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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ELECTRONICS BOUTIQUE HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)

Registrant's telephone number, including area code: 610/430-8100

        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 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 ý    No o

        At December 13, 2002, there were 25,870,553 shares of common stock, $.01 par value per share, outstanding.

ELECTRONICS BOUTIQUE HOLDINGS CORP.
AND SUBSIDIARIES

INDEX

2

ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

3

ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

4

ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)

See accompanying notes to consolidated financial statements.

5

ELECTRONICS BOUTIQUE HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation

        The consolidated financial statements include the accounts of Electronics Boutique Holdings Corp. and its wholly owned subsidiaries ("Electronics Boutique"). All intercompany transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

        The accompanying unaudited consolidated financial statements of Electronics Boutique have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the more complete disclosures contained in the consolidated financial statements and notes thereto for the fiscal year ended February 2, 2002 contained in Electronics Boutique's Form 10-K filed with the Securities and Exchange Commission. Operating results for the thirteen and thirty-nine week period ended November 2, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending February 1, 2003.

(2)  Net Income (Loss) Per Share

        Basic net income (loss) per share is computed on the basis of the weighted average number of shares outstanding during the period. Diluted net income per share is computed on the basis of the weighted average number of shares outstanding during the period plus the dilutive effect of stock options.

(3)  Income Taxes

        Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(4)  Debt

        Electronics Boutique has available a revolving credit facility with Fleet Capital Corporation for maximum borrowings of $50.0 million. As of November 2, 2002, there were no outstanding borrowings on this facility.

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(5)  Comprehensive Income

        Comprehensive income is computed as follows (amounts in thousands):

(6)  Restructuring and Asset Impairment Charge

        In the fourth quarter of the fiscal year ended February 2, 2002, we decided to close all of our 29 EB Kids stores and sell our 22 store BC Sports Collectibles business. The closing of the EB Kids stores was completed in May 2002. The sale of our 22 store BC Sports Collectibles business was closed in November 2002.

        As a result of these decisions, we recorded a $12.6 million pre-tax charge in the fiscal fourth quarter and year ended February 2, 2002, consisting of the write-down of fixed assets, estimated lease termination costs, and related expenses. To determine the charge, management made various estimates and assumptions regarding the fair values of fixed assets as well as estimating the costs associated with terminating certain leases. Actual costs could differ from these estimates.

        The following table summarizes activity in the restructuring accrual for November 2, 2002, August 3, 2002, May 4, 2002 and February 2, 2002:

        In the fourth quarter of fiscal year ended 2002, the $2.9 million in "Other" related to the write-down of $2.5 million of EB Kids fixed assets and the write-off of other assets.

        In the first quarter of fiscal 2003, Electronics Boutique made $1.2 million in cash payments relating to the termination of certain EB Kids store leases and $89,000 in cash payments for professional services associated with the restructuring. In addition we reversed $0.5 million of the restructuring accrual in the thirteen weeks ending May 4, 2002. The reversal of the accrual was due to actual costs being lower than original estimates for the termination of leases of the EB Kids stores.

        In the second quarter of fiscal 2003, Electronics Boutique made $986,000 in cash payments relating to the termination of certain EB Kids store leases and $102,000 in cash payments for professional services associated with the sale of the BC Sports Collectibles business. The $134,000 in "Charges" represents actual costs for the discontinuation of the EB Kids stores and the sale of the BC Sports Collectibles business being higher than original estimates.

        In the third quarter of fiscal 2003, Electronics Boutique made $229,000 in cash payments for professional services associated with the restructuring. The $112,000 in "Charges" represents actual costs for the discontinuation of the EB Kids stores and the sale of the BC Sports Collectibles business being higher than original estimates. In addition we reversed $3.4 million of the restructuring accrual for lease termination costs that were not realized due to the sale of the BC Sports Collectibles

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business. The $2.8 million in "Other" relates to the write-off of fixed assets related to the BC Sports Collectibles business.

        As of November 2, 2002, $405,000 of the restructuring accrual represents professional services related to the sale of the BC Sports Collectibles business. The remaining $226,000 primarily relates our estimate of the lease assignment option included in the asset purchase agreement. (See Note 9)

(7)  New Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 142, "Goodwill and Other Intangible Assets." FASB Statement 142 states that goodwill and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least annually.

        As of November 2, 2002, we had net unamortized goodwill and identifiable intangible assets of $10.8 million. Electronics Boutique has finalized its impairment test and, based on the analysis, no impairment charge is required.

        In accordance with FASB Statement 142, the following tables show the intangible assets and goodwill as of November 2, 2002.

Goodwill

        The changes in carrying amount of goodwill for the thirty-nine weeks ended November 2, 2002 are as follows (amounts in thousands):

(1)

On May 1, 2002, a subsidiary of Electronics Boutique purchased an additional 20% of the Italian subsidiary from its minority owner. We now own 90% of our Italian subsidiary.

(2)

During the second quarter of fiscal 2003 an adjustment was made to the purchase price for our acquisition completed in Sweden in the fourth quarter of fiscal 2002.

(3)

During the third quarter of fiscal 2003 Electronics Boutique acquired the assets of a five store retail chain.

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Goodwill and Intangible Asset

        The discontinuing of goodwill amortization in accordance with FASB Statement 142 did not change the results of the basic or diluted earnings per share for the thirteen and thirty-nine weeks ended November 3, 2001. The following table shows the tax effected adjustment to net income (loss).

(8)  Reclassification

        Effective in the second quarter of fiscal 2003, Electronics Boutique changed the income statement classification for pre-owned merchandise trade-in activity to be consistent with industry practice. Previously, we recorded a reduction to both revenue and cost of goods sold for the cost of the pre-owned merchandise accepted for trade. The reclassification of these transactions increased both revenues and cost of goods sold by $12.9 million and $37.1 million for the thirteen and thirty-nine week periods ended November 3, 2001, respectively. There was no impact on operating income or net income for any period as a result of this reclassification.

(9)  Sale of BC Sports Collectibles Business

        Effective as of the close of business on November 2, 2002, Electronics Boutique closed on the sale transaction of its BC Sports Collectibles business to Sports Collectibles Acquisition Corporation ("SCAC") for $2.2 million in cash and the assumption of the twenty-two store lease related liabilities. The family of James Kim, who is Chairman of Electronics Boutique and a significant investor in our outstanding common stock, owns SCAC. The transaction includes the sale of all assets of the business including inventory, intellectual property and furniture, fixtures and equipment, and transitional services to be provided to SCAC for a six-month period after the closing for an additional $300,000. We are continuing to obtain the necessary third-party consents to assign the store leases to SCAC. As we may remain contingently liable for theses leases, Mr. Kim has entered into an Indemnification Agreement with us for these leases. The purchase agreement provides SCAC the right, exercisable at any time after the second anniversary of the closing date, to assign back to us two of the store leases. We have retained an accrual of $204,000 for the estimated lease termination costs related to this option. These actual costs could be higher than this amount. As of November 2, 2002, we had a receivable from SCAC in the amount of $243,000 related to the transaction. This receivable was paid by SCAC in December 2002.

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Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        Electronics Boutique believes that it is among the world's largest specialty retailers of electronic games. Our primary products are video games and PC entertainment software, supported by the sale of video game hardware and accessories. As of November 2, 2002, we operated a total of 1,078 stores in the United States, Australia, Canada, Denmark, Germany, Italy, New Zealand, Puerto Rico, Sweden and South Korea, primarily under the names Electronics Boutique and EB Games. We operate an e-commerce website under the URL address of ebgames.com. We also provide management services for Game Group Plc. (formerly Electronics Boutique Plc.), which operates over 300 stores and department store-based concessions primarily in the United Kingdom and Ireland. We are a holding company and do not have any significant assets or liabilities, other than all of the outstanding capital stock of our subsidiaries.

        Effective in the second quarter of fiscal 2003, Electronics Boutique changed the income statement classification for pre-owned merchandise trade-in activity to be consistent with industry practice. Previously, we recorded a reduction to both revenue and cost of goods sold for the cost of the pre-owned merchandise accepted for trade. The reclassification of these transactions increased both revenue and cost of goods sold by $12.9 million and $37.1 million for the thirteen and thirty-nine week periods ended November 3, 2001, respectively. There was no impact on operating income or net income for any period as a result of this reclassification.

Results of operations

        The following table sets forth certain income statement items as a percentage of total revenues for the periods indicated: