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

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-24603

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

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

        Securities registered pursuant to Section 12(b) of the Act:

        Securities registered pursuant to Section 12(g) of the Act:

        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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES ý    NO o

        As of August 3, 2002, the aggregate market value of common stock held by non-affiliates of the registrant, based upon the closing sale price as reported on the NASDAQ National Market of $24.01 per share, was approximately $342,239,813. Shares of the registrant's common stock owned by its executive officers and directors were excluded from this calculation; however, such exclusion does not represent a conclusion by the registrant that the executive officers or directors are affiliates of the registrant.

        At April 24, 2003, there were 25,891,158 shares of common stock outstanding.

Documents Incorporated by Reference

        Portions of the definitive Proxy Statement for the 2003 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.

FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2003

INDEX

PART I

Preliminary Note Regarding Forward-Looking Statements

        When used in this Annual Report on Form 10-K, the words "expect," "estimate," "anticipate," "intend," "predict," "believe," and similar expressions and variations thereof are intended to identify forward-looking statements within the meaning of and subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Forward-looking statements appear in a number of places in this Annual Report on Form 10-K and include statements regarding the intent, belief or current expectations of Electronics Boutique, its directors or its officers with respect to, among other things: (i) trends affecting Electronics Boutique's financial condition or results of operations; and (ii) Electronics Boutique's business and growth strategies. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results or outcomes may differ materially from those projected in the forward-looking statements as a result of various factors, including those set forth in Item 1. "Business—Risk Factors".

Item 1. Business

General

        We believe we are among the world's largest specialty retailers of video game hardware and software, PC entertainment software and related accessories and products. As of February 1, 2003, we operated 1,145 stores, primarily under the names Electronics Boutique and EB Games, in Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, Puerto Rico, South Korea, Sweden and the United States. We also operate a commercial website under the URL address www.ebgames.com. Our compound annual growth rates for sales and pre-tax net income from fiscal 1999 through fiscal 2003 were 21.7% and 16.9%, respectively (after giving effect to the adoption of EITF 02-16 as of the beginning of fiscal 2003).

        The interactive entertainment industry is an approximately $11.7 billion market in the United States that has grown at a compound annual growth rate of 21.2% over the last two years. The introductions of Sony's PlayStation 2 in late 2000, Nintendo's Game Boy Advance in June 2001, and Nintendo's GameCube and Microsoft's Xbox in November 2001, represent the most significant video game hardware introductions since 1996. According to International Development Group, a leading market research firm in our industry, calendar 2003 is expected to be the peak year for hardware unit sales in the United States, with console and handheld sales expected to reach almost 24 million units. With the growing hardware installed base, we expect to see significant growth in software sales over the next two years. We believe our position, as the destination of choice for the avid gamer, will enable us to benefit from this rapid industry growth.

        We serve the avid gamer who demands immediate access to new release titles and who generally purchases more video game titles and PC entertainment software than the average gamer. As a result, our tie ratio of software units sold to hardware units sold is consistently above the industry average. We believe that we attract both the avid and casual gamer due to our:

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specialty store focus in malls and strip centers;



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ability to stock sought-after new releases;



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wide variety of pre-owned titles;



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breadth of product selection; and



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knowledgeable sales associates.

        We believe that our vendors recognize the importance of our customer base and, consequently, often grant us disproportionately large allocations of new release titles and products. We support our

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stores through a highly effective centralized inventory management system. This system enables us to execute our "first-to-market" new release strategy and efficiently manage overall inventory levels in order to maximize the sale of new products during peak periods and avoid markdowns as titles mature.

        We were incorporated under the laws of the State of Delaware in March 1998 as a holding company for our operating activities. Our predecessor was incorporated in the Commonwealth of Pennsylvania in 1977.

        We maintain an informational website under the URL address www.ebholdings.com. The reports we file pursuant to the Exchange Act (Form 10-K, Form 10-Q, Form 8-K) may be accessed through this website following our filings with the Securities and Exchange Commission.

Risk Factors

Risks Related to the Interactive Entertainment Industry

Manufacturers may fail to introduce or delay the introduction of new products, which could hurt our ability to attract and retain customers.

        We are highly dependent on the introduction of new and enhanced video game hardware and software and PC entertainment software by manufacturers for our success. If manufacturers fail to introduce or delay the introduction of new products, we would have difficulty attracting and retaining customers to buy the products we sell, which could adversely affect our business. Many of the factors that impact our ability to sell new products are beyond our control, including:

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our dependence upon manufacturers to introduce new or enhanced video game systems;



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our reliance upon continued technological development;



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our dependence upon software publishers to develop popular game and entertainment titles for game systems or PCs; and



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the availability and timeliness of new product releases.

The interactive entertainment industry is cyclical, which could cause significant fluctuations in our earnings.

        Demand for video game systems and software fluctuates in relation to the introduction of next-generation hardware and related software titles. Manufacturers have historically introduced next-generation systems every four to five years. Sales volumes of new video game systems and related software titles are generally higher in the initial stages of the products' life cycles. As a product reaches the end of its life cycle, demand for the product will generally decline as our customers anticipate the introduction of next-generation products. If leading video game system manufacturers fail to continue to introduce next-generation systems, or fail to enhance existing systems on a periodic basis, our sales of hardware systems and related software titles will decrease, which could have an adverse effect on our results of operations and financial condition.

If our vendors fail to provide marketing and merchandising support at historical levels, our sales and earnings could be negatively impacted.

        The manufacturers of video game hardware and software and PC entertainment software have typically provided retailers with significant marketing and merchandising support for their products. As part of this support, we receive cooperative advertising and market development payments from these vendors. These cooperative advertising and market development payments enable us to actively promote and merchandise the products we sell and drive sales at our stores and on our website. We

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cannot assure you that vendors will continue to provide this support at historical levels. If they fail to do so, our sales and earnings could be negatively impacted.

If we fail to keep pace with rapidly changing industry technology, we will be at a competitive disadvantage.

        The interactive entertainment industry is characterized by swiftly changing technology, evolving industry standards, frequent new and enhanced product introductions and rapid product obsolescence. These characteristics require us to respond quickly to technological changes and to understand their impact on our customers' preferences. If we fail to keep pace with these changes, our business may suffer. In addition, some of these technological changes, such as the ability to download video games onto PCs or play games over the Internet through consoles could make the retail sale of video games and PC entertainment software obsolete. If advances in technology continue to expand our customers' ability to access software through other sources, our sales and earnings could be negatively impacted.

Risks Related to Our Business

If we fail to manage new store openings or renew existing locations as they expire, our operational and financial results could be negatively impacted.

        Our growth depends on our ability to open and operate new stores profitably. We currently intend to open approximately 275 new stores in fiscal 2004. Our ability to open new stores in a timely and profitable manner depends upon numerous contingencies, including our ability to locate and lease suitable store sites, build out these sites on a timely and cost-effective basis, hire and train new associates, and integrate these stores into our existing operations. We cannot assure you that we will be able to achieve our planned expansion or that our new stores will achieve sales and profitability levels comparable to our existing stores.

        As of February 1, 2003, approximately 10% of our stores were operated under leases with terms that expire in less than one year. We cannot assure you that we will be able to maintain these existing store locations as leases expire or that we will be able to locate suitable alternative sites on acceptable terms.

If we do not compete effectively, we will lose customers and our earnings will decline.

        We face intense competition in the interactive entertainment industry and this could lead to reduced sales and profit margins. We compete with:

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video game and PC software specialty stores;



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mass merchants;



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toy retail chains;



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online retailers;



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direct-to-consumer software publishers;



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office supply, computer product and consumer electronics superstores; and



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emerging alternative channels of distribution.

        Some of these competitors have longer operating histories and significantly greater financial, managerial, creative, sales and marketing and other resources than we have. We also compete with other forms of entertainment activities, including movies, television, theater, sporting events and family entertainment centers.

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If we fail to successfully complete and integrate future acquisitions, our business could be negatively impacted.

        As part of our efforts to grow and compete, we may engage in acquisitions. Our plans to pursue future acquisitions are subject to our ability to negotiate favorable terms for these acquisitions. Accordingly, we cannot assure you that future acquisitions will be completed. In addition, to facilitate future acquisitions, we may take actions that could dilute the equity interests of our stockholders, increase our debt or cause us to assume contingent liabilities, all of which may have a detrimental effect on the price of our common stock. Finally, if any acquisitions are not successfully integrated with our business, our ongoing operations could be adversely affected.

Our services agreement with The Game Group Plc restricts our ability to expand our business in Europe and litigation with Game Group could adversely affect our business and earnings.

        Our services agreement with Game Group (formerly The Electronics Boutique Plc) prohibits us from competing with Game Group in the United Kingdom until January 2007. The services agreement also requires that, until January 2006, we report to Game Group any opportunity relating to the interactive entertainment retailing business that we become aware of in Europe (excluding Scandinavia) which could be made available to Game Group and that we use reasonable endeavors to procure that each and every such opportunity is first offered to Game Group, on the same terms, including as to cost. As a result, Game Group could impede our expansion in Europe by pursuing opportunities in Europe which we report to it, and entering into agreements with our intended business partners. Game Group has publicly stated that it intends to expand its business into continental Europe. Our compliance with the services agreement will delay and could prevent, limit, or increase the cost of, any acquisitions in continental Europe. We have in the past had disagreements with Game Group in connection with the services agreement. These disagreements have resulted in litigation and could result in additional litigation.

        Under the services agreement, Game Group is responsible for the payment of fees equal to 1.0% of Game Group's adjusted sales, plus a bonus calculated on the basis of net income in excess of a pre-established target set by Game Group. In fiscal 2003, we received approximately $7.4 million in management fees from Game Group.

Our operating results fluctuate from period to period, which could result in a lower price for our common stock.

        Our business is affected by seasonal patterns. We historically generate our highest net sales, management fees and net income during the fourth quarter, which includes the holiday selling season. During fiscal 2003, we generated approximately 40.5% of our net sales and approximately 86.0% of our operating income during the fourth quarter. Accordingly, any adverse trend in net sales during the holiday selling season could adversely affect our results of operations for the fourth quarter and the entire year. In addition to our dependence on fourth quarter sales, our results fluctuate from quarter to quarter depending upon a variety of factors, most of which we can not control. These include:

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the timing of new product introductions;



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the timing of new store openings;



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general economic conditions;



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weather;



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shifts in the timing of certain holidays or promotions; and



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changes in our merchandise mix.

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        These fluctuations make the prediction of our financial results on a quarterly basis difficult.

If we fail to obtain products from our domestic and overseas suppliers, our sales and gross profit will be adversely affected.

        We rely heavily upon our suppliers to provide us with new products as quickly as possible. We purchase a significant amount of products from Sony Computer Entertainment, Inc., Electronic Arts, Inc., Microsoft Corp. and Nintendo of America, Inc., and often receive shipments of new release products which are disproportionately large relative to our share of the overall consumer video game market. During fiscal 2003, our purchases from Sony, Electronic Arts, Microsoft and Nintendo represented 14.8%, 12.3%, 11.5% and 9.3%, respectively, of our gross purchases. We believe that the loss of any of these suppliers could reduce our product offerings, which could cause us to be at a competitive disadvantage. In addition, our financial performance largely depends upon the business terms we obtain from our suppliers, including competitive prices, unsold product return policies, advertising and market development allowances, freight charges and payment terms. Our failure to maintain favorable business terms with our suppliers could adversely affect our ability to offer products to consumers at competitive prices.

        During fiscal 2003, approximately one-third of our product purchases were of products manufactured outside of the United States, primarily in Asia. To the extent that our distributors rely on overseas sources for their products, any event causing a disruption of imports, including the imposition of import restrictions, could adversely affect our business. Trade restrictions in the form of tariffs or quotas, or both, applicable to the products we sell could also affect the importation of these products and could increase the cost and reduce the supply of products available to us.

If our management information systems fail to perform or are inadequate, our ability to manage our business could be disrupted.

        We rely on a warehouse management system used in our domestic distribution centers and an inventory replenishment system to track sales and inventory. Our systems allow us to execute our "first-to-market" new release strategy, to keep our stores in stock at optimum levels and to move inventory efficiently. If our management information systems fail to adequately perform these functions, our business could be adversely affected.

Our international operations expose us to numerous risks.

        We have international retail operations in Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, South Korea and Sweden. Net sales in these foreign countries represented approximately 19% of our net sales in fiscal 2003. Because release schedules for hardware and software introduction in these countries often differ from release schedules in the United States, the timing of increases and decreases in foreign sales may differ from the timing of increases or decreases in domestic sales. We are also subject to a number of other factors which may impair our current or future international opportunities. These include:

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economic downturns;



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currency exchange rate fluctuations;



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international incidents; and



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government instability.

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We depend upon our key personnel and they would be difficult to replace.

        Our success depends upon our ability to attract, motivate and retain key management associates for our stores and skilled merchandising, marketing and administrative personnel at our headquarters. While we have been successful in maintaining the continuity of our management team, including our executive officers, we cannot assure you that we will continue to be successful retaining such personnel. If we fail to retain qualified personnel, our business could suffer.

Other Risks

The Kim family has significant control of our company and can make decisions that could adversely affect our stock price and prevent a change of control.

        EB Nevada Inc., a company indirectly controlled by James Kim, his wife and certain trusts for the benefit of his children, owns approximately 44.7% of the outstanding shares of our common stock. Accordingly, the Kim family effectively controls our company and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This control may have the effect of delaying, preventing or deterring a change in control of our company and could deprive our stockholders of an opportunity to receive a premium for their common stock as part of any sale or acquisition. Under a credit facility we have with Fleet Capital Corporation, if the Kim family does not own, indirectly through EB Nevada, at least 25% of our outstanding capital stock, we may be declared in default under the credit facility.

Our status as a holding company and our credit facility restrict our ability to pay dividends on our common stock.

        We are a holding company and do not have any material assets other than our ownership interests in our subsidiaries. Our common stock will be junior in right of payment to all of our existing and future liabilities and obligations and, by virtue of the fact that we are a holding company, our common stock will be structurally junior in right of payment to all existing and future liabilities and obligations of each of our subsidiaries. We have not declared or paid dividends on our common stock since our initial public offering in July 1998. In addition, our credit facility with Fleet Capital Corporation restricts our ability to declare or pay dividends on our common stock.

Our income taxes could increase in the future.

        Our corporate structure includes the use of Delaware holding companies and subsidiaries that hold our intellectual property and facilitate financing for our operations. Certain state taxing authorities have begun to review their positions with respect to income tax deductions taken as a result of these structures. If some or all of the income tax deductions resulting from our corporate structure are disallowed in the future, the income taxes we pay could increase, which will negatively impact our earnings.

Our certificate of incorporation and bylaws contain anti-takeover protections, which may discourage or prevent a takeover of our company, even if an acquisition would be beneficial to our stockholders.

        Certain provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if a takeover would benefit our stockholders.

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Industry Overview

        The interactive entertainment industry is comprised of two primary product categories, video games and PC entertainment software.

        Video games.    Domestic retail sales of video game titles and hardware systems were approximately $9.1 billion in 2002. According to International Development Group, domestic software sales are expected to grow approximately 10.7% in 2003 while hardware unit sales are expected to peak with 1.9% growth over 2002. Growth in the industry has been driven by continued improvements in systems technology, substantial growth in the number of titles available across game categories and the emergence of well-capitalized software publishers with significant advertising budgets to support new releases. Enhanced technological features of new hardware platforms expand gaming capabilities, encourage existing players to upgrade their hardware platforms and attract new video game players to purchase their first systems.

        From 1996 to September 1999, Nintendo and Sony, each of which manufactures proprietary hardware, dominated the video game market. Sony introduced the PlayStation in 1995 and Nintendo introduced the Nintendo 64 in 1996. In September 1999, Sega introduced the Sega Dreamcast. In October 2000, Sony introduced the PlayStation 2, which represented a significant improvement in graphics, processing power and audio quality over the systems in use at the time. Nintendo introduced the Game Boy Advance, the successor to the highly successful Game Boy, in June 2001. Nintendo's GameCube, introduced in November 2001, features significant performance enhancements over the Nintendo 64 system and is based on CD technology as compared to the prior cartridge-based technology. Microsoft's Xbox, also launched in November 2001, provides advanced graphics and Internet connectivity. In March 2003, Nintendo introduced a significantly enhanced design of the Game Boy Advance, Game Boy Advance SP. We believe that the interactive entertainment industry is experiencing an expansion cycle, which started with the introduction of Game Boy Advance, PlayStation 2, GameCube and Xbox.

        At year-end 2002, the installed base of video game hardware systems in the United States totaled approximately 15.9 million PlayStation 2 units, 4.6 million Xbox units, 3.6 million GameCube units and 11.7 million Game Boy Advance units. Hardware manufacturers and third-party publishers produce a wide range of game titles for each of these major hardware systems. In addition, according to NPD Group, Inc., a market research firm, sales of video game systems accessories were estimated to be approximately $1.3 billion in 2002.

        PC entertainment software.    Domestic retail sales of PC entertainment software were approximately $1.4 billion in 2002, down slightly from the prior year. According to International Development Group, PC entertainment software sales are expected to decline 1% to 2% annually over the next several years. PC entertainment software is generally sold in the form of CD-Roms and played on multimedia PCs featuring fast processors, expanded memories, and enhanced graphics and audio capabilities. The domestic installed base of multimedia PCs has increased from approximately 14.0 million units in 1995 to approximately 63.8 million units in 2002.

        Customers.    We believe the typical gamer is male, single, between the ages of 14 and 34, and lives in a household with an annual income in excess of $50,000. We also believe that our customers are often opinion leaders in the interactive entertainment industry, influencing the buying decisions of friends and family. According to a study conducted by Ziff Davis Media Game Group, our core customer, the avid gamer, owns multiple video game hardware systems and purchases an average of 12 game titles per year, significantly more than the average gamer. In addition, many video game players purchase PC entertainment software as well as video game titles.

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Competitive Strengths

        We seek to enhance our position as one of the world's largest specialty retailers of video game titles and PC entertainment software by focusing on the following:

        Breadth of title selection.    We offer our customers an extensive selection of video game titles and PC entertainment software at competitive prices. Our typical store offers over 1,400 titles (excluding pre-owned games) at any given time from over 60 video game and PC entertainment software vendors. These titles are also available on our website. We continuously update our title selection in each store to reflect the tastes and buying patterns of the store's local market. We carry game titles which are compatible with all major video game hardware systems and PCs. In addition to video game titles and PC entertainment software, we offer a complementary line of PC and video game accessories and peripheral products, including controllers, joysticks, memory cards, DVD remotes, books and magazines. By offering all major video game hardware systems and providing a broad but focused assortment of video game software and accessories and PC entertainment software, we seek to establish our stores and website as the destination of choice for avid gamers.

        Immediate availability of new releases.    We strive to be the first in our markets to offer new video game and PC entertainment software titles upon their release. We believe that vendors recognize the importance of our video game enthusiast customer base and, consequently, often grant us disproportionately large allocations of new release products. Our inventory management systems then rapidly move the products from our distribution centers to our stores. New release titles are often preceded by substantial publicity in the form of print advertisements and reviews in publications and, increasingly, are promoted through television advertisements by the game and software publishers. This publicity tends to create high levels of demand for new releases among video game enthusiasts, often well in advance of release dates. This demand has afforded us an important marketing opportunity to drive traffic to our stores and our website.

        To assure our customers immediate access to new releases, we offer our customers the "EB Pre-Sell Program" through which they can reserve video games and PC entertainment software for delivery upon our receipt and release of the product. On average, we introduce 29 new game titles in our stores and on our website each week.

        Highly effective inventory management system.    We have a highly effective inventory management system that enables us to maximize sales of new release titles and avoid markdowns as titles mature. The system forecasts our inventory requirements on an individual store basis, aggregates our total requirements and manages the daily replenishment function from our automated distribution centers to our stores. This results in improved in-stock levels in our stores.

        Knowledgeable sales associates.    We believe that our knowledgeable sales associates, many of whom are avid gamers, and our higher level of customer service provide us with an important advantage over competitors such as mass merchants, toy retail chains, and office supply, computer product and consumer electronics superstores. We provide all of our sales associates with training and information on video game and PC entertainment products, system requirements and selling techniques through vendor-sponsored "EB University" seminars, held for store managers and field managers, and through regularly scheduled in-store seminars for our sales associates. We also encourage our sales associates to learn about customers' game preferences. With this knowledge, sales associates introduce customers to a selection of games and accessories that may suit their preferences and advise them of new releases suited to their interests, thereby enhancing our customers' overall gaming experience.

        Disciplined store operations.    Our management team exercises significant control over all aspects of our store operations, including product research, purchasing, distribution, site selection, store development, POS financial reporting and sales training. We believe that this commitment to operational control enables us to identify opportunities to improve store productivity quickly and to

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react quickly to shifts in product pricing and consumer purchasing trends. We strive to increase the productivity of our stores by actively managing our payroll expense and operating our stores as efficiently as possible. In order to display most of our products on our stores' shelves, we maintain selling space which averages approximately 90% of our stores' total square footage in each of our store formats. In an effort to enhance our sales conversion rates, in many of our stores we utilize a system, known as ShopperTrak, that electronically measures store customer traffic throughout the day and provides us with an analysis of sales conversion rates by store and by sales associate. We also utilize our POS reporting systems to assure the best possible match of sales associate floor coverage to customer traffic.

        Value pricing.    In an effort to offer maximum value to our customers and discourage comparison shopping, we maintain an "everyday low price" policy on advertised merchandise. We complement this policy with an extensive selection of merchandise and a high level of customer service. We also offer a pre-owned program which allows customers to save additional money by trading in their used games for credit toward any product sold in our stores. The trade-ins are then resold to other customers at lower prices than our new products to offer a broader range of products and price choices for our customers.

        Leadership in e-business.    We believe that our customers are generally more familiar with the Internet and with online retailing than the average consumer. Our website offers over 5,000 new and pre-owned stock keeping units, known as SKUs, that are available for immediate shipping to our customers. In addition, we have designed our website to serve our customers by providing product reviews, access to new releases, user-friendly online purchasing and the ability to pre-order video games and PC entertainment software.

Growth Strategy

        New store expansion.    We believe that there are domestic and international opportunities for significant new store growth. Over the last four fiscal years, we have more than doubled our store base. We plan to open approximately 275 new stores in fiscal 2004.

        Domestic opportunity.    We plan to open approximately 200 new stores in fiscal 2004 in the United States. We plan to continue to open stores in selected malls. In addition, we plan to accelerate growth in urban areas, central business districts and strip and power shopping centers. We expect our stores in these locations to require lower initial investments, generate higher gross margins on lower revenue and have a lower operating cost structure than our mall-based stores. These stores, which typically carry a wider assortment of pre-owned video games than our mall-based stores, target the more value conscious gamer.

        International opportunity.    In fiscal 2002, we began a store expansion program in continental Europe which includes both the opening of new stores and the acquisition of regional chains. As of February 1, 2003, we operated a total of 290 stores in Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, South Korea, and Sweden. We plan to open approximately 75 new stores in fiscal 2004 in these markets.

        The interactive entertainment market in continental Europe is approximately $7.0 billion in size and has consumer demand characteristics similar to the U.S. market. We believe retail competition in the interactive entertainment industry is weaker throughout continental Europe than in the United States. There are very few specialty interactive entertainment retail chains in continental Europe and the existing specialty chains are small and undercapitalized, with little or no investment in distribution and information systems. Most video games are sold in Europe through general merchandise stores that offer less service and a smaller product selection than our stores. We believe that our store model, merchandising expertise and strong vendor relationships should enable us to gain significant market share in our targeted continental European markets over the next several years.

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        Expansion of online retailing.    We believe that our core customer tends to be an Internet user, and we strive to meet their needs through our website, www.ebgames.com., which provides product reviews, access to new release titles, user friendly online purchasing and the ability to pre-order video games and PC entertainment software.

Retail Operations

        As of February 1, 2003, we operated a total of 1,145 stores in the United States, Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, Puerto Rico, South Korea and Sweden, primarily under the names Electronics Boutique and EB Games.

        Store formats.    Many of our stores are specialty retail stores located in high traffic areas in regional shopping malls. As of February 1, 2003, we operated 768 stores with this format in the United States and Canada. These stores average approximately 1,200 square feet. We believe that our mall-based stores generate sales per square foot that are among the highest of any mall-based retailer.

        In addition to our mall-based stores, we also operate many stores in urban areas, central business districts, and strip and power shopping centers. These stores are generally larger than our mall-based stores, averaging approximately 1,700 square feet. We began our expansion into these other locations in fiscal 2001, and as of February 1, 2003, we operated 213 stores with this format. We believe that these stores do not compete directly with mall-based stores due to their locations and their focus on pre-owned games. The balance of our stores that were open as of February 1, 2003 were located outside of the United States and Canada and are comprised of mall-based stores as well as multiple other formats.

        We typically locate our stores in malls and strip and power shopping centers and we believe that there are many suitable locations available for future sites. We use standardized site selection criteria for each of our formats to choose sites.

        As of the first quarter of fiscal 2003, we operated 22 stores that sold sports collectibles and memorabilia under the name BC Sports Collectibles and 29 stores that sold interactive and developmental toys and family-friendly, non-violent software under the EBKids brand. In February 2002, we announced our decision to sell the BC Sports Collectibles chain and to close the EBKids chain. We made this strategic decision to enable us to focus all of our resources—management, capital, and systems—on the growth opportunities in our core interactive entertainment market. The closing of the EBKids stores was completed in May 2002 and the sale of our 22 store BC Sports Collectibles business closed in November 2002.

        Store economics.    The average cost, net of payables, of opening a new mall-based store in fiscal 2003 was approximately $164,000. This included approximately $148,000 for furniture, fixtures, equipment and leasehold improvements. Pre-opening expenses are minimal and are included in the store's expenses for the first month of operation.

        The average cost, net of payables, of opening a new strip center store in fiscal 2003 was approximately $77,000. This includes approximately $62,000 for furniture, fixtures, equipment and leasehold improvements. Pre-opening expenses are minimal and are included in the store's expenses for the first month of operation.

        The cost to open an international store is approximately the same in U.S. dollars as the cost to open a domestic store. Typically, our new stores have generated a positive store operating contribution within the first 12 months of operations. We regularly review the profitability and prospects of each of our stores and evaluate whether any under performing stores should be closed or relocated to more desirable locations.

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        Following the opening of a store, we utilize inventory management and controls and manage store payroll in an effort to maximize profitability. Our POS and inventory management systems allow us to analyze merchandise mix and in-stock positions and reduce shrinkage. We also utilize various payroll management and efficiency systems to improve sales conversions and store profitability.

        Store operations.    We divide our North American store base (United States and Canada) into 11 geographic regions, which are supervised by our President of Stores—North America and Canada, our Vice President of Store Operations (Canada), Regional Vice Presidents/Directors and District Managers. Our Senior Vice President of International Operations, who is based in France, supervises our international operations other than in Canada. Managing Directors, District Managers and Area Managers supervise our stores in Denmark, Germany, Italy, Norway and Sweden. A General Manager, Regional Director, District Managers and Area Managers supervise our stores in Australia, New Zealand and South Korea.

        Each of our stores typically has a full-time manager and a full-time assistant manager in addition to hourly sales associates, most of whom work part-time. The number of hourly sales associates in each store fluctuates depending on our seasonal needs. Our domestic stores are open seven days per week and generally ten hours each day. We operate our international stores in a manner similar to our domestic stores.

Online Retailing

        We launched our e-commerce website, ebworld.com, in August 1997. As part of our rebranding initiative, we changed the name of the website to ebgames.com earlier this year. Online orders have increased year over year and our e-commerce operating subsidiary has been profitable since fiscal 2002.

        The Internet represents a complementary channel to our store-based retail business. Our own surveys indicate that our website's detailed product reviews, game previews, new release schedules, product notification services, industry news and advanced search capabilities appeal to a significant portion of our gamer audience. Ebgames.com utilizes our merchandising expertise and strong vendor relationships to provide online customers with over 5,000 new and pre-owned SKUs that are available for immediate shipping. Further, ebgames.com leverages our distribution and fulfillment capabilities to provide delivery of new release titles to online consumers on the same day they are available in our stores.

        We believe that Internet broadband technology will play an important role in the future of online retailing. We continue to explore different ways to assume a leadership role in the online distribution of games. Adoption of this new technology by consumers has been limited. However, as adoption of this technology grows and other game delivery technologies emerge, we expect to actively pursue these opportunities.

Game Group Services Agreement

        Game Group is one of the leading specialty retailers of interactive entertainment in the United Kingdom, Ireland, France, Spain and Sweden, operating over 400 stores. Game Group's business strategy is substantially similar to our business strategy. Under the terms of a services agreement, at the request of Game Group, we are required to provide management services, including assistance with ordering and purchasing inventory, store design and acquisition, advertising, promotion, publicity and information systems. We also license the use of the name Electronics Boutique to Game Group. Game Group is responsible for the payment of fees, payable, at our option, in cash or Game Group stock, equal to 1.0% of Game Group's adjusted sales, plus a bonus calculated on the basis of net income in excess of a pre-established target set by Game Group. In fiscal 2003, we received approximately $7.4 million in management fees from Game Group. The services agreement prohibits us from competing with Game Group in the United Kingdom until one year after the termination of the

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services agreement, currently scheduled for January 2006. The services agreement also requires that, until January 2006, we report to Game Group any opportunity relating to the interactive entertainment retailing business which we become aware of in Europe (excluding Scandinavia) which could be made available to Game Group and use reasonable endeavors to procure that each and every such opportunity is first offered to Game Group, on the same terms, including as to cost.

Products

        Our product line consists of video game titles, PC entertainment software titles, video game hardware systems, related products and toys, trading cards and accessories. Our in-store inventory at any given time averages over 2,400 SKUs.

        Video game titles and PC entertainment software.    We carry an average of over 1,400 video game and PC entertainment software titles (excluding pre-owned games) at any given time. We purchase video game titles directly from the leading console manufacturers, which include Sony, Microsoft and Nintendo, as well as a variety of third-party software publishers, such as Electronic Arts, Take-Two Interactive Software, Inc., Activision, Inc., Sega Corporation, and THQ Inc. We are one of the largest domestic customers of video game products sold by these publishers. We currently purchase titles from over 60 vendors across a variety of genres, including Action, Strategy, Adventure/Role Playing, Simulation, Sports, Children's Entertainment and Family Entertainment. We maintain a broad selection of popular new release titles, which we define as titles that have been available for less than six weeks from the date of their release.

        Pre-owned video games and PC entertainment software.    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-owned game titles has evolved. We carry over 1,300 pre-owned SKUs in our typical store. We allow customers to trade in pre-owned games in our stores. We believe that the opportunity to trade-in games and the availability of pre-owned titles in our stores is attractive to the value conscious gamer and differentiates us from most of our competition, which do not generally accept trade-ins or offer pre-owned games. In return for a trade-in the customers receive a store credit, which can be applied towards the purchase of new or pre-owned products. At our in-house product reclamation center, these trade-ins can be tested, cleaned, relabeled, repackaged, repriced and redistributed back to the stores. These trade-ins are then resold in our stores at a discount to the price of new releases. Sales of pre-owned games generate significantly higher margins than new titles. We believe that availability of pre-owned games in our stores attracts our core game enthusiast customer and drives traffic into our stores.

        Video game hardware.    We sell the video game hardware systems of all major manufacturers, including Sony's PlayStation 2, Nintendo's GameCube and Game Boy Advance and Microsoft's Xbox. While we offer the newest technology in video game systems, we also offer a wide range of the older video game systems through our pre-owned program. Our pre-owned program affords customers the opportunity to trade-in older video game hardware for credit towards the purchase of one of the latest systems. We also offer extended service agreements and extensions of manufacturer warranties for the video game systems.

        Accessories.    In recent years, the growing popularity of video games has led to an increase in sales of accessory products, which generally have higher gross margins than hardware and software products. We currently offer approximately 600 accessory product SKUs, including controllers and memory cards. We also market instructional books and strategy guides on the most popular video game titles.

        Related products and trading cards.    We offer an assortment of trading cards, such as Yu-Gi-Oh and Magic The Gathering products, that appeal to our core customers. We also offer collectable action figures and gaming magazines.

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Inventory Management and Distribution

        Inventory management.    We do extensive research prior to the release of new products and titles and carefully manage our inventory to minimize the risk associated with introducing new products and titles. Our centralized merchandising staff evaluates potential products and analyzes the EB Pre-Sell Program information and other data to estimate initial demand and the projected life cycle for a new release. We then use our new product analyses to plan our initial purchases and allocations among our stores and website. Through our inventory replenishment system, we forecast and actively manage our ongoing inventory requirements on an individual store and aggregate basis.

        Distribution.    We currently operate three distribution centers in the United States, each of which focuses on separate components of our business. Our 97,500 square foot facility in West Chester, Pennsylvania handles staple products and online fulfillment. Our 80,000 square foot distribution center in West Chester, Pennsylvania handles returns and reclamation. Our 200,000 square foot distribution center in Louisville, Kentucky supports flow-through operations on new releases, top selling products and online fulfillment. We also have a 120,000 square foot facility in Canada, a 70,000 square foot facility in Australia and four smaller European facilities in Denmark, Germany, Italy and Sweden.

        These distribution facilities allow us to replenish our stores on a daily basis supporting our "first-to-market" new-release strategy. Our rapid processing capability in our distribution centers is facilitated by several advanced inventory management technologies, including paperless picking and radio frequency support. We also use a warehouse management system in our domestic distribution centers that enables us to better manage labor and freight costs. Our distribution network enables us to provide immediate delivery service to our online customers.

Marketing

        In-store promotions.    Many of our stores are located in high traffic, high visibility areas in regional shopping malls. Accordingly, our marketing efforts at these stores are designed to draw mall patrons into our stores through the use of window displays and other attractions visible to shoppers in the mall concourse. We actively publicize our other stores through a variety of media, including print, radio and selected local television advertising. Inside all of our stores, we feature selected products through the use of vendor displays, signs, fliers, point of purchase materials and end-cap displays. A majority of these promotions are funded through advertising allowances and market development funds from manufacturers, distributors, software publishers and accessory suppliers.

        In January 2003, as a combined effort with Ziff Davis Media, GMR magazine was launched in our stores. GMR magazine is a monthly publication providing news and reviews on the latest products for PC and video gamers. Customers that purchase a ten-month subscription to GMR are eligible to receive a discount on the purchase of pre-owned products in our stores.

        Catalogs.    We publish eight or more full color catalogs each year ranging in size from 52 to 100 pages. Our vendors fund the cost of these catalogs. The catalogs are available in our stores and are mailed to several hundred thousand households from our proprietary customer lists. The catalogs are also inserted in leading industry magazines.

        Ebgames.com.    We believe our online presence and marketing initiatives play a key role in strengthening our brand identity. Our online marketing initiatives focus on partnering with companies that operate other websites, such as CNET. These initiatives enable us to access the broad reach of the Internet at a low cost. We also advertise in game focused magazines and online with portals such as AOL and MSN.

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Management Information Systems

        Our primary management information system is a customized version of the AS400-based JDA Merchandise Management System. We have made proprietary enhancements to this program, which enable us to analyze total, comparative and new store sales and inventory data at the company, region, district and store levels. We operate our own proprietary store POS and back office systems and believe this provides a strategic advantage by allowing us to make enhancements to meet business opportunities quickly. We have integrated the ShopperTrak customer counting technology into our POS and our AS400 system. This combination of technology provides centralized access to store traffic and sales conversion information by store and hour at our store locations.

Vendors

        We purchase substantially all of our products directly from manufacturers and software publishers. Our top 25 vendors accounted for approximately 88% of our purchases in fiscal 2003. Our largest vendors in fiscal 2003 were Sony, Electronics Arts, Microsoft and Nintendo, which accounted for 14.8%, 12.3%, 11.5% and 9.3%, respectively, of our gross purchases. No other vendor accounted for more than 5.0% of our software or accessory purchases during fiscal 2003. We believe that we have good relationships with our vendors. Maintaining and strengthening these relationships is essential to our operations and continued expansion.

        We participate in marketing programs with each of our key product vendors, including Sony, Electronic Arts, Microsoft and Nintendo. Under these programs, we are eligible to receive marketing allowances from product vendors provided we perform certain specified marketing and merchandising events and activities pursuant to the terms of written agreements we negotiate with our vendors for each event or activity. Typical events or activities are print advertising, television advertising, product catalog advertising, in-store display promotions, Internet advertising, and product training and promotion at our national trade show.

Competition

        The interactive entertainment industry is intensely competitive and subject to rapid changes in consumer preferences and frequent new product introductions. We compete with other specialty retailers of video games and PC software, as well as with mass merchants, toy retail chains, catalogs, direct sales by software publishers, online retailers, and office supply, computer product and consumer electronics superstores. In addition, video games are available for rental from many video stores. Further, other methods of distribution may emerge in the future, resulting in increased competition.

Environmental Matters

        Under various federal, state and local and foreign environmental laws and regulations, a current or previous owner or occupant of real property may become liable for fines as well as the costs of removal or remediation of hazardous substances present or generated at the premises, at times without regard to fault. Although we have not been notified of, and are not aware of, any current environmental liability, claim or non-compliance, it is possible that we may incur fines or remediation costs in the future.

Trademarks/Registrations

        We possess registered trademarks for Electronics Boutique® (and design), EBX® and ebworld.com® as well as other registered trademarks and service marks, both in the United States and in certain foreign jurisdictions. We also have numerous trademark applications pending in the United States and in certain foreign jurisdictions, including EB Games and ebgames.com.

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        We believe our trademarks are valid and valuable and intend to maintain our trademarks and their related registrations. We do not know of any pending claims of infringement or other challenges to our right to use our marks in the United States or elsewhere. We have no patents, licenses, franchises or other concessions that are material to our operations.

Associates

        As of February 1, 2003, we had approximately 7,660 non-seasonal associates. Approximately 3,650 were employed on a part-time basis, and 700 were employed on a temporary basis. In addition, during the calendar 2002 peak holiday shopping season, we hired approximately 1,300 temporary associates. We believe that our relationship with our associates is good. None of our associates is represented by a labor union or is a member of a collective bargaining unit.

Item 1A. Executive Officers of Electronics Boutique

        Set forth below is information regarding the executive officers of Electronics Boutique:

        Mr. Griffiths, age 52, has served as the President and Chief Executive Officer of Electronics Boutique and a Class I Director since June 2001. Prior thereto, he served as Senior Vice President of Merchandising and Distribution from March 1998 to June 2001. Mr. Griffiths served as Senior Vice President of Merchandising and Distribution of EB, our predecessor, from March 1996 to March 1998. From March 1987 to February 1996, Mr. Griffiths served as Vice President of Merchandising of EB, and from April 1984 to February 1987 he served as Merchandise Manager.

        Mr. Panichello, age 41, has served as Executive Vice President and Chief Operating Officer since April 2002. Prior thereto, Mr. Panichello served as Senior Vice President, Chief Operating Officer, President of EB GameWorld and BC Sports Collectibles (a former division of Electronics Boutique) and Secretary of Electronics Boutique from June 2001 to April 2002. Mr. Panichello served as Senior Vice President, Chief Financial Officer, President of EB GameWorld and BC Sports Collectibles and Secretary of Electronics Boutique from June 2000 to June 2001. Mr. Panichello served as Senior Vice President, Chief Financial Officer, President of BC Sports Collectibles and Secretary of Electronics Boutique from March 1998 to June 2000. Mr. Panichello served as the Senior Vice President of Finance of EB and the President of the BC Sports Collectibles division from March 1997 to February 1998. Mr. Panichello served as EB's Vice President of Finance and Treasurer from June 1994 to February 1997. Mr. Panichello served as a director of Game Group from May 1995 to November 1999. Mr. Panichello is a Certified Public Accountant. Mr. Panichello is the husband of Susan Y. Kim and the son-in-law of James J. Kim. Mr. Panichello serves on the Board of Directors of the Interactive Entertainment Merchants Association.

        Mr. Smith, age 47, has served as Senior Vice President, Chief Financial Officer and Secretary since June 2001. Prior thereto, Mr. Smith served as Senior Vice President of Finance of Electronics Boutique from August 2000 to June 2001. Mr. Smith served as Electronics Boutique's Vice President-Finance

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from May 1998 to August 2000. From 1996 to 1998, Mr. Smith served as Vice President and Controller of EB, our predecessor, and from 1993 to March 1996, he served as Controller of EB.

        Mr. Levy, age 45, has served as Senior Vice President, Logistics, Chief Information Officer and the President of EB Games Online, Inc. since June 2001. Prior thereto, he served as Senior Vice President, Chief Information Officer and the President of EB Games Online, Inc. from March 1999 to June 2001. From February 1997 to March 1999, Mr. Levy served as the Vice President and Chief Information Officer. From 1991 to February 1997, Mr. Levy served as the Director of System Development for the May Merchandising and May Department Stores International divisions of May Department Stores.

        Mr. Morgan, age 51, has served as Senior Vice President, President of Stores—North America and President of Canadian Operations since April 2002. Prior thereto, Mr. Morgan served as Senior Vice President of Stores of Electronics Boutique and Canadian Operations from June 2001 to April 2002. Mr. Morgan served as Senior Vice President of Stores of Electronics Boutique from January 2001 to June 2001. From May 1998 to January 2001, Mr. Morgan served as President and CEO of Millennium Futures, Inc., a commodity trading company. From July 1996 to May 1998, he served as Senior Vice President, Director of Stores at Filene's Department Stores. From May 1988 to July 1996, he served as Regional Vice President at Filene's Department Stores.

Item 2. Properties

        Store leases.    All of our stores are leased. As of February 1, 2003, we had 1,145 stores. In general, our mall-based leases have initial terms of seven to ten years. Our strip and power center locations typically have initial terms of three to five years with at least one or more renewal options.

        Headquarters and distribution centers.    We own our 140,000 square foot headquarters in West Chester, Pennsylvania. This building includes a 97,500 square foot distribution center. In addition, we own an adjacent 80,000 square foot distribution facility. We lease a 200,000 square foot distribution center in Louisville, Kentucky. This lease expires in May 2005. We also lease a 52,000 square foot building in Louisville, Kentucky; however we subleased a portion of this building in January 2003. The lease for the building expires in March 2004. In Brampton, Ontario, Canada, we own a 120,000 square foot distribution and office facility. In Pinkenba, Queensland, Australia, we own a 70,000 square foot distribution and office facility. We also lease small distribution facilities in Denmark, Germany, Italy and Sweden.

        Customer service call center.    We lease a 17,900 square foot customer service telephone call center in Las Vegas, Nevada, from which we respond to consumers' inquiries regarding our products. The lease expires in June 2004.

Item 3. Legal Proceedings

        We are involved from time to time in legal proceedings arising in the ordinary course of our business. In February 2003, our affiliates, The Electronics Boutique, Inc. and EB Services Company, LLP, prevailed in the appeal of a major civil lawsuit brought against those companies by Game Group. Game Group filed the appeal in October 2002 after judgment was entered against it in the trial of the matter.

        Game Group filed suit in March 2002 in the Chancery Division of the High Court of Justice in the United Kingdom. It sought a ruling that, because of an alleged change of control of EB Services Company, it was entitled to terminate the services agreement between itself and EB Services Company that had been in effect since 1995 and that does not expire by its terms until at least 2006. Pursuant to the services agreement, EB Services Company receives significant fees from Game Group. The fees were approximately $7.4 million for the fiscal year ended February 1, 2003. In October 2002, the Chancery Division ruled that Game Group was not entitled to terminate the services agreement.

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        In the opinion of management, no pending proceedings could have a material adverse effect on our results of operation or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

        None

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        The common stock of Electronics Boutique was first traded publicly on July 28, 1998. The stock is quoted on the NASDAQ National Market under the symbol ELBO. The table below represents the high and low bid prices of Electronics Boutique's common stock as reported by NASDAQ.

        Such quotations reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not necessarily reflect actual transactions.

        As of April 24, 2003, we had approximately 35 shareholders of record (including Cede & Co., the nominee for Depository Trust Company, a registered clearing agency) of the 25,891,158 outstanding shares of Electronics Boutique's common stock. On April 24, 2003, the last reported sale price for Electronics Boutique's common stock as quoted by NASDAQ was $18.58 per share.

        Electronics Boutique has not paid any dividends on its common stock to date.

Item 6. Selected Financial Data

        The following table sets forth for the periods indicated selected financial and other data for Electronics Boutique for periods subsequent to its initial public offering on July 28, 1998. Prior periods reflect financial data of Electronics Boutique's predecessors, The Electronics Boutique, Inc. ("EB") and subsidiaries and EB Services Company LLP ("EB Services"). The statement of income data and balance sheet data, which follow, have been derived from Electronics Boutique's consolidated financial statements. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. The pro forma data, in the opinion of

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management, include all adjustments necessary to present fairly the information set forth therein including the matters referred to in Notes 1 and 2 to the consolidated financial statements.