Form 10-Q
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Table of Contents
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FOR THE QUARTERLY PERIOD ENDED August 4, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FOR THE TRANSITION PERIOD FROM
    
    
        
    
TO
    
        
    
    
Commission File No.
 001-35664
 
Dave & Buster’s Entertainment, Inc.
(Exact name of registrant as specified in its charter)
 
     
Delaware
 
35-2382255
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2481 Mañana Drive
Dallas,
Texas
75220
(Address of principal executive offices)
(Zip Code)
(214)
357-9588
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock $0.01 par value
 
PLAY
 
NASDAQ Stock Market LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
 filer
 
 
Smaller reporting company
 
             
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by checkmark whether the registrant is a shell company (as defined in Rule
 12b-2
of the Exchange Act).    Yes  
    No  
As of September 4, 2019, the registrant had 30,831,297 shares of common stock, $0.01 par value per share, outstanding.
 
 
 
 
 
Table of Contents
 
DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED August 4, 2019
TABLE OF CONTENTS
             
 
 
Page
 
PART I
     
 
             
ITEM 1.
     
3
 
             
ITEM 2.
     
18
 
             
ITEM 3.
     
30
 
             
ITEM 4.
     
31
 
             
PART II
     
 
             
ITEM 1.
     
31
 
             
ITEM 1A.
     
31
 
             
ITEM 2.
     
32
 
             
ITEM 6.
     
33
 
             
     
34
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
 
 
 
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
August 4,
   
February 3,
 
2019
   
2019
 
 
(unaudited)
   
(audited)
 
ASSETS
   
     
 
Current assets:
   
     
 
Cash and cash equivalents
  $
23,318
    $
21,585
 
Inventories
   
27,409
     
27,315
 
Prepaid expenses
   
16,918
     
20,713
 
Income taxes receivable
   
1,569
     
1,880
 
Other current assets
   
9,001
     
19,600
 
                 
Total current assets
   
78,215
     
91,093
 
Property and equipment (net of $627,036 and $578,178 accumulated depreciation as of August 4, 2019 and February 3, 2019, respectively)
   
851,715
     
805,337
 
Operating lease right of use assets
   
924,461
     
—  
 
Deferred tax assets
   
8,529
     
6,736
 
Tradenames
   
79,000
     
79,000
 
Goodwill
   
272,633
     
272,625
 
Other assets and deferred charges
   
19,524
     
18,396
 
                 
Total assets
  $
2,234,077
    $
1,273,187
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
   
     
 
Current liabilities:
   
     
 
Current installments of long-term debt
  $
15,000
    $
15,000
 
Accounts payable
   
53,898
     
60,427
 
Accrued liabilities
   
183,306
     
157,164
 
Income taxes payable
   
4,437
     
11,799
 
                 
Total current liabilities
   
256,641
     
244,390
 
Deferred income taxes
   
18,822
     
14,634
 
Deferred occupancy costs
   
—  
     
223,678
 
Operating lease liabilities
   
1,125,874
     
—  
 
Other liabilities
   
31,359
     
24,179
 
Long-term debt, net
   
552,079
     
378,469
 
Commitments and contingencies
   
 
     
 
 
Stockholders’ equity:
   
     
 
   
 
 
 
 
 
 
 
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 43,337,125 shares at August 4, 2019 and 43,177,476 shares at February 3, 2019; outstanding: 32,978,834 shares at August 4, 2019 and 37,522,085 shares at February 3, 2019
   
433
     
432
 
Preferred stock, 50,000,000 authorized; none issued
   
  
     
  
 
Paid-in
capital
   
335,599
     
331,255
 
Treasury stock, 10,358,291 and 5,655,391 shares as of August 4, 2019 and February 3, 2019, respectively
   
(497,862
)    
(297,129
)
Accumulated other comprehensive loss
   
(6,647
)    
(683
)
Retained earnings
   
417,779
     
353,962
 
                 
Total stockholders’ equity
   
249,302
     
387,837
 
                 
Total liabilities and stockholders’ equity
  $
2,234,077
    $
1,273,187
 
See accompanying notes to consolidated financial statements.
3
 
 
 
 
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
 
                 
 
Thirteen Weeks
   
Thirteen Weeks
 
Ended
   
Ended
 
August 4, 2019
   
August 5, 2018
 
Food and beverage revenues
  $
137,921
    $
130,242
 
Amusement and other revenues
   
206,678
     
188,946
 
                 
Total revenues
   
344,599
     
319,188
 
Cost of food and beverage
   
36,934
     
33,998
 
Cost of amusement and other
   
22,689
     
21,558
 
                 
Total cost of products
   
59,623
     
55,556
 
Operating payroll and benefits
   
80,927
     
73,736
 
Other store operating expenses
   
104,376
     
94,825
 
General and administrative expenses
   
15,991
     
14,764
 
Depreciation and amortization expense
   
32,745
     
29,049
 
Pre-opening
costs
   
4,723
     
5,328
 
                 
Total operating costs
   
298,385
     
273,258
 
                 
Operating income
   
46,214
     
45,930
 
Interest expense, net
   
4,605
     
3,228
 
                 
Income before provision for income taxes
   
41,609
     
42,702
 
Provision for income taxes
   
9,253
     
8,923
 
                 
Net income
   
32,356
     
33,779
 
                 
Unrealized foreign currency translation gain (loss)
   
134
     
(93
)
Change in fair value of derivatives, net of tax
   
(3,373
)    
—  
 
                 
Total other comprehensive loss
   
(3,239
)    
(93
)
                 
Total comprehensive income
  $
29,117
    $
33,686
 
Net income per share:
   
     
 
Basic
  $
0.91
    $
0.86
 
Diluted
  $
0.90
    $
0.84
 
Weighted average shares used in per share calculations:
   
     
 
Basic
   
35,407,965
     
39,355,105
 
Diluted
   
36,015,710
     
40,280,301
 
Cash dividends declared per share
  $
0.15
    $
—  
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
4
 
 
 
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
 
                 
 
Twenty-Six
 Weeks
Ended
August 4, 2019
   
Twenty-Six
 Weeks
Ended
August 5, 2018
 
Food and beverage revenues
  $
286,142
    $
269,997
 
Amusement and other revenues
   
422,039
     
381,381
 
                 
Total revenues
   
708,181
     
651,378
 
Cost of food and beverage
   
75,688
     
70,018
 
Cost of amusement and other
   
45,660
     
42,677
 
                 
Total cost of products
   
121,348
     
112,695
 
Operating payroll and benefits
   
163,800
     
146,630
 
Other store operating expenses
   
210,621
     
188,165
 
General and administrative expenses
   
32,837
     
30,418
 
Depreciation and amortization expense
   
63,886
     
56,555
 
Pre-opening
costs
   
11,725
     
12,381
 
                 
Total operating costs
   
604,217
     
546,844
 
                 
Operating income
   
103,964
     
104,534
 
Interest expense, net
   
8,661
     
6,085
 
                 
Income before provision for income taxes
   
95,303
     
98,449
 
Provision for income taxes
   
20,504
     
22,520
 
                 
Net income
   
74,799
     
75,929
 
                 
Unrealized foreign currency translation loss
   
(57
)    
(362
)
Change in fair value of derivatives, net of tax
   
(5,907
)    
—  
 
                 
Total other comprehensive loss
   
(5,964
)    
(362
)
                 
Total comprehensive income
  $
68,835
    $
75,567
 
Net income per share:
   
     
 
Basic
  $
2.07
    $
1.92
 
Diluted
  $
2.03
    $
1.88
 
Weighted average shares used in per share calculations:
   
     
 
Basic
   
36,117,815
     
39,525,263
 
Diluted
   
36,803,001
     
40,444,201
 
Cash dividends declared per share
  $
0.30
    $
—  
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
5
 
 
Table of Contents
 
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
                                                                 
 
Thirteen Weeks 
Ended August 4, 2019
 
 
Common Stock
   
Paid-In
Capital
   
Treasury Stock
At Cost
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
   
Total
 
 
Shares
   
Amt.
   
 
   
Shares
   
Amt.
   
 
   
 
   
 
 
Balance May 5, 2019
   
43,323,049
    $    
433
    $
333,515
     
6,958,291
    $
(361,186
)   $
(3,408
)   $
390,771
    $
360,125
 
Net income
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
32,356
     
32,356
 
Unrealized foreign currency translation gain
   
—  
     
—  
     
—  
     
—  
     
—  
     
134
     
—  
     
134
 
Change in fair value of derivatives, net of tax
   
—  
     
—  
     
—  
     
—  
     
—  
     
(3,373
)    
—  
     
(3,373
)
Share-based compensation
   
—  
     
—  
     
1,907
     
—  
     
—  
     
—  
     
—  
     
1,907
 
Issuance of common stock
   
14,076
     
—  
     
177
     
—  
     
—  
     
—  
     
—  
     
177
 
Repurchase of common stock
   
—  
     
—  
     
     
3,400,000
     
(136,676
)    
—  
     
—  
     
(136,676
)
Dividends declared ($0.15 per share)
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(5,348
)    
(5,348
)
                                                                 
Balance August 4, 2019
   
43,337,125
    $
433
    $
335,599
     
10,358,291
    $
(497,862
)   $
(6,647
)   $
417,779
    $
249,302
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended August 5, 2018
 
 
Common Stock
   
Paid-In
Capital
   
Treasury Stock
At Cost
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
   
Total
 
 
Shares
   
Amt.
   
   
Shares
   
Amt.
   
   
   
 
Balance May 6, 2018
   
42,801,006
    $    
428
    $
323,211
     
3,181,280
    $
(175,372
)   $
(518
)   $
290,461
    $
438,210
 
Net income
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
33,779
     
33,779
 
Unrealized foreign currency translation loss
   
—  
     
—  
     
—  
     
—  
     
—  
     
(93
)    
—  
     
(93
)
Share-based compensation
   
—  
     
—  
     
1,626
     
—  
     
—  
     
—  
     
—  
     
1,626
 
Issuance of common stock
   
136,982
     
1
     
1,114
     
—  
     
—  
     
—  
     
—  
     
1,115
 
Repurchase of common stock
   
—  
     
—  
     
—  
     
728,753
     
(33,712
)    
—  
     
—  
     
(33,712
)
                                                                 
Balance August 5, 2018 
   
42,937,988
    $
429
    $
325,951
     
3,910,033
    $
(209,084
)   $
(611
)   $
324,240
    $
440,925
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
6
 
 
Table of Contents
 
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
                                                                 
 
Twenty-Six Weeks Ended August 4, 2019
 
 
   
   
   
   
   
Accumulated
   
   
 
 
   
   
   
   
   
Other
   
   
 
 
   
   
Paid-In
   
Treasury Stock
   
Comprehensive
   
Retained
   
 
 
Common Stock
   
Capital
   
At Cost
   
Loss
   
Earnings
   
Total
 
 
Shares
   
    Amt.    
   
   
Shares
   
Amt.
   
    
   
    
   
    
 
                                                                 
Balance February 3, 2019
   
43,177,476
    $
432
    $
331,255
     
5,655,391
    $
(297,129
)   $
(683
)   $
353,962
    $
387,837
 
Cumulative effect of a change in accounting principle, net of tax
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(145
)    
(145
)
Net income
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
74,799
     
74,799
 
Unrealized foreign currency translation loss
   
—  
     
—  
     
—  
     
—  
     
—  
     
(57
)    
—  
     
(57
)
Change in fair value of derivatives, net of tax
   
—  
     
—  
     
—  
     
—  
     
—  
     
(5,907
)    
—  
     
(5,907
)
Share-based compensation
   
—  
     
—  
     
3,732
     
—  
     
—  
     
—  
     
—  
     
3,732
 
Issuance of common stock
   
159,649
     
1
     
612
     
—  
     
—  
     
—  
     
—  
     
613
 
Repurchase of common stock
   
—  
     
—  
     
     
4,702,900
     
(200,733
)    
—  
     
—  
     
(200,733
)
Dividends declared ($0.30 per share)
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(10,837
)    
(10,837
)
                                                                 
Balance August 4, 2019
   
43,337,125
    $
433
    $
335,599
     
10,358,291
    $
(497,862
)   $
(6,647
)   $
417,779
    $
249,302
 
                                                                 
       
 
Twenty-Six Weeks Ended August 5, 2018
 
 
   
   
   
   
   
Accumulated
   
   
 
 
   
   
   
   
   
Other
   
   
 
 
   
   
Paid-In
   
Treasury Stock
   
Comprehensive
   
Retained
   
 
 
Common Stock
   
Capital
   
At Cost
   
Loss
   
Earnings
   
Total
 
 
Shares
   
    Amt.    
   
    
   
Shares
   
Amt.
   
    
   
    
   
    
 
                                                                 
Balance February 4, 2018
   
42,660,806
    $
427
    $
320,488
     
2,558,721
    $
(147,331
)   $
(249
)   $
248,311
    $
421,646
 
Net income
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
75,929
     
75,929
 
Unrealized foreign currency translation loss
   
—  
     
—  
     
—  
     
—  
     
—  
     
(362
)    
—  
     
(362
)
Share-based compensation
   
—  
     
—  
     
4,014
     
—  
     
—  
     
—  
     
—  
     
4,014
 
Issuance of common stock
   
277,182
     
2
     
1,449
     
—  
     
—  
     
—  
     
—  
     
1,451
 
Repurchase of common stock
   
—  
     
—  
     
—  
     
1,351,312
     
(61,753
)    
—  
     
—  
     
(61,753
)
                                                                 
Balance August 5, 2018
   
42,937,988
    $
429
    $
325,951
     
3,910,033
    $
(209,084
)   $
(611
)   $
324,240
    $
440,925
 
                                                                 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
7
 

 
Table of Contents
 
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
                 
 
Twenty-Six
 Weeks
Ended
August 4, 2019
   
Twenty-Six
 Weeks
Ended
August 5, 2018
 
Cash flows from operating activities:
   
     
 
Net income
  $
74,799
    $
75,929
 
    
 
 
    
 
 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
     
 
 
    
 
 
 
 
 
Depreciation and amortization expense
   
63,886
     
56,555
 
Deferred taxes
   
4,659
     
5,508
 
Loss on disposal of fixed assets
   
826
     
693
 
Share-based compensation
   
3,732
     
4,014
 
Other, net
   
376
     
717
 
Changes in assets and liabilities:
   
     
 
Inventories
   
(94
)    
2,567
 
Prepaid expenses
   
(4,811
)    
(1,457
)
Income tax receivable
   
311
     
3,498
 
Other current assets
   
(444
)    
(8,536
)
Other assets and deferred charges
   
(1,163
)    
(939
)
Accounts payable
   
(428
)    
2,766
 
Accrued liabilities
   
22,057
     
10,566
 
Income taxes payable
   
(7,362
)    
4,156
 
Deferred occupancy costs
   
—  
     
28,403
 
Other liabilities
   
346
     
471
 
                 
Net cash provided by operating activities
   
156,690
     
184,911
 
                 
Cash flows from investing activities:
   
     
 
Capital expenditures
   
(117,875
)    
(116,624
)
Proceeds from sales of property and equipment
   
375
     
118
 
                 
Net cash used in investing activities
   
(117,500
)    
(116,506
)
                 
Cash flows from financing activities:
   
     
 
Proceeds from debt
   
233,000
     
117,000
 
Payments of debt
   
(59,500
)    
(121,500
)
Proceeds from the exercise of stock options
   
613
     
1,451
 
Repurchase of common stock under share repurchase program
   
(200,147
)    
(61,080
)
Dividends paid
   
(10,837
)    
—  
 
Repurchases of common stock to satisfy employee withholding tax obligations
   
(586
)    
(673
)
                 
Net cash used in financing activities
   
(37,457
)    
(64,802
)
                 
Increase in cash and cash equivalents
   
1,733
     
3,603
 
Beginning cash and cash equivalents
   
21,585
     
18,795
 
                 
Ending cash and cash equivalents
  $
23,318
    $
22,398
 
                 
Supplemental disclosures of cash flow information:
   
     
 
Decrease in fixed asset accounts payable
  $
(6,101
)   $
(8,830
)
Cash paid for income taxes, net
  $
22,850
    $
9,338
 
Cash paid for interest, net
  $
8,050
    $
5,714
 
Leases (note 4)
   
     
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
8
 
 
 
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 1: Summary of Significant Accounting Policies
Basis of presentation 
— Dave & Buster’s Entertainment, Inc. (“D&B Entertainment”) is a Delaware corporation formed in June 2010. References to the “Company”, “we”, “us”, and “our” refers to D&B Entertainment, any predecessor companies, and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”), a holding company which owns 100% of the outstanding common stock of Dave & Buster’s, Inc. (“D&B Inc”), the operating company. The Company, headquartered in Dallas, Texas, is a leading operator of high-volume entertainment and dining venues (“stores”) in North America for adults and families under the name “Dave & Buster’s”. The Company operates its business as one operating and one reportable segment. During the first half of fiscal 2019, we opened ten stores and permanently closed one store in Duluth (Atlanta), Georgia on March 3, 2019. As of August 4, 2019, we owned and operated 130 stores located in 39 states, Puerto Rico and one Canadian province.
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information as prescribed by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the
twenty-six
weeks ended August 4, 2019 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending February 2, 2020. Our quarterly financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended February 3, 2019, included in our Annual Report on Form
10-K
as filed with the SEC.
We operate on a 52 or 53-week fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period reported has 13 weeks. Fiscal 2019 and 2018, which end on February 2, 2020 and February 3, 2019, contain 52 weeks.
Cash and cash equivalents 
— We consider transaction settlements in process from credit card companies and all highly-liquid investments with original maturities of three months or less to be cash equivalents. Our cash management system provides for the daily funding of all major bank disbursement accounts as checks are presented for payment. Under this system, outstanding checks in excess of the cash balances at certain banks creates book overdrafts. Book overdrafts of $12,757 and $12,782 are presented in “Accounts payable” in the Consolidated Balance Sheets as of August 4, 2019 and February 3, 2019, respectively. Changes in the book overdraft position are presented within “Net cash provided by operating activities” within the Consolidated Statements of Cash Flows.
Fair value of financial instruments
— Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level One inputs are quoted prices available for identical assets or liabilities in active markets; Level Two inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; and Level Three inputs are unobservable and reflect management’s own assumptions.
The carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, and other current liabilities approximate fair value because of their short-term nature. We believe that the carrying amount of our credit facility approximates its fair value because the interest rates are adjusted regularly based on current market conditions. The fair value of the Company’s credit facility was determined to be a Level Two instrument as defined by GAAP. The fair value of the Company’s interest rate swap is determined based upon Level Two inputs which includes valuation models as reported by our counterparties. These valuation models are based on the present value of expected cash flows using forward rate curves.
Non-financial
assets and liabilities recognized or disclosed at fair value in the consolidated financial statements on a nonrecurring basis include such items as property and equipment, goodwill, tradenames and other assets. These assets are measured at fair value when they were evaluated for impairment. During the
twenty-six
weeks ended August 4, 2019, there were
no
impairments recognized.
 
Interest rate swaps 
— The Company entered into three interest rate swap agreements to manage our exposure to interest rate movements on our variable rate credit facility. The agreements entitle the Company to receive at specified intervals, a variable rate of interest based on
one-month
LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreements. The
 
 
 
 
notional amount of the swap agreements total $350,000 and the fixed rate of interest for all agreements is 2.47% plus the applicable spread. The agreements became effective on February 28, 2019 and mature on August 17, 2022, which is the maturity date of our credit facility. The Company has designated its interest rate swap agreements as a cash flow hedge and accounts for the underlying activity in accordance with hedge accounting. To the extent that the swaps are effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivatives are not included in earnings but are included in other comprehensive loss. These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our variable rate debt. Cash flows related to the interest rate swaps are included as component of interest expense and in operating activities. Any portion of the fair value of the swaps determined to be ineffective will be recognized currently in earnings.
The following derivative instruments were outstanding as of the end of the period:
                 
 
   
Fair Value
 
 
Balance Sheet Location
   
August 4, 2019
 
Derivatives designated as hedging instruments:
   
     
 
Interest rate swaps
   
Accrued liabilities
    $
(1,977
)
Interest rate swaps
   
Other liabilities
     
(6,151
)
                 
Total derivatives
   
    $
(8,128
)
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table summarizes the activity in accumulated other comprehensive loss related to our interest rate swap derivative instruments:
                   
   
Thirteen
Weeks Ended
August 4, 2019
   
Twenty-six
Weeks Ended
August 4, 2019
 
Gain (loss) recognized in accumulated other comprehensive loss
    $
(4,668
)             $
(8,140
)
Loss reclassified from accumulated other comprehensive loss into net
earnings (1)
    $
27
    $
12
 
Income tax (expense) benefit of interest rate swaps on accumulated
other comprehensive loss
    $
1,268
    $
2,221
 
 
 
(1)
Amounts reclassified into net earnings included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue recognition 
— Amusement revenues are primarily recognized upon utilization of game play credits on power cards purchased and used by customers to activate most of the video and redemption games. We have deferred a portion of revenues for the estimated unfulfilled performance obligations related to unused game play credits which we believe our customers will utilize in the future. During the thirteen weeks and
twenty-six
weeks ended August 4, 2019, we recognized revenue of approximately $5,000 and $17,000, respectively, related to the amount in deferred amusement revenue as of the end of fiscal 2018.    
In jurisdictions where we do not have a legal obligation to remit unredeemed gift card balances to a legal authority, we recognize revenue on unredeemed gift cards in proportion to the pattern of redemption by the customers. During the thirteen and twenty-six weeks ended August 4, 2019, we recognized revenue of approximately $200 and $1,300, respectively, related to the amount in deferred gift card revenue as of the end of fiscal 2018, of which approximately $140 and $430 was gift card breakage revenue.
 
Stockholders’ equity 
— Our Board of Directors has approved a share repurchase program under which the Company may repurchase shares on the open market, through privately negotiated transactions and through trading plans.
 The share repurchase program may be modified, suspended or discontinued at any time.
On July 12, 2019, the Company increased its
share repurchase authorization to $
800,000
. The share repurchase authorization expires at the end of fiscal 2020.
During the thirteen and
twenty-six
weeks ended August 4, 2019, the Company purchased
3,400,000
and
4,691,564
shares of common stock at an average cost of $
40.20
and $
42.66
per share, respectively. Since the inception of the repurchase program, the Company has purchased
10,975,355
shares of common stock at an average cost of $
48.29
per share. As of August 4, 2019, we have approximately $
269,990
of share repurchase authorization remaining under the current plan.
In our consolidated financial statements, the Company treats shares withheld for tax purposes on behalf of our employees in connection with the vesting of performance restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan. During the
twenty-six
weeks ended August 4, 2019, we withheld 11,336 shares of common stock to satisfy $
586
of employees’ tax obligations.
 
10
 
 
 
Table of Contents
 
Recently adopted accounting guidance 
— On February 4, 2019, we adopted Accounting Standard Update (“ASU”)
2016-02,
Leases (Topic 842). This new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and corresponding
right-of-use
(“ROU”) assets on the balance sheet for most leases. We adopted this standard using a modified retrospective approach, and we elected the transition method that allows us to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative period information had not been restated.
 
Upon adoption of ASU
2016-02,
we applied the package of practical expedients, which eliminated the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. We also elected a short-term lease exception policy and an accounting policy to not separate
non-lease
components from lease components for our facility leases. The adoption of this guidance resulted in the recognition of ROU assets related to our operating leases of $877,714 and operating lease liabilities of $1,116,252. At the date of adoption, all lease-related balances consisting of $239,416 of deferred occupancy costs (including unfavorable lease liabilities) and $878 of favorable lease assets have been eliminated as an adjustment to ROU assets. We also recorded a cumulative effect reduction to the opening balance of retained earnings of $145, net of tax, from adoption of this guidance. There was no significant impact to our results of operations or cash flows.
 
Recent accounting pronouncements 
— In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU
2017-04,
Intangibles – Goodwill and Other (Topic 350), which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The guidance is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. The Company does not expect the adoption will have a material impact on our consolidated financial statements when we perform future annual impairment tests.
 
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and adds disclosure requirements for fair value measurements. The update is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact of this new standard on our consolidated financial statements.
Note 2: Accrued Liabilities
Accrued liabilities consist of the following as of the end of each period:
 
August 4, 2019
   
February 3, 2019
 
Current portion of operating lease liabilities, net (refer to Note 4)
  $
31,754
    $
—  
 
Current portion of deferred occupancy costs
   
—  
     
15,737
 
Deferred amusement revenue
   
48,939
     
44,232
 
Compensation and benefits
   
24,555
     
24,280
 
Amusement redemption liability
   
20,717
     
19,911
 
Property taxes
   
9,089
     
7,278
 
Deferred gift card revenue
   
8,195
     
9,450
 
Current portion of long-term insurance
   
5,900
     
5,900
 
Sales and use taxes
   
4,903
     
5,226
 
Customer deposits
   
4,373
     
3,731
 
Utilities
   
4,247
     
4,032
 
Inventory liabilities
   
2,480
     
2,876
 
Variable rent liabilities
   
2,310
     
2,245
 
Current portion of derivatives
 
 
1,977
 
 
 
—  
 
Other (refer to Note 5)
   
13,867
     
12,266
 
                 
Total accrued liabilities
  $
183,306
    $
157,164
 
                 
 
11 
 
 
Table of Contents
 
Note 3: Debt
Long-term debt consists of the following as of:
 
August 4, 2019
   
February 3, 2019
 
Credit facility - term
  $
273,750
    $
281,250
 
Credit facility - revolver
   
294,000
     
113,000
 
                 
Total debt outstanding
   
567,750
     
394,250
 
Less:
   
     
 
Current installments - term
   
(15,000
)