gme-20210501

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

FOR THE QUARTERLY PERIOD ENDED MAY 1, 2021


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

COMMISSION FILE NO. 1-32637

GameStop Corp.

(Exact name of registrant as specified in its charter)


Delaware		20-2733559
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

Registrant’s telephone number, including area code:

(817) 424-2000

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A Common Stock

GME

NYSE

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Number of shares of $.001 par value Class A Common Stock outstanding as of June 1, 2021: 71,815,131

TABLE OF CONTENTS



Part I — FINANCIAL INFORMATION
		Page No.
Item 1.	Financial Statements	1

	Unaudited Condensed Consolidated Balance Sheets — As of May 1, 2021, May 2, 2020 and January 30, 2021	1

	Unaudited Condensed Consolidated Statements of Operations — For the 13 weeks ended May 1, 2021 and May 2, 2020	2

	Unaudited Condensed Consolidated Statements of Comprehensive Loss — For the 13 weeks ended May 1, 2021 and May 2, 2020	3

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity — For the 13 weeks ended May 1, 2021 and May 2, 2020	4

	Unaudited Condensed Consolidated Statements of Cash Flows — For the 13 weeks ended May 1, 2021 and May 2, 2020	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	21

Item 4.	Mine Safety Disclosures	21

Item 5.	Other Information	21

Item 6.	Exhibits	22

SIGNATURES		23

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GAMESTOP CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value per share)


	May 1, 2021		May 2, 2020		January 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	694.7	$	570.3	$	508.5
Restricted cash	57.4		—		110.0
Receivables, net	102.1		86.7		105.3
Merchandise inventories	570.9		654.7		602.5
Prepaid expenses and other current assets	232.1		99.1		224.9
Assets held-for-sale	—		9.1		—
Total current assets	1,657.2		1,419.9		1,551.2
Property and equipment, net	192.6		256.3		201.2
Operating lease right-of-use assets	654.2		706.2		662.1
Deferred income taxes	—		29.2		—
Long-term restricted cash	18.7		13.6		16.5
Other noncurrent assets	40.0		43.8		41.6

Total assets	$	2,562.7	$	2,469.0	$	2,472.6

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	388.6	$	212.1	$	341.8
Accrued liabilities and other current liabilities	561.8		506.0		626.8
Current portion of operating lease liabilities	219.4		249.4		227.4

Short-term debt, including current portion of long-term debt, net	48.1		417.2		121.7
Borrowings under revolving line of credit	—		135.0		25.0

Total current liabilities	1,217.9		1,519.7		1,342.7
Long-term debt, net	—		—		216.0
Operating lease liabilities	445.0		493.9		456.7
Other long-term liabilities	20.3		20.4		20.5

Total liabilities	1,683.2		2,034.0		2,035.9
Commitments and contingencies (Note 7)
Stockholders’ equity:
Class A common stock — $.001 par value; 300 shares authorized; 69.3, 64.6 and 65.3 shares issued and outstanding, respectively	0.1		0.1		0.1
Additional paid-in capital	518.5		1.3		11.0
Accumulated other comprehensive loss	(47.2)		(90.9)		(49.3)
Retained earnings	408.1		524.5		474.9
Total stockholders’ equity	879.5		435.0		436.7
Total liabilities and stockholders’ equity	$	2,562.7	$	2,469.0	$	2,472.6

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

GAMESTOP CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)


	13 Weeks Ended
	May 1, 2021		May 2, 2020
Net sales	$	1,276.8	$	1,021.0
Cost of sales	946.7		738.6
Gross profit	330.1		282.4
Selling, general and administrative expenses	370.3		386.5
Asset impairments	0.6		3.9

Operating loss	(40.8)		(108.0)
Interest income	(0.1)		(0.9)
Interest expense	24.8		7.6
Loss from continuing operations before income taxes	(65.5)		(114.7)
Income tax expense	1.3		50.4
Net loss from continuing operations	(66.8)		(165.1)
Loss from discontinued operations, net of tax	—		(0.6)
Net loss	$	(66.8)	$	(165.7)



Basic loss per share:
Continuing operations	$	(1.01)	$	(2.56)
Discontinued operations	—		(0.01)
Basic loss per share	$	(1.01)	$	(2.57)

Diluted loss per share:
Continuing operations	$	(1.01)	$	(2.56)
Discontinued operations	—		(0.01)
Diluted loss per share	$	(1.01)	$	(2.57)

Weighted-average shares outstanding:
Basic	66.0		64.5
Diluted	66.0		64.5

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

GAMESTOP CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)


	13 Weeks Ended
	May 1, 2021		May 2, 2020
Net loss	$	(66.8)	$	(165.7)
Other comprehensive (loss) income:
Foreign currency translation adjustment	2.1		(12.1)
Total comprehensive loss	$	(64.7)	$	(177.8)

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

GAMESTOP CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except for per share data)


	Class A Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance at January 30, 2021	65.3	$	0.1	$	11.0	$	(49.3)	$	474.9	$	436.7
Net loss	—	—		—		—		(66.8)		(66.8)
Issuance of common stock, net of cost	3.5	—		551.7		—		—		551.7
Foreign currency translation	—	—		—		2.1		—		2.1
Stock-based compensation expense	—	—		5.7		—		—		5.7
Settlement of stock-based awards	0.5	—		(49.9)		—		—		(49.9)
Balance at May 1, 2021	69.3	$	0.1	$	518.5	$	(47.2)	$	408.1	$	879.5




	Class A Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance at February 1, 2020	64.3	$	0.1	$	—	$	(78.8)	$	690.2	$	611.5
Net loss	—	—		—		—		(165.7)		(165.7)
Foreign currency translation	—	—		—		(12.1)		—		(12.1)

Stock-based compensation expense	—	—		1.8		—		—		1.8
Settlement of stock-based awards	0.3	—		(0.5)		—		—		(0.5)
Balance at May 2, 2020	64.6	$	0.1	$	1.3	$	(90.9)	$	524.5	$	435.0

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

GAMESTOP CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	13 Weeks Ended
	May 1, 2021		May 2, 2020
Cash flows from operating activities:
Net loss	$	(66.8)	$	(165.7)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization (including amounts in cost of sales)	18.7		21.5
Loss (gain) on retirement of debt	18.2		(0.7)
Asset impairments	0.6		3.9
Stock-based compensation expense	5.7		1.8
Deferred income taxes	—		45.4

Loss on disposal of property and equipment, net	0.4		0.3

Other, net	(0.5)		1.2
Changes in operating assets and liabilities:
Receivables, net	3.1		54.4
Merchandise inventories	32.4		196.0
Prepaid expenses and other current assets	(2.9)		5.8
Prepaid income taxes and income taxes payable	(1.2)		22.3
Accounts payable and accrued liabilities	(11.4)		(274.1)
Operating lease right-of-use assets and lease liabilities	(15.0)		38.8
Changes in other long-term liabilities	(0.1)		(0.2)
Net cash flows used in operating activities	(18.8)		(49.3)
Cash flows from investing activities:
Purchase of property and equipment	(14.7)		(6.6)


Other	—		0.5
Net cash flows used in investing activities	(14.7)		(6.1)
Cash flows from financing activities:


Proceeds from issuance of common stock, net of cost	551.7		—

Borrowings from the revolver	—		150.0
Repayments of revolver borrowings	(25.0)		(15.0)

Payments of senior notes	(307.4)		(2.3)

Settlement of stock-based awards	(49.9)		(0.5)
Other	(0.1)		(0.3)
Net cash flows provided by financing activities	169.3		131.9
Exchange rate effect on cash, cash equivalents and restricted cash	—		(6.1)

Increase in cash, cash equivalents and restricted cash	135.8		70.4
Cash, cash equivalents and restricted cash at beginning of period	635.0		513.5
Cash, cash equivalents and restricted cash at end of period	$	770.8	$	583.9

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

GAMESTOP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General Information

The Company

GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a leading specialty retailer offering games and entertainment products through its e-commerce properties and thousands of stores.

GameStop operates its business in four geographic segments: United States, Canada, Australia and Europe. The information contained in these unaudited condensed financial statements refers to continuing operations unless otherwise noted.

Basis of Presentation and Consolidation

The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in our opinion, necessary for a fair presentation of the information as of and for the periods presented. These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required under GAAP for complete consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with our annual report on Form 10-K for the 52 weeks ended January 30, 2021, as filed with the Securities and Exchange Commission ("SEC") on March 23, 2021, (the “2020 Annual Report on Form 10-K”). Due to the seasonal nature of our business, the results of operations for the 13 weeks ended May 1, 2021 are not indicative of the results to be expected for the 52 weeks ending January 29, 2022 ("fiscal 2021"). Our fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. Each of our fiscal years ending January 29, 2022 ("fiscal 2021") and January 30, 2021 ("fiscal 2020") consist of 52 weeks. The discussion and analysis of our results of operations refers to continuing operations unless otherwise noted. Our business, like that of many retailers, is seasonal, with the major portion of the net sales realized during the fourth fiscal quarter, which includes the holiday selling season.

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 that we have used could have a significant impact on our financial results. Actual results could differ from those estimates.

Reclassifications

We have made certain classifications in our consolidated statements in order to conform to the current year presentation. In our consolidated balance sheets, restricted cash of $13.6 million as of May 2, 2020 has been reclassified from other noncurrent assets to long-term restricted cash to conform to the current year presentation. In our consolidated statements of cash flows, gain on retirement of debt of $0.7 million for the 13 weeks ended May 2, 2020 was reclassified from other to loss (gain) on retirement of debt.

Significant Accounting Policies

There have been no material changes to our significant accounting policies included in Note 1, "Nature of Operations and Summary of Significant Accounting Policies," within the 2020 Annual Report on Form 10-K.

Restricted Cash

Restricted cash of $76.1 million, $13.6 million and $126.5 million as of May 1, 2021, May 2, 2020 and January 30, 2021, respectively, consists primarily of bank deposits that collateralize our obligations to vendors and landlords.

Table of Contents

GAMESTOP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of cash, cash equivalents and restricted cash in the condensed consolidated balance sheets to total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows (in millions):


	May 1, 2021		May 2, 2020		January 30, 2021
Cash and cash equivalents	$	694.7	$	570.3	$	508.5
Restricted cash	57.4		—		110.0
Long-term restricted cash	18.7		13.6		16.5
Total cash, cash equivalents and restricted cash in the statements of cash flows	$	770.8	$	583.9	$	635.0

Assets Held-for-Sale

Our corporate aircraft was classified as assets held-for-sale as of May 2, 2020 and had an estimated fair value, less costs to sell, of $9.1 million. We recognized impairment charges of $2.7 million on the corporate aircraft during the 13 weeks ended May 2, 2020, which were partially attributable to economic impacts associated with the COVID-19 pandemic. On June 5, 2020, we sold the corporate aircraft and received net cash proceeds from the sale totaling $8.6 million, net of costs to sell. No gain or loss was recognized upon the sale in the second quarter in fiscal 2020.

Property and Equipment, Net

Accumulated depreciation related to our property and equipment totaled $1,109.9 million, $1,172.4 million and $1,117.7 million as of May 1, 2021, May 2, 2020 and January 30, 2021, respectively.

We periodically review our property and equipment when events or changes in circumstances indicate that its carrying amounts may not be recoverable or its depreciation or amortization periods should be accelerated. We assess recoverability based on several factors, including our intention with respect to our stores and those stores’ projected undiscounted cash flows. An impairment loss is recognized for the amount by which the carrying amount of the assets exceeds its fair value, determined based on an estimate of discounted future cash flows or readily available market information for similar assets. No impairment losses were recorded during the 13 weeks ended May 1, 2021. Impairment losses were recorded totaling $0.7 million during the 13 weeks ended May 2, 2020.

At-the-Market Equity Offering

During the 13 weeks ended May 1, 2021, we sold 3,500,000 shares of common stock under our "at-the-market" equity offering program (the "ATM Offering"). We generated $556.7 million in gross proceeds from the ATM Offering and paid fees to the sales agent of $5.0 million. Additionally, we incurred $0.2 million in other administrative fees in connection with the ATM Offering during the 13 weeks ended May 1, 2021 which is included in selling, general and administration expenses on the consolidated statement of operation. We have used, and intend to continue to use, the $551.7 million in net proceeds generated from the ATM Offering for working capital and general corporate purposes, including repayment of indebtedness, funding our transformation initiatives and product category expansion efforts, capital expenditures and the satisfaction of our tax withholding obligations upon the vesting of shares of restricted stock held by our executive officers and other employees.

Discontinued Operations and Dispositions

During the fourth quarter of fiscal 2018, we sold our Spring Mobile business. The historic results of Spring Mobile are presented as discontinued operations, which primarily consist of residual wind-down costs for all periods presented. The net loss from discontinued operations for the 13 weeks ended May 2, 2020 consisted of $0.8 million in selling, general and administrative expenses and $0.2 million in income tax benefit, respectively. There were no discontinued operations during the first fiscal quarter of 2021.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is intended to simplify the accounting and disclosure requirements for income taxes by eliminating various exceptions in accounting for income taxes as well as clarifying and amending existing guidance to improve consistency in application of ASC 740. The provisions of ASU 2019-12 are effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The adoption of this standard is not expected to result in a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides practical expedients for contract modifications with the transition from reference rates, such as LIBOR, that are expected to be discontinued. This guidance is applicable for our revolving line of credit, which uses LIBOR as a reference rate. The provisions of ASU 2020-04 are effective as of March 12, 2020 and may be adopted

Table of Contents

GAMESTOP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

prospectively through December 31, 2022. We are currently evaluating the impact that ASU 2020-04 will have on our consolidated financial statements.

2. COVID-19 Impacts

Throughout fiscal 2020, we temporarily closed stores or limited store operations at various times across our four operating segments. During the first fiscal quarter of 2021, temporary closures were limited to certain jurisdictions in Europe and Canada. Although certain stores experienced temporary closures during the first fiscal quarter of 2021, some of our stores offered and continue to offer curbside pick-up. We remain vigilant in our compliance with COVID-19 regulations across our operating regions.

Impact on Operating Results and Asset Recoverability

While the gaming industry has not been as severely impacted by the COVID-19 pandemic as certain other consumer businesses, store closures during the stay-at-home orders in certain countries continue to adversely impact our results of operations during the 13 weeks ended May 1, 2021. During the first fiscal quarter of 2021, we continued to evaluate the impact on our assets, including accounts receivable, inventory, and long-lived assets. In addition, during the first fiscal quarter of 2021, we continued to assess the likelihood of realizing the benefits of our deferred tax assets. We estimate the realizability of our deferred tax assets using several factors, including the weight of available evidence, which takes into consideration cumulative book losses and projections of future taxable income in certain jurisdictions. As a result of this analysis, we continue to maintain a full valuation allowance on all of our net deferred tax assets.

Liquidity and Other Impacts

As of May 1, 2021, we had total unrestricted cash on hand of $694.7 million, $76.1 million of restricted cash and an additional $99.9 million of available borrowing capacity under our revolving credit facility. On March 15, 2021, we repaid our outstanding borrowings of $25.0 million under our revolving credit facility. See Note 6, "Debt," for further information.

During the 13 weeks ended May 1, 2021, we completed the ATM Offering which generated aggregate net proceeds of $551.7 million. See Note 1, "General Information" for further details. Additionally, during the 13 weeks ended May 1, 2021, we repaid the remaining $73.2 million aggregate principal amount of our outstanding 6.75% unsecured senior notes due in March 2021, (the "2021 Senior Notes") and we completed the voluntary early redemption of the remaining $216.4 million balance of our outstanding 10.0% secured senior notes due 2023 ("2023 Senior Notes"). See Note 6, "Debt" for further details.

In light of our efforts to strengthen our balance sheet including the paydown of our debt obligations, we project we will have adequate liquidity for the next 12 months and the foreseeable future to maintain normal operations.

The COVID-19 pandemic remains an evolving situation and its impact on our business, operating results, cash flows and financial conditions will depend on the geographies impacted by the virus, the ongoing economic effect of the pandemic, the additional economic stimulus programs introduced by governments, and the timing of the post-pandemic economic recovery. Even as we continue to comply with all governmental health and safety requirements for our associates and customers while resuming and maintaining substantially full operations, the persistence and potential resurgence of the COVID-19 pandemic may require us to temporarily close stores again in future periods or introduce modified operating schedules and may impact customer behaviors, including a potential reduction in consumer discretionary spending. These developments could increase asset recovery and valuation risks. Further, the uncertainties in the global economy could impact the financial viability of our suppliers, which may interrupt our supply chain and require other changes to operations. In light of the foregoing, the extent and duration of the COVID-19 pandemic, and responses of governments, customers, suppliers and other third parties, may materially adversely impact our business, financial condition, results of operations and cash flows.

3. Revenue

Net sales by significant product category for the periods indicated is as follows (in millions):


	13 Weeks Ended
	May 1, 2021		May 2, 2020
Hardware and accessories (1)	$	703.5	$	513.1
Software (2)	397.9		417.0
Collectibles	175.4		90.9
Total	$	1,276.8	$	1,021.0

__________________________________________________

Table of Contents

GAMESTOP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Includes sales of new and pre-owned hardware, accessories, hardware bundles in which hardware and digital or physical software are sold together in a single SKU, interactive game figures, strategy guides, mobile and consumer electronics.

(2) Includes sales of new and pre-owned video game software, digital software and PC entertainment software.

See Note 9, "Segment Information," for net sales by geographic location.

Performance Obligations

We have arrangements with customers where our performance obligations are satisfied over time, which primarily relate to extended warranties and our Game Informer® magazine. Revenues do not include sales tax or other taxes collected from customers. We expect to recognize revenue in future periods for remaining performance obligations we have associated with unredeemed gift cards, trade-in credits, reservation deposits and our PowerUp Rewards loyalty program (collectively, "unredeemed customer liabilities"), extended warranties and subscriptions to our Game Informer® magazine. These performance obligations are included in accrued liabilities and other current liabilities in our consolidated balance sheets.

Performance obligations associated with unredeemed customer liabilities are primarily satisfied at the time customers redeem gift cards, trade-in credits, customer deposits or loyalty program points for products that we offer. Unredeemed customer liabilities are generally redeemed within one year of issuance. As of May 1, 2021 and May 2, 2020, our unredeemed customer liabilities totaled $200.3 million and $209.7 million, respectively.

We offer extended warranties on certain new and pre-owned video game products with terms generally ranging from 12 to 24 months, depending on the product. Revenues for extended warranties sold are recognized on a straight-line basis over the life of the contract. As of May 1, 2021 and May 2, 2020, our deferred revenue liability related to extended warranties totaled $81.0 million and $60.1 million, respectively.

Performance obligations associated with subscriptions to Game Informer® magazine are satisfied when monthly magazines are delivered in print form or made available in digital format. The significant majority of customer subscriptions are for 12 monthly issues. As of May 1, 2021 and May 2, 2020, we had deferred revenue of $41.3 million and $34.8 million, respectively, associated with our Game Informer® magazine.

Significant Judgments and Estimates

We accrue PowerUp Rewards loyalty points at the estimated retail price per point, net of estimated breakage, which can be redeemed by loyalty program members for products we offer. The estimated retail price per point is based on the actual historical retail prices of product(s) purchased through the redemption of loyalty points. We estimate breakage of loyalty points and unredeemed gift cards based on historical redemption rates.

Contract Balances

Our contract liabilities primarily consist of unredeemed customer liabilities and deferred revenues associated with gift cards, extended warranties and subscriptions to Game Informer® magazine. The opening balance, current period changes and ending balance of our contract liabilities are as follows (in millions):



	May 1, 2021		May 2, 2020
Contract liability beginning balance	$	348.2	$	339.2

Increase to contract liabilities (1)	208.7		151.5
Decrease to contract liabilities (2)	(234.5)		(184.5)
Other adjustments (3)	0.2		(1.6)
Contract liability ending balance	$	322.6	$	304.6

__________________________________________________

(1) Includes issuances of gift cards, trade-in credits and loyalty points, new reservation deposits, new subscriptions to Game Informer® and extended warranties sold.

(2) Includes redemptions of gift cards, trade-in credits, loyalty points and customer deposits as well as revenues recognized for Game Informer® and extended warranties. During the 13 weeks ended May 1, 2021, there were $23.5 million of gift cards redeemed that were outstanding as of January 30, 2021. During the 13 weeks ended May 2, 2020, there were $21.2 million of gift cards redeemed that were outstanding as of February 1, 2020.

(3) Primarily includes foreign currency translation adjustments.

Table of Contents

GAMESTOP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Fair Value Measurements and Financial Instruments

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Applicable accounting standards require disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

Assets and liabilities that are measured at fair value on a recurring basis include our foreign currency contracts, Company-owned life insurance policies with a cash surrender value, and certain nonqualified deferred compensation liabilities.

We value our foreign currency contracts, 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.

Our assets and liabilities measured at fair value on a recurring basis as of May 1, 2021, May 2, 2020 and January 30, 2021, utilize Level 2 inputs and include the following (in millions):


	May 1, 2021		May 2, 2020		January 30, 2021
Assets
Foreign currency contracts(1)	$	2.7	$	2.4	$	2.5
Company-owned life insurance(2)	2.8		3.6		2.7
Total assets	$	5.5	$	6.0	$	5.2
Liabilities
Foreign currency contracts(3)	$	0.8	$	1.1	$	2.4
Nonqualified deferred compensation(3)	0.6		0.9		0.6

Total liabilities	$	1.4	$	2.0	$	3.0

__________________________________________________

(1) Recognized in prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets.

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

(3) Recognized in accrued liabilities and other current liabilities in our unaudited condensed consolidated balance sheets.

We use forward exchange contracts to manage currency risk primarily related to intercompany loans and third party accounts payable denominated in non-functional currencies. These 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 balances denominated in foreign currencies. The total gross notional value of derivatives related to our foreign currency contracts was $239.2 million, $213.9 million and $206.9 million as of May 1, 2021, May 2, 2020 and January 30, 2021, respectively.

Activity related to the trading of derivative instruments and the offsetting impact of related balances denominated in foreign currencies recognized in selling, general and administrative expense is as follows (in millions):


	13 Weeks Ended
	May 1, 2021		May 2, 2020
Gains on the changes in fair value of derivative instruments	$	2.5	$	2.4
Losses on the re-measurement of related intercompany loans and third-party accounts payable denominated in foreign currencies	(1.8)		(2.1)
Net gains	$	0.7	$	0.3

We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. We manage counterparty risk according to the guidelines and controls established under our comprehensive risk management and investment policies. We continuously

Table of Contents

GAMESTOP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Non-recurring Basis

Assets that are measured at fair value on a non-recurring basis relate primarily to property and equipment, operating lease right-of-use ("ROU") assets 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.

During the 13 weeks ended May 1, 2021, we recognized impairment charges totaling $0.6 million associated with store-level ROU assets, to reflect their fair values. During the 13 weeks ended May 2, 2020, we recognized $1.2 million of impairment charges associated with store-level ROU and property and equipment assets to reflect their fair values. We also recognized $2.7 million of impairment charges related to our corporate aircraft to reflect its fair value of $9.1 million as of May 2, 2020. The corporate aircraft was classified as assets held-for-sale in our unaudited condensed consolidated balance sheet as of May 2, 2020. We sold our corporate aircraft on June 5, 2020.

Other Fair Value Disclosures

The carrying values of our cash equivalents, net receivables, accounts payable and short-term borrowings approximate their fair values due to their short-term maturities.

5. Leases

We conduct the substantial majority of our business with leased real estate properties, including retail stores, fulfillment and distribution facilities and office space. We also lease certain equipment and vehicles. These are generally leased under noncancelable agreements and include various renewal options for additional periods. These agreements generally provide for minimum, and in some cases, percentage rentals, and require us to pay insurance, taxes and other maintenance costs. Percentage rentals are based on sales performance in excess of specified minimums at various stores and are accounted for in the period in which the amount of percentage rentals can be accurately estimated. All of our lease agreements are classified as operating leases.

Rent expense under operating leases was as follows (in millions):


	13 Weeks Ended
	May 1, 2021		May 2, 2020
Operating lease cost	$	74.9	$	81.4
Variable lease cost (1)	17.5		20.9
Total rent expense	$	92.4	$	102.3

_____________________________________________

(1) Variable lease cost primarily includes percentage rentals and variable executory costs.

6. Debt

The carrying value of our debt is comprised as follows (in millions):

May 1,
2021

SEC Form 10-Q filed by Gamestop Corporation