GameStop (GME) 10-Q2021 Q1 Quarterly report

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.

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. NaN 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.

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.

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.

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.

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.

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.

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.

On March 15, 2021, we repaid at maturity $73.2 million outstanding principal amount of our 2021 Senior Notes.

On April 30, 2021, we completed the voluntary early redemption of $216.4 million outstanding principal amount of our 2023 Senior Notes. This voluntary early redemption covered the entire amount of then outstanding 2023 Senior Notes, which represented all of our long-term debt. In connection with the voluntary early redemption of our 2023 Senior Notes, we paid approximately $219.1 million in aggregate consideration, including accrued and unpaid interest. In connection with the voluntary early redemption of the 2023 Senior Notes, we paid a $17.8 million make-whole premium which is included in interest expense in our consolidated statements of operations. Additionally, we accelerated amortization of $0.4 million deferred financing costs associated with our 2023 Senior Notes.

Each of Micromania SAS's term loans, as described above, restrict the ability of Micromania SAS to make distributions and loans to its affiliates, and include various events that would result in the automatic acceleration of the loans thereunder, including failure to pay any principal or interest when due, acceleration of other indebtedness, a change of control and certain bankruptcy, insolvency or receivership events.

As of May 1, 2021, we had 0 borrowings outstanding under the Revolver. During the first fiscal quarter of 2021, we repaid $25.0 million in borrowings under the Revolver. As of May 1, 2021, total availability under the Revolver after giving effect to the Availability Reduction was $99.9 million, with 0 outstanding borrowings and outstanding standby letters of credit of $44.0 million. We are currently in compliance with all covenants in the Revolver.

Shares of restricted stock granted by us are considered to be legally issued and outstanding as of the date of grant, notwithstanding that the shares remain subject to risk of forfeiture if the vesting conditions for such shares are not met, and are included in the number of shares of Class A common stock outstanding disclosed on the cover page of this Quarterly Report on Form 10-Q as of June 1, 2021. Weighted average common shares outstanding excludes time-based and performance-based unvested shares of restricted Class A common stock, as restricted shares are treated as issued and outstanding for financial statement presentation purposes only after such shares have vested and, therefore, have ceased to be subject to a risk of forfeiture. As of May 1, 2021, May 2, 2020 and January 30, 2021 there were 2.6 million, 2.8 million and 4.6 million, respectively, of unvested shares of restricted stock. Accordingly, as of May 1, 2021, May 2, 2020 and January 30, 2021 there were 71.9 million, 67.4 million and 69.9 million, respectively, of shares of Class A common stock, including unvested restricted shares, legally issued and outstanding.

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. The fiscal year ending January 29, 2022 ("fiscal 2021") and the fiscal year ended January 30, 2021 ("fiscal 2020") each 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.

The COVID-19 pandemic continues to impact our business, operating results, cash flows and financial conditions. Factors impacted by the COVID_19 pandemic include, but are not limited to, the following, many of which are not within our control:

See Note 2, "COVID-19 Impacts" for further details.

We have historically reported 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 prior year's comparable period. The methodology of calculating comparable store sales varies across the retail industry and our methodology may not be the same as other retailers' methodology. Our comparable store sales are comprised of sales from our stores operating for at least 12 full months as well as sales related to our websites and sales of pre-owned merchandise to wholesalers or dealers. Our comparable store sales methodology excludes from the comparable store base stores that were closed for 14 consecutive days or more and where curbside delivery was not available to customers for such stores. Comparable store sales for our international operating segments exclude the effect of changes in foreign exchange rates.

As a result of the extensive temporary store closures due to the COVID-19 pandemic, we believe comparable store sales are not a meaningful metric for the 13 weeks ended May 1, 2021 and we have not included comparable store sales in the discussion of our Consolidated Results of Operations below. We have included a discussion of net sales in our Consolidated Results of Operations as we believe net sales is the more appropriate metric to evaluate the performance of our business at this time. This metric is consistent with the metric used by management for internal reporting and analysis to measure performance of our stores. As we continue to reposition during fiscal 2021, we will continue to evaluate the metrics that we believe will most effectively inform investors of our performance, development and outlook.

Connected to our transformation efforts, we have incurred and may continue to incur severance, store closure costs and expenses for consultants and advisors. See "Consolidated Results from Operations—Selling, General and Administrative Expenses" for further information.

On an ongoing basis, we evaluate and consider certain strategic operating alternatives, including divestitures, restructuring or dissolution of unprofitable business segments, as well as equity and debt financing alternatives that we believe may enhance stockholder value. The nature, amount and timing of any strategic operational change, or financing transactions that we might pursue will depend on a variety of factors, including, as of the applicable time, our available cash and liquidity and operating

performance; our commitments and obligations; our capital requirements; limitations imposed under our credit arrangements; and overall market conditions.

As a result of the impact of the COVID-19 pandemic around the world, many of our vendors have been impacted by the volatility in the supply chain financing market. As we seek to optimize our inventories, including for next generation video game consoles and a number of new software releases, and related payment terms, we have increased the amount of credit support collateral we provide to select vendors for our inventory purchase obligations. Our continued provision of collateral, and the levels of such collateral, will depend on a variety of factors, including our inventory purchase levels, available payment terms for inventories, availability of borrowing capacity under our credit facilities, favorable credit terms and costs of providing collateral. See Note 1, "General Information — Restricted Cash" for further details.

Cash flows from investing activities were an outflow of $14.7 million during the 13 weeks ended May 1, 2021 compared to an outflow of $6.1 million during the same period last year. The decrease in cash provided by investing activities is primarily attributable to higher capital expenditures in current year.

Cash flows from financing activities were an inflow of $169.3 million during the 13 weeks ended May 1, 2021 compared to an inflow of $131.9 million during the 13 weeks ended May 2, 2020. During the first quarter of fiscal 2021, we received $551.7 million in aggregate proceeds from the sale of shares of common stock in the ATM Offering (net of approximately $5.0 million of commissions). We completed the voluntary early redemption of our then outstanding 2023 Senior Notes for an aggregate of $234.2 million (inclusive of a $17.8 million make-whole premium). We also repaid $73.2 million to retire at maturity our then outstanding 2021 Senior Notes. We repaid $25.0 million of our outstanding borrowing under the Revolver. The cash inflow during the 13 weeks ended May 2, 2020 was primarily due to a net $135.0 million draw down on our revolving line of credit.

Separately from the Revolver, we maintain uncommitted facilities with certain lenders that provide for the issuance of letters of credit and bank guarantees, at times supported by cash collateral. As of May 1, 2021, we had $38.2 million of outstanding letters of credit and other bank guarantees under facilities outside of the Revolver.

See Note 6, "Debt," for additional information.

We may also fund our operating expenses and growth capital needs, as circumstances warrant, from sales of equity securities. The timing and amount of any sales of equity securities would depend on, among other factors, our capital needs and alternative sources and costs of capital available to us, market perceptions about us, and the then current trading price of our common equity. As discussed above, during the first quarter of fiscal 2021, we sold 3,500,000 shares of common stock in the ATM Offering. We have used, and intend to continue to use, the $551.7 million in net proceeds that we generate from the ATM Offering for working capital and general corporate purposes, including funding our transformation initiatives and product category expansion efforts, repayment of indebtedness, 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.

Tax withholding obligations arise upon the vesting of shares of restricted stock and these obligations must be satisfied at the time they arise through cash payments to the applicable taxing authorities. The amount of the tax withholding obligations due upon the vesting of shares of restricted stock is dependent on the price of our shares of common stock on the New York Stock Exchange on the applicable vesting date. As discussed within Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K,

we may elect to satisfy these tax withholding obligations by withholding and canceling a portion of the shares subject to vesting (sometimes referred to as "share withholding") and remitting cash to the tax authorities at the applicable statutory rates on behalf of the holder(s) of the applicable award. Depending on the price of our common stock on the vesting date, the amount of these cash payments due for taxes in respect of restricted shares that are scheduled to vest or that may be accelerated in connection with certain events (such as cessation of a grantee's employment) in the second quarter of fiscal 2021 could be substantial and could have a negative impact on our liquidity and ability to use funds for operational purposes. Our common stock price has recently experienced extreme price fluctuations. For illustrative purposes, assuming a stock price of $249.02 per share (the price of our shares of common stock on the New York Stock Exchange on June 1, 2021), we estimate that the aggregate amount of our tax withholding obligations on account of second quarter vesting events will be at least $74.6 million and could be up to $157.2 million depending on whether we arrange for share withholding in respect of vesting events anticipated to occur later in the quarter. The actual amount of the tax obligations and the number of shares to be canceled (or sold in the open market in the event the applicable employee were to arrange for broker-assisted sell-to-cover transactions in lieu of share withholding for shares that vest after June 9, 2021) could be higher or lower, depending on the price of our common stock upon vesting, the applicable tax withholding rates then in effect, the price at which any broker-assisted sell-to-cover transactions (if any) were to occur and the number (if any) of restricted stock awards that are forfeited prior to vesting.