CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company
GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global family of specialty retail brands that makes the most popular technologies affordable and simple. Within our family of brands, we are the world’s largest omnichannel video game retailer, the largest AT&T® (“AT&T”) authorized retailer, the largest Apple© (“Apple”) certified products reseller, a Cricket Wireless
TM
reseller (“Cricket,” an AT&T brand) and the owner of www.thinkgeek.com, one of the world’s largest sellers of collectible pop-culture themed products. As of
April 29, 2017
, GameStop's retail network and family of brands include
7,503
company-operated stores in the United States, Australia, Canada and Europe.
We have
five
reportable segments, which are comprised of
four
geographic Video Game Brands segments—United States, Canada, Australia and Europe—and a Technology Brands segment. Our Technology Brands segment includes our Spring Mobile and Simply Mac businesses. Spring Mobile owns and operates our AT&T branded wireless retail stores and Cricket branded pre-paid wireless stores.
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
January 28, 2017
(the “2016 Annual Report on Form 10-K”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by us could have a significant impact on our financial results. Actual results could differ from those estimates. Due to the seasonal nature of our business, the results of operations for the
13 weeks ended April 29, 2017
are not indicative of the results to be expected for the 53 weeks ending February 3, 2018 (“fiscal 2017”).
Restricted Cash
Restricted cash of
$10.3 million
,
$10.5 million
and
$10.2 million
as of
April 29, 2017
,
April 30, 2016
and
January 28, 2017
, 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.
Dividend
On
May 23, 2017
, our Board of Directors approved a quarterly cash dividend to our stockholders of
$0.38
per share of Class A Common Stock payable on
June 20, 2017
to stockholders of record at the close of business on
June 7, 2017
. Future dividends will be subject to approval by our Board of Directors.
Adoption of New Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2017-04, Intangibles—Goodwill and Other, Simplifying the Test for Goodwill Impairment, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill and the carrying amount. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its estimated fair value. We early adopted this updated standard which did not have an impact to our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory, which eliminates the exception to defer the tax effects of intra-entity asset transfers (intercompany sales). Prior to this update, the tax effects of intra-entity asset transfers were deferred until the transferred asset was sold to a third party or otherwise recovered through use, which was an exception to the general requirement for comprehensive recognition of current and deferred income taxes. We early adopted this updated standard, effective January 29, 2017, and as a result we recognize tax expense or benefit from intercompany sales of assets other than inventory in the period in which the transaction occurs.
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of accounting for employee share-based payment transactions. The amendments of the updated standard include, among other things, the requirement to recognize excess tax benefits and deficiencies through earnings and present the related cash flows in operating activities in the statement of cash flows, the election of a policy to either estimate forfeitures when determining periodic expense or recognize actual forfeitures when they occur, and an increase in the allowable income tax withholding from the minimum to maximum statutory rate and its classification in the statement of cash flows. As a result of the adoption of this updated standard, effective January 29, 2017, excess tax benefits and deficiencies are recognized in our results of operations and are presented in cash flows from operating activities in our statement of cash flows on a prospective basis. In addition, we elected to recognize actual forfeitures of stock-based awards as they occur. The adoption of this updated standard did not result in a material impact to our unaudited consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues in regard to how cash receipts and cash payments are presented and classified in the statement of cash flows. The updated standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. The amendments in the ASU should be adopted on a retrospective basis unless it is impracticable to apply, in which case the amendments should be applied prospectively as of the earliest date practicable. We are currently evaluating the impact that this standard will have on our consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety. The underlying principle of the new standard is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The updated standard also required additional disclosures on the nature, timing, and uncertainty of revenue and related cash flows. The following subsequent ASUs either clarified or revised guidance set forth in ASU 2014-09:
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In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year, with the option to adopt the standard as of the original effective date.
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In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, which clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements.
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The updated revenue recognition standards are effective for annual reporting periods beginning on or after December 15, 2017, with the option to early adopt for annual periods beginning after December 15, 2016. Entities may use either a full retrospective or modified retrospective transition approach in applying these ASUs. We currently anticipate adopting these standards in the first quarter of fiscal 2018 and applying the modified retrospective approach. We anticipate that the standards will affect the way that we recognize liabilities associated with our loyalty program and gift cards. We continue to evaluate the impact that this standard will have on our consolidated financial statements and footnote disclosures.
In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. The standard specifies how prepaid stored-value product liabilities should be derecognized, thereby eliminating the current and potential future diversity in practice. Consistent with ASU 2014-09 related to revenue recognition, the standard requires derecognition in proportion with the rights expected to be exercised by the holder. Entities may adopt this standard using either a modified retrospective transition approach with a cumulative-effect adjustment to retained earnings or a full retrospective transition approach. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We continue to evaluate the impact that this standard will have on our consolidated financial statements and footnote disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires a lessee to recognize a liability related to lease payments and an offsetting right-of-use asset representing a right to use the underlying asset for the lease term on the balance sheet. 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. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the overall impact to our consolidated financial statements, though we expect the adoption to result in a material increase in the assets and liabilities reflected in our consolidated balance sheets.
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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2.
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Fair Value Measurements and Financial Instruments
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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 that are measured at fair value on a recurring basis include our foreign currency contracts, life insurance policies we own that have a cash surrender value, contingent consideration payable associated with acquisitions, 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.
In connection with our acquisition of certain assets from Cellular World and Red Skye Wireless during the fiscal year ended January 28, 2017 ("fiscal 2016"), we recognized an acquisition-date liability of
$43.2 million
representing the total estimated fair value of the contingent consideration. The fair value was estimated based on Level 3 inputs which include future sales projections derived from our historical experience with comparable acquired stores and a discount rate commensurate with the risks and inherent uncertainty in the business. There was no material change in the fair value of the contingent consideration from the date of acquisition through April 29, 2017.
The following table provides the fair value of our assets and liabilities measured at fair value on a recurring basis and recorded in our unaudited condensed consolidated balance sheets (in millions):
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April 29, 2017
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April 30, 2016
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January 28, 2017
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Level 2
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Level 3
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Level 2
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Level 3
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Level 2
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Level 3
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Assets
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Foreign currency contracts
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Other current assets
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$
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2.5
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$
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—
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$
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21.4
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$
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—
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$
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13.3
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$
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—
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Other noncurrent assets
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0.3
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—
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—
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—
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0.1
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—
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Company-owned life insurance
(1)
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12.6
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—
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10.3
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—
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12.4
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—
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Total assets
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$
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15.4
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$
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—
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$
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31.7
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$
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—
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$
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25.8
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$
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—
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Liabilities
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Foreign currency contracts
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Accrued liabilities
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$
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6.5
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$
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—
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$
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10.9
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$
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—
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$
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4.3
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$
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—
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Other long-term liabilities
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0.6
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—
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—
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—
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0.1
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—
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Nonqualified deferred compensation
(2)
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1.1
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—
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1.2
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—
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1.0
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—
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Contingent consideration
(3)
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—
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43.2
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—
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—
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—
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43.2
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Total liabilities
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$
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8.2
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$
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43.2
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$
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12.1
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$
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—
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$
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5.4
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$
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43.2
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__________________________________________________
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(1)
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Recognized in other non-current assets in our unaudited condensed consolidated balance sheets.
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(2)
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Recognized in accrued liabilities in our unaudited condensed consolidated balance sheets.
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(3)
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As of April 29, 2017,
$43.2 million
was included in accrued liabilities in our unaudited condensed consolidated balance sheets. As of January 28, 2017, the current portion of
$20.0 million
was included in accrued liabilities and the noncurrent portion of
$23.2 million
was included in other long-term liabilities in our unaudited condensed consolidated balance sheets.
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GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
We use forward exchange contracts, foreign currency options and cross-currency swaps (together, the “foreign currency contracts”) to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. The foreign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. The total gross notional value of derivatives related to our foreign currency contracts was
$457.2 million
,
$804.4 million
and
$586.0 million
as of
April 29, 2017
,
April 30, 2016
and
January 28, 2017
, respectively.
Activity related to the trading of derivative instruments and the offsetting impact of related intercompany and foreign currency assets and liabilities recognized in selling, general and administrative expense is as follows (in millions):
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13 Weeks Ended
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April 29,
2017
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April 30,
2016
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(Losses) gains on the change in fair value of derivative instruments
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$
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(8.0
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$
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2.1
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Gains (losses) on the re-measurement of related intercompany loans and foreign currency assets and liabilities
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8.3
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(0.5
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Total
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$
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0.3
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$
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1.6
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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, goodwill and other 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. We did not record any significant impairment charges related to assets measured at fair value on a nonrecurring basis during the
13 weeks ended April 29, 2017
or
April 30, 2016
.
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
April 29, 2017
, our unsecured 5.50% senior notes due in 2019 had a net carrying value of
$347.0 million
and a fair value of
$358.3 million
, and our unsecured 6.75% senior notes due in 2021 had a net carrying value of
$468.7 million
and a fair value of
$490.4 million
. The fair values of our senior notes were determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined this to be a Level 2 measurement as all significant inputs into the quote provided by our pricing source are observable in active markets.
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Senior Notes
The carrying value of our long-term debt is comprised as follows (in millions):
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April 29, 2017
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April 30, 2016
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January 28, 2017
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2019 Senior Notes principal amount
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$
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350.0
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$
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350.0
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$
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350.0
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2021 Senior Notes principal amount
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475.0
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475.0
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475.0
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Less: Unamortized debt financing costs
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(9.3
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(12.6
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(10.0
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Long-term debt, net
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$
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815.7
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$
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812.4
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$
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815.0
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2019 Senior Notes.
In
September 2014
, we issued
$350.0 million
aggregate principal amount of unsecured
5.50%
senior notes due
October 1, 2019
(the "2019 Senior Notes"). The 2019 Senior Notes bear interest at the rate of 5.50% per annum with interest payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2015. We incurred fees and expenses related to the 2019 Senior Notes offering of
$6.3 million
, which were capitalized during the third quarter of fiscal 2014 and are being amortized as interest expense over the term of the notes. The 2019 Senior Notes were sold in a private placement and are not registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). The 2019 Senior Notes were offered in the U.S. to “qualified institutional buyers” pursuant to the exemption from registration under Rule 144A of the Securities Act and in exempted offshore transactions pursuant to Regulation S under the Securities Act.
2021 Senior Notes.
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"). The 2021 Senior Notes bear interest at the rate of
6.75%
per annum with interest payable semi-annually in arrears on March 15 and September 15 of each year beginning on September 15, 2016. The net proceeds from the offering were used for general corporate purposes, including acquisitions and dividends. We incurred fees and expenses related to the 2021 Senior Notes offering of
$8.1 million
, which were capitalized during the first quarter of fiscal 2016 and is being amortized as interest expense over the term of the notes. The 2021 Senior Notes were sold in a private placement and will not be registered under the Securities Act. The 2021 Senior Notes were offered in the U.S. to "qualified institutional buyers" pursuant to the exemption from registration under Rule 144A of the Securities Act and in exempted offshore transactions pursuant to Regulation S under the Securities Act.
The 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. In 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.
The indentures contain customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. If an event of default occurs and is continuing, the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, may be declared immediately due and payable. These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurs.
Revolving Credit Facility
In January 2011, we entered into a
$400 million
credit agreement, which we amended and restated on
March 25, 2014
and further amended on September 15, 2014 (the “Revolver”). The Revolver is a
five
-year, asset-based facility that is secured by substantially all of our assets and the assets of our domestic subsidiaries. Availability under the Revolver is subject to a monthly borrowing base calculation. The Revolver includes a
$50 million
letter of credit sublimit. The amendments extended the maturity date to
March 25, 2019
; increased the expansion feature under the Revolver from
$150 million
to
$200 million
, subject to certain conditions; and revised certain other terms, including a reduction of the fee we are required to pay on the unused portion of the total commitment amount.
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Borrowing availability under the Revolver is limited to a borrowing base which allows us to borrow up to
90%
of the appraisal value of the inventory, in each case plus
90%
of eligible credit card receivables, net of certain reserves. The borrowing base provides for borrowing of up to
92.5%
of the appraisal value during the fiscal months of August through October. Letters of credit reduce the amount available to borrow under the Revolver by an amount equal to the face value of the letters of credit. Our ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if either (1) excess availability under the Revolver is less than
30%
, or is projected to be within 12 months after such payment or (2) excess availability under the Revolver is less than
15%
, or is projected to be within 12 months after such payment, and the fixed charge coverage ratio, as calculated on a pro-forma basis for the prior 12 months, is
1.1
:1.0 or less. In the event that excess availability under the 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.
The Revolver places certain restrictions on us and our subsidiaries, including limitations on asset sales, additional liens, investments, loans, guarantees, acquisitions and the incurrence of additional indebtedness. Absent consent from our lenders, we may not incur more than
$1 billion
of senior secured debt and
$750 million
of additional unsecured indebtedness to be limited to
$250 million
in general unsecured obligations and
$500 million
in unsecured obligations to finance acquisitions valued at
$500 million
or more.
The per annum interest rate under the Revolver is variable and is calculated by applying a margin (1) for prime rate loans of
0.25%
to
0.75%
above the highest of (a) the prime rate of the administrative agent, (b) the federal funds effective rate plus
0.50%
or (c) the London Interbank Offered (“LIBO”) rate for a 30-day interest period as determined on such day plus
1.00%
, and (2) for LIBO rate loans of
1.25%
to
1.75%
above the LIBO rate. The applicable margin is determined quarterly as a function of our average daily excess availability under the facility. In addition, we are required to pay a commitment fee of
0.25%
for any unused portion of the total commitment under the Revolver. As of
April 29, 2017
, the applicable margin was
0.25%
for prime rate loans and
1.25%
for LIBO rate loans.
The Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with covenants, any material representation or warranty made by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting us or our subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or the liquidation of the Company or certain of its subsidiaries. During the
13 weeks ended April 29, 2017
, we had no borrowings or repayments under the Revolver. As of
April 29, 2017
, total availability under the Revolver was
$392.5 million
, with
no
outstanding borrowings and outstanding standby letters of credit of
$7.5 million
. We are currently in compliance with the financial requirements of the Revolver.
Luxembourg Line of Credit
In September 2007, our Luxembourg subsidiary entered into a discretionary
$20.0 million
Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit is available to our foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of
April 29, 2017
, there was a
$1.3 million
cash overdraft outstanding under the Line of Credit and bank guarantees outstanding totaled
$9.7 million
.
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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4.
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Commitments and Contingencies
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Commitments
During the 13 weeks ended April 29, 2017, there were no material changes to our commitments as disclosed in our 2016 Annual Report on Form 10-K.
Contingencies
Acquisitions
In connection with our acquisition of certain assets from Cellular World and Red Skye Wireless, we recognized an acquisition-date liability of
$43.2 million
representing the fair value of future contingent consideration that we estimate will range from
$40.0 million
to
$50.0 million
. As of April 29, 2017, there has not been a material change to the liability since the acquisition date.
Legal Proceedings
In the ordinary course of business, we are, from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions, stockholder actions and consumer class actions. We may enter into discussions regarding settlement of these and other types of lawsuits, and may enter into settlement agreements, if we believe settlement is in the best interest of our stockholders. We do not believe that any such existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on our financial condition, results of operations or liquidity.
Certain of our French subsidiaries have been under audit by the French Tax Administration (the "FTA") for fiscal years 2008 through 2012. We received tax reassessment notices on December 23, 2015 and April 4, 2016, pursuant to which the FTA asserted that the French subsidiaries were ineligible to claim certain tax deductions from November 4, 2008, through January 31, 2013, resulting in a potential additional tax charge of approximately
€85.5 million
. We may receive additional tax reassessments in material amounts for subsequent fiscal years. We filed a response to each reassessment and intend to vigorously contest the reassessments through administrative procedures. If we are unable to resolve this matter through administrative remedies at the FTA, we plan to pursue judicial remedies. We believe our tax positions will be sustained and have not taken a reserve for any potential adjustment based on the reassessment. If we were not to prevail, then the adjustment to our income tax provision could be material.
Basic net income per common share is computed by dividing the net income available to common stockholders by the weighted- average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing the net income available to common stockholders by the weighted-average number of common shares outstanding and potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options and unvested restricted stock outstanding during the period, using the treasury stock method. Potentially dilutive securities are excluded from the computations of diluted earnings per share if their effect would be antidilutive.
A reconciliation of shares used in calculating basic and diluted net income per common share is as follows (in millions, except per share data):
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|
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13 Weeks Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
Net income
|
$
|
59.0
|
|
|
$
|
65.8
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
101.3
|
|
|
103.8
|
|
Dilutive effect of stock options and restricted stock awards
|
0.1
|
|
|
0.4
|
|
Diluted weighted average common shares outstanding
|
101.4
|
|
|
104.2
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.58
|
|
|
$
|
0.63
|
|
Diluted earnings per share
|
$
|
0.58
|
|
|
$
|
0.63
|
|
|
|
|
|
Anti-dilutive stock options and restricted stock awards
|
2.2
|
|
|
1.2
|
|
GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The tables below set forth net sales, percentages of total net sales, gross profit and gross profit percentages by significant product category for the periods indicated (dollars in millions).
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|
|
|
|
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|
13 Weeks Ended
|
|
|
April 29, 2017
|
|
April 30, 2016
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|
Net
Sales
|
|
Percent
of Total
|
|
Net
Sales
|
|
Percent
of Total
|
New video game hardware
(1)
|
|
$
|
389.9
|
|
|
19.1
|
%
|
|
$
|
312.9
|
|
|
15.9
|
%
|
New video game software
|
|
520.5
|
|
|
25.4
|
|
|
567.2
|
|
|
28.8
|
|
Pre-owned and value video game products
|
|
526.2
|
|
|
25.7
|
|
|
560.9
|
|
|
28.5
|
|
Video game accessories
|
|
176.1
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|
|
8.6
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|
|
162.7
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|
8.2
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Digital
|
|
44.1
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|
|
2.2
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|
|
42.8
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|
|
2.2
|
|
Technology Brands
(2)
|
|
201.4
|
|
|
9.8
|
|
|
165.8
|
|
|
8.4
|
|
Collectibles
|
|
114.5
|
|
|
5.6
|
|
|
82.3
|
|
|
4.2
|
|
Other
(3)
|
|
73.2
|
|
|
3.6
|
|
|
76.9
|
|
|
3.8
|
|
Total
|
|
$
|
2,045.9
|
|
|
100.0
|
%
|
|
$
|
1,971.5
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
April 29, 2017
|
|
April 30, 2016
|
|
|
Gross
Profit
|
|
Gross
Profit
Percent
|
|
Gross
Profit
|
|
Gross
Profit
Percent
|
New video game hardware
(1)
|
|
$
|
38.1
|
|
|
9.8
|
%
|
|
$
|
28.3
|
|
|
9.0
|
%
|
New video game software
|
|
113.7
|
|
|
21.8
|
|
|
127.9
|
|
|
22.5
|
|
Pre-owned and value video game products
|
|
253.7
|
|
|
48.2
|
|
|
263.2
|
|
|
46.9
|
|
Video game accessories
|
|
55.9
|
|
|
31.7
|
|
|
57.1
|
|
|
35.1
|
|
Digital
|
|
36.1
|
|
|
81.9
|
|
|
37.0
|
|
|
86.4
|
|
Technology Brands
(2)
|
|
144.6
|
|
|
71.8
|
|
|
109.7
|
|
|
66.2
|
|
Collectibles
|
|
35.2
|
|
|
30.7
|
|
|
28.6
|
|
|
34.8
|
|
Other
(3)
|
|
25.2
|
|
|
34.4
|
|
|
23.7
|
|
|
30.8
|
|
Total
|
|
$
|
702.5
|
|
|
34.3
|
%
|
|
$
|
675.5
|
|
|
34.3
|
%
|
_____________________________________________
|
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(1)
|
Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.
|
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(2)
|
Includes mobile and consumer electronics sold through our Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket Wireless branded stores and our Simply Mac business.
|
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(3)
|
Includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving
Game Informer
magazine in print form.
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GAMESTOP CORP.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
We report our business in
four
geographic Video Game Brands segments: United States, Canada, Australia and Europe; and a Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket Wireless branded stores and our Simply Mac business. We identify segments based on a combination of geographic areas and management responsibility. Each of the segments includes significant retail operations with all Video Game Brands stores engaged in the sale of new and pre-owned video game hardware, software, accessories and collectibles, and Technology Brands stores engaged in the sale of wireless products and services and other consumer electronics. Our Video Game Brands segments also include stand-alone collectibles stores. Segment results for the United States include retail operations in
50
states, the District of Columbia, and Guam; our electronic commerce websites www.gamestop.com and www.thinkgeek.com;
Game Informer
magazine; and Kongregate, our leading web and mobile gaming platform. Segment results for Canada include retail and e-commerce operations in Canada and segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Segment results for Europe include retail operations in
10
European countries and e-commerce operations in
four
countries. The Technology Brands segment includes retail operations in the United States. We measure segment profit using operating earnings, which is defined as income from continuing operations before intercompany royalty fees, net interest expense and income taxes. Transactions between reportable segments consist primarily of royalties, management fees, intersegment loans and related interest. There were
no
material intersegment sales during the
13 weeks ended April 29, 2017
and
April 30, 2016
.
The reconciliation of segment operating earnings to earnings (loss) before income taxes for the
13 weeks ended April 29, 2017
and
April 30, 2016
is as follows (in millions):
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|
|
|
|
13 weeks ended April 29, 2017
|
|
United
States
|
|
Canada
|
|
Australia
|
|
Europe
|
|
Technology Brands
|
|
Consolidated
|
Net sales
|
|
$
|
1,339.5
|
|
|
$
|
89.9
|
|
|
$
|
136.7
|
|
|
$
|
278.4
|
|
|
$
|
201.4
|
|
|
$
|
2,045.9
|
|
Segment operating earnings
|
|
85.9
|
|
|
2.2
|
|
|
1.8
|
|
|
0.1
|
|
|
11.1
|
|
|
101.1
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
(14.1
|
)
|
Earnings before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended April 30, 2016
|
|
United
States
|
|
Canada
|
|
Australia
|
|
Europe
|
|
Technology Brands
|
|
Consolidated
|
Net sales
|
|
$
|
1,368.6
|
|
|
$
|
77.7
|
|
|
$
|
109.9
|
|
|
$
|
249.5
|
|
|
$
|
165.8
|
|
|
$
|
1,971.5
|
|
Segment operating earnings (loss)
|
|
94.4
|
|
|
3.8
|
|
|
0.5
|
|
|
(3.5
|
)
|
|
18.8
|
|
|
114.0
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
(11.0
|
)
|
Earnings before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103.2
|
|