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 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
 
 
Dave & Buster’s Entertainment, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
35-2382255
(State of Incorporation)
 
(I.R.S. Employer ID)
2481 Mañana Drive, Dallas, Texas, 75220
 
(214)
357-9588
(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
Common Stock $0.01 par value
 
PLAY
 
NASDAQ Global Select Market
Preferred Stock Purchase Rights
 
PLAY
 
NASDAQ Global Select Market
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
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, 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 December 4, 2020, the registrant had 47,642,029 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 NOVEMBER 1, 2020
TABLE OF CONTENTS
 
 
 
 
  
Page
 
     
PART I
 
  
     
     
Item 1.
 
  
 
3
 
     
Item 2.
 
  
 
18
 
     
Item 3.
 
  
 
33
 
     
Item 4.
 
  
 
33
 
     
PART II
 
  
     
     
Item 1.
 
  
 
33
 
     
Item 1A.
 
  
 
33
 
     
Item 2.
 
  
 
36
 
     
Item 6.
 
  
 
37
 
     
 
 
  
 
38
 
 
2

Table of Contents
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
 
    
(unaudited)
   
(audited)
 
ASSETS
    
Current assets:
    
Cash and cash equivalents
   $ 8,341     $ 24,655  
Inventories
     26,732       34,477  
Prepaid expenses
     12,080       14,269  
Income taxes receivable
     44,574       2,331  
Other current assets
     665       3,245  
  
 
 
   
 
 
 
Total current assets
     92,392       78,977  
Property and equipment (net of $767,510 and $686,824 accumulated depreciation as of November 1, 2020 and February 2, 2020, respectively)
     846,056       900,637  
Operating lease right of use assets
     1,050,878       1,011,568  
Deferred tax assets
     20,451       7,639  
Tradenames
     79,000       79,000  
Goodwill
     272,643       272,636  
Other assets and deferred charges
     23,641       19,682  
  
 
 
   
 
 
 
Total assets
   $ 2,385,061     $ 2,370,139  
  
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
Current liabilities:
    
Current installments of long-term debt
   $ —       $ 15,000  
Accounts payable
     42,849       65,359  
Accrued liabilities
     244,163       207,452  
Income taxes payable
    
415
      3,054  
  
 
 
   
 
 
 
Total current liabilities
     287,427       290,865  
Deferred income taxes
    
13,355
      19,102  
Operating lease liabilities
     1,277,794       1,222,054  
Other liabilities
     37,896       35,779  
Long-term debt, net
     561,815       632,689  
Commitments and contingencies
   
Stockholders’ equity:
    
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 60,483,730 shares at November 1, 2020 and 43,386,852 shares at February 2, 2020; outstanding: 47,642,029 shares at November 1, 2020 and 30,603,340 shares at February 2, 2020
     605       434  
Preferred stock, 50,000,000 authorized; none issued
     —         —    
Paid-in
capital
     529,523       339,161  
Treasury stock, 12,841,701 and 12,783,512 shares as of November 1, 2020 and February 2, 2020, respectively
     (595,957     (595,041
Accumulated other comprehensive loss
     (10,673     (8,369
Retained earnings
     283,276       433,465  
  
 
 
   
 
 
 
Total stockholders’ equity
     206,774       169,650  
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $
 
2,385,061     $
 
2,370,139  
  
 
 
   
 
 
 
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
   $ 38,346     $ 124,637  
Amusement and other revenues
     70,706       174,715  
  
 
 
   
 
 
 
Total revenues
     109,052       299,352  
Cost of food and beverage
     10,664       33,384  
Cost of amusement and other
     7,244       18,796  
  
 
 
   
 
 
 
Total cost of products
     17,908       52,180  
Operating payroll and benefits
     27,704       76,165  
Other store operating expenses
     70,783       110,713  
General and administrative expenses
     11,746       16,210  
Depreciation and amortization expense
     34,384       33,340  
Pre-opening
costs
     2,570       4,245  
  
 
 
   
 
 
 
Total operating costs
     165,095       292,853  
  
 
 
   
 
 
 
Operating income (loss)
     (56,043     6,499  
Interest expense, net
     8,213       6,110  
Loss on debt refinance
     904       —    
  
 
 
   
 
 
 
Income (loss) before benefit for income taxes
     (65,160     389  
Benefit for income taxes
     (17,117     (93
  
 
 
   
 
 
 
Net income (loss)
     (48,043     482  
  
 
 
   
 
 
 
Unrealized foreign currency translation gain
     34       59  
Unrealized gain (loss) on derivatives, net of tax
     1,370       (1,568
  
 
 
   
 
 
 
Total other comprehensive income (loss)
     1,404       (1,509
  
 
 
   
 
 
 
Total comprehensive loss
   $ (46,639   $ (1,027
  
 
 
   
 
 
 
Net income (loss) per share:
    
Basic
   $ (1.01   $ 0.02  
Diluted
   $ (1.01   $ 0.02  
Weighted average shares used in per share calculations:
    
Basic
     47,613,741       30,980,878  
Diluted
     47,613,741       31,515,454  
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
   $ 119,268     $ 410,779  
Amusement and other revenues
     200,423       596,754  
  
 
 
   
 
 
 
Total revenues
     319,691       1,007,533  
Cost of food and beverage
     32,667       109,072  
Cost of amusement and other
     21,997       64,456  
  
 
 
   
 
 
 
Total cost of products
     54,664       173,528  
Operating payroll and benefits
     85,197       239,965  
Other store operating expenses
     229,137       321,334  
General and administrative expenses
     35,587       49,047  
Depreciation and amortization expense
     104,896       97,226  
Pre-opening
costs
     8,781       15,970  
  
 
 
   
 
 
 
Total operating costs
     518,262       897,070  
  
 
 
   
 
 
 
Operating income (loss)
     (198,571     110,463  
Interest expense, net
     22,491       14,771  
Loss on debt refinance
     904     —  
  
 
 
   
 
 
 
Income (loss) before provision (benefit) for income taxes
     (221,966     95,692  
Provision (benefit) for income taxes
     (71,777     20,411  
  
 
 
   
 
 
 
Net income (loss)
     (150,189     75,281  
  
 
 
   
 
 
 
Unrealized foreign currency translation gain (loss)
     (97     2  
Unrealized loss on derivatives, net of tax
     (2,207     (7,475
  
 
 
   
 
 
 
Total other comprehensive loss
     (2,304     (7,473
  
 
 
   
 
 
 
Total comprehensive income (loss)
   $ (152,493   $ 67,808  
  
 
 
   
 
 
 
Net income (loss) per share:
    
Basic
   $ (3.56   $ 2.19  
Diluted
   $ (3.56   $ 2.15  
Weighted average shares used in per share calculations:
    
Basic
     42,185,163       34,405,503  
Diluted
     42,185,163       35,042,311  
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
     60,422,212      $ 604      $ 526,253        12,827,300      $ (595,728   $ (12,077   $ 331,319     $ 250,371  
Net loss
     —          —          —          —          —         —         (48,043     (48,043
Unrealized foreign currency translation gain
     —          —          —          —          —         34       —         34  
Unrealized gain on derivatives, net of tax
     —          —          —          —          —         1,370       —         1,370  
Share-based compensation
     —          —          2,999        —          —         —         —         2,999  
Issuance of common stock
     61,518        1        271        —          —         —         —         272  
Repurchase of common stock
     —          —          —          14,401        (229     —         —         (229
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 1, 2020
     60,483,730      $ 605      $ 529,523        12,841,701      $ (595,957   $ (10,673   $ 283,276     $ 206,774  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
   
 
  
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
     43,337,125      $ 433      $ 335,599        10,358,291      $ (497,862   $ (6,647   $ 417,779     $ 249,302  
Net income
     —          —          —          —          —         —         482       482  
Unrealized foreign currency translation gain
     —          —          —          —          —         59       —         59  
Unrealized loss on derivatives, net of tax
     —          —          —          —          —         (1,568     —         (1,568
Share-based compensation
     —          —          1,747        —          —         —         —         1,747  
Issuance of common stock
     13,360        1        164        —          —         —         —         165  
Repurchase of common stock
     —          —             2,425,221        (97,179     —         —         (97,179
Dividends declared ($0.16 per share)
     —          —          —          —          —         —         (4,887     (4,887
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 3, 2019
     43,350,485      $ 434      $ 337,510        12,783,512      $ (595,041   $ (8,156   $ 413,374     $ 148,121  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
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
     43,386,852      $ 434      $ 339,161        12,783,512      $ (595,041   $ (8,369   $ 433,465     $ 169,650  
Net loss
     —          —          —          —          —         —         (150,189     (150,189
Unrealized foreign currency translation loss
     —          —          —          —          —         (97     —         (97
Unrealized loss on derivatives, net of tax
     —          —          —          —          —         (2,207     —         (2,207
Share-based compensation
     —          —          5,344        —          —         —         —         5,344  
Issuance of common stock
     17,096,878        171        185,018        —          —         —         —         185,189  
Repurchase of common stock
     —          —          —          58,189        (916     —         —         (916
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 1, 2020
     60,483,730      $ 605      $ 529,523        12,841,701      $ (595,957   $ (10,673   $ 283,276     $ 206,774  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
   
 
  
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
     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
     —          —          —          —          —         —         75,281       75,281  
Unrealized foreign currency translation gain
     —          —          —          —          —         2       —         2  
Unrealized loss on derivatives, net of tax
     —          —          —          —          —         (7,475     —         (7,475
Share-based compensation
     —          —          5,479        —          —         —         —         5,479  
Issuance of common stock
     173,009        2        776        —          —         —         —         778  
Repurchase of common stock
     —          —             7,128,121        (297,912     —         —         (297,912
Dividends declared ($0.46 per share)
     —          —          —          —          —         —         (15,724     (15,724
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 3, 2019
     43,350,485      $ 434      $ 337,510        12,783,512      $ (595,041   $ (8,156   $ 413,374     $ 148,121  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
7

DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
    
November 1,
 
2020
   
November 3,
 
2019
 
Cash flows from operating activities:
    
Net income (loss)
   $ (150,189   $ 75,281  
Adjustments to reconcile net income to net cash provided by operating activities:
    
Depreciation and amortization expense
     104,896       97,226  
Non-cash
interest expense
     4,088           
Impairment of long-lived assets
     13,727           
Deferred taxes
     (17,730     5,309  
Loss on disposal of fixed assets
     541       1,284  
Loss on debt refinance
     904           
Share-based compensation
     5,344       5,479  
Other, net
     1,292       928  
Changes in assets and liabilities:
    
Inventories
     7,745       (5,305
Prepaid expenses
     2,761       (615
Income tax receivable
     (42,243     (996
Other current assets
     2,580       6,050  
Other assets and deferred charges
     (3     (1,775
Accounts payable
     (11,945     5,422  
Accrued liabilities
     44,742       37,671  
Income taxes payable
     (2,639     (10,079
Other liabilities
     4,375       1,909  
  
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     (31,754     217,789  
  
 
 
   
 
 
 
Cash flows from investing activities:
    
Capital expenditures
     (72,604     (172,888
Proceeds from sales of property and equipment
     234       615  
  
 
 
   
 
 
 
Net cash used in investing activities
     (72,370     (172,273
  
 
 
   
 
 
 
Cash flows from financing activities:
    
Proceeds from debt
     688,000       366,000  
Payments of debt
     (760,250     (104,250
Net proceeds from the issuance of common stock
     182,207           
Proceeds from the exercise of stock options
     465       778  
Repurchase of common stock under share repurchase program
              (297,317
Dividends paid
     (4,891     (10,837
Debt issuance costs
     (16,805         
Repurchases of common stock to satisfy employee withholding tax obligations
     (916     (595
  
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     87,810       (46,221
  
 
 
   
 
 
 
Decrease
in cash and cash equivalents
     (16,314     (705
Beginning cash and cash equivalents
     24,655       21,585  
  
 
 
   
 
 
 
Ending cash and cash equivalents
   $ 8,341     $ 20,880  
  
 
 
   
 
 
 
Supplemental disclosures of cash flow information:
    
Decrease in fixed asset accounts payable
   $ (12,315   $ (311
Cash paid (refund received) for income taxes, net
   $ (9,281   $ 26,086  
Cash paid for interest, net
   $ 17,306     $ 13,920  
Dividend declared, not paid
   $        $ 4,887  
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
thirty-
nine
 
weeks ended November 1, 2020, management made the decision to not
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
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.
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).
 
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.
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
— 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. There was no book overdraft as of November 1, 2020. A book overdraft of $14,026 is presented in “Accounts payable” in the Consolidated Balance Sheets as of February 2, 2020. Changes in the book overdraft position are presented within “Net cash provided by (used in) 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 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
(“ROU”) assets, goodwill, tradenames and other assets.
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
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 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 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
— Effective February 28, 2019, 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, which mature August 17, 2022, total
s
$350,000 and the fixed rate of interest for all agreements is 2.47%.
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 is
 
10

reclassifying its accumulated other comprehensive loss of $
17,609
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 $
1,886
and $
4,088
for the thirteen and thirty-nine weeks ended November 1, 2020, respectively, and the Company expects to reclassify $
7,547
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 $
218
and a loss of $
1,578
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
 
  
$
(8,191
  
$
(3,518
Interest rate swaps
  
 
Other liabilities
 
  
 
(6,479
  
 
(6,967
 
  
     
  
 
 
 
  
 
 
 
Total derivatives (1)
  
     
  
$
(14,670
  
$
(10,485
 
  
     
  
 
 
 
  
 
 
 
 
(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
   $          2,483     $ 7,602       10,623  
Amount of loss reclassified into income (1)
   $ (1,886     (326   $ (4,566     (338
Income tax expense (benefit) in accumulated other comprehensive income
   $ 516       (589   $ (829     (2,810
 
(1)
 
Amounts reclassified into income are included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income (Loss).
Revenue recognition
— Amusement revenues are primarily recognized upon utilization of game play credits on power cards purchased and used by customers to activate video and redemption games. Redemption games allow customers to earn tickets, which may be redeemed for prizes in our WIN! area. We have deferred a portion of amusement revenues for the estimated unfulfilled performance obligations based on an estimated rate of future use by customers of unused game play credits and the material right provided to customers to redeem tickets in the future for prizes. During the thirteen and thirty-nine weeks ended November 1, 2020, we recognized revenue of approximately $3,300 and $15,400, respectively, related to the amount in deferred amusement revenue as of the end of fiscal 2019
.
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 thirty-nine weeks ended November 1, 2020, we recognized revenue of approximately $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
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 $
800,000
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 $
172,820
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
364-day
duration Shareholder Rights Plan (the “Rights Plan”) and declared a dividend of 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
one-ten
thousandth of a share of Series A Junior Participating Preferred Stock, par value $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.
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
— In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU
2016-13
, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
which requires measurement and recognition of expected versus incurred losses for financial assets held. The guidance primarily relates to our credit card and tenant incentive receivables. 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.
In January 2017, the FASB issued ASU
2017-04
, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
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.
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 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.
Recent accounting pronouncements
— In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
, which removes certain exceptions related to the approach for intraperiod tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for taxable goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those years, with early adoption permitted. The Company is currently assessing the impact of this new standard on our consolidated financial statements.
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Reform on Financial Reporting
, 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
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
   $ 79,210      $ 75,113  
Current portion of operating lease liabilities, net (1)
     51,850        45,611  
Rent payable (
Note
 
4)
     40,542        —    
Variable rent liabilities (
Note
4)
     7,559        1,331  
Deferred gift card revenue
     10,330        11,253  
Property taxes
     10,285        7,226  
Compensation and benefits
     9,914        23,421  
Current portion of derivatives
     8,191        3,518  
Current portion of long-term insurance
     5,100        6,500  
Utilities
     4,111        4,442  
Customer deposits
     1,594        4,324  
Inventory liabilities
     1,948        2,179  
Sales and use taxes
     1,160        4,000  
Dividend payable
     —          4,891  
Other
     12,369        13,643  
  
 
 
    
 
 
 
Total accrued liabilities
   $ 244,163      $ 207,452  
  
 
 
    
 
 
 
 
(1)
The balance of leasehold incentive receivables of $5,434 and $6,339 at November 1, 2020 and February 2, 2020, respectively, is reflected as a reduction of the current portion of operating lease liabilities.
Note 3: Debt
Long-term debt consists of the following as of:
 
    
November 1, 2020
    
February 2, 2020
 
Senior Secured Notes
   $ 550,000      $ —    
Credit facility - term
     —          266,250  
Credit facility - revolver
     26,000        382,000  
  
 
 
    
 
 
 
Total debt outstanding
     576,000        648,250  
Current installments
     —          (15,000
Debt issuance costs
     (14,185      (561
  
 
 
    
 
 
 
Long-term debt, net
   $ 561,815      $ 632,689  
  
 
 
    
 
 
 
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
 $
150,000
. The second amendment
extended
the maturity date of the $
500,000
revolving portion of the facility from August 17, 2022 to
August 17, 2024
, and the interest rate spread increased from
2.00
% to
4.00
% during the financial covenant suspension period, with an additional
1.00
% utilization fee due at maturity. After the financial covenant suspension period, the interest rate spread ranges from
1.25
% to
3.00
%. The second amendment terminated the term loan portion of the credit facility, which triggered payment of $
1,900
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
— The following table sets forth our recorded interest expense, net for the periods indicated:
 
    
Thirteen Weeks Ended
    
Thirty-Nine Weeks Ended
 
  
November 1, 2020
    
November 3, 2019
    
November 1, 2020
    
November 3, 2019
 
Interest expense on
debt
   $ 6,092        5,769      $ 17,255        14,672  
Interest associated with swap agreements
     1,886        326        4,566        338  
Amortization of issuance cost
     427        198        1,081        594  
Interest income
     —          (24      (22      (75
Capitalized interest
     (192      (159      (389      (758
  
 
 
    
 
 
    
 
 
    
 
 
 
Total interest expense, net
   $ 8,213      $ 6,110      $ 22,491      $ 14,771  
  
 
 
    
 
 
    
 
 
    
 
 
 
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
   $ 33,278        31,489      $ 100,162        91,729  
Variable lease cost
     5,351        7,692        18,405        22,335  
Short-term lease cost
     102        108        329        324  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 38,731      $ 39,289      $ 118,896      $ 114,388  
  
 
 
    
 
 
    
 
 
    
 
 
 
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,
slip-and-fall
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.
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,
wage-and-hour
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
, as well as other lawsuits,
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.
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)
   $ (48,043   $ 482  
Denominator:
    
Weighted average number of common shares
outstanding (basic)
     47,613,741       30,980,878  
Weighted average dilutive impact of equity-based
awards (1)
     —         534,576  
Weighted average number of common and common equivalent shares outstanding (diluted)
     47,613,741       31,515,454  
Net income (loss) per share:
    
Basic
   $ (1.01   $ 0.02  
Diluted
   $
 (1.01
)
 
  $ 0.02  
     
 
  
Thirty-Nine Weeks

Ended

November 1, 2020
 
  
Thirty-Nine Weeks

Ended

November 3, 2019
 
Numerator:
  
     
  
     
Net income (loss)
  
$
(150,189
  
$
75,281
 
Denominator:
  
     
  
     
Weighted average number of common shares outstanding (basic)
  
 
42,185,163
 
  
 
34,405,503
 
Weighted average dilutive impact of equity-based awards (1)
  
 
—  
 
  
 
636,808
 
Weighted average number of common and common equivalent shares outstanding (diluted)
  
 
42,185,163
 
  
 
35,042,311
 
Net income (loss) per share:
  
     
  
     
Basic
  
$
(3.56
  
$
2.19
 
Diluted
  
$
(3.56
  
$
2.15
 
 
(1)
Due to the net loss for the thirteen and thirty-nine weeks ended November 1, 2020, no incremental shares are included because the effect would be anti-dilutive.
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
   $ 269        731      $ 1,099        2,294  
RSU’s
     2,730        1,016        4,245        3,185  
  
 
 
    
 
 
    
 
 
    
 
 
 
Share-based compensation expense
   $ 2,999      $ 1,747      $ 5,344      $ 5,479  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
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
     1,323,495      $ 36.97        266,900      $ 6.72  
Granted
     —          —          —          —    
Exercised
     —          —          (90,391      5.14  
Forfeited
     (84,395      38.79        —          —    
  
 
 
    
 
 
    
 
 
    
 
 
 
Outstanding at November 1, 2020
     1,239,100      $ 36.84        176,509      $ 7.54  
  
 
 
    
 
 
    
 
 
    
 
 
 
Exercisable at November 1, 2020
     1,047,124      $ 34.64        176,509      $ 7.54  
  
 
 
    
 
 
    
 
 
    
 
 
 
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
     216,815      $ 51.58  
Granted
     1,063,209        12.74  
Change in performance units
     4,352        59.67  
Vested
     (102,595      38.11  
Forfeited
     (50,736      27.72  
  
 
 
    
 
 
 
Outstanding at November 1, 2020
     1,131,045      $ 17.39  
  
 
 
    
 
 
 
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
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
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.
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
 
32.3
%, compared to an
expense
 
of
21.3
% 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
 
35.0
%. 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 when the state and local restrictions will be lifted or potentially
re-imposed.
In addition, we cannot predict how quickly our guests will return to our stores once such restrictions have been lifted or the impact this will have on consumer spending habits.
In response to the ongoing pandemic, the Company and its Board of Directors implemented the following measures to enhance financial flexibility:
 
   
reduced expenses broadly, including by furloughing all of our hourly store team members and approximately 94% of store management personnel, on or about March 19, 2020, while enacting
12-week
salary reductions for remaining
 
18

Table of Contents
 
managers. In addition, effective March 24, 2020, the Company furloughed all but a small team of essential corporate and administrative staff, enacted
12-week
salary reductions ranging from 10% to 50%, and suspended all cash board fees through the remainder of fiscal 2020. As stores reopen with a reduced workforce a portion of the furloughed personnel at our stores and corporate office have returned to work;
 
   
canceled or delayed all
non-essential
planned capital spending for the remainder of fiscal 2020;
 
   
halted or delayed planned store openings after our one store opening in Chattanooga, TN, on March 16, 2020, with the exception of two new stores that opened during the third quarter and several planned store openings, all of which commenced construction prior to the pandemic;
 
   
stopped work on future planned sites and commenced negotiations to terminate related contracts, as applicable;
 
   
suspended our share repurchase program and declaration of dividends;
 
   
negotiated amendments to our credit facility resulting in an extension of the maturity date of our revolving credit facility to August 17, 2024;
 
   
issued $550,000 of senior secured notes, maturing November 1, 2025;
 
   
sold shares of our common stock, which generated gross proceeds of approximately $185,600; and
 
   
negotiated with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments and obtain other concessions. 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.
The
re-opening
process has been a gradual one with the safety of our employees and guests as our top priority. All of our
re-opened
stores are operating with streamlined menus, reduced games, new seating and game configurations, reduced operating hours, and reduced staff levels. As dining room and midway restrictions continue to ease and sales begin to improve, some labor inefficiencies and increased cleaning and supply costs are anticipated as stores adjust to improved sales volumes and enhanced health and safety protocols. On an ongoing basis, we will also continue to pursue long-term operating efficiencies and fixed cost restructuring opportunities.
Given the level of volatility and uncertainty surrounding the future impact of the pandemic, we have not provided a full year financial outlook for fiscal 2020.
General
We are a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families under the name “Dave & Buster’s”. Founded in 1982, the core of our concept is to offer our customers the opportunity to “Eat, Drink, Play and Watch” all in one location. Eat and Drink are offered through a full menu of entrées and appetizers and a full select