily driven by
approximately $79.0 million in cost reduction efforts and variable expenses due
to lower sales, the positive impact of foreign exchange rate fluctuations of
$30.6 million and the impact of store closures of approximately $20.0 million,
which were partially offset by costs associated with our transformation
initiatives and severance totaling $60.7 million.
Goodwill and Asset Impairments
Goodwill and asset impairments decreased $630.3 million, or 62.0% in fiscal 2019
compared to fiscal 2018, primarily due to a decrease in goodwill impairment
charges. During fiscal 2019 and 2018, we recognized goodwill impairment charges
totaling $363.9 million and $970.7 million, respectively. See Note 7, "Goodwill
and Intangible Assets," to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further information. We have no
remaining goodwill balances as of February 1, 2020.
Interest Expense, Net
Interest expense, net decreased by $23.9 million, or 46.8%, for fiscal 2019
compared to fiscal 2018, primarily due to the redemption of our $350.0 million
unsecured senior notes during the first quarter of fiscal 2019.
Income Tax
Income tax expense was $37.6 million, representing a negative effective tax rate
of 8.8% in fiscal 2019, compared to $41.7 million in fiscal 2018, representing a
negative effective tax rate of 5.5%. The negative effective tax rate of 8.8% in
fiscal 2019 is primarily the result of a permanent difference for non-deductible
impairment charges and valuation allowances recognized in the year. The negative
effective tax rate of 5.5% in fiscal 2018 was primarily the result of
non-deductible impairment charges and the settlement of the tax dispute in
France. See Note 8, "Income Taxes," to our consolidated financial statements
included elsewhere in this Annual Report for additional information.
Income (Loss) from Discontinued Operations, Net of Tax
On January 16, 2019, we completed the sale of all of the equity interest in our
wholly-owned subsidiary Spring Communications Holding, Inc. ("Spring Mobile") to
Prime Acquisition Company, LLC ("Prime"), 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 at closing
totaled $727.9 million. We recognized a gain on sale in fiscal 2018 of $100.8
million ($65.4 million, net of tax). During fiscal 2019, we were unable to
settle on proposed working capital adjustments with Prime and, as a result, the
proposed adjustments were submitted to arbitration proceedings under the terms
of the Equity Purchase Agreement. During the fourth quarter of fiscal 2019, we
recognized a charge of $5.5 million million related to the final working capital
adjustments settled through arbitration proceedings. We have no significant
contingencies or continuing involvement with Spring Mobile.

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Loss from discontinued operations, net of tax, totaled $6.5 million in fiscal
2019 compared to income from discontinued operations, net of tax, of $121.8
million in fiscal 2018. Income from discontinued operations, net of tax, in
fiscal 2018 includes the gain on sale, net of tax, of $65.4 million. Refer to
Note 2, "Discontinued Operations and Dispositions," to our consolidated
financial statements for additional information.
Fiscal 2018 Compared to Fiscal 2017
Net Sales
Net sales decreased $261.8 million, or 3.1%, in fiscal 2018 compared to fiscal
2017. The decrease in net sales was primarily attributable to fiscal 2017
including 53 weeks compared to 52 weeks in fiscal 2018, the impact of 117 store
closures (net of openings), the negative impact of foreign exchange rate
fluctuations and a decrease in comparable stores sales of 0.3%. Sales for the
53rd week included in fiscal 2017 were approximately $132.7 million. The
decrease in comparable store sales was primarily driven by a decrease in
software sales, partially offset by an increase in sales of collectibles and
hardware and accessories. The decrease in sales of software was primarily due to
weaker new title releases in the first half of fiscal 2018 and weakening demand
as a result of increasing digital adoption, partially offset by an increase in
sales of Nintendo Switch titles due to the expansion of the hardware install
base and increase of new release titles. The increase in sales of collectibles
was primarily driven by new and improved product offerings. The increase in
sales of hardware and accessories was primarily driven by growth in sales of
audio-related and other accessories associated with the battle-royale gaming
genre.
Net sales for fiscal 2018 in the United States, Australia and Europe declined by
1.3%, 8.1% and 8.4%, respectively, when compared to fiscal 2017. Net sales in
Canada were essentially flat compared to the prior year. Net sales in the United
States were negatively affected by the impact of the 53rd week in fiscal 2017 of
approximately $91.1 million and the impact of 66 stores closures (net of
openings), which were partially offset by a comparable store sales increase of
1.8%. Comparable store sales in Canada increased by 3.1%, which was offset by
the negative impact of foreign exchange rate fluctuations of $9.2 million and
the impact of the 53rd week in fiscal 2017 of approximately $6.4 million. The
decline in net sales in Australia was primarily the result of the negative
impact of foreign exchange rate fluctuations of $30.6 million, the decrease in
comparable store sales of 3.4% and the impact of the 53rd week in fiscal 2017 of
approximately $10.1 million. The decline in net sales in Europe was primarily
due to the 7.7% decrease in comparable store sales and the impact of the
53rd week in fiscal 2017 of approximately $25.1 million, partially offset by the
positive impact of foreign exchange rate fluctuations of $13.6 million.
Gross Profit
Gross profit decreased $176.8 million, or 7.1%, in fiscal 2018 compared to
fiscal 2017, and gross profit as a percentage of net sales decreased to 27.9% in
fiscal 2018 compared to 29.1% in fiscal 2017. Gross profit for the 53rd week
included in fiscal 2017 was approximately $34.7 million. The decrease in gross
profit as a percentage of net sales was primarily driven by a shift in product
mix to lower margin hardware products, primarily driven by the decline in
software sales, and higher software promotional activity in the fiscal 2018
holiday season.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses decreased $37.7 million,
or 1.9%, in fiscal 2018 compared to fiscal 2017, primarily due to the impact of
the 53rd week in fiscal 2017, a decrease in depreciation and amortization due to
declining capital expenditures over the past several years, and the positive
impact of foreign exchange rate fluctuations.
Goodwill and Asset Impairments
During fiscal 2018, we recognized goodwill impairment charges totaling $970.7
million and asset impairment charges totaling $45.2 million. The impairment
charges were primarily the result of a sustained decline in our market
capitalization and lower forecasted cash flows. During fiscal 2017, we
recognized asset impairment charges of $13.8 million, which was primarily
comprised of an $11.0 million impairment of our Simply Mac dealer agreement
intangible asset. No goodwill impairment charges were recognized during fiscal
2017. See Note 7, "Goodwill and Intangible Assets," to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for
further information.
Income Tax
Income tax expense was $41.7 million, representing an effective tax rate of
(5.5)% in fiscal 2018, compared to $153.5 million, representing an effective tax
rate of 40.0% in fiscal 2017. The decrease in the effective income tax rate
compared to the prior year was primarily driven by non-deductible impairment
charges, the settlement of the tax dispute in France, tax reform, revisions to
transition taxes and the relative mix of earnings across the jurisdictions
within which we operate. See Note 8, "Income Taxes," and Note 12, "Commitments
and Contingencies," to our consolidated financial statements included elsewhere
in this Annual Report for additional information.

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Income (Loss) from Discontinued Operations, Net of Tax
On January 16, 2019, we completed the previously announced sale of all of the
equity interest in our wholly-owned subsidiary Spring Communications Holding,
Inc. ("Spring Mobile") to Prime Acquisition Company, LLC, a wholly-owned
subsidiary of Prime Communications, L.P., pursuant to an Equity Purchase
Agreement dated as of November 21, 2018. The net cash proceeds received from the
sale totaled $727.9 million, which is subject to customary post-closing
adjustments. We recognized a gain on sale of $100.8 million ($65.4 million, net
of tax) during fiscal 2018. The historical results of Spring Mobile, including
the gain on sale, is reported as discontinued operations. 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.
Income from discontinued operations, net of tax, totaled $121.8 million in
fiscal 2018 compared to a net loss of $195.7 million in fiscal 2017. Income from
discontinued operations, net of tax, in fiscal 2018 includes the gain on sale,
net of tax, of $65.4 million. Loss from discontinued operations, net of tax, in
fiscal 2017 includes goodwill and asset impairment charges totaling
$377.0 million. Refer to Note 2, "Discontinued Operations and Dispositions," to
our consolidated financial statements for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity are cash from operations, cash on hand and
our revolving credit facility. As of February 1, 2020, we had total cash on hand
of $499.4 million and an additional $270.3 million of available borrowing
capacity under our $420 million revolving credit facility, which was undrawn as
of February 1, 2020. Our cash on hand attributable to foreign operations totaled
$207.9 million as of February 1, 2020. Although we may, from time to time,
evaluate strategies and alternatives with respect to the cash attributable to
our foreign operations, we currently anticipate that this cash will remain in
those foreign jurisdictions and it therefore may not be available for immediate
use in the United States. As of February 1, 2020, based on our current operating
plans, we believe that available cash balances, cash generated from our
operating activities and funds available under our revolving credit facility
together will provide sufficient liquidity to fund our operations. In response
to the outbreak of COVID-19, we have temporarily closed stores on a country-wide
basis in Europe, primarily in Italy and France, as well as in Canada, which
became effective in various points in March 2020. In the United States,
effective March 22, 2020, we have temporarily closed all storefronts to
customers but continue to process orders on a digital only basis, offering
curbside pick-up at stores and e-commerce delivery only. As a result of these
actions, we expect a significant reduction in customer traffic and demand, which
will adversely impact our ability to generate cash from our operating
activities. We cannot reasonably estimate the amount of this negative impact.
On an ongoing basis, we evaluate and consider certain strategic operating
alternatives, including divestitures, restructuring or dissolution of
unprofitable business segments, repurchasing shares of our common stock or our
outstanding debt obligations, as well as other transactions that we believe may
enhance stockholder value. The amount, nature and timing of any strategic
operational changes, or purchases of our debt or equity securities will depend
on our available cash and liquidity, operating performance and other
circumstances; our then-current commitments and obligations; the amount, nature
and timing of our capital requirements; any limitations imposed by our current
credit arrangements; and overall market conditions. As part of our previously
announced GameStop Reboot profit improvement initiative, we are evaluating
future strategic and operating alternatives for certain of our unprofitable
operating subsidiaries and business units that operate within our international
segments. In total, we currently believe that any potential charges associated
with the disposition or wind-down of certain operations under consideration,
primarily relating to lease and severance obligations and accelerated
depreciation and amortization, would not be material to our results of
operations and financial condition.
Cash Flows
During fiscal 2019, cash used in operations was $414.5 million, compared to cash
provided by operations of $325.1 million in fiscal 2018. The decrease in cash
provided by operations of $739.6 million was primarily due to the timing of
vendor payments and lower earnings in fiscal 2019. During fiscal 2018, cash
provided by operations was $325.1 million, compared to cash provided by
operations of $434.9 million in fiscal 2017. The decrease in cash provided by
operations of $109.8 million from fiscal 2017 to fiscal 2018 was primarily due
to lower earnings, adjusted for non-cash items, in fiscal 2018 compared to prior
year.
Cash used in investing activities was $60.9 million in fiscal 2019 compared to
cash provided by investing activities of $635.5 million in fiscal 2018 and cash
used in fiscal 2017 of $60.6 million. The cash provided by investing activities
in fiscal 2018 included $727.9 million in proceeds from the sale of Spring
Mobile. The cash used in investing activities in fiscal 2017 included
$58.5 million in proceeds from divestitures, primarily from the sale of
Kongregate. Capital expenditures totaled $78.5 million, $93.7 million and $113.4
million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

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In fiscal 2019, our financing activities were a net cash outflow of $644.7
million consisting primarily of the redemption of our $350.0 million 2019 senior
notes in April 2019, repurchases of our common stock totaling $198.7
million, open market repurchases of our 2021 Senior Notes totaling $53.6 million
and dividends paid on our common stock of $40.5 million. In fiscal 2018, our
financing activities were a net cash outflow of $174.7 million consisting
primarily of dividends paid of $157.4 million and repayment of
acquisition-related debt of $12.2 million. The cash flows used in financing
activities in fiscal 2017 consisted primarily of dividends paid of $155.2
million, the settlement of share repurchases of $22.0 million that were
initiated in fiscal 2016 and repayment of acquisition-related debt of $21.8
million.
Sources of Liquidity
We utilize cash generated from operations and have funds available to us under
our revolving credit facility to cover seasonal fluctuations in cash flows and
to support our various initiatives. Our cash and cash equivalents are carried at
cost and consist primarily of time deposits with commercial banks.
We maintain an asset-based revolving credit facility (the "Revolver") with a
borrowing base capacity of $420 million and a maturity date of November 2022.
The Revolver has a $200 million expansion feature and $50 million letter of
credit sublimit, and allows for an incremental $50 million first-in, last-out
facility. The applicable margins for prime rate loans range from 0.25% to 0.50%
and, for London Interbank Offered ("LIBO") rate loans, range from 1.25% to
1.50%. The Revolver is secured by substantially all of our assets and the assets
of our domestic subsidiaries. We are required to pay a commitment fee of 0.25%
for any unused portion of the total commitment under the Revolver. As of
February 1, 2020, the applicable margin was 0.25% for prime rate loans and 1.25%
for LIBO rate loans. As of February 1, 2020, total availability under the
Revolver was $270.3 million, with no outstanding borrowings and outstanding
standby letters of credit of $7.3 million. During the first quarter of fiscal
2020, we borrowed $150 million on our Revolver.
In March 2016, we issued $475.0 million aggregate principal amount of unsecured
6.75% senior notes due March 15, 2021 (the "2021 Senior Notes"). Interest is
payable semi-annually in arrears on March 15 and September 15 of each year. The
net proceeds from the offering were used for general corporate purposes,
including acquisitions and dividends.
The agreement governing our Revolver and the indentures governing our 2021
Senior Notes place certain restrictions on us and our subsidiaries, including,
among others, limitations on asset sales, additional liens, investments,
incurrence of additional debt and share repurchases. In addition, the indentures
governing our Revolver and 2021 Senior Notes contain customary events of
default, including, among others, payment defaults, breaches of covenants and
certain events of bankruptcy, insolvency and reorganization. The Revolver is
also subject to a fixed charge coverage ratio covenant if excess availability is
below certain thresholds. We are currently in compliance with all covenants
under our indentures governing the 2021 Senior Notes and our Revolver.
See Note 10, "Debt," to our consolidated financial statements for additional
information related to our Revolver and 2021 Senior Notes.
Our Luxembourg subsidiary maintains a discretionary $20.0 million Uncommitted
Line of Credit (the "Line of Credit") with Bank of America. There is no term
associated with the Line of Credit and Bank of America may withdraw the facility
at any time without notice. The Line of Credit is available to our foreign
subsidiaries for use primarily as a bank overdraft facility for short-term
liquidity needs and for the issuance of bank guarantees and letters of credit to
support operations. As of February 1, 2020, there were no cash overdrafts
outstanding under the Line of Credit and bank guarantees outstanding
totaled $9.0 million.
Share Repurchases
On March 4, 2019, our Board of Directors approved a new share repurchase
authorization allowing our management to repurchase up to $300.0 million of our
Class A Common Stock with no expiration date.
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.
In addition to the equity tender offer described above, during the second half
of fiscal 2019, we executed a series of open market repurchases for an aggregate
of 26.1 million shares of our Class A common stock totaling $135.8 million,
including fees and commissions. These repurchased shares were immediately
retired.

In aggregate, during fiscal 2019, we repurchased a total of 38.1 million shares
of our Class A common stock, totaling $198.7 million, for an average price of
$5.19 per share. We did not repurchase shares during fiscal 2018 or fiscal 2017.
As of February 1, 2020, we have $101.3 million remaining under the repurchase
authorization.

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Dividends


We paid cash dividends of $40.5 million, $157.4 million and $155.2 million in
fiscal 2019, 2018 and 2017. On June 3, 2019, our Board of Directors elected to
eliminate the Company's quarterly dividend, effective immediately, in an effort
to strengthen the Company's balance sheet and provide increased financial
flexibility. We believe the decision to eliminate the dividend will enable us to
further reduce debt and provide us flexibility as we seek to drive value
creation for stockholders.
CONTRACTUAL OBLIGATIONS
The following table sets forth our contractual obligations as of February 1,
2020 (in millions):
                                                            Payments Due by Fiscal Period
                              Total       FY 2020      FY 2021      FY 2022       FY 2023       FY 2024       Thereafter
Operating leases           $   846.2     $  268.5     $  184.8     $  129.8     $    93.0     $    65.7     $      104.4

Purchase obligations(1)        463.5        463.5            -            -             -             -                -
2021 Senior Notes              421.4            -        421.4            -             -             -                -
Interest payments on
senior notes                    42.6         28.4         14.2            -             -             -                -
Total(2)                   $ 1,773.7     $  760.4     $  620.4     $  129.8     $    93.0     $    65.7     $      104.4

___________________

(1) Purchase obligations represent outstanding purchase orders for merchandise

from vendors. These purchase orders are generally cancelable until shipment

of the products.

(2) As of February 1, 2020, we had $9.2 million of income tax liability related

to unrecognized tax benefits in other long-term liabilities in our

consolidated balance sheet. At the time of this filing, the settlement period

for the noncurrent portion of our income tax liability (and the timing of any

related payments) cannot be reasonably determined and therefore these

liabilities are excluded from the table above. In addition, certain payments

related to unrecognized tax benefits would be partially offset by reductions


    in payments in other jurisdictions. See Note 8, "Income Taxes," to our
    consolidated financial statements for further information regarding our
    uncertain tax positions.


We lease retail stores, warehouse facilities, office space and equipment. These
are generally leased under noncancelable agreements that expire at various dates
with various renewal options for additional periods. The agreements, which have
been classified as operating leases, generally provide for minimum and, in some
cases, percentage rentals and require us to pay all insurance, taxes and other
maintenance costs. Percentage rentals are based on sales performance in excess
of specified minimums at various stores.
As of February 1, 2020, we had standby letters of credit outstanding in the
amount of $7.3 million and had bank guarantees outstanding in the amount of
$24.6 million, of which $7.6 million is cash collateralized.
OFF-BALANCE SHEET ARRANGEMENTS
We had no material off-balance sheet arrangements as of February 1, 2020.
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 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.
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.

                                       24
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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 February 1, 2020 would have affected net
earnings by approximately $2.3 million in fiscal 2019.
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 and discounts. We allocate the transaction price between the product and
loyalty points earned based on the relative stand-alone selling prices and
expected point redemption. The portion allocated to the loyalty points is
initially recorded as deferred revenue and subsequently recognized as revenue
upon redemption or expiration. The two primary estimates utilized to record the
deferred revenue for loyalty points earned by members are the estimated retail
price per point and estimated amount of points that will never be redeemed,
which is a concept known in the retail industry as "breakage." 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 and recognize estimated breakage on gift cards
in proportion to historical redemption patterns, regardless of the age of the
unredeemed gift cards.
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 retail price 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. The estimated retail price per
point is based on the actual historical retail prices of product purchased
through the redemption of loyalty points. We estimate breakage of loyalty points
and unredeemed gift cards based on historical redemption rates. A
weighted-average retail price per point redeemed is used to estimate the value
of our deferred revenue associated with loyalty points. The weighted-average
retail price per point redeemed is based on our most recent actual loyalty point
redemptions and is adjusted as appropriate for recent changes in redemption
values, 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, retail price per point redeemed and other factors. Changes
in the ultimate redemption rate and weighted-average retail price per point
redeemed have the effect of either increasing or decreasing the deferred revenue
balance through current period revenue by an amount estimated to cover the
retail value 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 a 10% change in our weighted-average
retail value per point redeemed at February 1, 2020, in each case, would have
affected net earnings by approximately $2.1 million in fiscal 2019. A 10% change
in our gift card breakage rate at February 1, 2020 would have affected net
earnings by approximately $11.3 million in fiscal 2019.
Goodwill
Goodwill results from acquisitions and represents the excess purchase price over
the net identifiable assets acquired. We are required to evaluate our goodwill
for impairment at least annually or whenever indicators of impairment are
present. During fiscal 2019, we recognized an impairment charge for our
remaining goodwill in the amount of $363.9 million, all of which related to our
United States segment. As of February 1, 2020, we had no remaining goodwill. See
Note 7, "Goodwill and Intangible Assets" to our consolidated financial
statements for additional information.
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. In fiscal 2019, we estimated the fair value of our United
States segment by using a combination of the income approach and market
approach. The income approach is based on the present value of future cash
flows, which are derived from our long-term financial forecasts, and requires
significant assumptions including, among others, a discount rate and a terminal
value. The market approach is based on the observed ratios of enterprise value
to earnings of the Company and other comparable, publicly-traded companies.
Considerable management judgment is necessary to estimate the fair value of a
reporting unit. The discounted cash flows analyses utilize a five- to seven-year
cash flow projection with a terminal value, which are discounted using a
risk-adjusted weighted-average cost of capital. The projected cash flows include
numerous assumptions such as, among others, future sales trends, operating
margins, store count and capital expenditures, all of which are derived from our
long-term financial forecasts. The projected sales trends include estimates
related to the growth rate of the digital distribution of new video game
software. In addition, we corroborate the aggregate fair value of our reporting
units with our market capitalization, which may impact certain assumptions in
our discounted cash flows analyses.

                                       25

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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 $9.2
million as of February 1, 2020.
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.  We assess the
available positive and negative evidence to estimate whether sufficient future
taxable income will be generated to permit use of the existing deferred tax
assets.  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.  We have therefore
established valuation allowances in certain foreign jurisdictions where the
Company has determined existing deferred tax assets are not more likely than not
to be realized. Our valuation allowance increased to $112.7 million as of
February 1, 2020. See Note 8, "Income Taxes" to our consolidated financial
statements for further information regarding income taxes. We continue to
evaluate the realizability of all deferred tax assets on a jurisdictional basis
as it relates to expected future earnings.  Should the Company fail to achieve
its expected earnings in the coming periods, it may be necessary to establish an
additional valuation allowance against some or all of its deferred tax assets in
those jurisdictions not currently subject to a valuation allowance.
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.
RECENT ACCOUNTING STANDARDS AND PRONOUNCEMENTS
See Note 1, "Nature of Operations and Summary of Significant Accounting
Policies," to our consolidated financial statements for recent accounting
standards and pronouncements.

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