Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended May 1, 2004
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from           to

Commission File No. 1-31228

GameStop Corp.

Delaware		75-2951347
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2250 William D. Tate Avenue, Grapevine, Texas (Address of principal executive offices)		76051 (Zip Code)

Registrant’s telephone number, including area code: (817) 424-2000

     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 May 28, 2004: 21,045,878

      Number of shares of $.001 par value Class B Common Stock outstanding as of May 28, 2004: 36,009,000

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TABLE OF CONTENTS

				Page
				Number
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets — May 1, 2004 (unaudited), May 3, 2003 (unaudited) and January 31, 2004			2
		Consolidated Statements of Operations (unaudited) — For the 13 weeks ended May 1, 2004 and May 3, 2003			3
		Consolidated Statements of Stockholders’ Equity (unaudited) — May 1, 2004			4
		Consolidated Statements of Cash Flows (unaudited) — For the 13 weeks ended May 1, 2004 and May 3, 2003			5
		Notes to Consolidated Financial Statements			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			15
Item 4.		Controls and Procedures			15
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			16
Item 2.		Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities			16
Item 6.		Exhibits and Reports on Form 8-K			16
SIGNATURE					19
EXHIBIT INDEX					20
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

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PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

GAMESTOP CORP.

				May 1,				May 3,				January 31,
				2004				2003				2004
				(Unaudited)				(Unaudited)
				(In thousands, except per share data)
ASSETS:
Current assets:
	Cash and cash equivalents			$	167,093			$	174,477			$	204,905
	Receivables, net				6,101				5,195				9,545
	Merchandise inventories				194,566				156,194				223,526
	Prepaid expenses and other current assets				13,379				10,508				14,340
	Prepaid taxes				9,310				—				12,775
	Deferred taxes				7,661				6,034				7,661
		Total current assets			398,110				352,408				472,752
Property and equipment:
	Land				2,000				—				—
	Buildings and leasehold improvements				71,320				43,513				57,259
	Fixtures and equipment				138,486				92,087				131,556
					211,806				135,600				188,815
	Less accumulated depreciation and amortization				91,961				62,272				84,784
		Net property and equipment			119,845				73,328				104,031
Goodwill, net					320,826				317,957				320,826
Other noncurrent assets					1,277				1,128				1,315
		Total other assets			322,103				319,085				322,141
		Total assets		$	840,058			$	744,821			$	898,924
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
	Accounts payable			$	134,084			$	112,186			$	204,011
	Accrued liabilities				78,467				68,498				79,839
		Total current liabilities			212,551				180,684				283,850
Deferred taxes					17,625				5,591				17,731
Other long-term liabilities					3,269				2,954				3,310
					20,894				8,545				21,041
		Total liabilities			233,445				189,229				304,891
Stockholders’ equity:
	Preferred stock — authorized 5,000 shares; no shares issued or outstanding				—				—				—
	Class A common stock — $.001 par value; authorized 300,000 shares; 23,469, 21,102 and 22,993 shares issued, respectively				23				21				23
	Class B common stock — $.001 par value; authorized 100,000 shares; 36,009 shares issued and outstanding				36				36				36
	Additional paid-in-capital				516,676				494,346				510,597
	Accumulated other comprehensive income				119				—				296
	Retained earnings				124,765				61,231				118,087
	Treasury Stock, at cost, 2,304, 4 and 2,304 shares, respectively				(35,006	)			(42	)			(35,006	)
		Total stockholders’ equity			606,613				555,592				594,033
		Total liabilities and stockholders’ equity		$	840,058			$	744,821			$	898,924

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

			13 Weeks Ended
			May 1,				May 3,
			2004				2003
			(In thousands, except
			per share data)
			(Unaudited)
Sales			$	371,736			$	321,741
Cost of sales				266,196				236,300
	Gross profit			105,540				85,441
Selling, general and administrative expenses				86,626				68,535
Depreciation and amortization				8,144				6,217
	Operating earnings			10,770				10,689
Interest income				(327	)			(525	)
Interest expense				174				146
	Earnings before income tax expense			10,923				11,068
Income tax expense				4,245				4,457
	Net earnings		$	6,678			$	6,611
Net earnings per common share — basic			$	0.12			$	0.12
Weighted average shares of common stock — basic				56,990				57,083
Net earnings per common share — diluted			$	0.11			$	0.11
Weighted average shares of common stock — diluted				60,130				60,236

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

																							Accumulated
			Common Stock																Additional				Other
																			Paid in				Comprehensive				Retained				Treasury
			Shares				Class A				Shares				Class B				Capital				Income				Earnings				Stock				Total
			(In thousands)
			(Unaudited)
Balance at January 31, 2004				22,993			$	23				36,009			$	36			$	510,597			$	296			$	118,087			$	(35,006	)		$	594,033
Comprehensive income:
	Net earnings for the 13 weeks ended May 1, 2004			—				—				—				—				—				—				6,678				—
	Foreign currency translation			—				—				—				—				—				(177	)			—				—
Total comprehensive income																																				6,501
Exercise of employee stock options (including tax benefit of $1,603)				476				—				—				—				6,079				—				—				—				6,079
Balance at May 1, 2004				23,469			$	23				36,009			$	36			$	516,676			$	119			$	124,765			$	(35,006	)		$	606,613

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

						13 Weeks				13 Weeks
						Ended				Ended
						May 1,				May 3,
						2004				2003
						(In thousands)
						(Unaudited)
Cash flows from operating activities:
	Net earnings					$	6,678			$	6,611
	Adjustments to reconcile net earnings to net cash flows used in operating activities:
		Depreciation and amortization					8,144				6,217
		Amortization of loan cost					78				67
		Tax benefit realized from exercise of stock options by employees					1,603				166
		Deferred taxes					(106	)			—
		Loss on disposal of property and equipment					134				66
		Increase in other long-term liabilities for scheduled rent increases in long-term leases					54				82
		Minority interest					(96	)			—
		Changes in operating assets and liabilities, net
			Receivables, net				3,423				1,698
			Merchandise inventories				28,808				5,175
			Prepaid expenses and other current assets				971				(381	)
			Prepaid taxes				3,457				—
			Accounts payable, accrued liabilities and accrued income taxes payable				(71,126	)			(66,087	)
				Net cash flows used in operating activities			(17,978	)			(46,386	)
Cash flows from investing activities:
	Purchase of property and equipment						(24,207	)			(11,217	)
	Net increase in other noncurrent assets						(41	)			(90	)
	Net cash flows used in investing activities						(24,248	)			(11,307	)
Cash flows from financing activities:
	Issuance of shares relating to employee stock options						4,476				182
	Purchase of treasury shares through repurchase program						—				(42	)
	Net cash flows provided by financing activities						4,476				140
Exchange rate effect on cash and cash equivalents							(62	)			—
Net decrease in cash and cash equivalents							(37,812	)			(57,553	)
Cash and cash equivalents at beginning of period							204,905				232,030
Cash and cash equivalents at end of period						$	167,093			$	174,477

See accompanying notes to consolidated financial statements.

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GAMESTOP CORP.

1.	Basis of Presentation

      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 13 weeks ended May 1, 2004 are not indicative of the results to be expected for the 52 weeks ending January 29, 2005.

2.	Accounting for Stock-Based Compensation

      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:

		13 Weeks Ended
		May 1,				May 3,
		2004				2003
		(In thousands, except
		per share data)
Net earnings, as reported		$	6,678			$	6,611
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects*			2,083				2,100
Pro forma net earnings		$	4,595			$	4,511
Net earnings per common share — basic, as reported		$	0.12			$	0.12
Net earnings per common share — basic, pro forma		$	0.08			$	0.08
Net earnings per common share — diluted, as reported		$	0.11			$	0.11
Net earnings per common share — diluted, pro forma		$	0.08			$	0.07

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*	Amounts include compensation expense associated with options to acquire approximately 350 shares of Barnes & Noble, Inc. (“Barnes & Noble”) which were issued to GameStop employees in January 2000 pursuant to the Barnes & Noble 1996 Incentive Plan.

      The weighted-average fair value of the options granted during the 13 weeks ended May 1, 2004 and May 3, 2003 were estimated at $7.94 and $5.15, respectively, using the Black-Scholes option pricing model with the following assumptions:

		13 Weeks Ended
		May 1,				May 3,
		2004				2003
Volatility			60.2	%			61.8	%
Risk-free interest rate			3.3	%			3.2	%
Expected life (years)			6.0				6.0
Expected dividend yield			0	%			0	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	Computation of Net Earnings Per Common Share

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

			13 Weeks Ended
			May 1,				May 3,
			2004				2003
			(In thousands, except per
			share data)
Net earnings			$	6,678			$	6,611
Weighted average common shares outstanding				56,990				57,083
Common share equivalents related to options and warrants				3,140				3,153
Common shares and common share equivalents				60,130				60,236
Net earnings per common share:
	Basic		$	0.12			$	0.12
	Diluted		$	0.11			$	0.11

      Options to purchase approximately 4,790 shares of common stock at exercise prices ranging from $18.00 to $21.25 per share were outstanding during the 13 weeks ended May 1, 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.

4.	Debt

      In February 2002, the Company entered into a $75,000 senior secured revolving credit facility which expires in February 2005. The revolving credit facility is governed by an eligible inventory borrowing base agreement, defined as 50% of non-defective inventory. Loans incurred under the credit facility will be maintained from time to time, at the Company’s option, as: (1) base rate loans which bear interest at the base rate (defined in the credit facility as the higher of (a) the administrative agent’s announced base 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) LIBOR loans bearing interest at the LIBOR 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 of 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. The revolving credit facility generally restricts our ability to pay dividends and requires the Company to maintain certain financial ratios. There have been no borrowings under the revolving credit facility.

5.	Comprehensive Income

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

			13 Weeks Ended
			May 1,				May 3,
			2004				2003
			(In thousands)
Net earnings			$	6,678			$	6,611
Other comprehensive income (loss):
	Foreign currency translation adjustments			(177	)			—
Total comprehensive income			$	6,501			$	6,611

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.	Income Taxes

      The tax provisions for the 13 weeks ended May 1, 2004 and May 3, 2003 are based upon management’s estimate of the Company’s annualized effective tax rate.

7.	Certain Relationships and Related Transactions

      The Company operates departments within bookstores operated by Barnes & Noble, an affiliate of the Company. 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 $200 and $236 for the 13 weeks ended May 1, 2004 and May 3, 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 $670 and $530 for the 13 weeks ended May 1, 2004 and May 3, 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.

8.	Legal Proceedings

      On May 29, 2003, former Store Manager Carlos Moreira (“Plaintiff”) 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 should have been paid overtime. Plaintiff 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 the present. Plaintiff has alleged claims for violation of California Labor Code sections 203, 226 and 1194 and California Business and Professions Code section 17200. Plaintiff is seeking recovery of unpaid overtime, interest, penalties, attorneys’ fees and costs. During court-ordered mediation in March 2004, the parties reached a settlement in principle which, if 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. 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 2004.

      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.

9.	Supplemental Cash Flow Information

			13 Weeks				13 Weeks
			Ended				Ended
			May 1,				May 3,
			2004				2003
Cash paid during the period for:
	Interest		$	70			$	69
	Income taxes		$	340			$	23,282

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.	Acquisitions

      On June 23, 2003, the Company acquired a controlling interest in Gamesworld Group Limited (“Gamesworld”), an Ireland-based electronic games retailer, for approximately $3,279. 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 $2,869, has been recorded as goodwill. The pro forma effect assuming the acquisition of Gamesworld at the beginning of fiscal 2003 is not material.

11.	Repurchase of Equity Securities

      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 may repurchase shares from time to time in the open market or through privately negotiated transactions, depending on prevailing market conditions and other factors. The repurchased shares will be held in treasury. During the 13 weeks ended May 3, 2003, the Company repurchased 4 shares at an average share price of $11.93. There were no shares repurchased during the 13 weeks ended May 1, 2004. From the inception of this repurchase program through May 1, 2004, the Company repurchased 2,304 shares at an average share price of $15.19, totaling $35,006, and, as of May 1, 2004, had $14,994 remaining available for purchases under this repurchase program.

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

      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 May 1, 2004, we operated 1,603 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. 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:

		13 Weeks Ended
		May 1,				May 3,
		2004				2003
Statement of Operations Data:
Sales			100.0	%			100.0	%
Cost of sales			71.6				73.5
Gross profit			28.4				26.5
Selling, general and administrative expenses			23.3				21.3
Depreciation and amortization			2.2				1.9
Operating earnings			2.9				3.3
Interest expense, net			0.0				(0.1	)
Earnings before income tax expense			2.9				3.4
Income tax expense			1.1				1.3
Net earnings			1.8	%			2.1	%

     13 Weeks Ended May 1, 2004 Compared with the 13 Weeks Ended May 3, 2003

      Sales increased by $50.0 million, or 15.5%, from $321.7 million in the 13 weeks ended May 3, 2003 to $371.7 million in the 13 weeks ended May 1, 2004. The increase in sales was primarily attributable to the additional sales resulting from 294 net new stores opened since May 3, 2003, which was partially offset by a 1.8% decrease in comparable store sales. Stores are included in our comparable store sales base beginning in the thirteenth month of operation. The comparable store sales decrease for the first quarter of 2004 was due to weaker than expected video game hardware sales, as customers appeared to delay hardware purchases until an expected price cut on Sony’s PlayStation 2 occurred in mid-May.

      Cost of sales increased by $29.9 million, or 12.7%, from $236.3 million in the 13 weeks ended May 3, 2003 to $266.2 million in the 13 weeks ended May 1, 2004. Cost of sales as a percentage of sales decreased from 73.5% in the 13 weeks ended May 3, 2003 to 71.6% in the 13 weeks ended May 1, 2004. This decrease was primarily the result of the shift in sales mix from lower margin video game hardware to higher margin video game software and used video game products.

      Selling, general and administrative expenses increased by $18.1 million, or 26.4%, from $68.5 million in the 13 weeks ended May 3, 2003 to $86.6 million in the 13 weeks ended May 1, 2004. These increases were primarily attributable to the increase in the number of stores in operation, and the related increases in store, distribution, and corporate office operating expenses, and the $2.8 million provision for the proposed California labor litigation settlement. Selling, general and administrative expenses as a percentage of sales increased from 21.3% in the 13 weeks ended May 3, 2003 to 23.3% in the 13 weeks ended May 1, 2004. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to the costs associated with opening 103 stores in the 13 weeks ended May 1, 2004, compared to opening 86 stores in the 13 weeks ended May 3, 2003, and due to the provision for the proposed California labor litigation settlement.

      Depreciation and amortization expense increased from $6.2 million for the 13 weeks ended May 3, 2003 to $8.1 million in the 13 weeks ended May 1, 2004. This increase of $1.9 million was due to the capital expenditures for new stores and management information systems.

      Interest income resulting from the investment of excess cash balances decreased from $0.5 million in the 13 weeks ended May 3, 2003 to $0.3 million in the 13 weeks ended May 1, 2004 due to a decrease in the level

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      Tax expense for the 13 weeks ended May 3, 2003 and the 13 weeks ended May 1, 2004 was based upon management’s estimate of the Company’s annualized effective tax rate, which is expected to decrease from fiscal 2003 (the 52 weeks ended January 31, 2004) to fiscal 2004 (the 52 weeks ending January 29, 2005) due to corporate restructuring. Income tax expense decreased from $4.5 million for the 13 weeks ended May 3, 2003 to $4.2 million in the 13 weeks ended May 1, 2004.

      The factors described above led to an increase in operating earnings of $0.1 million, or 0.9%, from $10.7 million in the 13 weeks ended May 3, 2003 to $10.8 million in the 13 weeks ended May 1, 2004, and an increase in net earnings of $0.1 million, or 1.0%, from $6.6 million in the 13 weeks ended May 3, 2003 to $6.7 million in the 13 weeks ended May 1, 2004.

Seasonality

      The Company’s business, like that of many retailers, is seasonal, with the major portion of the sales and operating profit realized during the quarter which includes the holiday selling season.

Liquidity and Capital Resources

      During the 13 weeks ended May 1, 2004 and May 3, 2003, cash used in operations was $18.0 million and $46.4 million, respectively. In the 13 weeks ended May 1, 2004, cash used in operations was primarily due to a decrease in accounts payable and accrued liabilities of $71.1 million, which were offset by a decrease in merchandise inventories of $28.8 million, net income of $6.7 million, depreciation and amortization of $8.1 million and a decrease in prepaid taxes of $3.5 million. In the 13 weeks ended May 3, 2003, cash used in operations was primarily due to a decrease in accounts payable and accrued liabilities of $66.1 million, which includes payment of income taxes payable of $23.3 million, which were offset partially by net income of $6.6 million, depreciation and amortization of $6.2 million and a decrease in merchandise inventories of $5.2 million. The decreases in accounts payable and accrued liabilities in both the 13 week-periods ended May 1, 2004 and May 3, 2003 are typical as payments are made for purchases of merchandise inventories which took place in the fourth quarter of the previous fiscal year.

      Cash used in investing activities was $24.2 million and $11.3 million during the 13 weeks ended May 1, 2004 and May 3, 2003, respectively. During the 13 weeks ended May 1, 2004, our capital expenditures included approximately $12.0 million to acquire a new corporate headquarters and distribution center facility in Grapevine, Texas. The remaining $12.2 million in capital expenditures was used to open new stores, remodel existing stores and invest in information systems. During the 13 weeks ended May 3, 2003, we had capital expenditures of $11.2 million to open new stores, remodel existing stores and invest in information systems.

      Our future capital requirements will depend on the number of new stores we open and the timing of those openings within a given fiscal year. We opened 86 stores in the 13 weeks ended May 3, 2003 compared to 103 stores in the 13 weeks ended May 1, 2004 and expect to open between 300 and 330 stores in fiscal 2004. Projected capital expenditures for fiscal 2004 are approximately $85.0 million, to be used primarily to fund new store openings, purchase, improve and equip our new headquarters and distribution center and invest in distribution and information systems.

      The projected capital expenditures for fiscal 2004 include approximately $21.0 million to purchase, improve and equip the 420,000 square foot headquarters and distribution center facility in Grapevine, Texas which the Company acquired in March 2004. We expect that the total cost to purchase, improve and equip this facility will be approximately $29 million. The distribution systems in this facility are expected to be ready for testing in late 2004 and the facility is expected to be fully-operational in 2005 and all headquarters and distribution functions will be relocated at that time.

      In February 2002, the Company entered into a $75.0 million senior secured revolving credit facility which expires in February 2005. The revolving credit facility is governed by an eligible inventory borrowing base

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      In March 2003, the Board of Directors authorized a common stock repurchase program for the purchase of up to $50.0 million of the Company’s Class A common shares. The Company may repurchase shares from time to time in the open market or through privately negotiated transactions, depending on prevailing market conditions and other factors. The repurchased shares will be held in treasury. During the 13 weeks ended May 3, 2003, the Company repurchased 3,500 shares at an average share price of $11.93. There were no shares repurchased during the 13 weeks ended May 1, 2004. From the inception of this repurchase program through May 1, 2004, the Company repurchased 2,304,100 shares at an average share price of $15.19, totaling $35.0 million, and, as of May 1, 2004, had $15.0 million remaining available for purchases under this repurchase program.

      Based on our current operating plans, we believe that cash generated from our operating activities and available cash balances will be sufficient to fund our operations, store expansion and remodeling activities and corporate capital expenditure programs for at least the next 12 months.

Critical Accounting Policies

      Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 2003 Annual Report on Form 10-K, filed on April 14, 2004, in Note 1 of “Notes to the Consolidated Financial Statements.”

Disclosure Regarding Forward-Looking Statements

      This report on Form 10-Q and other oral and written statements made by the Company to the public contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The forward-looking statements involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to:

	•	our reliance on suppliers and vendors for new product releases;
	•	economic conditions affecting the electronic game industry;
	•	the competitive environment in the electronic game industry;
	•	our ability to open and operate new stores;
	•	our ability to successfully and efficiently transfer our headquarters and distribution center to our new facility;

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	•	our ability to attract and retain qualified personnel; and
	•	other factors described in the Form 10-K, including those set forth under the caption “Business — Risk Factors.”

      In some cases, forward-looking statements can be identified by the use of terms such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “pro forma,” “should,” “seeks,” “will” or similar expressions. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements.

      Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Form 10-Q. In light of these risks and uncertainties, the forward-looking events and circumstances contained in this Form 10-Q may not occur, causing actual results to differ materially from those anticipated or implied by our forward-looking statements.

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Exposure

      We do not use derivative financial instruments to hedge interest rate exposure. We limit our interest rate risks by investing our excess cash balances in short-term, highly-liquid instruments with an original maturity of three months or less. We do not expect any material losses from our invested cash balances, and we believe that our interest rate exposure is modest.

Foreign Exchange Exposure

      We do not believe we have material foreign currency exposure because only a very immaterial portion of our business is transacted in other than United States currency. The Company historically has not entered into hedging transactions with respect to its foreign currency, but may do so in the future.

Item 4.	Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

      As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

(b) Changes in Internal Controls

      There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.	Legal Proceedings

      On May 29, 2003, former Store Manager Carlos Moreira (“Plaintiff”) 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 should have been paid overtime. Plaintiff 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 the present. Plaintiff has alleged claims for violation of California Labor Code sections 203, 226 and 1194 and California Business and Professions Code section 17200. Plaintiff is seeking recovery of unpaid overtime, interest, penalties, attorneys’ fees and costs. During court-ordered mediation in March 2004, the parties reached a settlement in principle which, if 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 $2,750,000. 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 2004.

      In the ordinary course of our business, we are from time to time subject to various other legal proceedings. We do not believe that any such other legal proceedings, individually or in the aggregate, will have a material adverse effect on our operations or financial condition.

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

      In March 2003, the Board of Directors authorized a common stock repurchase program for the purchase of up to $50,000,000 of the Company’s Class A common shares. The Company may repurchase shares from time to time in the open market or through privately negotiated transactions, depending on prevailing market conditions and other factors. The repurchased shares will be held in treasury. During the 13 weeks ended May 3, 2003, the Company repurchased 3,500 shares at an average share price of $11.93. No shares were purchased during the 13 weeks ended May 1, 2004. From the inception of this repurchase program through May 1, 2004, the Company repurchased 2,304,100 shares at an average share price of $15.19, totaling $35,006,000, and, as of May 1, 2004, had $14,994,000 remaining available for purchases under this repurchase program.

Item 6.	Exhibits and Reports on Form 8-K

      (a) Exhibits

Exhibit
Number				Description
	3	.1		Amended and Restated Certificate of Incorporation.(1)
	3	.2		Bylaws.(1)
	10	.1		Separation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(2)
	10	.2		Tax Disaffiliation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.3		Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.4		Operating Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.5		2001 Incentive Plan.(2)

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Exhibit
Number				Description
	10	.6		Lease, dated as of March 6, 1997, between RREEF Mid-Cities Industrial L.P. and Babbage’s Etc. LLC.(1)
	10	.7		First Amendment to Lease, dated as of December 30, 1999, between RREEF Mid-Cities Industrial L.P. and Babbage’s Etc. LLC.(1)
	10	.8		Registration Rights Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.9		Revolving Credit Agreement, dated as of February 19, 2002, among GameStop Corp., Fleet National Bank, as Administrative Agent, the Banks party thereto and Fleet Securities, Inc., as Arranger.(3)
	10	.10		Security Agreement, dated as of February 19, 2002, by GameStop Corp. in favor of Fleet National Bank, as secured party and as Administrative Agent.(3)
	10	.11		Subsidiary Guaranty, dated as of February 19, 2002, by and among GameStop, Inc., Babbage’s Etc. LLC, Sunrise Publications, Inc. and GameStop.com, Inc. and Fleet National Bank, as Administrative Agent.(3)
	10	.12		Securities Collateral Pledge Agreement, dated as of February 19, 2002, between GameStop Corp. and Fleet National Bank, as Administrative Agent.(3)
	10	.13		Patent and Trademark Securities Agreement, dated as of February 19, 2002, between GameStop Corp. and Fleet National Bank, as secured party and as Administrative Agent.(3)
	10	.14		Amendment to Revolving Credit Agreement, dated as of March 18, 2003.(4)
	10	.15		Amendment to Revolving Credit Agreement, dated as of June 3, 2003.(5)
	31	.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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(1)	Incorporated by reference to the Registrant’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002 (No. 333-68294).
(2)	Incorporated by reference to the Registrant’s Amendment No. 4 to Form S-1 filed with the Securities and Exchange Commission on February 5, 2002 (No. 333-68294).
(3)	Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended May 4, 2002 filed with the Securities and Exchange Commission on June 13, 2002.
(4)	Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended May 3, 2003 filed with the Securities and Exchange Commission on June 13, 2003.
(5)	Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended August 2, 2003 filed with the Securities and Exchange Commission on September 12, 2003.

      (b) Reports on Form 8-K

      On February 18, 2004, the Company furnished a Form 8-K pursuant to Items 7 and 12 of such form regarding a press release issued with sales information for the fiscal quarter and fiscal year ended January 31, 2004.

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      On March 17, 2004, the Company furnished a Form 8-K pursuant to Items 7 and 12 of such form regarding a press release issued with earnings information for the fiscal quarter and fiscal year ended January 31, 2004.

      Subsequent to the end of the first quarter of fiscal 2004, the Company furnished a Form 8-K pursuant to Items 7 and 12 of such form regarding a press release issued with earnings information for the fiscal quarter ended May 1, 2004.

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SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GAMESTOP CORP.

	BY:	/s/ DAVID W. CARLSON

	DAVID W. CARLSON
	Executive Vice President and
	Chief Financial Officer
	(Principal Accounting and Financial Officer)

Date: June 10, 2004

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GAMESTOP CORP.

Exhibit
Number				Description
	3	.1		Amended and Restated Certificate of Incorporation.(1)
	3	.2		Bylaws.(1)
	10	.1		Separation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(2)
	10	.2		Tax Disaffiliation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.3		Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.4		Operating Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.5		2001 Incentive Plan.(2)
	10	.6		Lease, dated as of March 6, 1997, between RREEF Mid-Cities Industrial L.P. and Babbage’s Etc. LLC.(1)
	10	.7		First Amendment to Lease, dated as of December 30, 1999, between RREEF Mid-Cities Industrial L.P. and Babbage’s Etc. LLC.(1)
	10	.8		Registration Rights Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Corp.(1)
	10	.9		Revolving Credit Agreement, dated as of February 19, 2002, among GameStop Corp., Fleet National Bank, as Administrative Agent, the Banks party thereto and Fleet Securities, Inc., as Arranger.(3)
	10	.10		Security Agreement, dated as of February 19, 2002, by GameStop Corp. in favor of Fleet National Bank, as secured party and as Administrative Agent.(3)
	10	.11		Subsidiary Guaranty, dated as of February 19, 2002, by and among GameStop, Inc., Babbage’s Etc. LLC, Sunrise Publications, Inc. and GameStop.com, Inc. and Fleet National Bank, as Administrative Agent.(3)
	10	.12		Securities Collateral Pledge Agreement, dated as of February 19, 2002, between GameStop Corp. and Fleet National Bank, as Administrative Agent. (3)
	10	.13		Patent and Trademark Securities Agreement, dated as of February 19, 2002, between GameStop Corp. and Fleet National Bank, as secured party and as Administrative Agent.(3)
	10	.14		Amendment to Revolving Credit Agreement, dated as of March 18, 2003.(4)
	10	.15		Amendment to Revolving Credit Agreement, dated as of June 3, 2003.(5)
	31	.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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(1)	Incorporated by reference to the Registrant’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002 (No. 333-68294).
(2)	Incorporated by reference to the Registrant’s Amendment No. 4 to Form S-1 filed with the Securities and Exchange Commission on February 5, 2002 (No. 333-68294).
(3)	Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended May 4, 2002 filed with the Securities and Exchange Commission on June 13, 2002.
(4)	Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended May 3, 2003 filed with the Securities and Exchange Commission on June 13, 2003.
(5)	Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended August 2, 2003 filed with the Securities and Exchange Commission on September 12, 2003.

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