KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP
ATTORNEYS AT LAW
260 S. BROAD STREET New Jersey Office
PHILADELPHIA, PA 19102 457 Haddonfield Road
Suite 510
(215) 568-6060 Cherry Hill, New Jersey 08002-2220
FAX: (215) 568-6603 (856)486-7900
www.klehr.com Delaware Office
919 Market Street
Suite 1000
Wilmington, Delaware 19801-3062
(302) 426-1189
July 1, 2005
VIA EDGAR
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Mr. H. Christopher Owings
RE: GSC HOLDINGS CORP.
REGISTRATION STATEMENT ON FORM S-4
FILED MAY 23, 2005
FILE NO. 333-125161
ELECTRONICS BOUTIQUE HOLDINGS CORP.
FORM 10-K FOR FISCAL YEAR ENDED JANUARY 29, 2005
FILED APRIL 7, 2005
FORM 10-Q FOR FISCAL QUARTER ENDED APRIL 30, 2005
FILED JUNE 9, 2005
FILE NO. 0-24603
Dear Mr. Owings:
On behalf of Electronics Boutique Holdings Corp. ("EB"), we are writing in
response to the comments of the Staff of the Division of Corporation Finance
(the "Staff") of the Securities and Exchange Commission (the "Commission") that
were contained in your letter dated June 22, 2005 (the "Comment Letter") in
connection with EB's Annual Report on Form 10-K for the fiscal year ended
January 29, 2005 filed on April 7, 2005 and EB's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 30, 2005 filed on June 9, 2005. Counsel for
GSC Holdings Corp. intends to file a response to comments 1 through 8 along with
Amendment No. 1 to the Registration Statement on Form S-4 (Registration No.
333-125161) next week.
Set forth below are responses to comments 9 through 28 from the Comment
Letter which are numerically keyed to the Staff's comments. Unless otherwise
indicated, page references in the headers are from the Comment Letter and refer
to EB's Form 10-K for the year ended January 29, 2005.
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 2
Electronics Boutique Holdings Corp. - Form 10-K, for the year ended January 29,
2005
Item 1. Business, page 1
9. In response to the Staff's comment, EB will provide the following
table that represents the sales contributed by each class of similar
products for the periods indicated. The table will appear in Item 1.
Business - Products of EB's amended Form 10-K:
1/29/05 1/31/04 2/1/03
------- ------- ------
Video Game Software 60.6% 58.5% 54.1%
Video Game Hardware 16.2 17.8 18.7
PC Software 10.0 10.5 12.0
Accessories 9.8 10.3 11.5
Other Products 3.4 2.9 3.7
----- ----- -----
Total 100.0% 100.0% 100.0%
Competitive Strengths
Pre-played Products, page 9
10. EB's disclosures indicate that it allows its customers to
trade-in pre-played games for store credit that can be applied
towards the purchase of new or pre-played products.
Alternatively, the customer can receive cash for a trade-in. EB
then sells these pre-played products in the normal course of its
retail operations. In addition to trade-in activity by its
customers, EB obtains a portion of its pre-played products from
some of the products returned by its customers from a previous
sale as defective. These products are inspected, refurbished and
repackaged by EB's reclamation center and returned to its stores
for sale to its customers. EB does not monitor how much of its
pre-played products are obtained from these two sources. Thus,
EB considers both sources of its pre-played products to be
generated from its walk-in customers.
EB will revise its disclosure in Item 1. Products - Pre-played
software and pre-played video game hardware of its amended Form 10-K
as follows:
PRE-PLAYED SOFTWARE AND PRE-PLAYED VIDEO GAME HARDWARE.
As a result of the proliferation of new titles and the tendency of
gamers to seek new game challenges after mastering a particular
title, a growing market for pre-played software has evolved. Also,
with changes in hardware technology and a growing
2
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 3
desire to own multiple gaming systems, a market for pre-played
hardware has developed. Our primary source for pre-played products
is from walk-in customers. We allow customers to trade in and
purchase pre-played games and hardware in our stores. In return for
a trade-in, customers can receive a store credit, which can be
applied towards the purchase of new or pre-played products, or they
can receive cash.
11. The operating costs for EB's reclamation center for the fiscal
year ended January 29, 2005 were $15.3 million. As of January
29, 2005, EB employed 412 associates, of which 234 were part-time
status, in connection with its reclamation center. The
reclamation process involves both video game software and
hardware. Software that is taken in trade from EB's customers at
its retail stores that appears to have excessive scratches or has
packaging that is excessively defaced will be sent from the
stores to the reclamation center. At the reclamation center,
EB's staff inspects the condition of the video game CD to
determine if the scratches are too severe for the reclamation
process to be successful. After this inspection, EB's staff uses
resurfacing (buffing) equipment to grind out the scratches from
the surface of the video game CD and then either repackages the
CD in its original case or in a replacement case for shipment
back to the stores for sale. Almost all video game hardware
systems are also returned from the retail stores to the
reclamation center for inspection, cleaning, testing and
repackaging before being offered for sale in EB's stores. EB's
staff is able to repair many inoperable hardware systems or
replace broken and missing components of these systems.
Operating costs of the reclamation center are capitalized to
inventory cost as the reclamation process is completed. These costs
are then reflected in cost of goods sold as the pre-played products
are sold.
Innovative Marketing, pages 10-11
12. The EB Edge Card program provides EB's customers with an
opportunity to obtain a 10% discount on the purchase of
pre-played products for a period of one year for a fee of $5.
This program is intended to generate loyalty on the part of EB's
customers and increase sales volume by incentivizing customers to
return to EB's stores to make pre-played purchases. The fee is
charged to partially offset the impact of the 10% discount given
for future purchases. The $5 fee is amortized to revenue on a
straight-line basis over the one-year period of the program. For
the fiscal year ended January 29, 2005, total sales under this
program were $4.5 million and the deferred revenue balance for
these sales as of January 29, 2005 was $3.3 million. EB does not
believe EITF 00-22 applies to its program as it is not point
based and is not contingent upon the customer making any
additional purchases during the one-year membership period. The
customer receives the 10% discount immediately upon joining and
continues to do so for all
3
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 4
subsequent purchases for the full one-year period, regardless of the
amount of purchases during the one-year period.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations, page 24
General
13. The disclosure concerning the speed of growth of the pre-played
category is largely attributable to the speed of growth in the
number of EB's strip-center stores. EB's disclosure indicates
the belief that the growth of its pre-played business will be
enhanced by the focus on the opening of these strip-center stores
which tend to have a higher percentage of their sales mix in
pre-played products than that of EB's mall-based stores. This is
primarily due to the higher level of value conscious customers
these stores tend to attract. Of the 479 new stores opened in
the year ended January 29, 2005, 359, or approximately 75%, were
of the strip-center format. EB's disclosures are not intended to
represent that it expects the overall sales of pre-played
products to exceed that of new video game products. As
requested, EB is submitting supplementally on Exhibit A the
information regarding sales, gross profits and gross margin
percentages for new and pre-played video game products. The
information set forth on Exhibit A is confidential information of
EB and EB hereby requests confidential treatment of such
information under Rule 83 of the Commission's Rules of Practice
(17 CFR 200.83).
Fiscal 2005 Compared to Fiscal 2004, page 24
14. EB incorrectly reported the impact of sales for the 479 new stores
opened during fiscal 2005 and the non-comparable sales for stores
opened in fiscal 2004. In fiscal 2005, EB closed 30 stores, and in
fiscal 2004, EB closed 16 stores.
The following is revised disclosure regarding the change in sales
for fiscal 2005 compared to fiscal 2004:
FISCAL 2005 COMPARED TO FISCAL 2004
REVISED
Net sales increased 24.9% from $1,588.4 million in fiscal 2004 to
$1,983.5 million in fiscal 2005. The increase in net sales was
primarily
4
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 5
attributable to the sales volume of approximately $182.8 million
resulting from 479 new stores opened during fiscal 2005, coupled
with the additional sales volume of approximately $142.5 million for
non-comparable stores opened during fiscal 2004, a 3.1%, or $49.3
million, increase in comparable store sales and a favorable foreign
currency exchange rate impact of $30.9 million on comparable store
sales in fiscal 2005. The increase in overall comparable store sales
in fiscal 2005 was due to a stronger new release schedule of
software titles, including top-sellers Halo 2 and Grand Theft Auto:
San Andreas.
Liquidity and Capital Resources
General
15. EB typically does not enter into long-term formal purchase
commitments. EB issues a purchase order request for goods in the
normal course of business to its vendors. These purchase order
requests are submitted to vendors and are an obligation of EB for
the specified terms indicated within each purchase order request,
if the vendor chooses to accept the purchase order request and
ship the goods to EB. Substantially all purchase order requests
that are accepted by the vendors are shipped to EB in less than
30 days. Therefore, EB did not consider any purchase order
requests outstanding as of January 29, 2005 to be purchase
obligations under Item 303(a)(5)(ii)(D) of Regulation S-K.
16. Deferred rent and other long-term liabilities consist of the
following components (in thousands):
January 29, 2005 January 31, 2004
---------------- ----------------
Deferred rent $20,364 $13,052
Forward contracts 12,154 8,139
Deferred revenue - 4,496
------- -------
Total $32,518 $25,687
Further disclosure relating to the forward foreign currency
contracts is included in footnote #1 (Foreign Currency section) to
the financial statements and a tabular analysis of the obligations
under EB's forward contracts is included in Item 7a as required by
Item 305 of Regulation S-K.
The obligation for rent is reflected within the operating lease
obligations as presented in the contractual obligations table.
5
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 6
Deferred revenue represents the value of non-compete covenants that
resulted from the termination of the Game Group Services Agreement.
17. Except as described below, EB does not have any off-balance sheet
arrangements. EB is contingently liable for 21 leases with a
maximum aggregate liability of $8 million. The lease with the
longest remaining term expires in 2011 and EB's maximum annual
obligation is $2 million in fiscal 2006. These obligations are
fully disclosed in footnote #1 (Guarantees) to our financial
statements. The lease obligations are guaranteed by an
indemnification agreement from James Kim, EB's Chairman of the
Board.
In response to the Staff's comment, the following paragraph relating
to off-balance arrangements will be provided in EB's amended Form
10-K:
Off-Balance Sheet Arrangements
We remain contingently liable for 21 BC Sports Collectibles store
leases assigned to Sports Collectibles Acquisition Company ("SCAC")
on November 2, 2002. SCAC is owned by the family of James Kim, the
Chairman of the Board. Mr. Kim has entered into an indemnification
agreement with us with respect to these leases. If SCAC were to
default on these lease obligations, we would be liable to the
landlords for up to $8.0 million in minimum rent and landlord
charges as of January 29, 2005. These lease obligations extend
through 2011. Due to Mr. Kim's agreement to indemnify us for any
costs arising from the BC Sports Collectibles leases, no accrual was
recorded for this potential liability.
Consolidated Financial Statements
Consolidated Balance Sheets, page 34
Accounts Receivable
18. The following is an analysis of the accounts receivable trade and
vendors balances as requested:
January 29, 2005 January 31, 2004
Credit card receivables $3,771 $3,702
Wholesale trade receivables 4,940 5,013
Advertising income - third party 2,326 262
Merchandise vendor receivables 4,597 9,848
Game Group management fee -- 2,742
Miscellaneous 2,051 840
------- -------
Total $17,685 $22,407
6
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 7
Wholesale trade receivables are for sales made on terms, not a point
of sale transaction at the retail store level. Merchandise vendor
receivables are primarily due to marketing income receivables and
product returns that had been previously paid.
The amounts reflected in these balances are not based on estimates.
Notes to Consolidated Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies
General
19. In response to the Staff's comment, the following disclosure will
be included in EB's amended Form 10-K:
Gift Certificates
The Company records gift certificate sales as a liability until the
gift certificates are redeemed by the customer. The liability is
relieved when a gift certificate is used by a customer to make a
purchase.
The amount of liability reflected in the financial statements for
each period presented is the total outstanding balance of all
unredeemed gift certificates. This balance is included in the table
presented in footnote #4 entitled Accrued Expenses.
Description of Business, page 38
20. EB has three operating segments (North America, Australia/New
Zealand, and Europe). This determination is based on the
requirements of paragraph 10 of SFAS 131 as follows:
- Each segment engages in business activities from which revenues
are earned and expenses incurred.
- The operating results of these segments are regularly reviewed by
the Chief Operating Decision Maker (CODM) to allocate resources
and assess performance of each segment.
- Discrete financial information is available for each segment.
While EB has the three operating segments, they are not reportable
segments. Paragraph 17 of SFAS 131 states that two or more operating
segments may be aggregated into a single operating segment if
aggregation is consistent with the objectives and basic principle of
SFAS 131, if the segments have similar
7
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 8
economic characteristics, and if the segments are similar in each of
the following areas:
(a) The nature of the products and services
(b) The nature of the production processes
(c) The type or class of customer for their products and services
(d) The method used to distribute their products or provide
their services
(e) If applicable, the nature of the regulatory environment,
for example, banking, insurance or public utilities
The diagram of paragraph 127 of SFAS 131 shows that the segments
should be aggregated before determining whether or not the segments
meet the quantitative thresholds to be reportable segments. EB notes
that it has only one reportable segment after aggregation based on
the following criteria above as follows:
- SFAS 131 paragraph 17 states that operating segments often
exhibit similar long-term financial performance if they have
similar economic characteristics. An example provided in
paragraph 17 is that similar long-term average gross margins
for two operating segments would be expected if their economic
characteristics are similar. The average gross margin
percentages for the past three years for the Company's
segments were: North America 23.7%, Australia/New Zealand
25.0% and Europe 23.5%. EB believes that the similarity of
these will likely continue in the future.
- EB's segments are similar in respect of each of the following
areas:
(a) The nature of the products and services are video game
software, hardware and related accessories and PC software for
all three operating segments.
(b) EB is a retailing company and, therefore, the nature of the
production processes does not apply.
(c) The type or class of customer for EB's products and services
for all three operating segments are consumers that purchase
goods at EB's retail stores or through EB's commercial
website.
(d) The method used to distribute EB's products or services is the
same for all three operating segments, which is through retail
stores or EB's commercial website.
(e) The nature of the regulatory environment is not applicable
to EB.
Paragraph 38 of SFAS 131 requires disclosure of revenues and
long-lived assets regarding Geographic Areas which are material. EB
has disclosed the required information under this paragraph in
footnote #1 (Description of Business) to the financial statements.
8
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 9
SFAS 131 defines CODM as a function, not necessarily a manager with
a specific title. The CODM for EB consists of the Chief Executive
Officer.
As requested, EB is submitting supplementally on Exhibit B
representative samples of the financial information reviewed by the
CODM as well as a copy of EB's organizational chart.
- Consolidated profit and loss forecast for current quarter -
updated weekly
- Monthly profit and loss statement for consolidated company and
each subsidiary reflecting month-to-date and year-to-date
actual, and last year results (consolidated company sample
provided for end of first quarter).
- Forecast of monthly sales and gross margin by country and
consolidated company
- Daily report of comparable store sales by country reflecting
day, month-to-date, quarter-to-date and year-to-date results.
- On-line access to daily sales and gross margin for each
country at store level and product level (sample of various
system screen print-outs for U.S. subsidiary).
The information set forth on Exhibit B is confidential information of EB
and EB hereby requests confidential treatment of such information under Rule 83
of the Commission's Rules of Practice (17 CFR 200.83).
Merchandise Inventories, page 39
21. As requested, EB is submitting supplementally on Exhibit C the
information regarding a summary of new and pre-played video game
products included in inventory. The information set forth on Exhibit
C is confidential information of EB and EB hereby requests
confidential treatment of such information under Rule 83 of the
Commission's Rules of Practice (17 CFR 200.83).
Vendor Programs, page 39
22. While the details of the various vendor allowances that EB receives
from its vendors differ from vendor to vendor, the programs are very
similar in operation.
A typical program requires EB to commit to certain merchandising and
marketing initiatives in order to be eligible to receive the
merchandising and marketing allowances from the vendor. These
initiatives include print advertising (newspaper, magazine,
catalogs), mailers, flyers, television advertising, outdoor
advertising, product catalog advertising, in-store display
promotions, store-front display promotions, internet advertising,
product training and promotion at EB's trade show, and participation
in EB's vendor-of-the-month program. In order to receive allowance
funds, EB first submits to the vendor a proposal for an upcoming
advertising event, and the vendor elects whether to participate in,
or
9
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 10
contribute to, the event. Agreements memorializing the nature of the
event, EB's required performance and the vendor's contribution are
individually negotiated for each such marketing or promotional event
(such agreements are referred to as "Event Agreements"). For
example, if EB proposes a print advertising campaign, the Event
Agreement typically specifies the date(s) of the campaign, the
circulation of the newspaper(s), the price for the different size
advertisements, the product(s) to be advertised and any other
relevant details for the campaign. For an in-store display, the
Event Agreement typically specifies the time period for the display,
the nature of the display (e.g., fixture, banner, bag stuffers), the
price and any additional charges for the different types of
displays, the product(s) to be displayed, shipping instructions and
charges for any marketing materials, and procedures for vendors to
follow to verify the displays.
Due to the fact that EB must complete the required marketing and
merchandising initiatives prior to earning the reimbursement, EB
records the reimbursement in its financial statements in the same
period that EB has completed its responsibilities under each Event
Agreement. In a small number of cases when an event starts in one
period and ends in a subsequent period, EB prorates the
reimbursement over the appropriate periods.
23. In response to the Staff's comment, the following are revised
disclosures that will be included in EB's amended Form 10-K:
* * *
REVISED - FOOTNOTE #1
Vendor Programs
The Company receives vendor allowances for certain advertising and
promotional events offered to a majority of its vendors. These
events generally cover a period from a few days up to 30 days and
include items such as product catalog advertising, in-store display
promotions, Internet advertising, co-op print advertising, product
training and promotion at the Company's trade show and inclusion in
its vendor-of-the-month program. The allowance for each event is
negotiated with the vendor and requires specific performance by the
Company to be earned.
In fiscal 2003, the Company adopted Emerging Issues Task Force
(EITF) Issue 02-16, "Accounting by a Customer (Including a Reseller)
for Cash Consideration Received from a Vendor," effective as of the
beginning of fiscal 2003. In accordance with the provisions of Issue
02-16, vendor advertising allowances that exceed specific,
incremental and identifiable costs incurred in relation to the
advertising and promotional events offered by the Company to its
vendors are
10
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 11
classified as a reduction in the purchase price of merchandise. See
Note 2 for further discussion.
The Company received vendor allowances totaling $70.7 million, $64.0
million and $54.1 million in fiscal 2005, fiscal 2004 and fiscal
2003, respectively. Advertising expenses, excluding the vendor
allowances, were $26.5 million, $16.8 million and $11.3 million in
fiscal 2005, fiscal 2004 and fiscal 2003, respectively. It is
unlikely that the Company would continue to incur the same level of
advertising expense without this vendor support.
REVISED MD&A
CHANGE IN ACCOUNTING PRINCIPLE
In November 2002, the Emerging Issues Task Force ("EITF") reached
consensus on Issue 02-16, "Accounting by a Customer (Including a
Reseller) for Cash Consideration Received from a Vendor." Issue
02-16 addresses the accounting for cash consideration received from
a vendor by a reseller for various vendor funded allowances,
including cooperative advertising support. Issue 02-16 was effective
for new arrangements or modifications to existing arrangements
entered into after December 31, 2002, although early adoption was
permitted. We elected to adopt early, effective February 3, 2002,
the provisions of Issue 02-16. In accordance with the provisions of
Issue 02-16, vendor advertising allowances which exceed specific,
incremental and identifiable costs incurred in relation to the
advertising and promotional events we conduct for our vendors are to
be classified as a reduction in the purchase price of merchandise
and recognized in income as the merchandise is sold. The amount of
vendor allowances to be recorded as a reduction of inventory was
determined by calculating the ratio of vendor allowances in excess
of specific, incremental and identifiable advertising and
promotional costs to merchandise purchases. We then applied this
ratio to the value of inventory in determining the amount of the
vendor reimbursements to be recorded as a reduction to inventory
reflected on the balance sheet. This methodology resulted in a $7.6
million reduction in inventory as of February 3, 2002, the date of
adoption of Issue 02-16. The $7.6 million, $4.8 million net of tax,
was recorded as a cumulative effect of change in accounting
principle in fiscal 2003 for the impact of this adoption on prior
fiscal years.
Prior to our adoption of Issue 02-16, we recognized all vendor
advertising allowances as an offset to selling, general and
administrative expense. These allowances exceeded the specific,
incremental costs of the advertising and promotional events
conducted by us. The portion of the allowances in excess of the
specific, incremental costs was recorded as an offset to other
operating expenses within selling, general and administrative
expense. These other operating expenses, which were incurred to
support advertising and promotional
11
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 12
expenses, included: marketing and merchandising department expenses
to develop, promote and manage the events; direct store and store
supervisory payroll expenses to implement, manage and monitor the
events; distribution expenses associated with receiving and shipping
of materials necessary for the events; and corporate expenses
related to the design, production and maintenance of Internet
advertising events. In fiscal 2005, fiscal 2004 and fiscal 2003, we
recorded vendor advertising allowances as a reduction in cost of
goods sold in the amount of $52.0 million, $49.4 million and $42.9
million, respectively. In fiscal 2005, fiscal 2004 and fiscal 2003,
we recorded vendor advertising allowances as a reduction of selling,
general and administrative expense in the amount of $19.3 million,
$13.7 million and $8.8 million, respectively.
As of January 29, 2005 and January 31, 2004, $10.2 million and $10.8
million, respectively, of our vendor advertising allowances have
been recorded as a reduction of inventory.
* * *
The items requested in the Staff's comment letter have all been
addressed except for the following: EB is unable to make a statement
regarding the impact of vendor advertising allowances on its results
of operations in terms of generating additional revenues. EB
believes that its advertising programs are effective and generate
customer interest and traffic to its retail stores and Internet
site. EB also believes that the absence of vendor advertising
allowances and a reduction in EB's advertising programs would
negatively impact the results of operations. However, EB is unable
to specifically quantify the benefit from the advertising allowance
or the impact of any reduction in those allowances.
Note 6 - Game Group Services Agreement, page 46
24. EB's disclosure regarding the Game Group Services Agreement
reflects that EB terminated this agreement on January 30, 2004
for an agreed amount of $15 million. Of this amount, $10.3
million was recorded as deferred revenue relating to the value of
certain non-compete covenants expiring in fiscal 2005 and fiscal
2006 as fully described in EB's disclosure. The valuation of
these non-compete covenants was determined through an independent
appraisal analysis. The remaining $4.7 million was considered to
be a premium for the early termination of the agreement that was
to expire on January 31, 2006 and was immediately recognized by
EB as income.
Note 7 - Related Party Transactions, page 46
25. In fiscal 2002, EB recorded a restructuring and asset impairment
charge in the amount of $8.8 million (pre-tax) relating to the
decision to sell the BC Sports
12
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 13
Collectibles business. These charges consisted of a $1.9 million
write down of inventory, a $2.0 million write down of store
leasehold improvements, a $0.8 million write down of furniture,
fixtures and equipment, an accrual for professional fees of $0.5
million and $3.6 million in lease termination costs. On November 2,
2002, the business was sold for $2.2 million. At this time EB
recorded a reversal of $3.6 million related to lease termination
costs not realized due to the sale. Therefore a net loss of $3.0
million was recognized on the sale of the BC Sports Collectibles
business over the two year period. The above information was
disclosed by EB in fiscal 2002 and fiscal 2003.
Note 12 - Legal Contingencies, page 50
26. With respect to the employment suit filed in New York State, the
plaintiff is seeking to recover damages on behalf of current and
former store managers and assistant store managers of Electronics
Boutique of America Inc. under the Fair Labor Standards Act
("FLSA") and New York State law. The plaintiff alleges that
Electronics Boutique of America Inc. improperly classified store
managers as exempt from overtime, and he seeks the recovery of
wages for overtime hours worked and related relief. The plaintiff
also alleges that Electronics Boutique of America Inc. failed to
pay assistant store managers for all of the hours of overtime
that they allegedly worked, and he seeks recovery of wages for
these hours and related relief. Under the FLSA, if it is
determined that Electronics Boutique of America Inc. failed to
pay all of the hours of overtime, an employee may be able to
recover up to three years of back overtime pay, together with an
equal amount as liquidated damages and costs and attorneys' fees.
Under New York State law, if it is determined that Electronics
Boutique of America Inc. failed to pay all of the hours of
overtime, an employee may be able to recover up to six years of
back overtime pay, as well as costs and attorneys' fees. EB is
unable to estimate a range of possible loss for this matter since
the suit is still in its very early stages. The Court has not yet
ruled on EB's motion to dismiss the plaintiff's New York State
law claims, nor has the Court ruled on the plaintiff's motions to
maintain his claims as a collective action under the FLSA and/or
a class action under New York law. The parties also have not yet
responded to any discovery.
Item 15. Exhibits, Financial Statement Schedules and Report on Form 8-K
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts, page 53
27. EB's policy for sales returns is 14 days from original sales date.
EB does record a reserve for estimated sales returns based on this
policy but did not reflect these amounts in Schedule II as it
believes them to be immaterial. The reserve amounts
13
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 14
as of January 29, 2005, January 31, 2004 and February 1, 2003 were
$181,000, $102,000 and $115,000, respectively.
Form 10-Q for Fiscal Quarter Ended April 30, 2005
General
28. Where applicable, EB will address the issues noted in comments 9
through 27 in its interim financial statements. EB does not believe
that its Quarterly Report of Form 10-Q for the quarter ended April
30, 2005 requires amendment.
Management of EB understands that they are responsible for the adequacy
and accuracy of disclosures in EB's filings. Management of EB also understands
that any comments by the Staff or any changes in EB's disclosures in response to
Staff comments do not foreclose the Commission from taking any action with
respect to the filings and that EB may not assert this action as a defense in
any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have any questions or comments regarding the foregoing, please do
not hesitate to contact me at 215-569-4281.
Very truly yours,
/s/ William W. Matthews, III
William W. Matthews, III, on
behalf of Klehr, Harrison,
Harvey, Branzburg & Ellers LLP
14
H. Christopher Owings
Securities and Exchange Commission
July 1, 2005
Page 15
cc: R. Richard Fontaine
David W. Carlson
GameStop Corp.
Jeffrey W. Griffiths
James A. Smith
Electronics Boutique Holdings Corp.
Michael N. Rosen, Esq.
Jay M. Dorman, Esq.
Gary W. Wolff, Esq.
Jill L. Grappell, Esq.
Bryan Cave LLP
Leonard M. Klehr, Esq.
Michael Rittinger, Esq.
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
15
