UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED November 1, 2020
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
(Exact name of registrant as specified in its charter)
(State of Incorporation) |
(I.R.S. Employer ID) | |
( | ||
(Address of principal executive offices) (Zip Code) |
(Registrant’s telephone number) | |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
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 Yes ☒ No ☐
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). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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.| ☒ | 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 December 4, 2020, the registrant had 47,642,029 shares of common stock, $0.01 par value per share, outstanding.
DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM
10-Q
FOR QUARTERLY PERIOD ENDED NOVEMBER 1, 2020 TABLE OF CONTENTS
Page |
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PART I |
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Item 1. |
3 |
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Item 2. |
18 |
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Item 3. |
33 |
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Item 4. |
33 |
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PART II |
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Item 1. |
33 |
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Item 1A. |
33 |
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Item 2. |
36 |
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Item 6. |
37 |
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38 |
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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)
November 1, 2020 |
February 2, 2020 |
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(unaudited) |
(audited) |
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ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | $ | ||||||
| Inventories |
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| Prepaid expenses |
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| Income taxes receivable |
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| Other current assets |
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| |
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| Total current assets |
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| Property and equipment (net of $ |
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| Operating lease right of use assets |
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| Deferred tax assets |
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| Tradenames |
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| Goodwill |
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| Other assets and deferred charges |
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| Total assets |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: |
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| Current installments of long-term debt |
$ | — | $ | |||||
| Accounts payable |
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| Accrued liabilities |
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| Income taxes payable |
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| Total current liabilities |
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| Deferred income taxes |
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| Operating lease liabilities |
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| Other liabilities |
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| Long-term debt, net |
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| Commitments and contingencies |
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| Stockholders’ equity: |
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| Common stock, par value $ |
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| Preferred stock, |
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| Paid-in capital |
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| Treasury stock, |
( |
) | ( |
) | ||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| Retained earnings |
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| |
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|
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| Total stockholders’ equity |
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|
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| Total liabilities and stockholders’ equity |
$ |
$ |
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| |
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|
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See accompanying notes to consolidated financial statements.
3
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except share and per share amounts)
Thirteen Weeks Ended November 1, 2020 |
Thirteen Weeks Ended November 3, 2019 |
|||||||
| Food and beverage revenues |
$ | $ | ||||||
| Amusement and other revenues |
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| |
|
|
|
|||||
| Total revenues |
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| Cost of food and beverage |
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| Cost of amusement and other |
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| |
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| Total cost of products |
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| Operating payroll and benefits |
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| Other store operating expenses |
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| General and administrative expenses |
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| Depreciation and amortization expense |
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| Pre-opening costs |
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| |
|
|
|
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| Total operating costs |
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| |
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|
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| Operating income (loss) |
( |
) | ||||||
| Interest expense, net |
||||||||
| Loss on debt refinance |
— | |||||||
| |
|
|
|
|||||
| Income (loss) before benefit for income taxes |
( |
) | ||||||
| Benefit for income taxes |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net income (loss) |
( |
) | ||||||
| |
|
|
|
|||||
| Unrealized foreign currency translation gain |
||||||||
| Unrealized gain (loss) on derivatives, net of tax |
( |
) | ||||||
| |
|
|
|
|||||
| Total other comprehensive income (loss) |
( |
) | ||||||
| |
|
|
|
|||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
| Net income (loss) per share: |
||||||||
| Basic |
$ | ( |
) | $ | ||||
| Diluted |
$ | ( |
) | $ | ||||
| Weighted average shares used in per share calculations: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
See accompanying notes to consolidated financial statements.
4
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except share and per share amounts)
Thirty-Nine Weeks Ended November 1, 2020 |
Thirty-Nine Weeks Ended November 3, 2019 |
|||||||
| Food and beverage revenues |
$ | $ | ||||||
| Amusement and other revenues |
||||||||
| |
|
|
|
|||||
| Total revenues |
||||||||
| Cost of food and beverage |
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| Cost of amusement and other |
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| |
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|
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| Total cost of products |
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| Operating payroll and benefits |
||||||||
| Other store operating expenses |
||||||||
| General and administrative expenses |
||||||||
| Depreciation and amortization expense |
||||||||
| Pre-opening costs |
||||||||
| |
|
|
|
|||||
| Total operating costs |
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| |
|
|
|
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| Operating income (loss) |
( |
) | ||||||
| Interest expense, net |
||||||||
| Loss on debt refinance |
— | |||||||
| |
|
|
|
|||||
| Income (loss) before provision (benefit) for income taxes |
( |
) | ||||||
| Provision (benefit) for income taxes |
( |
) | ||||||
| |
|
|
|
|||||
| Net income (loss) |
( |
) | ||||||
| |
|
|
|
|||||
| Unrealized foreign currency translation gain (loss) |
( |
) | ||||||
| Unrealized loss on derivatives, net of tax |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total other comprehensive loss |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total comprehensive income (loss) |
$ | ( |
) | $ | ||||
| |
|
|
|
|||||
| Net income (loss) per share: |
||||||||
| Basic |
$ | ( |
) | $ | ||||
| Diluted |
$ | ( |
) | $ | ||||
| Weighted average shares used in per share calculations: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
See accompanying notes to consolidated financial statements.
5
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
Thirteen Weeks Ended November 1, 2020 |
||||||||||||||||||||||||||||||||
Common Stock |
Paid-In Capital |
Treasury Stock At Cost |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total |
|||||||||||||||||||||||||||
Shares |
Amt. |
Shares |
Amt. |
|||||||||||||||||||||||||||||
| Balance August 2, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Unrealized foreign currency translation gain |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Unrealized gain on derivatives, net of tax |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Share-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock |
— | — | — | — | ||||||||||||||||||||||||||||
| Repurchase of common stock |
— | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance November 1, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
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|
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|
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Thirteen Weeks Ended November 3, 2019 |
||||||||||||||||||||||||||||||||
Common Stock |
Paid-In Capital |
Treasury Stock At Cost |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total |
|||||||||||||||||||||||||||
Shares |
Amt. |
Shares |
Amt. |
|||||||||||||||||||||||||||||
| Balance August 4, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Unrealized foreign currency translation gain |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Unrealized loss on derivatives, net of tax |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| Share-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock |
— | — | — | — | ||||||||||||||||||||||||||||
| Repurchase of common stock |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||
| Dividends declared ($ |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| |
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|||||||||||||||||
| Balance November 3, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
See accompanying notes to consolidated financial statements.
6
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
Thirty-Nine Weeks Ended November 1, 2020 |
||||||||||||||||||||||||||||||||
Common Stock |
Paid-In Capital |
Treasury Stock At Cost |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total |
|||||||||||||||||||||||||||
Shares |
Amt. |
Shares |
Amt. |
|||||||||||||||||||||||||||||
| Balance February 2, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Unrealized foreign currency translation loss |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| Unrealized loss on derivatives, net of tax |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| Share-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock |
— | — | — | — | ||||||||||||||||||||||||||||
| Repurchase of common stock |
— | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||
| |
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|
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|
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|
|||||||||||||||||
| Balance November 1, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
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|
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Thirty-Nine Weeks Ended November 3, 2019 |
||||||||||||||||||||||||||||||||
Common Stock |
Paid-In Capital |
Treasury Stock At Cost |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total |
|||||||||||||||||||||||||||
Shares |
Amt. |
Shares |
Amt. |
|||||||||||||||||||||||||||||
| Balance February 3, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ |
$ | ||||||||||||||||||||||
| Cumulative effect of a change in accounting principle, net of tax |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Unrealized foreign currency translation gain |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Unrealized loss on derivatives, net of tax |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| Share-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock |
— | — | — | — | ||||||||||||||||||||||||||||
| Repurchase of common stock |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||
| Dividends declared ($ |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| |
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| Balance November 3, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| |
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|
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See accompanying notes to consolidated financial statements.
7
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
November 1, |
November 3, |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization expense |
||||||||
| Non-cash interest expense |
||||||||
| Impairment of long-lived assets |
||||||||
| Deferred taxes |
( |
) | ||||||
| Loss on disposal of fixed assets |
||||||||
| Loss on debt refinance |
||||||||
| Share-based compensation |
||||||||
| Other, net |
||||||||
| Changes in assets and liabilities: |
||||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses |
( |
) | ||||||
| Income tax receivable |
( |
) | ( |
) | ||||
| Other current assets |
||||||||
| Other assets and deferred charges |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued liabilities |
||||||||
| Income taxes payable |
( |
) | ( |
) | ||||
| Other liabilities |
||||||||
| |
|
|
|
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| Net cash provided by (used in) operating activities |
( |
) | ||||||
| |
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|
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| Cash flows from investing activities: |
||||||||
| Capital expenditures |
( |
) | ( |
) | ||||
| Proceeds from sales of property and equipment |
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| |
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|
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| Net cash used in investing activities |
( |
) | ( |
) | ||||
| |
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|
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| Cash flows from financing activities: |
||||||||
| Proceeds from debt |
||||||||
| Payments of debt |
( |
) | ( |
) | ||||
| Net proceeds from the issuance of common stock |
||||||||
| Proceeds from the exercise of stock options |
||||||||
| Repurchase of common stock under share repurchase program |
( |
) | ||||||
| Dividends paid |
( |
) | ( |
) | ||||
| Debt issuance costs |
( |
) | ||||||
| Repurchases of common stock to satisfy employee withholding tax obligations |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| |
|
|
|
|||||
| Decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
| Beginning cash and cash equivalents |
||||||||
| |
|
|
|
|||||
| Ending cash and cash equivalents |
$ | $ | ||||||
| |
|
|
|
|||||
| Supplemental disclosures of cash flow information: |
||||||||
| Decrease in fixed asset accounts payable |
$ | ( |
) | $ | ( |
) | ||
| Cash paid (refund received) for income taxes, net |
$ | ( |
) | $ | ||||
| Cash paid for interest, net |
$ | $ | ||||||
| Dividend declared, not paid |
$ | $ | ||||||
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
The accompanying unaudited consolidated financial statements include the accounts of Dave & Buster’s Entertainment, Inc. (referred to herein as the “Company”, “we,” “us” and “our”), any predecessor companies and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”), which owns 100 % of the outstanding common stock of Dave & Busters, Inc. (“D&B Inc”), the operating company. All intercompany balances and transactions have been eliminated in consolidation. 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 weeks ended November 1, 2020, management made the decision to not we opened two new stores located in Manchester, New Hampshire and Lehigh, Pennsylvania. As of November 1, 2020, we owned and operated 137 stores located in 40 states, Puerto Rico and one Canadian province.
thirty-
nine
re-open
two stores located in the Chicago, Illinois area and Houston, Texas area, which are near the end of their respective lease terms, and
The Company operates 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 2020 and 2019, which end on January 31, 2021 and February 2, 2020, respectively, contain 52 weeks.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. Our quarterly financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended February 2, 2020, included in our Annual Report on Form
10-K
as filed with the SEC.COVID-19 Considerations
— On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic and on March 13, 2020, the United States declared a National Public Health Emergency. As a result, several state and local mandates were implemented that encouraged the practice of social distancing, placed restrictions from individuals gathering in groups and, in many areas, placed complete restrictions on non-essential movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions
on businesses
, some of which allowed To-Go or curbside service only while others limited capacity in the dining room or midway. By March 20, 2020, all of our 137 operating stores were temporarily closed (including our one new store that opened on March 16).
re-opened
to the public with limited food and beverage offerings and off-premise
dining options. During our second and third quarters, we have progressively re-opened
limited operations in an additional As of November 1, 2020, 33 of the Company’s stores were closed to in-person guests as a result of local COVID-19 restrictions (31 of which have been closed since March 20, 2020). Subsequent to the third quarter, some local and state governments began to roll back their re-opening plans in light of climbing COVID-19 case counts. As of December 4, 2020, 4
8
stores were closed due to jurisdictional restrictions. The Company has been
in
ongoing discussions with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations. As of November 1, 2020, a total of 123 rent relief agreements related to our operating locations and corporate headquarters were executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations. We have also been successful in negotiating extended and reduced payment terms with several vendors. In addition to reducing expenses, including capital expenditures and
discretionary spending
, the Company obtained additional liquidity through the sale of common stock during our first and second quarters, which resulted in net proceeds of $182,207 .
On
October
27,
2020, D&B Inc, a wholly owned subsidiary, completed the private sale of $550,000 in aggregate principal amount of 7.625 % senior secured notes due 2025 . At the same time,
the
revolving credit commitments under our existing credit facility
were extended
through August 17, 2024
,
and the suspension of our financial ratio covenants was extended
until
the
last
day
of
the first quarter of fiscal year 2022.
See Note 3, Debt,
for more information on these transactions.
The measures taken by the Company provide sufficient liquidity to meet estimated cash flow needs and covenant compliance obligations for at least the next twelve months from the issuance of the financial statements.
9
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from those estimates. Operating results for the
thirteen and
thirty-nine weeks ended November 1, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending January 31, 2021.
Cash and cash equivalents
Fair value of financial instruments
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 debt, which was refinanced during the third quarter, approximates its fair value because the interest rates reflect current market conditions. The fair value of the Company’s debt 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, right-of-use
During the first quarter of fiscal 2020, the Company recorded an impairment charge for its long-lived assets, including ROU assets, of $6,746 , primarily driven by the expected impact of the no additional impairment related to our operating stores was recognized. The Company has determined no events and circumstances existed during the thirty-nine weeks ended November 1, 2020 that would indicate it is more likely than not that its goodwill or tradename are impaired. The ultimate severity and longevity of the
COVID-19
pandemic on future cash flows of specific stores. During the second and third quarters of fiscal 2020, the Company did not identify additional triggering events which would require a change in management’s estimate regarding the recoverability of store asset values, and COVID-19
pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material. Additionally, the Company is continuing discussions to terminate or delay possession on several executed lease contracts that have not yet commenced. The Company has also curtailed several potential new store projects that were in the early stage of development. During the thirteen and thirty-nine weeks ended November 1, 2020, we recorded an impairment loss and related contract termination costs of $0 and $6,981 , respectively, related to these projects, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
Interest rate swaps
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, which mature August 17, 2022, totals
$The Company initially designated its interest rate swap agreements as a cash flow hedge and accounted for the underlying activity in accordance with hedge accounting. Effective April 14, 2020, the Company amended its existing credit facility agreement to obtain relief from its financial covenants, and as a result, the variable interest rate terms were modified to create an interest rate floor of 1.00%. Accordingly, and as a result of the current forward interest rate curve, the Company discontinued the hedging relationship as of April 14, 2020
(de-designation
date). Given the continued existence of the hedged interest payments, the Company is10
reclassifying its accumulated other comprehensive loss of $
as of the
de-designation
date into “Interest expense, net” using a straight-line approach over the remaining life of the originally designated hedging relationship. The amount of
pre-tax
losses in accumulated other comprehensive loss that was reclassified into interest expense subsequent to the
de-designation
date was $
and $
for the thirteen and thirty-nine weeks ended November 1, 2020, respectively, and the Company expects to reclassify $
within the next twelve months. Effective with the
de-designation,
any gain or loss on the derivatives are recognized in earnings in the period in which the change occurs. For the thirteen and thirty-nine weeks ended November 1, 2020, a gain of $
and a loss of $
were recognized, respectively, which are included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
Prior to the
de-designation,
changes in the fair values of the interest rate swaps were recorded as a component of other comprehensive loss until the interest payments being hedged were recorded as interest expense, at which time the amounts in accumulated other comprehensive loss were reclassified as an adjustment to interest expense. Cash flows related to the interest rate swaps were included as a component
of interest expense and in operating activities.Credit risk related to the failure of our counterparties to perform under the terms of the swap agreements is minimized by entering into transactions with carefully selected, credit-worthy parties and the fact that the swap contracts are distributed among several financial institutions to reduce the concentration of credit risk. Our swap agreements with our derivative counterparties contain a provision where if the Company defaults on any of its indebtedness, and repayment of the indebtedness has been accelerated, the Company could also be declared in default on its derivative obligations.
The following derivative instruments were outstanding as of the end of the periods indicated:
Fair Value |
||||||||||||
Balance Sheet Location |
November 1, 2020 |
February 2, 2020 |
||||||||||
| Interest rate swaps |
Accrued liabilities |
$ |
( |
) |
$ |
( |
) | |||||
| Interest rate swaps |
Other liabilities |
( |
) |
( |
) | |||||||
| |
|
|
|
|||||||||
| Total derivatives (1) |
$ |
( |
) |
$ |
( |
) | ||||||
| |
|
|
|
|||||||||
(1) |
The balance at November 1, 2020 relates to our swap agreements after hedge accounting was discontinued, effective April 14, 2020. |
The following table summarizes the activity in accumulated other comprehensive loss related to our derivative instruments:
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
November 1, 2020 |
November 3, 2019 |
November 1, 2020 |
November 3, 2019 |
|||||||||||||
| Amount of loss recorded in accumulated other comprehensive income |
$ | $ | ||||||||||||||
| Amount of loss reclassified into income (1) |
$ | ( |
) | ( |
) | $ | ( |
) | ( |
) | ||||||
| Income tax expense (benefit) in accumulated other comprehensive income |
$ | ( |
) | $ | ( |
) | ( |
) | ||||||||
(1) |
Amounts reclassified into income are included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income (Loss). |
Revenue recognition
.
In jurisdictions where we do not have a legal 640 and $2,080 , respectively, related to the amount in deferred gift card revenue as of the end of fiscal 2019, of which approximately $380 and $590 was
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 thirty-nine weeks ended November 1, 2020, we recognized revenue of approximately $breakage revenue.
11
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 total share repurchase authorization is $
and the share repurchase authorization expires at the end of fiscal 2020.
During the first quarter of fiscal 2020,
the Company indefinitely
suspended all share repurchase activity. As of August 2, 2020, we have approximately $
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 time-based and 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 thirty-nine weeks ended November 1, 2020 and November 3, 2019, we withheld 58,189 and 11,536 shares of common stock to satisfy $916 and $595 of employees’ tax obligations, respectively. The share activity in the thirty-nine weeks ended November 1, 2020 includes the settlements of $2,517 cash obligations through the issuance of 160,540 shares of common stock.
Effective March 18, 2020 , the Board of Directors of the Company adopted a one preferred share purchase right for each outstanding share of common stock to shareholders of record on March 30, 2020 to purchase from the Company 0.01 per share, of the Company for an exercise price of $45.00 once the rights become exercisable, subject to adjustment as provided in the related rights agreement.
364-day
duration Shareholder Rights Plan (the “Rights Plan”) and declared a dividend of one-ten
thousandth of a share of Series A Junior Participating Preferred Stock, par value $On April 14, 2020, pursuant to an open market sale agreement, the Company sold 6,149,936 shares of its common stock at a price of $12.20 per share, for proceeds of $75,000 , prior to deducting offering expenses related to the offering. On May 4, 2020, the Company entered into an underwriting agreement, pursuant to which it sold 9,578,545 shares of its common stock at a price of $10.44 per share, and on May 18, 2020, the underwriter exercised its over-allotment option for an additional 1,014,871 shares at $10.44 per share, resulting in additional proceeds of $110,600 prior to deducting offering costs.
On June 23, 2020, shareholders approved a proposal to amend our 2014 Omnibus Incentive Plan (“Plan”) to increase the number of shares available for awards under the Plan by 3,000,000 shares.
Recently adopted accounting guidance
2016-13
, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
In January 2017, the FASB issued ASU 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 Company adopted this standard as of the beginning of fiscal year 2020, and the adoption did not have a material impact on our consolidated financial statements.
2017-04
, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
In August 2018, the FASB issued ASU , which eliminates, modifies and adds disclosure requirements for fair value measurements. The Company adopted this standard as of the beginning of fiscal year 2020, and the adoption did not have a material impact on our consolidated financial statements.
2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
Recent accounting pronouncements
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In March 2020, the FASB issued ASU , which provides temporary optional expedients and exceptions to the current guidance for contract modifications and hedging relationships through December 31, 2022, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. A contract modification resulting from reference rate reform may be accounted for as a continuation of the existing contract rather than the creation of a new contract. Additionally, changes in the critical terms of hedging relationships, caused by reference rate reform, should not result in the
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Reform on Financial Reporting
de-designation
of the instrument, provided certain criteria are met. As of the end of the third quarter of fiscal 2020, the Company’s exposure to LIBOR rates included its credit facility and swap agreements. The Company is currently evaluating the impact of this new standard on our consolidated financial statements. 12
Note 2: Accrued Liabilities
Accrued liabilities consist of the following as of the end of each period:
November 1, 2020 |
February 2, 2020 |
|||||||
| Deferred amusement revenue |
$ | $ | ||||||
| Current portion of operating lease liabilities, net (1) |
||||||||
| Rent payable ( Note 4) |
— | |||||||
| Variable rent liabilities ( Note 4) |
||||||||
| Deferred gift card revenue |
||||||||
| Property taxes |
||||||||
| Compensation and benefits |
||||||||
| Current portion of derivatives |
||||||||
| Current portion of long-term insurance |
||||||||
| Utilities |
||||||||
| Customer deposits |
||||||||
| Inventory liabilities |
||||||||
| Sales and use taxes |
||||||||
| Dividend payable |
— | |||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total accrued liabilities |
$ | $ | ||||||
| |
|
|
|
|||||
| (1) | The balance of leasehold incentive receivables of $ |
Note 3: Debt
Long-term debt consists of the following as of:
November 1, 2020 |
February 2, 2020 |
|||||||
| Senior Secured Notes |
$ | $ | — | |||||
| Credit facility - term |
— | |||||||
| Credit facility - revolver |
||||||||
| |
|
|
|
|||||
| Total debt outstanding |
||||||||
| Current installments |
— | ( |
) | |||||
| Debt issuance costs |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Long-term debt, net |
$ | $ | ||||||
| |
|
|
|
|||||
Effective April 14, 2020, we amended our existing credit facility, which provided relief from compliance with financial covenants through the third quarter of fiscal 2020. The interest rate increased to LIBOR plus 2.00 % with a LIBOR floor of 1.00 %.
On October 27, 2020, the Company issued $550,000 aggregate principal amount of 7.625 % senior secured notes (the “Notes”). Interest on the Notes accrues from October 27, 2020 and is payable in arrears on November 1 and May 1 of each year , commencing on May 1, 2021. The Notes mature on November 1, 2025 , unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by D&B Inc and are unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries, which is substantially the same as the guarantors of the Company’s existing credit facility.
Concurrent and subject to the issuance of the Notes, the Company entered into a second amendment to its existing credit facility, which included relief from testing compliance with certain financial covenants until the last day of the fiscal quarter ending on May 1, 2022. During the financial covenant suspension period the Company is required to maintain minimum liquidity (primarily
availability
13
under
the credit facility) of
$
. The second amendment
extended
the maturity date of the $ revolving portion of the facility from August 17, 2022 to
, and the interest rate spread increased from
% to
% during the financial covenant suspension period, with an additional
% utilization fee due at maturity. After the financial covenant suspension period, the interest rate spread ranges from
% to
%. The second amendment terminated the term loan portion of the credit facility, which triggered payment of $
of lender debt costs associated with the first amendment.
The Company used the proceeds of the Notes offering, along with cash on hand, to repay the $255,000 principal balance of the term loan facility, $463,000 of borrowings under the revolving credit facility, and related accrued
interest. The Company
incurred debt costs of $18,200 , which are being amortized over the terms of the respective Notes and revolving credit facility. As of November 1, 2020, approximately $3,300 of these debt costs had not been paid. The Company also recorded a loss of $904 related to the unamortized debt costs associated with the term portion of the credit facility.
For the thirty-nine weeks ended November 1, 2020, and November 3, 2019, the Company’s weighted average interest rate on outstanding borrowings was 4.17 % and 4.03 %, respectively. As of November 1, 2020, we had letters of credit outstanding of $9,686 and an unused commitment balance of $464,314 under
the
revolving credit facility. Our credit facility and Notes contain restrictive covenants that, among other things, place certain limitations on our ability to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets.
Interest expense, net
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
November 1, 2020 |
November 3, 2019 |
November 1, 2020 |
November 3, 2019 |
|||||||||||||
| Interest expense on debt |
$ | $ | ||||||||||||||
| Interest associated with swap agreements |
||||||||||||||||
| Amortization of issuance cost |
||||||||||||||||
| Interest income |
— | ( |
) | ( |
) | ( |
) | |||||||||
| Capitalized interest |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total interest expense, net |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Note 4: Leases
We currently lease the building or site for our stores, corporate office and warehouse space under facility operating leases. These leases typically have initial terms ranging from ten to twenty years and include one or more options to renew. When determining the lease term, we include option periods for which renewal is reasonably certain. Most of the leases require us to pay property taxes, insurance and maintenance of the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating leases also includes certain equipment leases that have a term in excess of one year. Certain facility leases also have provisions for additional contingent rentals based on revenues.
Operating lease cost, variable lease cost and short-term lease cost related primarily to our facilities is included in “Other store operating expenses” for our operating stores,
“Pre-opening
costs” for our stores not yet operating, or “General and administrative expenses” for our corporate office and warehouse, in the Consolidated Statements of Comprehensive Income (Loss).14
The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are as follows for the fiscal year ended:
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
November 1, 2020 |
November 3, 2019 |
November 1, 2020 |
November 3, 2019 |
|||||||||||||
| Operating lease cost |
$ | $ | ||||||||||||||
| Variable lease cost |
||||||||||||||||
| Short-term lease cost |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
During the thirty-nine weeks ended November 1, 2020, the Company entered into 123 rent relief agreements with our respective landlords on operating locations and our corporate headquarters. Under these agreements, certain rent payments will be abated, deferred or modified without penalty for various periods, generally providing for full deferral for three months beginning April 2020, with partial deferrals continuing for periods of up to six months at approximately 50% of those locations. The Company has elected to account for lease concessions and deferrals resulting directly from
COVID-19
as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications, unless the concession results in a substantial increase in the Company’s obligations. During the thirty-nine weeks ended November 1, 2020, 113 of our 123 rent relief agreements qualified for this accounting election, and the remaining agreements were treated as lease modifications, primarily due to a significant extension of the lease term. Further, as a result of the COVID-19
pandemic and its impact on our financial condition, the Company has chosen not to pay rent or to pay a portion of operating lease obligations as they become due for eight properties without rent relief agreements as of the end of the third quarter. As of November 1, 2020, we have bifurcated our current operating lease liabilities into the portion that remains subject to accretion and the portion that is accounted for as a deferral of payments or as short payments.Note 5: Commitments and Contingencies
We are subject to certain legal proceedings and claims that arise in the ordinary course of our business, including claims alleging violations of federal and state law regarding workplace and employment matters, discrimination, and other guest-related incidents, and similar matters. In the opinion of management, based upon consultation with legal counsel, the amount of ultimate liability with respect to such legal proceedings and claims will not materially affect the consolidated results of our operations or our financial condition. Legal costs related to such claims are expensed as incurred.
slip-and-fall
The Company is currently a defendant in several lawsuits filed in courts in California alleging violations of California Business and Professions Code, industry wage orders, laws and rules and regulations pertaining primarily to the failure to pay proper regular and overtime wages, failure to pay for missed meals and rest periods, pay stub violations, failure to pay all wages due at the time of termination and other employment related claims (the “California Cases”). Some of the California Cases purport or may be determined to be class actions or Private Attorneys General Act representative actions and seek substantial damages and penalties. With respect to a portion of the California Cases, the Company has estimated and accrued for the most likely amount of loss. Where the Company has determined that a loss is reasonably possible but not probable, the Company is unable to estimate the amount or range of the reasonably possible loss due to the inherent difficulties of predicting the outcome of uncertainties regarding legal proceedings. The Company’s assessments are based on assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. Management’s assessment of these California Cases could change because of future determinations or the discovery of facts that are not presently known. Accordingly, the ultimate costs of resolving these cases may be substantially higher or lower than estimated. The Company is aggressively defending these cases.
wage-and-hour
, as well as other lawsuits,
Note 6: Earnings per share
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and unvested), unvested time-based restricted stock units (RSU’s) and unvested performance RSU’s to the extent performance measures were attained as of the end of the reporting period, calculated using the treasury-stock method. Potential dilutive shares are excluded from the computation of earnings per share (“EPS”) if their effect is anti-dilutive. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation. The weighted average anti-dilutive options excluded from the calculation of common equivalent shares were 235,368 and 134,450 in the thirteen and thirty-nine weeks ended November 3, 2019.
15
The following table sets forth the computation of EPS, basic and diluted for the periods indicated:
Thirteen Weeks Ended November 1, 2020 |
Thirteen Weeks Ended November 3, 2019 |
|||||||
| Numerator: |
||||||||
| Net income (loss) |
$ | ( |
) | $ | ||||
| Denominator: |
||||||||
| Weighted average number of common shares outstanding (basic) |
||||||||
| Weighted average dilutive impact of equity-based awards (1) |
— | |||||||
| Weighted average number of common and common equivalent shares outstanding (diluted) |
||||||||
| Net income (loss) per share: |
||||||||
| Basic |
$ | ( |
) | $ | ||||
| Diluted |
$ | ( |
) |
$ | ||||
Thirty-Nine Weeks Ended November 1, 2020 |
Thirty-Nine Weeks Ended November 3, 2019 |
|||||||
| Numerator: |
||||||||
| Net income (loss) |
$ |
( |
) |
$ |
||||
| Denominator: |
||||||||
| Weighted average number of common shares outstanding (basic) |
||||||||
| Weighted average dilutive impact of equity-based awards (1) |
— |
|||||||
| Weighted average number of common and common equivalent shares outstanding (diluted) |
||||||||
| Net income (loss) per share: |
||||||||
| Basic |
$ |
( |
) |
$ |
||||
| Diluted |
$ |
( |
) |
$ |
||||
(1) |
Due to the net loss for the thirteen and thirty-nine weeks ended November 1, 2020, |
Note 7: Share-Based Compensation
Compensation expense related to stock options and restricted stock units (“RSU’s”) is included in
“
General
and
administrative expenses
” in the Consolidated Statements of Comprehensive Income (Loss)
and is as follows:
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
November 1, 2020 |
November 3, 2019 |
November 1, 2020 |
November 3, 2019 |
|||||||||||||
| Stock options |
$ | $ | ||||||||||||||
| RSU’s |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Share-based compensation expense |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
16
Transactions related to stock option awards during the thirty-nine weeks ended November 1, 2020 were as follows:
2014 Stock Incentive Plan |
2010 Stock Incentive Plan |
|||||||||||||||
Number of Options |
Wtd. Avg. Exercise Price |
Number of Options |
Wtd. Avg. Exercise Price |
|||||||||||||
| Outstanding at February 2, 2020 |
$ | $ | ||||||||||||||
| Granted |
— | — | — | — | ||||||||||||
| Exercised |
— | — | ( |
) | ||||||||||||
| Forfeited |
( |
) | — | — | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Outstanding at November 1, 2020 |
$ | $ | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Exercisable at November 1, 2020 |
$ | $ | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The total intrinsic value of options exercised during the thirty-nine weeks ended November 1, 2020 was $904 . The unrecognized expense related to our stock option plan totaled approximately $869 as of November 1, 2020 and will be expensed over a weighted average period of 1.2 years.
Transactions related to RSU’s during the thirty-nine weeks ended November 1, 2020, were as follows:
Shares |
Wtd. Avg. Fair Value |
|||||||
| Outstanding at February 2, 2020 |
$ | |||||||
| Granted |
||||||||
| Change in performance units |
||||||||
| Vested |
( |
) | ||||||
| Forfeited |
( |
) | ||||||
| |
|
|
|
|||||
| Outstanding at November 1, 2020 |
$ | |||||||
| |
|
|
|
|||||
Fair value of our RSU’s is based on our closing stock price on the date of grant. The unrecognized expense related to the RSU’s was $9,919 as of November 1, 2020 and will be expensed over a weighted average period of 2.2 years.
During the thirty-nine weeks ended November 1, 2020 and November 3, 2019, excess tax expense (benefit) of $431 and ($912 ), respectively, were recognized as an expense (benefit) in the “Provision (benefit) for income taxes” in the Consolidated Statement of Comprehensive Income (Loss) and classified as a source in operating activities in the Consolidated Statement of Cash Flows.
Note 8: Income Taxes
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Intended to provide economic relief to those impacted by the CARES Act, in efforts to enhance business’ liquidity, provides for the deferral of the employer-paid portion of social security taxes. As of November 1, 2020, we have elected to defer employer-paid portion of social security taxes of $3,398 , which is included in “Other liabilities” in the Consolidated Balance Sheets.
COVID-19
pandemic, the CARES Act includes provisions, among others, addressing the carryback of net operating losses for specific periods, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property. Additionally, the
The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annualized effective tax rate for the full fiscal year to “ordinary” income or loss for the reporting period. Due to the uncertainty created by the events surrounding the
COVID-19
pandemic, the actual effective tax rate for the year to date period was used to calculate the income tax benefit for the thirty-nine weeks ended November 1, 2020. The effective tax rate for the thirty-nine weeks ended November 1, 2020, was a benefit of
%, compared to an
expense
of
% for the thirty-nine weeks ended November 3, 2019, primarily due to the impact of a decrease in operating earnings before income tax and the impact of the tax provisions within the CARES Act. As a result of the impact of the technical amendments for qualified improvement property within the CARES Act, the Company generated a taxable loss in 2019, which together with the taxable loss in 2020, can be carried back to prior years when the statutory federal tax rate was
approximately
%. As of November 1, 2020, the Company has recognized a current benefit of $34,090 related to estimated fiscal year 2019 and 2020 tax net operating losses that will be carried back to recover taxes paid in
prior periods. The estimated tax benefit from the net operating losses is included in “Income taxes receivable” in the Consolidated Balance Sheets.
17
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read together with the accompanying unaudited consolidated financial statements and the related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form
10-K
as filed with the Securities and Exchange Commission (“SEC”) on April 3, 2020. Unless otherwise specified, the meanings of all defined terms in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are consistent with the meanings of such terms as defined in the Notes to Unaudited Consolidated Financial Statements. This discussion contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this quarterly report as a result of various factors, including those set forth in the section entitled “Risk Factors” in our Annual Report on Form
10-K
filed with the SEC on April 3, 2020. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q,
those results or developments may not be indicative of results or developments in subsequent periods.Recent Developments
On March 11, 2020, the World Health Organization declared the
COVID-19
outbreak to be a global pandemic and on March 13, 2020, the United States declared a National Public Health Emergency. As a result, several state and local mandates were implemented that encouraged the practice of social distancing, placed restrictions from individuals gathering in groups and, in many areas, placed complete restrictions on non-essential
movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions on businesses, some of which allowed To-Go
or curbside service only while others limited capacity in the dining room or midway. By March 20, 2020, all of our 137 operating stores were temporarily closed (including our one new store that opened on March 16). During our first quarter, one store re-opened
to the public with limited food and beverage offerings and two additional stores offered off-premise
dining options. During our second and third quarters, we have progressively re-opened
limited operations in an additional 101 stores and one new store in Manchester, New Hampshire and one new store in Lehigh Valley, Pennsylvania. Two stores that re-opened
during the second quarter were re-closed
during the third quarter (one of which re-opened
on November 14, 2020). As of November 1, 2020, 104 of our 137 stores were open, in limited capacity, in 36 states, Puerto Rico and Canada. Our current scaled-down operating model includes a limited 15-item
menu, reduced dining capacity and suspended use of some games in our midway for social distancing, reduced operating hours and reduced staffing levels designed to be responsive to restrictions imposed by various jurisdictions related to COVID-19
re-openings.
As of November 1, 2020, 33 of the Company’s stores were closed to
in-person
guests as a result of local COVID-19
restrictions (31 of which have been closed since March 20, 2020). Subsequent to the third quarter, some local and state governments began to roll back their re-opening
plans in light of climbing COVID-19
case counts. As of December 4, 2020, 48 stores were closed due to jurisdictional restrictions.As a result of these developments, the Company is experiencing a significant decrease in traffic which has impacted the Company’s operating results during the thirteen and thirty-nine weeks ended November 1, 2020. We expect our operating results to continue to be severely impacted until such time that state and local restrictions are lifted, and our dining rooms and midways can
re-open
at full capacity. We cannot predict how long the pandemic will last or