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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 1-31228

GameStop Corp.

Registrant’s telephone number, including area code:

      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 þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined on Rule 12b-2 of the Exchange Act).     Yes þ          No o

      Number of shares of $.001 par value Class A Common Stock outstanding as of November 29, 2004: 20,835,506

      Number of shares of $.001 par value Class B Common Stock outstanding as of November 29, 2004: 29,901,662

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PART I — FINANCIAL INFORMATION

GAMESTOP CORP.

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

      The unaudited consolidated financial statements include the accounts of GameStop Corp. (the “Company”) and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar and share amounts in the consolidated financial statements and notes to the consolidated financial statements are stated in thousands unless otherwise indicated.

      The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of the Company’s management, necessary for a fair presentation of the information for the periods presented. These consolidated financial statements are condensed and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles. These consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the 52 weeks ended January 31, 2004. The preparation of financial statements in conformity with generally accepted accounting principles requires management 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, management has made its 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 management could have significant impact on the Company’s financial results. Actual results could differ from those estimates.

      Due to the seasonal nature of the business, the results of operations for the 39 weeks ended October 30, 2004 are not indicative of the results to be expected for the 52 weeks ending January 29, 2005.

      Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation,” (“SFAS 123”) encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. As permitted under Statement of Financial Accounting Standards No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure,” (“SFAS 148”) which amended SFAS 123, the Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table illustrates the effect on net earnings and net earnings per common share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation for the options granted under its plans:

      There were no options granted during either of the 13 week-periods ended October 30, 2004 or November 1, 2003. The weighted-average fair value of the options granted during the 39 weeks ended October 30, 2004 and November 1, 2003 were estimated at $7.86 and $5.17, respectively, using the Black-Scholes option pricing model with the following assumptions:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A reconciliation of shares used in calculating basic and diluted net earnings per common share follows:

      Options to purchase approximately 5,044 shares of common stock at exercise prices ranging from $18.00 to $21.25 per share were outstanding during the 13 weeks ended October 30, 2004, but were not included in the computation of diluted earnings per share because they were anti-dilutive. These options expire at various times through 2014.

      In June 2004, the Company amended and restated its $75,000 senior secured revolving credit facility, which now expires in June 2009. The revolving credit facility is governed by an eligible inventory borrowing base agreement, defined as 55% of non-defective inventory, net of certain reserves. Loans incurred under the credit facility will be maintained from time to time, at the Company’s option, as: (1) Prime Rate loans which bear interest at the prime rate (defined in the credit facility as the higher of (a) the administrative agent’s announced prime rate, or (b)  1/2 of 1% in excess of the federal funds effective rate, each as in effect from time to time); or (2) LIBO Rate loans bearing interest at the LIBO Rate for the applicable interest period, in each case plus an applicable interest margin. In addition, the Company is required to pay a commitment fee, currently 0.375%, for any unused amounts of the revolving credit facility. Any borrowings under the revolving credit facility are secured by the assets of the Company. Under certain circumstances, the revolving credit facility may restrict our ability to pay dividends. There have been no borrowings under the revolving credit facility.

      In October 2004, the Company issued a promissory note in favor of Barnes & Noble in the principal amount of $74,020 in connection with the repurchase of Class B common shares held by Barnes & Noble (see note 11). The promissory note is payable in installments over three years, with $37,500 due on January 15, 2005 and three payments of $12,173 due on October 15, 2005, October 15, 2006 and October 15, 2007. The note is unsecured and bears interest at 5.5% per annum, payable when principal installments are due.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Comprehensive income is net earnings, plus certain other items that are recorded directly to stockholders’ equity and consists of the following:

      The tax provisions for the 13 weeks and 39 weeks ended October 30, 2004 and November 1, 2003 are based upon management’s estimate of the Company’s annualized effective tax rate.

      The Company operates departments within bookstores operated by Barnes & Noble, an affiliate of the Company up until November 15, 2004. The Company pays a license fee to Barnes & Noble on the gross sales of such departments. Management deems the license fee to be reasonable and based upon terms equivalent to those that would prevail in an arm’s length transaction. These charges amounted to $186 and $207 for the 13 weeks ended October 30, 2004 and November 1, 2003, respectively, and $567 and $643 for the 39 weeks ended October 30, 2004 and November 1, 2003, respectively.

      The Company participates in Barnes & Noble’s worker’s compensation, property and general liability insurance programs. The costs incurred by Barnes & Noble under these programs are allocated to the Company based upon the Company’s total payroll expense, property and equipment, and insurance claim history. Management deems the allocation methodology to be reasonable. These charges amounted to $621 and $628 for the 13 weeks ended October 30, 2004 and November 1, 2003, respectively, and $1,941 and $1,793 for the 39 weeks ended October 30, 2004 and November 1, 2003, respectively.

      In July 2003, the Company purchased an airplane from a company controlled by a member of the Board of Directors. The purchase price was $9,500 and was negotiated through an independent third party following an independent appraisal.

      In October 2004, the Board of Directors authorized a repurchase of Class B common stock held by Barnes & Noble. The Company repurchased 6,107 shares of Class B common stock at a price equal to $18.26 per share for aggregate consideration of $111,520. The repurchase price per share was determined by using a discount of 3.5% on the last reported trade of the Company’s Class A common stock on the New York Stock Exchange prior to the time of the transaction. The Company paid $37,500 in cash and issued a promissory note in the principal amount of $74,020, which is payable in installments over the next three years and bears interest at 5.5% per annum, payable when principal installments are due. Interest expense on the promissory note for the 13 weeks and 39 weeks ended October 30, 2004 totaled $328.

      On May 29, 2003, former Store Manager Carlos Moreira (“Moreira”) filed a class action lawsuit against the Company and its wholly-owned subsidiary Gamestop, Inc. (collectively “GameStop”) in Los Angeles County Superior Court alleging that GameStop’s salaried retail managers were misclassified as exempt and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

should have been paid overtime. Moreira is seeking to represent a class of current and former salaried retail managers who were employed by GameStop in California at any time between May 29, 1999 and September 30, 2004. Moreira has alleged claims for violation of California Labor Code sections 203, 226 and 1194 and California Business and Professions Code section 17200. Moreira is seeking recovery of unpaid overtime, interest, penalties, attorneys’ fees and costs. During court-ordered mediation in March 2004, the parties reached a settlement which, if finally approved by the court, would define the class of current and former salaried retail managers and would result in a cost to the Company of approximately $2,750. On September 30, 2004, the court granted preliminary approval of the settlement. The matter is now in the claims administration process. A final hearing on the fairness of the settlement is set for January 28, 2005. A provision for this proposed settlement was recorded in the 13 weeks ended May 1, 2004. Management expects that the settlement and resolution of this case will take place in fiscal 2005.

      On October 20, 2004, former Store Manager John P. Kurtz (“Kurtz”) filed a collective action lawsuit against the Company in U.S. District Court, Western District of Louisiana, Lafayette/ Opelousas Division, alleging that GameStop’s salaried retail managers were misclassified as exempt and should have been paid overtime, in violation of the Fair Labor Standards Act. Kurtz is seeking to represent all current and former salaried retail managers who were employed by GameStop for the three years before October 20, 2004. Kurtz is seeking recovery of unpaid overtime, interest, penalties, attorneys’ fees and costs. GameStop is in the process of preparing an initial response and intends to vigorously defend this action. Management does not believe there is sufficient information to estimate the amount of the possible loss, if any, resulting from the lawsuit.

      In the ordinary course of our business, the Company is, from time to time, subject to various other legal proceedings. Management does not believe that any such other legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s operations or financial condition.

      On June 23, 2003, the Company acquired a controlling interest in Gamesworld Group Limited (“Gamesworld”), an Ireland-based electronic games retailer, for approximately $3,340. The acquisition was accounted for using the purchase method of accounting and, accordingly, the results of operations for the period subsequent to the acquisition are included in the consolidated financial statements. The excess of purchase price over the net assets acquired, in the amount of approximately $2,930, has been recorded as goodwill. The pro forma effect assuming the acquisition of Gamesworld at the beginning of fiscal 2003 is not material.

      In March 2003, the Board of Directors authorized a common stock repurchase program for the purchase of up to $50,000 of the Company’s Class A common shares. The Company had the right to repurchase shares from time to time in the open market or through privately negotiated transactions, depending on prevailing

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

market conditions and other factors. During the 39 weeks ended October 30, 2004, the Company repurchased 959 shares at an average share price of $15.64. During the 39 weeks ended November 1, 2003, the Company repurchased 2,304 shares at an average share price of $15.19. From the inception of this repurchase program through October 30, 2004, the Company repurchased 3,263 shares at an average share price of $15.32, totaling $50,000, and, as of October 30, 2004, had no amount remaining available for purchases under this repurchase program. The repurchased shares will be held in treasury.

      In October 2004, the Board of Directors authorized a repurchase of Class B common stock held by Barnes & Noble. The Company repurchased 6,107 shares of Class B common stock at a price equal to $18.26 per share for aggregate consideration of $111,520. The Company paid $37,500 in cash and issued a promissory note in the amount of $74,020, which is payable in installments over the next three years and bears interest at 5.5% per annum, payable when principal payments are due. The repurchased shares were immediately retired.

      In October 2004, Barnes & Noble announced that it intended to distribute to its stockholders its remaining 29,902 shares of the Company’s Class B common stock in a tax-free dividend, and set the close of regular trading on November 2, 2004 as the record date for the distribution. The distribution occurred on November 12, 2004. The Class B shares retained their super voting power of 10 votes per share and are separately listed on the New York Stock Exchange under the symbol GME.B.

      On October 25, 2004, the Board of Directors of the Company declared a dividend of one right (a “Right”) for each outstanding share of the Company’s Class A common stock and Class B common stock (together the “Common Stock”). The distribution of the Rights was made on October 28, 2004 to stockholders of record on that date. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of a new series of preferred stock, designated as Series A Junior Participating Preferred Stock (the “Series A Preferred Stock”), at a price of $100 per one one-thousandth of a share. The Rights will be exercisable only if a person or group acquires 15% or more of the voting power of the Company’s outstanding Common Stock or announces a tender offer or exchange offer, the consummation of which would result in such person or group owning 15% or more of the voting power of the Company’s outstanding Common Stock.

      If a person or group acquires 15% or more of the voting power of the Company’s outstanding Common Stock, each Right will entitle a holder (other than such person or any member of such group) to purchase, at the Right’s then current exercise price, a number of shares of Common Stock having a market value of twice the exercise price of the Right. In addition, if the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold at any time after the Rights have become exercisable, each Right will entitle its holder to purchase, at the Right’s then current exercise price, a number of the acquiring company’s common shares having a market value at that time of twice the exercise price of the Right. Furthermore, at any time after a person or group acquires 15% or more of the voting power of the outstanding Common Stock of the Company but prior to the acquisition of 50% of such voting power, the Board of Directors may, at its option, exchange part or all of the Rights (other than Rights held by the acquiring person or group) at an exchange rate of one one-thousandth of a share of Series A Preferred Stock or one share of the Company’s Common Stock for each Right.

      The Company will be entitled to redeem the Rights at any time prior to the acquisition by a person or group of 15% or more of the voting power outstanding Common Stock of the Company, at a price of $.01 per Right. The Rights will expire on October 28, 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company has 5,000 shares of $.001 par value preferred stock authorized for issuance, of which 500 shares have been designated by the Board of Directors as Series A Preferred Stock and reserved for issuance upon exercise of the Rights. Each such share of Series A Preferred Stock will be nonredeemable and junior to any other series of preferred stock the Company may issue (unless otherwise provided in the terms of such stock) and will be entitled to a preferred dividend equal to the greater of $1.00 or 1,000 times any dividend declared on the Company’s Common Stock. In the event of liquidation, the holders of Series A Preferred Stock will receive a preferred liquidation payment of $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon. Each share of Series A Preferred Stock will have 10,000 votes, voting together with the Company’s Common Stock. However, in the event that dividends on the Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, holders of the Series A Preferred Stock shall have the right, voting as a class, to elect two of the Company’s Directors. In the event of any merger, consolidation or other transaction in which the Company’s Common Stock is exchanged, each share of Series A Preferred Stock will be entitled to receive 1,000 times the amount and type of consideration received per share of the Company’s Common Stock. At October 30, 2004 there were no shares of Series A Preferred Stock outstanding.

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      The following discussion should be read in conjunction with the information contained in our consolidated financial statements, including the notes thereto. Statements regarding future economic performance, management’s plans and objectives, and any statements concerning assumptions related to the foregoing contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. Certain factors, which may cause actual results to vary materially from these forward-looking statements, accompany such statements or appear in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004 filed with the Securities and Exchange Commission on April 14, 2004 (the “Form 10-K”).

General

      We are the largest specialty retailer of video game products and PC entertainment software in the United States, based on the number of U.S. retail stores we operate and our total U.S. revenues. We sell new and used video game hardware, video game software and accessories, as well as PC entertainment software and related accessories and other merchandise. As of October 30, 2004, we operated 1,746 stores, in 49 states, the District of Columbia, Ireland, Puerto Rico and Guam, primarily under the name GameStop. We also operate an electronic commerce web site under the name gamestop.com and publish Game Informer, the largest circulation multi-platform video game magazine in the United States.

      Growth in the video game industry is driven by the introduction of new technology. In October 2000, Sony introduced PlayStation 2 and in June 2001 Nintendo introduced Game Boy Advance. Microsoft introduced Xbox and Nintendo introduced GameCube in November 2001. Nintendo introduced the Game Boy Advance SP in March 2003. Sony redesigned the PlayStation 2 and introduced it as the PSTwo in October 2004. As is typical following the introduction of new video game platforms, sales of new video game hardware generally increase as a percentage of sales in the first full year following introduction. As video game platforms mature, the sales mix attributable to complementary video game software and accessories, which generate higher gross margins, generally increases in the second and third years. The net effect is generally a decline in gross margins in the first full year following new platform releases and an increase in gross margins in the second and third years. Unit sales of maturing video game platforms are typically also driven by manufacturer-funded retail price decreases, further driving sales of related software and accessories. We expect that the installed base of these hardware platforms and sales of related software and accessories will increase in the future.

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Results of Operations

      The following table sets forth certain statement of operations items as a percentage of sales for the periods indicated: