~~UNITED STATES~~

~~SECURITIES AND EXCHANGE COMMISSION~~

~~Washington, D.C. 20549~~

~~FORM~~

~~10-Q~~

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 August ~~4, 2019~~2, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

~~FOR THE TRANSITION PERIOD FROM~~

Commission File

No. 001-35664

~~Commission File No.~~

~~001-35664~~

Dave & Buster’s Entertainment, Inc.

(Exact name of registrant as specified in its charter)


Delaware		35-2382255
(State ~~or Other Jurisdiction~~ of ~~Incorporation or Organization)~~ Incorporation)		(I.R.S. Employer ID)

2481 Mañana Drive, Dallas, Texas, 75220		(214) 357-9588
(Address of principal executive offices) (Zip Code)		~~Identification No.)~~ (Registrant’s telephone number)

~~2481 Mañana Drive~~

~~Dallas,~~

~~Texas~~

~~75220~~

~~(Address of principal executive offices)~~

~~(Zip Code)~~

~~(214)~~

~~357-9588~~

~~(Registrant’s telephone number, including area code)~~

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

Name of each exchange

Common Stock $0.01 par value

NASDAQ Global Select Market

Preferred Stock Purchase Rights

NASDAQ ~~Stock~~Global Select Market ~~LLC~~

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

☒

☐

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

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.


Large accelerated filer		☒		Accelerated filer		☐

Non-accelerated filer	☐		Smaller reporting company		☐	☐

Emerging ~~growth company~~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

☐

☒

As of

September

4, ~~2019,~~2020, the registrant had ~~30,831,297~~47,594,912 shares of common stock, $0.01 par value per share, outstanding.

DAVE & BUSTER’S ENTERTAINMENT, INC.

FORM

10-Q

FOR QUARTERLY PERIOD ENDED ~~August 4, 2019~~AUGUST 2, 2020

TABLE OF CONTENTS


				Page
PART I			FINANCIAL INFORMATION

Item 1.		Financial Statements			3

~~ITEM 1.~~ Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18

Item 3.		~~FINANCIAL STATEMENTS~~Quantitative and Qualitative Disclosures About Market Risk			31

Item 4.		Controls and Procedures			31

PART II		OTHER INFORMATION				3

Item 1.		Legal Proceedings			32
~~ITEM 2.~~		~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~			18

~~ITEM 3.~~		~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~			30

~~ITEM 4.~~		~~CONTROLS AND PROCEDURES~~			31

~~PART II~~ Item 1A.		~~OTHER INFORMATION~~Risk Factors			32

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			32

~~ITEM 1.~~	Item 6.	~~LEGAL PROCEEDINGS~~	Exhibits		31	33

~~ITEM 1A.~~		~~RISK FACTORS~~			31

~~ITEM 2.~~		~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~Signatures			32

~~ITEM 6.~~		~~EXHIBITS~~			33

	34	~~SIGNATURES~~			34

Table of Contents

PART I – FINANCIAL INFORMATION

~~ITEM~~

Item 1.

~~FINANCIAL STATEMENTS~~

Financial Statements

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

August 4,

February 3,

2019

2019

(unaudited)

(audited)

ASSETS

Current assets:

Cash and cash equivalents
$
23,318
$
21,585

Inventories

27,409

27,315

Prepaid expenses

16,918

20,713

Income taxes receivable

1,569

1,880

Other current assets

9,001

19,600

Total current assets

78,215

91,093

Property and equipment (net of $627,036 and $578,178 accumulated depreciation as of August 4, 2019 and February 3, 2019, respectively)

851,715

805,337

Operating lease right of use assets

924,461

—

Deferred tax assets

8,529

6,736

Tradenames

79,000

79,000

Goodwill

272,633

272,625

Other assets and deferred charges

19,524

18,396

Total assets
$
2,234,077
$
1,273,187

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current installments of long-term debt
$
15,000
$
15,000

Accounts payable

53,898

60,427

Accrued liabilities

183,306

157,164

Income taxes payable

4,437

11,799

Total current liabilities

256,641

244,390

Deferred income taxes

18,822

14,634

Deferred occupancy costs

—

223,678

Operating lease liabilities

1,125,874

—

Other liabilities

31,359

24,179

Long-term debt, net

552,079

378,469

Commitments and contingencies

Stockholders’ equity:


Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 43,337,125 shares at August 4, 2019 and 43,177,476 shares at February 3, 2019; outstanding: 32,978,834 shares at August 4, 2019 and 37,522,085 shares at February 3, 2019

433

432

Preferred stock, 50,000,000 authorized; NaN issued

—

—

Paid-in
capital

335,599

331,255

Treasury stock, 10,358,291 and 5,655,391 shares as of August 4, 2019 and February 3, 2019, respectively

(497,862
)
(297,129
)
Accumulated other comprehensive loss

(6,647
)
(683
)
Retained earnings

417,779

353,962

Total stockholders’ equity

249,302

387,837

Total liabilities and stockholders’ equity
$
2,234,077
$
1,273,187


	August 2,			February 2,
	2020			2020
	(unaudited)			(audited)
ASSETS
Current assets:
Cash and cash equivalents	$	224,305		$	24,655
Inventories		31,189			34,477
Prepaid expenses		12,751			14,269
Income taxes receivable		23,805			2,331
Other current assets		934			3,245

Total current assets		292,984			78,977
Property and equipment (net of $739,805 and $686,824 accumulated depreciation as of August 2, 2020 and February 2, 2020, respectively)		872,010			900,637
Operating lease right of use assets		1,062,266			1,011,568
Deferred tax assets		21,491			7,639
Tradenames		79,000			79,000
Goodwill		272,650			272,636
Other assets and deferred charges		19,566			19,682

Total assets	$	2,619,967		$	2,370,139

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	15,000		$	15,000
Accounts payable		59,539			65,359
Accrued liabilities		238,651			207,452
Income taxes payable		624			3,054

Total current liabilities		313,814			290,865
Deferred income taxes		—			19,102
Operating lease liabilities		1,285,533			1,222,054
Other liabilities		38,603			35,779
Long-term debt, net		731,646			632,689
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 60,422,212 shares at August 2, 2020 and 43,386,852 shares at February 2, 2020; outstanding: 47,594,912 shares at August 2, 2020 and 30,603,340 shares at February 2, 2020		604			434
Preferred stock, 50,000,000 authorized; 0ne issued		—			—
Paid-in capital		526,253			339,161
Treasury stock, 12,827,300 and 12,783,512 shares as of August 2, 2020 and February 2, 2020, respectively		(595,728	)		(595,041	)
Accumulated other comprehensive loss		(12,077	)		(8,369	)
Retained earnings		331,319			433,465

Total stockholders’ equity		250,371			169,650

Total liabilities and stockholders’ equity	$	2,619,967		$	2,370,139

See accompanying notes to consolidated financial statements.

Table of Contents

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands, except share and per share amounts)


	Thirteen Weeks			Thirteen Weeks
	Ended			Ended
	August 2, 2020			August 4, 2019
Food and beverage revenues	$	17,002		$	137,921
Amusement and other revenues		33,831			206,678

Total revenues		50,833			344,599
Cost of food and beverage		4,659			36,934
Cost of amusement and other		4,025			22,689

Total cost of products		8,684			59,623
Operating payroll and benefits		13,756			80,927
Other store operating expenses		62,682			104,376
General and administrative expenses		9,278			15,991
Depreciation and amortization expense		35,160			32,745
Pre-opening costs		2,388			4,723

Total operating costs		131,948			298,385

Operating income (loss)		(81,115	)		46,214
Interest expense, net		8,163			4,605

Income (loss) before provision (benefit) for income taxes		(89,278	)		41,609
Provision (benefit) for income taxes		(30,676	)		9,253

Net income (loss)		(58,602	)		32,356

Unrealized foreign currency translation gain		304			134
Unrealized gain (loss) on derivatives, net of tax		1,372			(3,373	)

Total other comprehensive income ( loss )		1,676			(3,239	)

Total comprehensive income (loss)	$	(56,926	)	$	29,117

Net income (loss) per share:
Basic	$	(1.24	)	$	0.91
Diluted	$	(1.24	)	$	0.90
Weighted average shares used in per share calculations:
Basic		47,111,763			35,407,965
Diluted		47,111,763			36,015,710

See accompanying notes to consolidated financial statements.

Table of Contents

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands, except share and per share amounts)

Thirteen Weeks

Thirteen Weeks

Ended

Ended

August 4, 2019

August 5, 2018

Food and beverage revenues
$
137,921
$
130,242

Amusement and other revenues

206,678

188,946

Total revenues

344,599

319,188

Cost of food and beverage

36,934

33,998

Cost of amusement and other

22,689

21,558

Total cost of products

59,623

55,556

Operating payroll and benefits

80,927

73,736

Other store operating expenses

104,376

94,825

General and administrative expenses

15,991

14,764

Depreciation and amortization expense

32,745

29,049

Pre-opening
costs

4,723

5,328

Total operating costs

298,385

273,258

Operating income

46,214

45,930

Interest expense, net

4,605

3,228

Income before provision for income taxes

41,609

42,702

Provision for income taxes

9,253

8,923

Net income

32,356

33,779

Unrealized foreign currency translation gain (loss)

134

(93
)
Change in fair value of derivatives, net of tax

(3,373
)
—

Total other comprehensive loss

(3,239
)
(93
)

Total comprehensive income
$
29,117
$
33,686

Net income per share:

Basic
$
0.91
$
0.86

Diluted
$
0.90
$
0.84

Weighted average shares used in per share calculations:

Basic

35,407,965

39,355,105

Diluted

36,015,710

40,280,301

Cash dividends declared per share
$
0.15
$
—


	Twenty-Six Weeks			Twenty-Six Weeks
	Ended			Ended
	August 2, 2020			August 4, 2019
Food and beverage revenues	$	80,922		$	286,142
Amusement and other revenues		129,717			422,039

Total revenues		210,639			708,181
Cost of food and beverage		22,003			75,688
Cost of amusement and other		14,753			45,660

Total cost of products		36,756			121,348
Operating payroll and benefits		57,493			163,800
Other store operating expenses		158,354			210,621
General and administrative expenses		23,841			32,837
Depreciation and amortization expense		70,512			63,886
Pre-opening costs		6,211			11,725

Total operating costs		353,167			604,217

Operating income (loss)		(142,528	)		103,964
Interest expense, net		14,278			8,661

Income (loss) before provision (benefit) for income taxes		(156,806	)		95,303
Provision (benefit) for income taxes		(54,660	)		20,504

Net income (loss)		(102,146	)		74,799

Unrealized foreign currency translation loss		(131	)		(57	)
Unrealized loss on derivatives, net of tax		(3,577	)		(5,907	)

Total other comprehensive loss		(3,708	)		(5,964	)

Total comprehensive income (loss)	$	(105,854	)	$	68,835

Net income (loss) per share:
Basic	$	(2.59	)	$	2.07
Diluted	$	(2.59	)	$	2.03
Weighted average shares used in per share calculations:
Basic		39,470,874			36,117,815
Diluted		39,470,874			36,803,001

See accompanying notes to consolidated financial statements.

Table of Contents

~~DAVE & BUSTER’S ENTERTAINMENT, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)~~

~~(in thousands, except share and per share amounts)~~

Twenty-Six
Weeks
Ended
August 4, 2019

Twenty-Six
Weeks
Ended
August 5, 2018

Food and beverage revenues
$
286,142
$
269,997

Amusement and other revenues

422,039

381,381

Total revenues

708,181

651,378

Cost of food and beverage

75,688

70,018

Cost of amusement and other

45,660

42,677

Total cost of products

121,348

112,695

Operating payroll and benefits

163,800

146,630

Other store operating expenses

210,621

188,165

General and administrative expenses

32,837

30,418

Depreciation and amortization expense

63,886

56,555

Pre-opening
costs

11,725

12,381

Total operating costs

604,217

546,844

Operating income

103,964

104,534

Interest expense, net

8,661

6,085

Income before provision for income taxes

95,303

98,449

Provision for income taxes

20,504

22,520

Net income

74,799

75,929

Unrealized foreign currency translation loss

(57
)
(362
)
Change in fair value of derivatives, net of tax

(5,907
)
—

Total other comprehensive loss

(5,964
)
(362
)

Total comprehensive income
$
68,835
$
75,567

Net income per share:

Basic
$
2.07
$
1.92

Diluted
$
2.03
$
1.88

Weighted average shares used in per share calculations:

Basic

36,117,815

39,525,263

Diluted

36,803,001

40,444,201

Cash dividends declared per share
$
0.30
$
—

~~See accompanying notes to consolidated financial statements.~~

~~Table of Contents~~

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share amounts)

Thirteen Weeks
Ended August 4, 2019

Common Stock

Paid-In
Capital

Treasury Stock
At Cost

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total

Shares

Amt.

Shares

Amt.

Balance May 5, 2019

43,323,049
$
433
$
333,515

6,958,291
$
(361,186
) $
(3,408
) $
390,771
$
360,125

Net income

—

—

—

—

—

—

32,356

32,356

Unrealized foreign currency translation gain

—

—

—

—

—

134

—

134

Change in fair value of derivatives, net of tax

—

—

—

—

—

(3,373
)
—

(3,373
)
Share-based compensation

—

—

1,907

—

—

—

—

1,907

Issuance of common stock

14,076

—

177

—

—

—

—

177

Repurchase of common stock

—

—

3,400,000

(136,676
)
—

—

(136,676
)
Dividends declared ($0.15 per share)

—

—

—

—

—

—

(5,348
)
(5,348
)

Balance August 4, 2019

43,337,125
$
433
$
335,599

10,358,291
$
(497,862
) $
(6,647
) $
417,779
$
249,302


	Thirteen Weeks Ended August 2, 2020
	Common Stock				Paid-In Capital		Treasury Stock At Cost					Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares		Amt.				Shares		Amt.
Balance May 3, 2020		49,578,351	$	496	$	411,048		12,786,624	$	(595,077	)	$	(13,753	)	$	389,921		$	192,635
Net loss		—		—		—		—		—			—			(58,602	)		(58,602	)
Unrealized foreign currency translation gain		—		—		—		—		—			304			—			304
Unrealized gain on derivatives, net of tax		—		—		—		—		—			1,372			—			1,372
Share-based compensation		—		—		2,734		—		—			—			—			2,734
Issuance of common stock		10,843,861		108		112,471		—		—			—			—			112,579
Repurchase of common stock		—		—		—		40,676		(651	)		—			—			(651	)

Balance August 2, 2020		60,422,212	$	604	$	526,253		12,827,300	$	(595,728	)	$	(12,077	)	$	331,319		$	250,371

Thirteen Weeks Ended August 5, 2018

Common Stock

Paid-In
Capital

Treasury Stock
At Cost

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total

Shares

Amt.

Shares

Amt.

Balance May 6, 2018
42,801,006 $     428 $ 323,211 3,181,280 $ (175,372 ) $ (518 ) $ 290,461 $ 438,210
Net income —   —   —   —   —   —   33,779 33,779
Unrealized foreign currency translation loss —   —   —   —   —   (93 ) —   (93 )
Share-based compensation —   —   1,626 —   —   —   —   1,626
Issuance of common stock 136,982 1 1,114 —   —   —   —   1,115
Repurchase of common stock —   —   —   728,753 (33,712 ) —   —   (33,712 )

Balance August 5, 2018
42,937,988 $ 429 $ 325,951 3,910,033 $ (209,084 ) $ (611 ) $ 324,240 $ 440,925


	Thirteen Weeks Ended August 4, 2019
	Common Stock				Paid-In Capital		Treasury Stock At Cost					Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares		Amt.				Shares		Amt.
Balance May 5, 2019		43,323,049	$	433	$	333,515		6,958,291	$	(361,186	)	$	(3,408	)	$	390,771		$	360,125
Net income		—		—		—		—		—			—			32,356			32,356
Unrealized foreign currency translation gain		—		—		—		—		—			134			—			134
Unrealized loss on derivatives, net of tax		—		—		—		—		—			(3,373	)		—			(3,373	)
Share-based compensation		—		—		1,907		—		—			—			—			1,907
Issuance of common stock		14,076		—		177		—		—			—			—			177
Repurchase of common stock		—		—				3,400,000		(136,676	)		—			—			(136,676	)
Dividends declared ($0.15 per share)		—		—		—		—		—			—			(5,348	)		(5,348	)

Balance August 4, 2019		43,337,125	$	433	$	335,599		10,358,291	$	(497,862	)	$	(6,647	)	$	417,779		$	249,302

See accompanying notes to consolidated financial statements.

Table of Contents

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share amounts)

Twenty-Six Weeks Ended August 4, 2019

Accumulated

Other

Paid-In

Treasury Stock

Comprehensive

Retained

Common Stock

Capital

At Cost

Loss

Earnings

Total

Shares

    Amt.

Shares

Amt.







Balance February 3, 2019
43,177,476 $ 432 $ 331,255 5,655,391 $ (297,129 ) $ (683 ) $ 353,962 $ 387,837
Cumulative effect of a change in accounting principle, net of tax —   —   —   —   —   —   (145 ) (145 )
Net income —   —   —   —   —   —   74,799 74,799
Unrealized foreign currency translation loss —   —   —   —   —   (57 ) —   (57 )
Change in fair value of derivatives, net of tax —   —   —   —   —   (5,907 ) —   (5,907 )
Share-based compensation —   —   3,732 —   —   —   —   3,732
Issuance of common stock 159,649 1 612 —   —   —   —   613
Repurchase of common stock —   —   4,702,900 (200,733 ) —   —   (200,733 )
Dividends declared ($0.30 per share) —   —   —   —   —   —   (10,837 ) (10,837 )

Balance August 4, 2019
43,337,125 $ 433 $ 335,599 10,358,291 $ (497,862 ) $ (6,647 ) $ 417,779 $ 249,302

Twenty-Six Weeks Ended August 5, 2018

Accumulated

Other

Paid-In

Treasury Stock

Comprehensive

Retained

Common Stock

Capital

At Cost

Loss

Earnings

Total

Shares

    Amt.



Shares

Amt.







Balance February 4, 2018
42,660,806 $ 427 $ 320,488 2,558,721 $ (147,331 ) $ (249 ) $ 248,311 $ 421,646
Net income —   —   —   —   —   —   75,929 75,929
Unrealized foreign currency translation loss —   —   —   —   —   (362 ) —   (362 )
Share-based compensation —   —   4,014 —   —   —   —   4,014
Issuance of common stock 277,182 2 1,449 —   —   —   —   1,451
Repurchase of common stock —   —   —   1,351,312 (61,753 ) —   —   (61,753 )

Balance August 5, 2018
42,937,988 $ 429 $ 325,951 3,910,033 $ (209,084 ) $ (611 ) $ 324,240 $ 440,925


	Twenty-Six Weeks Ended August 2, 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		—		—		—		—		—			—			(102,146	)		(102,146	)
Unrealized foreign currency translation loss		—		—		—		—		—			(131	)		—			(131	)
Unrealized loss on derivatives, net of tax		—		—		—		—		—			(3,577	)		—			(3,577	)
Share-based compensation		—		—		2,345		—		—			—			—			2,345
Issuance of common stock		17,035,360		170		184,747		—		—			—			—			184,917
Repurchase of common stock		—		—		—		43,788		(687	)		—			—			(687	)

Balance August 2, 2020		60,422,212	$	604	$	526,253		12,827,300	$	(595,728	)	$	(12,077	)	$	331,319		$	250,371


	Twenty-Six Weeks Ended August 4, 2019
	Common Stock				Paid-In Capital		Treasury Stock At Cost					Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares		Amt.				Shares		Amt.
Balance February 3, 2019		43,177,476	$	432	$	331,255		5,655,391	$	(297,129	)	$	(683	)	$	353,962		$	387,837
Cumulative effect of a change in accounting principle, net of tax																(145	)		(145	)
Net income		—		—		—		—		—			—			74,799			74,799
Unrealized foreign currency translation loss		—		—		—		—		—			(57	)		—			(57	)
Unrealized loss on derivatives, net of tax		—		—		—		—		—			(5,907	)		—			(5,907	)
Share-based compensation		—		—		3,732		—		—			—			—			3,732
Issuance of common stock		159,649		1		612		—		—			—			—			613
Repurchase of common stock		—		—				4,702,900		(200,733	)		—			—			(200,733	)
Dividends declared ($0.30 per share)		—		—		—		—		—			—			(10,837	)		(10,837	)

Balance August 4, 2019		43,337,125	$	433	$	335,599		10,358,291	$	(497,862	)	$	(6,647	)	$	417,779		$	249,302

See accompanying notes to consolidated financial statements.

Table of Contents

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Twenty-Six
Weeks
Ended
August 4, 2019

Twenty-Six
Weeks
Ended
August 5, 2018

Cash flows from operating activities:

Net income
$
74,799
$
75,929


Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization expense

63,886

56,555

Deferred taxes

4,659

5,508

Loss on disposal of fixed assets

826

693

Share-based compensation

3,732

4,014

Other, net

376

717

Changes in assets and liabilities:

Inventories

(94
)
2,567

Prepaid expenses

(4,811
)
(1,457
)
Income tax receivable

311

3,498

Other current assets

(444
)
(8,536
)
Other assets and deferred charges

(1,163
)
(939
)
Accounts payable

(428
)
2,766

Accrued liabilities

22,057

10,566

Income taxes payable

(7,362
)
4,156

Deferred occupancy costs

—

28,403

Other liabilities

346

471

Net cash provided by operating activities

156,690

184,911

Cash flows from investing activities:

Capital expenditures

(117,875
)
(116,624
)
Proceeds from sales of property and equipment

375

118

Net cash used in investing activities

(117,500
)
(116,506
)

Cash flows from financing activities:

Proceeds from debt

233,000

117,000

Payments of debt

(59,500
)
(121,500
)
Proceeds from the exercise of stock options

613

1,451

Repurchase of common stock under share repurchase program

(200,147
)
(61,080
)
Dividends paid

(10,837
)
—

Repurchases of common stock to satisfy employee withholding tax obligations

(586
)
(673
)

Net cash used in financing activities

(37,457
)
(64,802
)

Increase in cash and cash equivalents

1,733

3,603

Beginning cash and cash equivalents

21,585

18,795

Ending cash and cash equivalents
$
23,318
$
22,398

Supplemental disclosures of cash flow information:

Decrease in fixed asset accounts payable
$
(6,101
) $
(8,830
)
Cash paid for income taxes, net
$
22,850
$
9,338

Cash paid for interest, net
$
8,050
$
5,714

Leases (note 4)


	Twenty-Six Weeks Ended			Twenty-Six Weeks Ended
	August 2, 2020			August 4, 2019
Cash flows from operating activities:
Net income (loss)	$	(102,146	)	$	74,799
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		70,512			63,886
Non-cash interest expense		2,201			—
Impairment of long-lived assets		13,727			—
Deferred taxes		(31,609	)		4,659
Loss on disposal of fixed assets		417			826
Share-based compensation		2,345			3,732
Other, net		173			376
Changes in assets and liabilities:
Inventories		3,288			(94	)
Prepaid expenses		2,089			(4,811	)
Income tax receivable		(21,474	)		311
Other current assets		2,311			(444	)
Other assets and deferred charges		107			(1,163	)
Accounts payable		6,646			(428	)
Accrued liabilities		37,522			22,057
Income taxes payable		(2,430	)		(7,362	)
Other liabilities		2,817			346

Net cash provided by (us e d in ) operating activities		(13,504	)		156,690

Cash flows from investing activities:
Capital expenditures		(63,486	)		(117,875	)
Proceeds from sales of property and equipment		152			375

Net cash used in investing activities		(63,334	)		(117,500	)

Cash flows from financing activities:
Proceeds from debt		138,000			233,000
Payments of debt		(38,500	)		(59,500	)
Net proceeds from the issuance of common stock		182,207			—
Proceeds from the exercise of stock options		359			613
Repurchase of common stock under share repurchase program		—			(200,147	)
Dividends paid		(4,891	)		(10,837	)
Repurchases of common stock to satisfy employee withholding tax obligations		(687	)		(586	)

Net cash provided by (used in) financing activities		276,488			(37,457	)

Increase in cash and cash equivalents		199,650			1,733
Beginning cash and cash equivalents		24,655			21,585

Ending cash and cash equivalents	$	224,305		$	23,318

Supplemental disclosures of cash flow information:
Decrease in fixed asset accounts payable	$	(12,466	)	$	(6,101	)
Cash paid for income taxes, net	$	752		$	22,850
Cash paid for interest, net	$	11,295		$	8,050

See accompanying notes to consolidated financial statements.

Table of Contents

DAVE & BUSTER’S ENTERTAINMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

Note 1: Summary of Significant Accounting Policies

~~Basis~~The accompanying unaudited consolidated financial statements include the accounts of ~~presentation~~

— Dave & Buster’s Entertainment, Inc. ~~(“D&B Entertainment”) is a Delaware corporation formed in June 2010. References~~(referred to herein as the “Company”, ~~“we”,~~“we,” “us”, and “our” ~~refers to D&B Entertainment,~~), any predecessor companies and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”), ~~a holding company~~ which owns 100% of the outstanding common stock of Dave & ~~Buster’s,~~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 1 operating and 1 reportable segment. ~~During the first half of fiscal 2019, we opened ten stores and permanently closed one store in Duluth (Atlanta), Georgia on March 3, 2019.~~ As of August ~~4, 2019,~~2, 2020, we owned and operated ~~130~~137 stores located in 39 states, Puerto Rico and 1 Canadian province.

The ~~accompanying unaudited consolidated financial statements include~~Company operates on a 52 or

53-week

fiscal year that ends on the ~~accounts of~~Sunday after the ~~Company~~Saturday closest to January 31. Each quarterly period reported has 13 weeks. Fiscal 2020 and ~~its wholly-owned subsidiaries. All intercompany accounts~~2019, which end on January 31, 2021 and ~~transactions have been eliminated in consolidation.~~ 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. The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the

~~twenty-six~~

~~weeks ended August 4, 2019 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending February 2, 2020.~~ Our quarterly financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended February ~~3, 2019,~~2, 2020, included in our Annual Report on Form

10-K

as filed with the SEC.

~~We operate on a 52 or 53-week fiscal year that ends~~

Going concern —

During

the period from March 14, 2020 to March 20, 2020, the Company

losed

100

% of its

137

operating stores in compliance with guidance and orders issued by federal, state and local governments to combat the spread of the

COVID-19

pandemic. The extent of impact of these conditions will be based in part on the ~~Sunday after~~duration of the ~~Saturday closest~~ store closures or

re-opening

of stores at full capacity and the timing and extent of customers

re-engaging

with the brand. During our first quarter, one store

re-opened

to ~~January 31. Each quarterly~~the public with limited food and beverage offerings and 2 additional stores offered

off-premise

dining options. During our second quarter, we have progressively

re-opened

limited operations in an additional

stores in

states, Puerto Rico and Canada. Subsequent to the end of our second quarter, we

re-opened

one store and opened a new store located in Manchester, New Hampshire. As of September 4, 2020, 52 stores are closed due to jurisdictional restrictions. The Company is unable to determine whether, when or the manner in which the conditions surrounding the

COVID-19

pandemic will change, including when any restrictions or closure requirements will be lifted or potentially

re-imposed

in certain states or local jurisdictions, whether it will be able to successfully staff stores, and the degree to which it will be able to

re-engage

customers. These developments have caused a material adverse impact on the Company’s revenues, results of operations and cash flows, including the Company’s ability to meet its obligations when due. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period ~~reported~~of one year from the date the financial statements are issued.

The Company has ~~13 weeks. Fiscal 2019~~taken several steps to reduce operating costs and ~~2018,~~to conserve cash. The Company initially furloughed nearly all its workforce, except a small team of essential personnel and temporarily reduced pay and benefits for the remaining employees for a twelve-week period. On March 18, 2020, the Company borrowed substantially all the remaining availability under its revolving credit facility, and the Company continues to actively manage its daily cash flows. During our first and second quarter, the Company obtained additional liquidity through the sale of common stock, which ~~end on February~~resulted in net proceeds of $182,207.

Additionally, the Company initiated ongoing discussions with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations. As of August 2, 2020, a total of 92 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.

Effective April 14, 2020, the Company negotiated an amendment to its existing credit facility, which included relief from compliance with financial covenants for the periods ended May 3, 2020, August 2, 2020 and ~~February 3, 2019, contain 52 weeks.~~November 1, 2020. During the financial covenant suspension period, the Company is required to maintain a minimum liquidity amount of $30,000. If the Company is not in compliance with financial covenants after the suspension period or some other event of default arises, the Company’s lenders could instruct the administrative agent under the existing credit facility to exercise remedies including declaring the principal of and accrued interest on all outstanding indebtedness due and payable, terminating all remaining commitments and obligations under the revolving credit facility and requiring the posting of cash collateral in respect of 103%

the outstanding letters of credit under the revolving credit facility. Additionally, the full amount due under the interest rate swap

agreements would become due. Although the lenders under the existing credit facility may waive the default or forebear the exercise of remedies, they are not obligated to do so. Failure to obtain additional waivers would have a material adverse effect on the Company’s liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code to implement a restructuring plan.

The consolidated financial statements have been prepared assuming the Company will continue as a going concern.

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

twenty-six

weeks ended August 2, 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. ~~Book overdrafts~~There was 0 book overdraft as of ~~$12,757 and $12,782 are~~August 2, 2020. A book overdraft of $14,026 is presented in “Accounts payable” in the Consolidated Balance Sheets as of ~~August 4, 2019 and~~ February ~~3, 2019, respectively.~~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 credit facility approximates its fair value because the interest rates ~~are adjusted regularly based on~~reflect current market conditions. The fair value of the Company’s credit facility was determined to be a Level Two instrument as defined by GAAP. The fair value of the Company’s interest rate swap is determined based upon Level Two inputs which includes valuation models as reported by our counterparties. These valuation models are based on the present value of expected cash flows using forward rate curves.

Non-financial

assets and liabilities recognized or disclosed at fair value in the consolidated financial statements on a nonrecurring basis include such items as property and equipment,

right-of-use

(“ROU”) assets, goodwill, tradenames and other assets. ~~These~~

The disruption in operations and reduction in revenues have led the Company to consider the impact of the

COVID-19

pandemic on the recoverability of its property and equipment and ROU assets ~~are measured at~~for operating leases.

During the first quarter

fiscal

2020, each store’s past and present operating performance was reviewed in combination with projected future results primarily through projected undiscounted cash flows that included management’s current expectation of future financial impacts from

COVID-19.

If the store’s assets

were

not

determined to be

recoverable

through comparison of the asset’s carrying value to its undiscounted cash flows, the Company compared the carrying amount of each store’s assets to its fair value ~~when they~~as estimated by management to calculate the impairment amount The fair value of the store’s assets is generally determined using a discounted cash flow projection model, which is based on Level Three inputs. Store asset impairment charges represent the excess of the carrying amount over the estimated fair value of the store asset.

The Company recorded an impairment charge for its long-lived assets, including ROU assets, of $6,746 during the

first qu

ter of fis

2020, primarily driven by the expected impact of the

COVID-19

pandemic on future cash flows of specific stores.

During the second quarter 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

dditional

impairment related to our operating stores was recognized

The Company has determined no events and circumstances existed during the

twenty-six

week

ended August 2, 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 c

ontinu

ing

discussions to terminate or delay possession on several executed lease contracts that have not yet commenced. The Company is also curtailing several potential new store projects that were ~~evaluated for impairment.~~in the early stage of development. During the thirteen and

twenty-six

weeks ended August ~~4, 2019, there were~~2, 2020, we recorded an impairment loss and related contract termination costs of $2,178 and $6,981

related to these projects, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).

~~impairments recognized.~~

Table of Contents

Interest rate swaps

— The Company entered into three interest rate swap agreements to manage our exposure to interest rate movements on our

variable rate credit facility. The agreements entitle the Company to receive at specified intervals, a variable rate of interest based on

one-month

LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreements. The

~~Table of Contents~~

notional amount of the swap agreements total $350,000 and the fixed rate of interest for all agreements is 2.47% ~~plus the applicable spread.~~. The agreements became effective on February 28, 2019 and mature on August 17, 2022, which is the maturity date of our credit facility.

The Company ~~has~~initially designated its interest rate swap agreements as a cash flow hedge and ~~accounts~~accounted for the underlying activity in accordance with hedge accounting. ToEffective April 14, 2020, the ~~extent that~~Company amended its existing credit facility agreement to obtain relief from its financial covenants, and as a result, the ~~swaps are effective in offsetting~~variable interest rate terms were modified to create an interest rate floor

1.00%. Accordingly, and as a result of the ~~variability~~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 ~~cash flows,~~ interest payments, the Company will reclassify its accumulated other comprehensive

loss

of $

17,609

as of the de-

gnation

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 $

1,887

and $

2,201

for the thirt

een and twenty

-six weeks ended August 2, 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

twenty-six

weeks ended August 2, 2020, a loss of $

976

and $

1,796

was 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 ~~value~~values of the ~~derivatives are not included in earnings but are included in other comprehensive loss. These changes in fair value are subsequently reclassified into net earnings~~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 ~~the hedged~~an adjustment to interest ~~payments are made on our variable rate debt.~~expense. Cash flows related to the interest rate swaps ~~are~~were included as component of interest expense and in operating activities. ~~Any portion~~

Credit risk related to the failure of the ~~fair value~~our counterparties to perform under the terms of the ~~swaps determined~~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 ~~ineffective will be recognized currently~~declared in ~~earnings.~~default on its derivative obligations.

The following derivative instruments were outstanding as of the end of the ~~period:~~periods indicated:

Fair Value

Balance Sheet Location

August 4, 2019

Derivatives designated as hedging instruments:
Interest rate swaps Accrued liabilities $ (1,977 )
Interest rate swaps Other liabilities (6,151 )

Total derivatives $ (8,128 )


			Fair Value
	Balance Sheet Location		August 2, 2020			February 2, 2020
Interest rate swaps		Accrued liabilities	$	(8,215	)	$	(3,518	)
Interest rate swaps		Other liabilities		(8,724	)		(6,967	)

Total derivatives (1)			$	(16,939	)	$	(10,485	)

(1)	The balance at August 2, 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 ~~interest rate swap~~ derivative instruments:

Thirteen Weeks Ended

Twenty-six

Weeks Ended

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

Thirteen
Weeks Ended
August 4, 2019

Twenty-six
Weeks Ended
August 4, 2019

(1)

~~(1)~~

Amounts reclassified into ~~net earnings~~income are included in “Interest expense, net” in the Consolidated Statements of Comprehensive ~~Income.~~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 ~~most of the~~ 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 ~~related to~~based on an estimated rate of future use by customers of unused game play credits ~~which we believe our~~and the material right provided to customers ~~will utilize~~to redeem tickets in the ~~future.~~future for prizes. During the thirteen ~~weeks~~ and

twenty-six

weeks ended August ~~4, 2019,~~2, 2020, we recognized revenue of approximately ~~$5,000~~$

2,500 and ~~$17,000,~~$

12,100

, respectively, related to the amount in deferred amusement revenue as of the end of fiscal ~~2018.~~ 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

twenty-six

weeks ended August ~~4, 2019,~~2, 2020, we recognized revenue of approximately ~~$200~~ $

140

and ~~$1,300,~~$1,440, respectively, related to the amount in deferred gift card revenue as of the end of fiscal ~~2018,~~2019, of which approximately ~~$140~~ $

and ~~$430~~$210 was ~~gift card~~ breakage revenue.

Stockholders’ equity

— Our Board

of Directors has approved a share repurchase program under which the Company may repurchase shares on the open market, through privately negotiated transactions and through trading plans.

The ~~share repurchase program may be modified, suspended or discontinued at any time.~~

~~On July 12, 2019, the Company increased its~~

total share repurchase authorization ~~to $~~

~~800,000~~

~~. The~~is $800,000 and the share repurchase authorization expires at the end of fiscal 2020.

During the ~~thirteen and~~

twenty-six

week

~~weeks~~ s

ended August ~~4, 2019,~~2, 2020, the Company ~~purchased~~

~~3,400,000~~

~~and~~

~~4,691,564~~

~~shares of common stock at an average cost of $~~

~~40.20~~

~~and $~~

~~42.66~~

~~per~~indefinitely suspended all share ~~respectively. Since the inception of the~~ repurchase ~~program, the Company has purchased~~

~~10,975,355~~

~~shares of common stock at an average cost of $~~

~~48.29~~

~~per share.~~activity. As of August ~~4, 2019,~~2, 2020, we have approximately $

~~269,990~~

$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

twenty-six

weeks ended August 2, 2020 and August 4, 2019, we withheld 43,788 and 11,336 shares of common stock to satisfy $

~~586~~

$687 and $586 of employees’ tax ~~obligations.~~obligations, respectively. The share activity in the

twenty-six

weeks ended August 2, 2020 includes the settlements of $2,351 cash obligations through the issuance of 150,455 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.

Recently adopted accounting guidance

~~— On February 4, 2019, we adopted Accounting Standard Update (“ASU”)~~

~~2016-02,~~

~~Leases (Topic 842). This new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and corresponding~~

~~right-of-use~~

(“ROU”) assets on the balance sheet for most leases. We adopted this standard using a modified retrospective approach, and we elected the transition method that allows us to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative period information had not been restated.

~~Upon adoption of ASU~~

~~2016-02,~~

we applied the package of practical expedients, which eliminated the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. We also elected a short-term lease exception policy and an accounting policy to not separate

~~non-lease~~

components from lease components for our facility leases. The adoption of this guidance resulted in the recognition of ROU assets related to our operating leases of $877,714 and operating lease liabilities of $1,116,252. At the date of adoption, all lease-related balances consisting of $239,416 of deferred occupancy costs (including unfavorable lease liabilities) and $878 of favorable lease assets have been eliminated as an adjustment to ROU assets. We also recorded a cumulative effect reduction to the opening balance of retained earnings of $145, net of tax, from adoption of this guidance. There was no significant impact to our results of operations or cash flows.

~~Recent accounting pronouncements~~

— In ~~January 2017,~~

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 ~~guidance is effective for goodwill impairment tests in~~Company adopted this standard as of the beginning of fiscal ~~years beginning after December 15, 2019~~year 2020, and ~~should be applied on a prospective basis. The Company does not expect~~ the adoption ~~will~~did not have a material impact on our consolidated financial ~~statements when we perform future annual impairment tests.~~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 ~~update~~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, ~~2019~~2020 and for interim periods within those ~~fiscal~~ years, with early adoption permitted. The Company is currently assessing the impact of this new standard on our consolidated financial statements.

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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 first quarter of fiscal 2020, the Company’s exposure to LIBOR rates included its senior credit facility and swap agreements. The Company is currently evaluating the impact of this new standard on our consolidated financial statements.

Note 2: Accrued Liabilities

Accrued liabilities consist of the following as of the end of each period:

August 4, 2019

February 3, 2019

Current portion of operating lease liabilities, net (refer to Note 4)
$
31,754
$
—

Current portion of deferred occupancy costs

—

15,737

Deferred amusement revenue

48,939

44,232

Compensation and benefits

24,555

24,280

Amusement redemption liability

20,717

19,911

Property taxes

9,089

7,278

Deferred gift card revenue

8,195

9,450

Current portion of long-term insurance

5,900

5,900

Sales and use taxes

4,903

5,226

Customer deposits

4,373

3,731

Utilities

4,247

4,032

Inventory liabilities

2,480

2,876

Variable rent liabilities

2,310

2,245

Current portion of derivatives 1,977 —
Other (refer to Note 5)

13,867

12,266

Total accrued liabilities
$
183,306
$
157,164


	August 2, 2020		February 2, 2020
Deferred amusement revenue	$	78,159	$	75,113
Current portion of operating lease liabilities, net (1)		52,636		45,611
Rent payable (note 4)		31,589		—
Variable rent liabilities (note 4)		9,037		1,331
Deferred gift card revenue		10,832		11,253
Property taxes		9,936		7,226
Compensation and benefits		8,664		23,421
Current portion of derivatives		8,215		3,518
Current portion of long-term insurance		6,200		6,500
Utilities		4,219		4,442
Customer deposits		1,840		4,324
Inventory liabilities		1,737		2,179
Sales and use taxes		973		4,000
Dividend payable		—		4,891
Other		14,614		13,643

Total accrued liabilities	$	238,651	$	207,452

(1)	The balance of leasehold incentive receivables of $2,231 and $6,339 at August 2, 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:

August 4, 2019

February 3, 2019

Credit facility - term
$
273,750
$
281,250

Credit facility - revolver

294,000

113,000

Total debt outstanding

567,750

394,250

Less:

Current installments - term

(15,000
)
(15,000
)
Debt issuance costs - term

(671
)
(781
)

Long-term debt, net
$
552,079
$
378,469


	August 2, 2020			February 2, 2020
Credit facility — term	$	258,750		$	266,250
Credit facility — revolver		489,000			382,000

Total debt outstanding		747,750			648,250
Current installments — term		(15,000	)		(15,000	)
Debt issuance costs — term		(1,104	)		(561	)

Long-term debt, net	$	731,646		$	632,689

On August 17, 2017, we entered into a senior secured credit facility that provides a $300,000 term loan facility and a $500,000 revolving credit facility with a maturity date of August 17, 2022. The $500,000 revolving credit facility includes a $35,000 letter of credit

sub-facility

and a $15,000 swing loan

sub-facility.

The revolving credit facility is available to provide financing for general purposes. Principal payments on the term loan facility are $3,750 per

quarter

through maturity, when the remaining balance is due. Our current credit facility is secured by the assets of D&B Inc and is unconditionally guaranteed by D&B Holdings and each of its direct and indirect domestic wholly-owned subsidiaries. As of August ~~4, 2019,~~2, 2020, we had letters of credit outstanding of ~~$8,147~~$9,686 and ~~$197,853~~an unused commitment balance of ~~borrowing available~~$1,314 under ~~our~~of revolving credit facility.

Table of Contents

The interest rates per annum applicable to loans, other than swing loans, under our existing credit facility are currently set based on a defined LIBOR rate plus an applicable margin. Swing loans bear interest at a base rate plus an applicable margin.

The loans bear interest subject to a pricing grid based on a total leverage ratio, at

one-month

LIBOR plus a spread ranging from 1.25% to 2.00% for the term loans and the revolving loans. ~~The interest rate at August 4, 2019 was based on~~

~~one-month~~

LIBOR plus 1.25%. As of August 4, 2019, the Company’s weighted average interest rate on outstanding borrowings was 4.11%, including the impact of the interest rate swap agreements. The weighted average effective rate includes amortization of debt issuance costs, commitment and other fees.

Our credit facility contains restrictive covenants that, among other things, place certain limitations on our ability ~~to:~~to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. In addition, our credit facility requires us to maintain certain financial ratio covenants. As

twenty-six

weeks ended August 2, 2020,

and August 4, 2019, the Company’s weighted average interest rate on outstanding borrowings was 3.98% and 4.11%, respectively. In connection with the amendment, we ~~were in compliance with our restrictive and financial ratio covenants~~incurred debt costs of ~~our~~$2,000, which are being amortized over the life of the credit facility.

These costs are payable at the maturity date of the credit facility, with earlier payment required in the event of certain conditions, as defined in the agreement.

~~Table of Contents~~

Interest expense, net

— The following ~~tables set~~table sets forth our recorded interest expense, net for the periods indicated:

Thirteen Weeks
Ended
August 4, 2019

Thirteen Weeks
Ended
August 5, 2018

Interest expense on credit facilities
$
4,735
$
3,255

Amortization of issuance cost

198

198

Interest income

(25
)
(28
)
Capitalized interest

(303
)
(201
)
Change in fair value of interest rate cap

—

4

Total interest expense, net
$
4,605
$
3,228

Ended
August 4, 2019

Ended
August 5, 2018

Interest expense on credit facilities

Amortization of issuance cost

Capitalized interest

Change in fair value of interest rate cap

Total interest expense, net

Thirteen Weeks Ended

Twenty-six Weeks Ended

Interest expense on credit facilities

Interest associated with swap agreements

Amortization of issuance cost

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. ~~Contingent rent and other variable rent are included as~~

Operating lease cost, variable lease ~~costs in the table below.~~

~~Lease expense consisted of the following:~~

Thirteen Weeks
Ended
August 4, 2019

Twenty-six
Weeks
Ended
August 4, 2019

Operating
$
30,448
$
60,240

Variable

774

1,992

Short-term

116

217

Total
$
31,338
$
62,449

~~Store~~cost and short-term lease ~~expense~~cost related primarily to our facilities is included in “Other store operating expenses” orfor our operating stores,

“Pre-opening

~~costs,” accordingly, and corporate lease expense is included in~~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.~~Income (Loss).

Operating leases are included within the “Operating lease right of use assets”, “Accrued liabilities” and “Operating lease liabilities” in the Consolidated Balance Sheets. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present valueThe components of lease ~~payments over~~expense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are as follows for the lease term and include both facility and equipment leases. The operating lease ROU asset is reduced by leasehold improvement incentives as the incentives are earned. As of August 4, 2019, the balance of leasehold improvement incentive receivables was $17,482 and is reflected as a reduction of the current portion of operating lease liabilities. The Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. The Company uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a hypothetical credit rating.fiscal year ended:


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
Operating lease cost	$	33,321		30,448	$	66,884		60,240
Variable lease cost		5,688		6,713		13,054		14,643
Short-term lease cost		140		116		227		217

Total	$	39,149	$	37,277	$	80,165	$	75,100

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During the

twenty-six

~~Other information related~~weeks ended August 2, 2020, the Company entered into 92 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 ~~leases is~~ 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 ~~follows:~~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

twenty-six

Twenty-six
Weeks
Ended
August 4, 2019

Cash paid for amounts included in the measurement of lease liabities
Operating cash flows from operating leases $
60,148

ROU assets obtained in exchange for new operating lease liabilities
$
94,059

Weighted-average remaining lease term - operating leases (in years)

15.8

Weighted-average discount rate - operating leases

6.0
%

~~The maturities~~weeks ended August 2, 2020, 84 of our 92 rent relief agreements qualified for this accounting election, and the remaining eight 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 the majority of its remaining facility operating lease obligations as they become due for properties without rent relief agreements as of the end of the second quarter. As of August 2, 2020, we have bifurcated our current operating lease liabilities ~~are as follows as of August 4, 2019:~~

Remainder of 2019
$
54,285

2020

127,561

2021

122,026

2022

114,033

2023

110,512

Thereafter

1,356,431

Total
$
1,884,848

Less: Interest

709,738

Total discounted operating lease liabilities
$
1,175,110

~~Operating lease payments in~~into the ~~table above includes minimum lease payments for five future sites for which the lease has commenced,~~portion that remains subject to accretion and the ~~stores are expected to open in fiscal 2019. Operating lease~~portion that is accounted for as a deferral of payments ~~exclude minimum lease payments for eighteen executed facility leases that we have not yet taken possession.~~or as short payments.

~~At February 3, 2019, aggregate minimum annual lease payments under facility and equipment operating leases were as follows:~~

2019
$
122,501

2020

117,908

2021

111,642

2022

104,195

2023

100,779

Thereafter

1,229,803

Total
$
1,786,828

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.

~~On June 30, 2017, we agreed to settle litigation~~ Legal costs related to alleged violations of the Employee Retirement Income Security Act. The settlement agreement was preliminarily approved by the court on December 7, 2018 with final approval on July 19, 2019. To cover the estimated net costs of settlement, including estimated payment to any opt-in members and class attorneys,such claims are expensed as well as related settlement administration costs, we recorded a net charge of $2,550 (representing $7,500 of gross settlement costs less $4,950 of insurance recoveries) during fiscal 2017. Subsequent to August 4, 2019, all funds required to be paid under the final settlement and release agreement were remitted to a settlement fund as directed by the court.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 ~~Attorney~~Attorneys General Act representative actions and seek substantial damages and penalties. With respect to ~~these~~a portion of the California Cases, ~~where~~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 ~~difficulty~~difficulties of predicting the outcome of uncertainties regarding legal proceedings. The Company’s assessments are based on ~~estimates and~~ 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.

~~Table of Contents~~

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 160,967 and ~~90,143~~97,502 in the thirteen ~~weeks ended August 4, 2019~~ and ~~August 5, 2018, respectively, and 97,502 and 99,331 in the~~

twenty-six

weeks ended August 4, ~~2019 and August 5, 2018, respectively.~~2019.

The following table sets forth the computation of EPS, basic and diluted for the periods indicated:

Thirteen Weeks

Ended

August 4, 2019

Thirteen Weeks

Ended

August 5, 2018

Numerator:

Net income
$
32,356
$
33,779

Denominator:

Weighted average number of common shares outstanding (basic)

35,407,965

39,355,105

Weighted average dilutive impact of equity-based awards

607,745

925,196

Weighted average number of common and common equivalent shares outstanding (diluted)

36,015,710

40,280,301

Net income per share:

Basic
$
0.91
$
0.86

Diluted
$
0.90
$
0.84

Twenty-
s
ix Weeks

Ended

August 4, 2019

Twenty-six Weeks

Ended

August 5, 2018

Numerator:

Net income
$
74,799
$
75,929

Denominator:

Weighted average number of common shares outstanding (basic)

36,117,815

39,525,263

Weighted average dilutive impact of equity-based awards

685,186

918,938

Weighted average number of common and common equivalent shares outstanding (diluted)

36,803,001

40,444,201

Net income per share:

Basic
$
2.07
$
1.92

Diluted
$
2.03
$
1.88


	Thirteen Weeks			Thirteen Weeks
	Ended			Ended
	August 2, 2020			August 4, 2019
Numerator:
Net income (loss)	$	(58,602	)	$	32,356
Denominator:
Weighted average number of common shares outstanding (basic)		47,111,763			35,407,965
Weighted average dilutive impact of equity-based awards (1)		—			607,745
Weighted average number of common and common equivalent shares outstanding (diluted)		47,111,763			36,015,710
Net income (loss) per share:
Basic	$	(1.24	)	$	0.91
Diluted	$	(1.24	)	$	0.90


	Twenty-Six Weeks Ended August 2, 2020			Twenty-Six Weeks Ended August 4, 2019
Numerator:
Net income (loss)	$	(102,146	)	$	74,799
Denominator:
Weighted average number of common shares outstanding (basic)		39,470,874			36,117,815
Weighted average dilutive impact of equity-based awards (1)		—			685,186
Weighted average number of common and common equivalent shares outstanding (diluted)		39,470,874			36,803,001
Net income (loss) per share:
Basic	$	(2.59	)	$	2.07
Diluted	$	(2.59	)	$	2.03

(1)	Due to the net loss for the thirteen and twenty-six weeks ended August 2, 2020, 0 incremental shares are included because the effect would be anti-dilutive.

~~Table of Contents~~

Note 7: Share-Based Compensation

Compensation expense related to stock options, time-based and performance-based RSU’s ~~and restricted stock are~~is included in general and administrative expenses and ~~were~~is as follows:

Thirteen Weeks Ended

Twenty-six
Weeks Ended

August 4, 2019

August 5, 2018

August 4, 2019

August 5, 2018

Stock options
$
804

660
$
1,563
$
2,018

RSU’s and restricted stock

1,103

966

2,169

1,996

Total share-based compensation expense
$
1,907
$
1,626
$
3,732
$
4,014


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
Stock options	$	290		804	$	830		1,563
RSU’s		2,444		1,103		1,515		2,169

Share-based compensation expense	$	2,734	$	1,907	$	2,345	$	3,732

Transactions related to stock option awards during the

twenty-six

weeks ended August ~~4, 2019~~

2020

were as follows:

2014 Stock Incentive Plan

2010 Stock Incentive Plan

Number
of Options

Weighted
Average
Exercise
Price

Number
of Options

Weighted
Average
Exercise
Price

Outstanding at February 3, 2019

1,134,218
$
34.22

359,984
$
6.48

Granted

222,266

52.04

—

—

Exercised

(8,390
)
37.86

(52,135
)
5.67

Forfeited

(2,882
)
49.62

—

—

Outstanding at August 4, 2019

1,345,212
$
37.11

307,849
$
6.62

Exercisable at August 4, 2019

920,104
$
31.35

307,849
$
6.62


	2014 Stock Incentive Plan					2010 Stock Incentive Plan
	Number			Wtd. Avg.		Number			Wtd. Avg.
	of Options			Exercise Price		of Options			Exercise Price
Outstanding at February 2, 2020		1,323,495		$	36.97		266,900		$	6.72
Granted		—			—		—			—
Exercised		—			—		(79,142	)		4.54
Forfeited		(82,741	)		38.60		—			—

Outstanding at August 2, 2020		1,240,754		$	36.86		187,758		$	7.64

Exercisable at August 2, 2020		1,037,513		$	34.49		187,758		$	7.64

Table of Contents

The total intrinsic value of options exercised during the

twenty-six

weeks ended August ~~4, 2019~~

2020

was ~~$2,505.~~$

792

. The unrecognized expense related to our stock option plan totaled approximately ~~$3,916~~ $

1,157

as of August ~~4, 2019~~

2020

and will be expensed over a weighted average period of ~~2.5~~

1.5

years.

Transactions related to time-based and

performance-based

RSU’s ~~and restricted stock~~ during the

twenty-six

weeks ended August ~~4, 2019~~

2020

, were as follows:

Shares

Weighted
Average
Fair Value

Outstanding at February 3, 2019

220,830
$
47.79

Granted

72,768

52.09

Change in units based on performance

27,372

39.10

Vested

(99,124
)
39.64

Forfeited

(1,562
)
49.34

Outstanding at August 4, 2019

220,284
$
51.79


				Wtd. Avg.
	Shares			Fair Value
Outstanding at February 2, 2020		216,815		$	51.58
Granted		1,061,926			12.74
Change in performance units		4,352			59.67
Vested		(62,411	)		53.81
Forfeited		(48,409	)		28.14

Outstanding at August 2, 2020		1,172,273		$	17.27

~~Table of Contents~~

Fair value of our time-based and performance-based RSU’s ~~and restricted stock~~ is based on our closing stock price on the date of grant. The unrecognized expense related to our time-based and performance-based RSU’s ~~and unvested restricted stock~~ was ~~$6,911~~$12,658 as of August ~~4, 2019~~2, 2020 and will be expensed over a weighted average period of ~~2.2~~2.3 years.

During the

twenty-six

weeks ended August 2, 2020 and August 4, 2019, ~~and August 5, 2018,~~ excess tax ~~benefits~~expense (benefit) of ~~$884~~$477 and ~~$1,919,~~($884), respectively, were recognized as ~~a benefit~~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.

~~Forfeitures are estimated~~

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 August 2, 2020, we have elected to defer employer-paid portion of social security taxes of $1,448, 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

twenty-six

weeks ended August 2, 2020. The effective tax rate for the

twenty-six

weeks ended August 2, 2020, was a benefit of 34.9%, compared to an effective tax rate of 21.5% for the

twenty-six

weeks ended August 4, 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 now be carried back to prior years when the statutory federal tax rate was at ~~the time of grant and adjusted if necessary, in subsequent periods, if actual forfeitures differ from those estimates. The forfeiture rate is based on historical experience.~~35.0%.

Table of Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~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 ~~2, 2019.~~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 ~~2, 2019.~~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 restaurants, 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. 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 quarter, we have progressively

re-opened

limited operations in an additional 83 stores in 27 states, Puerto Rico and Canada. Additionally, eight stores were

re-opened

during the second quarter and subsequently closed prior to August 2, 2020, due to changes in jurisdictional operating limits. Our scaled-down operating model includes a limited

15-item

menu, reduced dining capacity and 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.

Subsequent to the end of our second quarter, we

re-opened

one store and opened a new store located in Manchester, New Hampshire. As of September 4, 2020, 52 stores are 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

twenty-six

weeks ended August 2, 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 restaurants once such restrictions have been lifted or the impact this will have on consumer spending habits.

In response to the 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 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;

canceled or delayed all

non-essential

planned capital spending for the remainder of fiscal 2020;

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halted or delayed planned store openings after our one store opening in Chattanooga, TN, on March 16, 2020, including delayed construction through the second quarter of fiscal 2020;

stopped work on future planned sites and commenced negotiations to terminate related contracts, as applicable;

suspended our share repurchase program and declaration of dividends;

drew down substantially all the remaining credit available under our $500,000 revolving credit facility;

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 August 2, 2020, a total of 92 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 selection of

non-alcoholic

and alcoholic beverages. Our Play and Watch offerings provide an extensive assortment of entertainment attractions centered around playing games and watching live sports and other televised events. Our ~~customer mix skews moderately to males, primarily between the ages of 21 and 39, and we believe we also serve as an attractive venue for families with children and teenagers. We believe we appeal~~brand appeals to a ~~diverse customer base by providing a highly customizable experience~~relatively balanced mix of male and female adults, as well as families and teenagers, in ~~a dynamic and fun setting.~~low to middle-income households.

Our stores average 41,000 square feet, range in size between 16,000 and ~~66,000~~70,000 square feet and are open seven days a week, with normal hours of operation typically from 11:30 a.m. to midnight on Sunday through Thursday and 11:30 a.m. to 2:00 a.m. on Friday and Saturday.

~~Our Strategies~~

~~Our near-term strategies are as follows:~~

~~Revitalize our existing stores~~

~~Build deeper guest engagement~~

~~Maintain disciplined cost management~~

~~Invest in high-return new stores~~

~~Return capital to shareholders~~

~~Our revitalization of existing stores includes the~~

~~re-energizing~~

of our dining rooms through the installation of “Wow Walls,” LED television displays that create high-energy, contemporary, sports and entertainment-oriented dining areas. This cutting-edge visual technology will be initially deployed across 35 stores in the third quarter of fiscal 2019 in an effort to drive greater traffic and food and beverage penetration. We will also continue to invest in food, beverage and amusement innovations to continually enhance the guest experience.

We are focused on building deeper guest engagement through initiatives such as the nation-wide launch of the Dave & Buster’s mobile app. The launch of the new app is scheduled to be completed in the third quarter of fiscal 2019. The Company’s investments in enhanced data analytics will provide valuable customer insights, actionable intelligence and ultimately drive deeper engagements with existing and new customers, including through targeted promotions and offers.

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We utilize disciplined cost management, including G&A savings and operational efficiencies to fuel growth investments. The Company has identified future cost saving opportunities that we intend to pursue in the near-term. We intend to utilize a significant portion of these cost reductions to fund store technology, data analytics and digital marketing investments to fuel growth in comparable store sales.

~~We invest in highest-return new store locations to strengthen the Dave & Buster’s brand and portfolio over the long term. During the first~~

~~twenty-six~~

weeks of fiscal 2019, the Company opened ten new stores, compared to eleven new store openings in the comparable 2018 period. We currently anticipate opening fifteen to sixteen new stores in fiscal 2019. As part of this strategy, we are actively evaluating new initiatives related to store format. Our efforts include rightsizing the square footage of new stores to match market sales potential and evaluating the pace of new store openings to enhance focus on both new stores and existing store revitalization.

Our robust initiatives to return capital to shareholders encompasses both share repurchases and dividend payments. During the first half of fiscal 2019 we increased our total share repurchase authorization to $800 million and executed additional share repurchases totaling $200,147. We also paid dividends totaling $10,837 during the same period.

~~Although we will focus our efforts on the near-term priorities, we will continue to evaluate other opportunities as part of our ongoing strategic planning process.~~

Key Measures of Our Performance

We monitor and analyze ~~a number of~~several key performance measures to manage our business and evaluate financial and operating performance. These measures include:

Comparable store sales.

Comparable store sales are a year-over-year comparison of sales at stores open at the end of the period which have been open for at least 18 months as of the beginning of each of the fiscal years. It is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends. ~~Our~~As of August 2, 2020, our comparable store base consisted of 99115 stores, as of ~~August 4, 2019.~~which 47 stores were closed.

New store openings.

Our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets. The success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models. Between August ~~5, 2018~~4, 2019 and August ~~4, 2019,~~2, 2020, we opened ~~fourteen~~seven new stores ~~eight of which were~~(six in ~~new markets.~~fiscal 2019 and one in fiscal 2020).

Non-GAAP

Financial Measures

In addition to the results provided in accordance with generally accepted accounting principles (“GAAP”), we provide

non-GAAP

measures which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP and include Adjusted EBITDA, Adjusted EBITDA Margin, Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin (defined

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below). These

non-GAAP

measures do not represent and should not be considered as an alternative to net income or cash flows from operations, as determined in accordance with GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Although we use these

non-GAAP

measures to assess the operating performance of our business, they have significant limitations as an analytical tool because they exclude certain material costs. For example, Adjusted EBITDA does not take into account a number of significant items, including our interest expense and depreciation and amortization expense. In addition, Adjusted EBITDA excludes

pre-opening

and other costs which may be important in analyzing our GAAP results. Because Adjusted EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. Our calculations of Adjusted EBITDA adjust for these amounts because they vary from period to period and do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of underlying business between periods. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA or Store Operating Income Before Depreciation and Amortization in isolation and also uses other measures, such as revenues, gross margin, operating income and net income, to measure operating performance.

Adjusted EBITDA and Adjusted EBITDA Margin

. We define “Adjusted EBITDA” as net income (loss) plus interest expense, net, loss on debt refinancing, provision (benefit) for income taxes, depreciation and amortization expense, loss on asset disposal, impairment of long-lived assets, share-based compensation,

pre-opening

costs, currency transaction (gains) losses and other costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total revenues.

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Adjusted EBITDA is presented because we believe that it provides useful information to investors and analysts regarding our operating performance. By reporting Adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin.

We define “Store Operating Income Before Depreciation and Amortization” as operating income (loss) plus depreciation and amortization expense, general and administrative expenses and

pre-opening

costs. “Store Operating Income Before Depreciation and Amortization Margin” is defined as Store Operating Income Before Depreciation and Amortization divided by total revenues. Store Operating Income Before Depreciation and Amortization Margin allows us to evaluate operating performance of each store across stores of varying size and volume.

We believe that Store Operating Income Before Depreciation and Amortization is another useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses, which are not incurred at the store-level, and the costs of opening new stores, which are

non-recurring

at the store-level, and thereby enables the comparability of the operating performance of our stores for the periods presented. We also believe that Store Operating Income Before Depreciation and Amortization is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity, efficiency and performance, and we use Store Operating Income Before Depreciation and Amortization as a means of evaluating store financial performance compared with our competitors. However, because this measure excludes significant items such as general and administrative expenses and

pre-opening

costs, as well as our interest expense, net and depreciation and amortization expense, which are important in evaluating our consolidated financial performance from period to period, the value of this measure is limited as a measure of our consolidated financial performance.

Presentation of Operating Results

We operate on a 52 or

53-week

fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a

53-week

year when the fourth quarter has 14 weeks. All references to the second quarter of ~~2019~~2020 relate to the

13-week

period ended August ~~4, 2019.~~2, 2020. All references to the second quarter of ~~2018~~2019 relate to the

13-week

period ended August ~~5, 2018.~~4, 2019. Fiscal ~~2019~~2020 and fiscal ~~2018~~2019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.

Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation

We have historically operated stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.

Our new stores ~~typically~~historically open with sales volumes in excess of their expected ~~long term~~ long-term

run-rate

levels, which we refer to as a “honeymoon” effect. We expect our new store sales volumes in year two to be 10% to 20% lower than our year one targets, and to grow in line with the rest of our comparable store base thereafter. As a result of the substantial revenues associated with each new store, the number and timing of new store openings ~~will~~may result in significant fluctuations in quarterly results.

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In the first year of operation new store operating margins (excluding

pre-opening

expenses) typically benefit from honeymoon sales leverage on occupancy, management labor, and other fixed costs. This benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new store. In year two, operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency. Furthermore, rents in our new stores are typically higher than our comparable store base.

Our operating results fluctuate significantly due to seasonal factors. Typically, we have higher revenues associated with spring and

year-end

holidays which will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period. Our third quarter, which encompasses the

back-to-school

fall season, has historically had lower revenues as compared to the other quarters.

We expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives. Although there is no assurance that our cost of products will remain stable or that federal, state or local minimum wage rates will not increase beyond amounts currently legislated, the effects of any supplier price increases or wage rate increases ~~are expected to~~might be partially offset by selected menu price increases ~~where~~if competitively appropriate. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the

COVID-19

pandemic on us or our suppliers, third-party service providers, and/or customers.

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Thirteen Weeks Ended August ~~4, 2019~~2, 2020 Compared to Thirteen Weeks Ended August ~~5, 2018~~4, 2019

Results of operations.

The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying unaudited consolidated statements of comprehensive ~~income.~~income (loss).

Thirteen Weeks
Ended

Thirteen Weeks
Ended

August 4, 2019

August 5, 2018

Food and beverage revenues $ 137,921 40.0 % $ 130,242 40.8 %
Amusement and other revenues 206,678 60.0 188,946 59.2

Total revenues 344,599 100.0 319,188 100.0
Cost of food and beverage (as a percentage of food and beverage revenues) 36,934 26.8 33,998 26.1
Cost of amusement and other (as a percentage of amusement and other revenues) 22,689 11.0 21,558 11.4

Total cost of products 59,623 17.3 55,556 17.4
Operating payroll and benefits 80,927 23.5 73,736 23.1
Other store operating expenses 104,376 30.3 94,825 29.7
General and administrative expenses 15,991 4.6 14,764 4.6
Depreciation and amortization expense 32,745 9.5 29,049 9.1
Pre-opening costs 4,723 1.4 5,328 1.7

Total operating costs 298,385 86.6 273,258 85.6

Operating income 46,214 13.4 45,930 14.4
Interest expense, net 4,605 1.3 3,228 1.0

Income before provision for income taxes 41,609 12.1 42,702 13.4
Provision for income taxes 9,253 2.7 8,923 2.8

Net income $ 32,356 9.4 % $ 33,779 10.6 %
Change in comparable store sales (1) (1.8 )% (2.4 )%
Company-owned stores open at end of period (1) 130 117
Comparable stores open at end of period (1) 99 86


	Thirteen Weeks Ended August 2, 2020					Thirteen Weeks Ended August 4, 2019
Food and beverage revenues	$	17,002		33.4	%	$	137,921	40.0	%
Amusement and other revenues		33,831		66.6			206,678	60.0

Total revenues		50,833		100.0			344,599	100.0
Cost of food and beverage (as a percentage of food and beverage revenues)		4,659		27.4			36,934	26.8
Cost of amusement and other (as a percentage of amusement and other revenues)		4,025		11.9			22,689	11.0

Total cost of products		8,684		17.1			59,623	17.3
Operating payroll and benefits		13,756		27.1			80,927	23.5
Other store operating expenses		62,682		123.2			104,376	30.3
General and administrative expenses		9,278		18.3			15,991	4.6
Depreciation and amortization expense		35,160		69.2			32,745	9.5
Pre-opening costs		2,388		4.7			4,723	1.4

Total operating costs		131,948		259.6			298,385	86.6

Operating income (loss)		(81,115	)	(159.6	)		46,214	13.4
Interest expense, net		8,163		16.0			4,605	1.3

Income (loss) before provision (benefit) for income taxes		(89,278	)	(175.6	)		41,609	12.1
Provision (benefit) for income taxes		(30,676	)	(60.3	)		9,253	2.7

Net income (loss)	$	(58,602	)	(115.3	)%	$	32,356	9.4	%

Change in comparable store sales (1)				(87.0	)%			(1.8	)%
Company-owned stores at end of period (1)				137				130
Comparable stores at end of period (1)				115				99

(1)

As of the end of the second quarter of fiscal 2020, 84 of our 137 stores were open. Our comparable store count as of the end of the second quarter of fiscal 2020 excludes a store in Chicago, Illinois which is near the end of its lease term which the Company has decided not to

re-open.

Our store in Duluth (Atlanta), Georgia permanently closed on March 3, 2019 as we did not exercise the renewal option and has been excluded from fiscal 2019 store counts and comparable store sales.

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Reconciliations of

Non-GAAP

Financial Measures

Adjusted EBITDA

The following table reconciles (in dollars and as a percent of total revenues) Net income (loss) to Adjusted EBITDA for the periods indicated:

Thirteen Weeks

Thirteen Weeks

Ended

Ended

August 4, 2019

August 5, 2018

Net income $ 32,356 9.4 % $ 33,779 10.6 %
Interest expense, net 4,605 3,228
Provision for income taxes 9,253 8,923
Depreciation and amortization expense 32,745 29,049

EBITDA 78,959 22.9 % 74,979 23.5 %
Loss on asset disposal 406 431
Share-based compensation 1,907 1,626
Pre-opening costs 4,723 5,328
Other costs (1) (13 ) 26

Adjusted EBITDA $ 85,982 25.0 % $ 82,390 25.8 %


	Thirteen Weeks Ended August 2, 2020					Thirteen Weeks Ended August 4, 2019
Net income (loss)	$	(58,602	)	-115.3	%	$	32,356		9.4	%
Interest expense, net		8,163					4,605
Provision (benefit) for income taxes		(30,676	)				9,253
Depreciation and amortization expense		35,160					32,745

EBITDA		(45,955	)	-90.4	%		78,959		22.9	%
Loss on asset disposal		264					406
Impairment of long-lived assets		2,178					—
Share-based compensation		2,734					1,907
Pre-opening costs		2,388					4,723
Other costs (1)		(88	)				(13	)

Adjusted EBITDA	$	(38,479	)	-75.7	%	$	85,982		25.0	%

(1)	Primarily represents costs related to currency transaction (gains) or losses.

Store Operating Income Before Depreciation and Amortization

The following table reconciles (in dollars and as a percent of total revenues) Operating income (loss) to Store Operating Income Before Depreciation and Amortization for the periods indicated:

Thirteen Weeks

Thirteen Weeks

Ended

Ended

August 4, 2019

August 5, 2018

Operating income $ 46,214 13.4 % $ 45,930 14.4 %
General and administrative expenses 15,991 14,764
Depreciation and amortization expense 32,745 29,049
Pre-opening costs 4,723 5,328

Store Operating Income Before Depreciation and Amortization $ 99,673 28.9 % $ 95,071 29.8 %


	Thirteen Weeks Ended August 2, 2020					Thirteen Weeks Ended August 4, 2019
Operating income (loss)	$	(81,115	)	-159.6	%	$	46,214	13.4	%
General and administrative expenses		9,278					15,991
Depreciation and amortization expense		35,160					32,745
Pre-opening costs		2,388					4,723

Store Operating Income Before Depreciation and Amortization	$	(34,289	)	-67.5	%	$	99,673	28.9	%

Capital Additions

The table below reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based leasehold improvement incentives or proceeds from sale-leaseback transactions (collectively, “Payments ~~form~~from landlords”).

Thirteen Weeks

Thirteen Weeks

Ended

Ended

August 4, 2019

August 5, 2018

New store and operating initiatives $ 40,029 $ 30,256
Games 6,146 11,171
Maintenance capital 4,190 7,431

Total capital additions $ 50,365 $ 48,858
Payments from landlords $ 7,099 $ 15,758


	Thirteen Weeks Ended August 2, 2020		Thirteen Weeks Ended August 4, 2019
New store and operating initiatives	$	1,921	$	40,029
Games		810		6,146
Maintenance capital		838		4,190

Total capital additions	$	3,569	$	50,365

Payments from landlords	$	4,014	$	7,099

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Results of Operations

Revenues

In response to the business disruption caused by the

COVID-19

pandemic, the Company has taken the following actions, related to its store operations:

Temporarily closures of all of our 137 stores, completed by March 20, 2020 (including our one new store opening March 16);

On April 30, 2020, one store

re-opened

to the public with limited food and beverage offerings. Two additional stores offered limited food and beverage for

off-premises

dining; and

During the thirteen weeks ended August 2, 2020, an additional 83 stores were

re-opened.

These stores are operating with limited menus, reduced dining room seating, reduced games in the midway, reduced operating hours and other restrictions referred to as “limited operations”.

Selected revenue and store data for the periods indicated are as follows:


	Thirteen weeks ended August 2, 2020		Thirteen weeks ended August 4, 2019			Change
Total revenues	$	50,833	$	344,599		$	(293,766	)
Total store operating weeks		628		1,674			(1,046	)
Comparable store revenues	$	40,201	$	308,995		$	(268,794	)
Comparable store operating weeks		493		1,495			(1,002	)
Noncomparable store revenues	$	10,435		36,487		$	(26,052	)
Noncomparable store operating weeks		135		179			(44	)
Other revenues	$	197	$	(883	)	$	1,080

Total revenues ~~increased $25,411,~~decreased $293,766, or ~~8.0%~~85.2%, to $50,833 in the second quarter of fiscal 2020 compared to total revenues of $344,599 in the second quarter of fiscal ~~2019 compared~~2019. The decline in revenue is attributable primarily to ~~total revenues of $319,188~~fewer store operating weeks in the second quarter of fiscal ~~2018.~~2020 as a result of temporary store closures, lower customer volumes due to limited food and beverage and amusement operations and the canceling or postponement of special events as a result of the

COVID-19

pandemic. For the thirteen weeks ended August 2, 2020, we derived 22.2% of our total revenue from food sales, 11.2% from beverage sales, and 66.6% from amusement sales and less than 0.1% from other sources. For the thirteen weeks ended August 4, 2019, we derived 28.0% of our total revenue from food sales, 12.0% from beverage sales, 59.1% from amusement sales and 0.9% from other sources. ~~For the thirteen weeks ended August 5, 2018, we derived 28.8% of our total revenue from food sales, 12.0% from beverage sales, 58.5% from amusement sales and 0.7% from other sources.~~

~~The net increase in revenues for the second quarter of fiscal 2019 compared to the second quarter of 2018 were from the following sources:~~

Comparable stores $ (4,877 )
Non-comparable stores 29,633
Other 655

Total $ 25,411

Comparable store revenue decreased ~~$4,877,~~$268,794 or ~~1.8%~~87.0%, in the second quarter of fiscal ~~2019~~2020 compared to the second quarter of fiscal ~~2018. Comparable store revenue compared~~2019, due primarily to ~~prior year was negatively impacted by increased competitive pressure, and sales transfers to new stores that we opened~~a 67.0% reduction in ~~markets where we operate. Comparable walk-in revenues, which accounted for 90.4% of~~ comparable store ~~revenue for~~operating weeks and lower customer volumes as stores

re-opened

with limited operations. During the second quarter of fiscal ~~2019, decreased 2.0% compared to~~2020, the ~~similar period in fiscal 2018. Comparable store special events revenues, which accounted for 9.6%~~number of comparable stores operating increased from one at the beginning of the quarter to 68 at the end of the quarter. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store ~~revenue for the second quarter of fiscal 2019, increased 0.1% compared~~performance after

re-opening

was impacted by changes in local operating restrictions and consumer reactions to ~~the second quarter of fiscal 2018.~~changes in local

COVID-19

infection rates.

Food sales at comparable stores decreased by ~~$2,985,~~$77,714, or ~~3.8%~~89.6%, to ~~$75,645~~$8,982 in the second quarter of fiscal ~~2019~~2020 from ~~$78,630~~$86,696 in the second quarter of fiscal ~~2018.~~2019. Beverage sales at comparable stores decreased by ~~$537,~~$32,508, or ~~1.6%~~87.5%, to ~~$32,528~~$4,652 in the second quarter of fiscal ~~2019~~2020 from ~~$33,065~~$37,160 in the ~~2018~~2019 comparison period. Comparable store amusement and other revenues in the second quarter of fiscal ~~2019~~2020 decreased by ~~$1,355,~~$158,572, or ~~0.8%~~85.7%, to ~~$160,112~~$26,567 from ~~$161,467~~$185,139 in the comparable thirteen weeks of fiscal ~~2018.~~2019. The ~~decrease~~

COVID-19

pandemic driven reduction in ~~amusement sales was due~~operating hours and product offerings contributed to a shift in ~~part to lower customer volumes partially offset by various pricing initiatives in the current year, including an increase in new card fees with the launch of~~ our ~~RFID power card in the first quarter of fiscal 2019.~~

~~Non-comparable~~comparable store revenue ~~increased $29,633, for the second quarter~~mix away from food and beverage revenues to amusements and other revenues of ~~fiscal 2019~~approximately 600 basis points when compared to the second quarter of fiscal ~~2018. The increase in non-comparable~~ 2019.

Non-comparable

store revenue ~~was primarily driven by 198 additional operating store weeks contributed by our thirty-one non-comparable stores, fourteen~~decreased $26,052 in the second quarter of ~~which opened subsequent~~fiscal 2020 compared to the second quarter of fiscal ~~2018, partially offset by a decrease in revenue due to~~2019, for the ~~closure~~same reasons noted above, including 44 fewer store operating weeks.

Table of ~~our store in Duluth (Atlanta), Georgia on March 3, 2019.~~Contents

Cost of products

The total cost of products was $8,684 for the second quarter of fiscal 2020 and $59,623 for the second quarter of fiscal ~~2019 and $55,556 for the second quarter of fiscal 2018.~~2019. The total cost of products as a percentage of total revenues was ~~17.3% and 17.4%~~relatively unchanged at 17.1% for the second quarter of fiscal ~~2019 and~~2020 compared to 17.3% for the second quarter of fiscal ~~2018, respectively.~~2019.

Cost of food and beverage products ~~increased~~decreased to ~~$36,934 in the second quarter of fiscal 2019~~$4,659 compared to ~~$33,998~~$36,934 for the second quarter of fiscal ~~2018 due primarily to the increased sales volume related to new store openings.~~2019. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 7060 basis points to 27.4% for the second quarter of fiscal 2020 from 26.8% for the second quarter of fiscal ~~2019 from 26.1% for~~2019. Cost of food and beverage products during the second quarter of ~~fiscal 2018. Higher~~2020 was negatively impacted by a shift in mix to poultry ~~costs due to~~resulting from our ~~“All You Can Eat” wings promotion, higher bar consumable costs due to our shift to fresh juices at the bar as well as the impact of our larger~~

~~non-comparable~~

~~store group, were partially offset by declines in seafood costs~~streamlined menu offering and ~~increases in~~ food and beverage ~~prices.~~spoilage costs of approximately $500 associated with store closures, offset by cost reductions resulting from vendor payment negotiations.

Cost of amusement and other ~~increased~~decreased to $4,025 in the second quarter of fiscal 2020 compared to $22,689 in the second quarter of fiscal ~~2019 compared to $21,558 in the second quarter of fiscal 2018.~~2019. The costs of amusement and other, as a percentage of amusement and other revenues, ~~decreased 40~~increased 90 basis points to ~~11.0%~~11.9% for the second quarter of fiscal ~~2019~~2020 from ~~11.4% for~~11.0% in the second quarter of fiscal ~~2018. The decrease~~2019, due primarily to a shift in ~~cost of amusement and other as a percentage of revenue was due, in part, to lower expense associated with our estimated amusement~~ticket redemption liabilities and leverage from revenue increases derived from an increase in the price of power cards and higher revenue from our virtual reality platform. Increases in cost of amusements due to recently imposed tariffs were largely offset by price increases in WIN!.patterns.

~~Table of Contents~~

Operating payroll and benefits

Total operating payroll and benefits ~~increased~~decreased by ~~$7,191,~~$67,171, or ~~9.8%~~83.0%, to $13,756 in the second quarter of fiscal 2020 compared to $80,927 in the second quarter of fiscal ~~2019 compared to $73,736 in the second quarter~~2019. Nearly all of ~~fiscal 2018. This increase was primarily due to labor associated~~our store workforce, with the ~~additional operating store weeks~~exception of ~~our non-comparable stores.~~a small team of essential personnel, were furloughed in

mid-March,

returning only as stores

re-opened

and at reduced staffing levels. The total cost of operating payroll and benefits, as a percentage of total revenues, increased 40360 basis points to ~~23.5%~~27.1% in the second quarter of fiscal ~~2019~~2020 compared to ~~23.1%~~23.5% for the second quarter of fiscal ~~2018.~~2019. This increase was primarily due to ~~an hourly wage rate increase~~sales deleveraging of ~~4.6%, normal~~management labor ~~inefficiencies associated with our non-comparable~~as a result of the temporary store ~~base~~closures and ~~unfavorable leverage on decreased comparable store sales.~~partially attributable to continued benefit coverage for furloughed employees.

Other store operating expenses

Other store operating expenses ~~increased~~decreased by ~~$9,551,~~$41,694, or ~~10.1%~~39.9%, to $62,682 in the second quarter of fiscal 2020 compared to $104,376 in the second quarter of fiscal ~~2019 compared to $94,825 in the second quarter of fiscal 2018, primarily~~2019. Decreased spend on marketing, maintenance and other services due to ~~new~~temporary store ~~openings.~~closures and $1,000 insurance proceeds related to the

COVID-19

business disruptions were partially offset by a $2,178 charge for impairment of long-lived assets and a net loss on derivatives of $976. Other store operating ~~expenses~~expense as a percentage of total revenues increased ~~60 basis points~~to 123.2% in the second quarter of fiscal 2020 compared to 30.3% in the second quarter of fiscal ~~2019 compared~~2019. This increase was due primarily to ~~29.7%~~sales deleveraging on occupancy costs and utilities as a result of the temporary store closures and the charges for impairment.

General and administrative expenses

General and administrative expenses decreased by $6,713, or 42.0%, to $9,278 in the second quarter of fiscal 2018. This increase was due primarily to higher occupancy costs associated with our non-comparable stores, deleveraging of our occupancy costs on lower comparable store sales, and incremental legal and sports viewing costs, partially offset by favorable leverage of marketing expenses relative to total revenue.

~~General and administrative expenses~~

~~General and administrative expenses increased by $1,227, or 8.3%,~~2020 compared to $15,991 in the second quarter of fiscal ~~2019 compared to $14,764 in the second quarter of fiscal 2018.~~2019. The ~~increase~~decrease in general and administrative expenses was primarily driven by ~~increased compensation and professional services~~lower labor costs atdue to the furloughing of most of our corporate ~~headquarters. General~~employees, temporarily reducing pay and ~~administrative expenses, as a percentage~~benefits for the remaining employees through the first seven weeks of ~~total revenues remained unchanged at 4.6% in both~~ the second quarter, lower professional services, reduced travel and board fees. These cost reductions were partially offset by increased share-based compensation as a result of ~~fiscal 2019 and~~new grants issued during the second ~~quarter of fiscal 2018.~~quarter.

Depreciation and amortization expense

Depreciation and amortization expense increased by ~~$3,696~~$2,415 or ~~12.7%~~7.4%, to $35,160 in the second quarter of fiscal 2020 compared to $32,745 in the second quarter of fiscal ~~2019 compared to $29,049 in the second quarter of fiscal 2018.~~2019. Increased depreciation due to our ~~2018~~2020 and 2019 capital expenditures for new stores, operating initiatives, games and maintenance capital, was partially offset by other assets reaching the end of their depreciable lives.

Pre-opening

costs

Pre-opening

costs decreased by ~~$605~~$2,335 to $2,388 in the second quarter of fiscal 2020 compared to $4,723 in the second quarter of fiscal 2019 ~~compared~~due to ~~$5,328~~a decrease in the number of new store openings in the current year, as construction was put on hold, with

pre-opening

costs being primarily limited to

pre-opening

rent expense after the disruption of our business as a result of the

COVID-19

pandemic.

Interest expense, net

Interest expense, net increased by $3,558 to $8,163 in the second quarter of fiscal ~~2018~~

~~Interest expense, net~~

~~Interest expense, net increased by $1,377~~2020 compared to $4,605 in the second quarter of fiscal 2019 ~~compared to $3,228 in the second quarter of fiscal 2018~~ due primarily to an increase in the average outstanding debt, a slightly higher weighted average effective interest rate and ~~higher interest rates.~~

the absence of capitalized interest.

Provision (benefit) for income taxes

The effective tax rate for the thirteen weeks ended August 2, 2020, was a benefit of 34.4%, compared to an effective tax rate of 22.2% for the thirteen weeks ended August 4, 2019, primarily due to the impact of a decrease in operating earnings before income tax ~~rate increased~~as well as the impact of provisions of the CARES Act, including technical amendments to ~~22.2% in~~qualified improvement property and the ~~second quarter~~impact of carrying net operating losses from fiscal years 2020 and 2019 ~~compared~~back to ~~20.9% in the second quarter of fiscal 2018. The increase is driven by lower excess~~years with a higher federal corporate income tax ~~benefit associated with share-based compensation partially offset by higher tax credits and a favorable change in the mix of jurisdictional earnings.~~rate.

~~Table of Contents~~

Twenty-Six

Weeks Ended August 2, 2020 Compared to

Twenty-Six

Weeks Ended August 4, 2019 ~~Compared to Twenty-Six Weeks Ended August 5, 2018~~

Results of operations.

Twenty-six Weeks
Ended

Twenty-six Weeks
Ended

August 4, 2019

August 5, 2018

Food and beverage revenues $ 286,142 40.4 % $ 269,997 41.5 %
Amusement and other revenues 422,039 59.6 381,381 58.5

Total revenues 708,181 100.0 651,378 100.0
Cost of food and beverage (as a percentage of food and beverage revenues) 75,688 26.5 70,018 25.9
Cost of amusement and other (as a percentage of amusement and other revenues) 45,660 10.8 42,677 11.2

Total cost of products 121,348 17.1 112,695 17.3
Operating payroll and benefits 163,800 23.1 146,630 22.5
Other store operating expenses 210,621 29.8 188,165 28.9
General and administrative expenses 32,837 4.6 30,418 4.7
Depreciation and amortization expense 63,886 9.0 56,555 8.7
Pre-opening costs 11,725 1.7 12,381 1.9

Total operating costs 604,217 85.3 546,844 84.0

Operating income 103,964 14.7 104,534 16.0
Interest expense, net 8,661 1.2 6,085 0.9

Income before provision for income taxes 95,303 13.5 98,449 15.1
Provision for income taxes 20,504 2.9 22,520 3.4

Net income $ 74,799 10.6 % $ 75,929 11.7 %
Change in comparable store sales (1) (1.0 )% (3.7 )%
Company-owned stores open at end of period (1) 130 117
Comparable stores open at end of period (1) 99 86


	Twenty-Six Weeks					Twenty-Six Weeks
	Ended					Ended
	August 2, 2020					August 4, 2019
Food and beverage revenues	$	80,922		38.4	%	$	286,142	40.4	%
Amusement and other revenues		129,717		61.6			422,039	59.6

Total revenues		210,639		100.0			708,181	100.0
Cost of food and beverage (as a percentage of food and beverage revenues)		22,003		27.2			75,688	26.5
Cost of amusement and other (as a percentage of amusement and other revenues)		14,753		11.4			45,660	10.8

Total cost of products		36,756		17.4			121,348	17.1
Operating payroll and benefits		57,493		27.3			163,800	23.1
Other store operating expenses		158,354		75.3			210,621	29.8
General and administrative expenses		23,841		11.3			32,837	4.6
Depreciation and amortization expense		70,512		33.5			63,886	9.0
Pre-opening costs		6,211		2.9			11,725	1.7

Total operating costs		353,167		167.7			604,217	85.3

Operating income (loss)		(142,528	)	(67.7	)		103,964	14.7
Interest expense, net		14,278		6.7			8,661	1.2

Income (loss) before provision (benefit) for income taxes		(156,806	)	(74.4	)		95,303	13.5
Provision (benefit) for income taxes		(54,660	)	(25.9	)		20,504	2.9

Net income (loss)	$	(102,146	)	(48.5	)%	$	74,799	10.6	%

Change in comparable store sales (1)				(72.2	)%			(1.0	)%
Company-owned stores at end of period (1)				137				130
Comparable stores at end of period (1)				115				99

(1)

re-open.

Our store in Duluth (Atlanta), Georgia permanently closed on March 3, 2019 as we did not exercise the renewal option and has been excluded from fiscal 2019 store counts and comparable store sales.

Table of Contents

Reconciliations of

Non-GAAP

Financial Measures

Adjusted EBITDA

The following table reconciles (in dollars and as a percent of total revenues) Net income (loss) to Adjusted EBITDA for the periods indicated:

Twenty-six
Weeks

Twenty-six
Weeks

Ended

Ended

August 4, 2019

August 5, 2018

Net income
$
74,799

10.6
% $
75,929

11.7
%
Interest expense, net

8,661

6,085

Provision for income taxes

20,504

22,520

Depreciation and amortization expense

63,886

56,555

EBITDA

167,850

23.7
%
161,089

24.7
%
Loss on asset disposal

826

693

Share-based compensation

3,732

4,014

Pre-opening
costs

11,725

12,381

Other costs (1)

33

121

Adjusted EBITDA
$
184,166

26.0
% $
178,298

27.4
%


	Twenty-Six Weeks Ended August 2, 2020					Twenty-Six Weeks Ended August 4, 2019
Net income (loss)	$	(102,146	)	-48.5	%	$	74,799	10.6	%
Interest expense, net		14,278					8,661
Provision (benefit) for income taxes		(54,660	)				20,504
Depreciation and amortization expense		70,512					63,886

EBITDA		(72,016	)	-34.2	%		167,850	23.7	%
Loss on asset disposal		417					826
Impairment of long-lived assets		13,727					—
Share-based compensation		2,345					3,732
Pre-opening costs		6,211					11,725
Other costs (1)		59					33

Adjusted EBITDA	$	(49,257	)	-23.4	%	$	184,166	26.0	%

(1)	Primarily represents costs related to currency transaction (gains) or losses.

Store Operating Income Before Depreciation and Amortization

The following table reconciles (in dollars and as a percent of total revenues) Operating income (loss) to Store Operating Income Before Depreciation and Amortization for the periods indicated:

Twenty-six
Weeks

Twenty-six
Weeks

Ended

Ended

August 4, 2019

August 5, 2018

Operating income
$
103,964

14.7
% $
104,534

16.0
%
General and administrative expenses

32,837

30,418

Depreciation and amortization expense

63,886

56,555

Pre-opening
costs

11,725

12,381

Store Operating Income Before Depreciation and Amortization
$
212,412

30.0
% $
203,888

31.3
%


	Twenty-Six Weeks Ended August 2, 2020					Twenty-Six Weeks Ended August 4, 2019
Operating income (loss)	$	(142,528	)	-67.7	%	$	103,964	14.7	%
General and administrative expenses		23,841					32,837
Depreciation and amortization expense		70,512					63,886
Pre-opening costs		6,211					11,725

Store Operating Income Before Depreciation and Amortization	$	(41,964	)	-19.9	%	$	212,412	30.0	%

Capital Additions

The table below reflects accrual-based capital additions. Capital additions do not include any reductions for Payments from landlords.

Twenty-six
Weeks

Twenty-six
Weeks

Ended

Ended

August 4, 2019

August 5, 2018

New store and operating initiatives
$
91,447
$
78,464

Games

9,842

18,604

Maintenance capital

10,485

10,726

Total capital additions
$
111,774
$
107,794

Payments from landlords
$
21,341
$
30,545


	Twenty-Six Weeks Ended August 2, 2020		Twenty-Six Weeks Ended August 4, 2019
New store and operating initiatives	$	40,522	$	91,447
Games		8,718		9,842
Maintenance capital		1,780		10,485

Total capital additions	$	51,020	$	111,774

Payments from landlords	$	4,014	$	21,341

Table of Contents

Results of Operations

Revenues

Selected revenue and store data for the periods indicated are as follows:


	Twenty-six weeks ended August 2, 2020			Twenty-six weeks ended August 4, 2019			Change
Total revenues	$	210,639		$	708,181		$	(497,542	)
Total store operating weeks		1,461			3,290			(1,829	)
Comparable store revenues	$	179,662		$	645,839		$	(466,177	)
Comparable store operating weeks		1,196			2,990			(1,794	)
Noncomparable store revenues	$	33,843		$	65,968		$	(32,125	)
Noncomparable store operating weeks		265			300			(35	)
Other revenues	$	(2,866	)	$	(3,626	)	$	760

Total revenues ~~increased $56,803,~~decreased $497,542, or ~~8.7%~~70.3%, to ~~$708,181~~$210,639 in the

twenty-six

~~week period~~weeks ended August ~~4, 2019~~2, 2020 compared to total revenues of ~~$651,378~~$708,181 in the

twenty-six

~~week period~~weeks ended August ~~5, 2018.~~4, 2019. The decline in revenue is attributable to fewer store operating weeks in fiscal 2020 as a result of temporary store closures, lower customer volumes due to limited food and beverage and amusement operations and the canceling or postponement of special events as a result of the

COVID-19

pandemic. For the

twenty-six

weeks ended August 2, 2020, we derived 25.3% of our total revenue from food sales, 13.1% from beverage sales, 61.1% from amusement sales and 0.5% from other sources. For the

twenty-six

weeks ended August 4, 2019, we derived 27.9% of our total revenue from food sales, 12.5% from beverage sales, 58.8% from amusement sales and 0.8% from other sources. ~~For~~

Comparable store revenue decreased $466,177, or 72.2%, in the

twenty-six

weeks ended August ~~5, 2018, we derived 28.6% of our total revenue from food sales, 12.9% from beverage sales, 57.9% from amusement sales and 0.6% from other sources.~~

~~The net increase in revenues for~~2, 2020 compared to the

twenty-six

weeks ended August 4, 2019, ~~compared~~due primarily to a 60.0% reduction in comparable store operating weeks and lower customer volumes as stores

re-opened

with limited operations. As of March 20, 2020, all the Company’s 115 comparable stores were closed due to operating restrictions put in place by local jurisdictions in response to the

~~twenty-six~~COVID-19

~~period ended~~pandemic. Beginning April 30, 2020, we began

re-opening

our stores based on changes in operating restrictions in the various jurisdictions. As of August ~~5, 2018, were from the following sources:~~2, 2020, 68 of our comparable stores had

re-opened

Comparable stores
$
(5,802
)
Non-comparable
stores

62,221

Other

384

Total
$
56,803

~~Comparable~~under limited operating conditions. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store ~~revenue decreased $5,802, or 1.0%, in the~~performance after

~~twenty-six~~re-opening

~~weeks ended August 4, 2019 compared to the~~

~~twenty-six~~

~~weeks ended August 5, 2018. Comparable store revenue compared to prior year~~ was ~~negatively~~ impacted by ~~an unfavorable shift~~changes in ~~the current year holiday/school break calendar, increased competitive pressure,~~local operating restrictions and ~~sales transfers~~consumer reactions to ~~new stores that we opened~~changes in ~~markets where we operate.~~ local

COVID-19

infection rates.

Comparable

walk-in

revenues, which accounted for ~~91.3%~~94.4% of comparable store revenue for the

twenty-six

weeks ended August ~~4, 2019,~~2, 2020, decreased ~~1.3%~~71.3% compared to the similar period in fiscal ~~2018.~~2019. Comparable store special events revenues, which accounted for ~~8.7%~~5.6% of comparable store revenue for the

twenty-six

weeks ended August ~~4, 2019, increased 1.5%~~2, 2020, decreased 81.9% compared to the similar period in fiscal ~~2018.~~2019 as events were canceled or postponed due to local restrictions on group gathering size and operating restrictions on our business.

Food sales at comparable stores decreased by ~~$5,276,~~$134,470, or ~~3.3%~~74.9%, to ~~$156,354~~$45,025 in the

twenty-six

weeks ended August 2, 2020 from $179,495 in the

twenty-six

weeks ended August 4, ~~2019 from $161,630 in the in the~~

~~twenty-six~~

~~weeks ended August 5, 2018.~~2019. Beverage sales at comparable stores decreased by ~~$2,293,~~$57,165, or ~~3.1%~~70.7%, to ~~$70,533~~$23,672 in the

twenty-six

~~week period~~weeks ended August ~~4, 2019~~2, 2020 from ~~$72,826~~$80,837 in the ~~2018~~2019 comparison period. Comparable store amusement and other revenues in the

twenty-six

~~week period~~weeks ended August ~~4, 2019 increased~~2, 2020 decreased by ~~$1,767,~~$274,542, or ~~0.5%~~71.2%, to ~~$332,689~~$110,965 from ~~$330,922~~$385,507 in the comparable

twenty-six

weeks of fiscal ~~2018. The increase~~2019.

Non-comparable

store revenue decreased $32,125 in ~~amusement sales was positively impacted by various pricing initiatives in~~the

twenty-six

weeks ended August 2, 2020 compared to the

twenty-six

weeks ended August 4, 2019. During the ~~current year, including~~first four-week period of fiscal 2020,

non-comparable

stores contributed an ~~increase in new card fees with~~additional $9,668 of revenue and 54 additional operating weeks over the ~~launch~~same period of ~~our RFID power card~~fiscal 2019. During the remainder of the first quarter and ~~incremental sales associated with our virtual reality platform which launched~~ during the second quarter of fiscal ~~2018.~~

~~Non-comparable~~

~~store revenue increased $62,221, for the~~

~~twenty-six~~

~~week period ended August 4, 2019 compared to the~~

~~twenty-six~~

~~week period ended August 5, 2018. The increase in~~2020,

non-comparable

store revenue ~~was primarily driven by 394 additional~~decreased $41,793 for the same reasons noted above, including 89 fewer store operating ~~store weeks contributed by our~~

~~thirty-one~~

~~non-comparable~~

stores, fourteen of which opened subsequent to the second quarter of fiscal 2018, partially offset by a decrease in revenue due to the closure of our store in Duluth (Atlanta), Georgia on March 3, 2019.weeks.

Cost of products

The total cost of products was $36,756 for the

twenty-six

weeks ended August 2, 2020 and $121,348 for the

twenty-six

~~week period~~weeks ended August 4, ~~2019 and $112,695 for the~~

~~twenty-six~~

~~week period ended August 5, 2018.~~2019. The total cost of products as a percentage of total revenues was 17.4% and 17.1% for the

twenty-six

weeks August 2, 2020 and ~~17.3%~~the

twenty-six

weeks ended August 4, 2019, respectively.

Table of Contents

Cost of food and beverage products decreased to $22,003 in the

twenty-six

weeks ended August 2, 2020 compared to $75,688 for the

twenty-six

weeks ended August 4, ~~2019 and the~~

~~twenty-six~~

~~week period ended August 5, 2018, respectively.~~

~~Cost of food and beverage products increased to $75,688 in the~~

~~twenty-six~~

~~week period ended August 4, 2019 compared to $70,018 for the~~

~~twenty-six~~

~~week period ended August 5, 2018, due primarily to the increased sales volume related to new store openings.~~2019. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 6070 basis points to 27.2% for the

twenty-six

weeks ended August 2, 2020 from 26.5% for the

twenty-six

~~week period~~weeks ended August 4, ~~2019 from 25.9% for the~~

~~twenty-six~~

week period ended August 5, 2018. Higher meat costs resulting from our upgraded steak products, higher poultry costs due to our “All You Can Eat” wings promotion and higher bar consumable costs due to our shift to fresh juices at the bar as well as the impact2019. Cost of ~~our larger~~

~~non-comparable~~

~~store group, were partially offset by declines in seafood costs and increases in~~ food and beverage ~~prices.~~products in the

twenty-six

weeks ended August 2, 2020, was negatively impacted by food and beverage spoilage costs of approximately $1,022 associated with store closures, offset partially by cost reductions resulting from vendor payment negotiations.

Cost of amusement and other ~~increased~~decreased to $14,753 in the

twenty-six

weeks ended August 2, 2020 compared to $45,660 in the

twenty-six

~~week period~~weeks ended August 4, ~~2019 compared to $42,677 in the~~

~~twenty-six~~

~~week period ended August 5, 2018.~~2019. The costs of amusement and other, as a percentage of amusement and other revenues, ~~decreased 40~~increased 60 basis points to 11.4% for the

twenty-six

weeks ended August 2, 2020 from 10.8% for the

twenty-six

~~week period~~weeks ended August 4, 2019, ~~from 11.2% for the~~

~~twenty-six~~

~~week period ended August 5, 2018. The decrease in cost of amusement and other as~~due primarily to a ~~percentage of revenue was due, in part, to lower expense associated with our estimated amusement redemption liabilities, an increase in the price of power cards and a slight~~ shift in ~~game play to~~

~~non-redemption~~

~~games.~~

~~Table of Contents~~

ticket redemption patterns.

Operating payroll and benefits

Total operating payroll and benefits ~~increased~~decreased by ~~$17,170,~~$106,307, or ~~11.7%~~64.9%, to $57,493 in the

twenty-six

weeks ended August 2, 2020 compared to $163,800 in the

twenty-six

~~week period~~weeks ended August 4, ~~2019 compared to $146,630 in the~~

~~twenty-six~~

~~week period ended August 5, 2018. This increase was primarily due to labor associated with the additional operating store weeks~~2019. Nearly all of our store workforce, except a small team of essential personnel, were furloughed in

~~non-comparable~~mid-March,

~~stores.~~returning only as stores

re-opened

and at reduced staffing levels. The total cost of operating payroll and benefits, as a percentage of total revenues, increased 60420 basis points to 27.3% in the

twenty-six

week period ended August 2, 2020 compared to 23.1% in the

twenty-six

week period ended August 4, 2019, ~~compared~~due primarily to ~~22.5%~~sales deleveraging of management labor as a result of the temporary store closures and partially attributable to continued benefit coverage for ~~the~~

~~twenty-six~~

week period ended August 5, 2018. This increase was due to an hourly wage rate increase of 4.5%, incremental amusements labor related to our virtual reality platform, normal labor inefficiencies associated with our

~~non-comparable~~

~~store base and unfavorable leverage on decreased comparable store sales.~~furloughed employees.

Other store operating expenses

Other store operating expenses ~~increased~~decreased by ~~$22,456,~~$52,267, or ~~11.9%~~24.8%, to $158,354 in the

twenty-six

weeks ended August 2, 2020 compared to $210,621 in the

twenty-six

~~week period~~weeks ended August 4, ~~2019 compared to $188,165 in the~~

~~twenty-six~~

~~week period ended August 5, 2018, primarily~~2019. Decreased spend on marketing, maintenance and other services due to ~~new~~temporary store ~~openings.~~closures and $1,000 insurance proceeds related to the

COVID-19

business disruptions were partially offset by a $13,727 charge for impairment of long-lived assets and a net loss on derivatives of $1,796. Other store operating ~~expenses~~expense as a percentage of total revenues increased ~~90 basis points~~to 75.3% in the

twenty-six

weeks ended August 2, 2020 compared to 29.8% in the

twenty-six

~~week period~~weeks ended August 4, ~~2019 compared to 28.9% in the~~

~~twenty-six~~

~~week period ended August 5, 2018.~~2019. This increase was due primarily to ~~higher~~sales deleveraging on occupancy costs ~~associated with our~~

~~non-comparable~~

~~stores, deleveraging~~and utilities as a result of ~~our occupancy costs on lower comparable~~the temporary store ~~sales, incremental legal and sports viewing costs,~~closures and the ~~absence of hurricane-related business interruption proceeds recorded in the first quarter of the prior year.~~charges for impairment.

General and administrative expenses

General and administrative expenses ~~increased~~decreased by ~~$2,419,~~$8,996, or ~~8.0%~~27.4%, to $23,841 in the

twenty-six

weeks ended August 2, 2020 compared to $32,837 in the

twenty-six

~~week period~~weeks ended August 4, ~~2019 compared to $30,418 in the~~

~~twenty-six~~

~~week period ended August 5, 2018.~~2019. The ~~increase~~decrease in general and administrative expenses was driven primarily ~~driven~~ by ~~increased~~lower labor due to the furloughing of most of our corporate employees during the first quarter of fiscal 2020, temporarily reducing pay and benefits for the remaining employees for a twelve-week period, lower share-based compensation due to changes in performance stock unit expense during the first quarter, and reduced travel, slightly offset by higher professional services ~~costs at our corporate headquarters. General and administrative expenses, as a percentage of total revenues remained relatively unchanged at 4.6% in the~~

~~twenty-six~~

~~week period ended August 4, 2019 compared to 4.7% in the~~

~~twenty-six~~

~~week period ended August 5, 2018.~~costs.

Depreciation and amortization expense

Depreciation and amortization expense increased by ~~$7,331~~$6,626 or ~~13.0%~~10.4%, to $70,512 in the

twenty-six

weeks ended August 2, 2020 compared to $63,886 in the

twenty-six

~~week period~~weeks ended August 4, ~~2019 compared to $56,555 in the~~

~~twenty-six~~

~~week period ended August 5, 2018.~~2019. Increased depreciation due to our ~~2018~~2020 and 2019 capital expenditures for new stores, operating initiatives, games and maintenance capital, was partially offset by other assets reaching the end of their depreciable lives.

Pre-opening

costs

Pre-opening

costs decreased by ~~$656~~$5,514 to $6,211 in the

twenty-six

weeks ended August 2, 2020 compared to $11,725 in the

twenty-six

~~week period~~weeks ended August 4, 2019, ~~compared~~due to ~~$12,381~~a decrease in the ~~comparable time period~~number of ~~fiscal 2018~~new store openings in the current year, as construction was put on hold, with

pre-opening

costs being primarily limited to

pre-opening

rent expense after the disruption of our business as a result of the

.COVID-19

pandemic.

Interest expense, net

Interest expense, net increased by ~~$2,576~~$5,617 to ~~$8,661~~$14,278 in the

twenty-six

~~week period~~weeks ended August ~~4, 2019~~2, 2020 compared to ~~$6,085 in the~~

~~twenty-six~~

~~week period ended August 5, 2018 due primarily to higher interest rates and an increase in average outstanding debt.~~

~~Provision for income taxes~~

~~The effective income tax rate decreased to 21.5%~~$8,661 in the

twenty-six

weeks ended August 4, 2019, due primarily to an increase in average outstanding debt, offset slightly by a lower weighted average effective interest rate.

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Provision (benefit) for income taxes

The effective tax rate for the

twenty-six

weeks ended August 2, 2020, was a benefit of 34.9%, compared to ~~22.9% in~~an effective tax rate of 21.5% for the

twenty-six

~~week period~~weeks ended August ~~5, 2018. The~~4, 2019, primarily due to the impact of a decrease ~~reflects~~in operating earnings before income tax as well as the impact of provisions of the CARES Act, including technical amendments to qualified improvement property and the impact of carrying net operating losses from fiscal years 2020 and 2019 back to years with a higher federal corporate income tax ~~credits and a favorable change in the mix of jurisdictional earnings partially offset by lower excess tax benefit associated with share-based compensation.~~rate.

Liquidity and Capital Resources

In response to the business disruption caused by the

COVID-19

pandemic, the Company has taken the following actions to enable it to meet its obligations over the next twelve months:

~~Cash and Cash Equivalents~~

During the first quarter of fiscal year 2020, we:

At August 4, 2019, we had cash and cash equivalents of $23,318 and a net working capital deficit of $178,426. We are able to operate with a working capital deficit because cash from sales is usually received before related liabilities for product, supplies, labor and services become due. Our operations do not require significant inventory or receivables, and we continually invest in our business through the growth of stores and operating improvement additions, which are reflected as noncurrent assets and not a part of working capital.

reduced expenses broadly;

~~Based on~~

suspended our ~~current business plan, we believe~~share repurchase program and our ~~cash~~dividend;

drew down substantially all the remaining credit available under our $500,000 revolving credit facility;

negotiated an amendment with our lenders, which included relief from compliance with financial covenants for the first, second and ~~cash equivalents combined with expected cash flows from operations, available borrowings under the revolving portion~~third quarterly periods of fiscal 2020;

sold shares of our ~~credit facility~~common stock, which generated gross proceeds of $75,000; and ~~expected~~

initiated negotiations with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments ~~from~~and obtain other concessions.

In addition, during the second quarter of fiscal 2020, we:

sold additional shares of common stock, which generated gross proceeds of $110,600;

submitted a proposal, approved by our shareholders, increasing the number of shares available for incentive awards, which enables management to maintain key talent while preserving the Company’s liquidity by minimizing cash outlays; and

continued discussions with our landlords, ~~should be sufficient not only for~~vendors and other business partners to reduce our lease and contract payments and obtain concessions. As of August 2, 2020, a total of 92 rent relief agreements relating to our operating ~~requirements but also~~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 ~~enable us, in the aggregate, to finance our capital allocation strategy, including capital expenditures, share repurchases, cash dividends and any required debt payments through~~six months, at ~~least the next twelve months and the foreseeable future.~~ approximately 50% of those locations.

While these measures have been successful in obtaining temporary relief, and we continue to ~~spend between $242,000~~negotiate additional relief measures, given the uncertainty surrounding the timing of

re-opening

of our stores and ~~$252,000 ($200,000~~lifting of capacity restrictions and other requirements and how quickly customers will return to ~~$210,000 net~~our stores, which may be a function of ~~payments from landlord) in capital additions during fiscal 2019. The fiscal 2019 additions are expected~~continued concerns over safety and/or depressed consumer sentiment due to ~~include approximately $196,000~~adverse economic conditions, including job losses, substantial doubt exists about our ability to $206,000 ($154,000 to $164,000 net of payments from landlords) for new store construction and operating improvement initiatives, $19,000 for game refreshment and $27,000 in maintenance capital. A portion of the 2019 new store spend is related to stores that will be under construction in 2019 but will not be open until 2020.

Debt and Derivatives

~~We maintain a~~During the first quarter of fiscal year 2020, we drew down substantially all the available credit under our $500,000 ~~unsecured~~ revolving credit facility. ~~Availability~~Current availability under the revolving credit facility is reduced by $9,686 of outstanding letters of credit, which are used to support our self-insurance programs. AtAs of August ~~4, 2019,~~2, 2020, we had ~~net availability for borrowings of $197,853 based on~~ an ~~outstanding revolver~~unused commitment balance of ~~$294,000~~$1,314 and ~~$8,147 in standby letters of credit. We had~~ total outstanding debt ~~obligation~~obligations of ~~$567,750~~$747,750 under the existing ~~term loan and revolving~~ credit facility, which matures in August 2022. ~~At August 4, 2019, the Company was in compliance with all our covenants contained in~~

Effective April 14, 2020, we amended our existing credit facility, which included relief from compliance with financial covenants for the quarterly periods ended May 3, 2020, August 2, 2020, and ~~none~~November 1, 2020. During the financial covenant suspension period, a $30,000 liquidity covenant was added as well as certain additional reporting requirements, and the termination of additional borrowings under our revolving credit facility during the suspension period. The interest rate increased to LIBOR plus 2.00% with a LIBOR floor of 1.00%. In connection with the amendment, we incurred debt costs of $2,000, which are ~~expected to impact our liquidity or capital resources.~~payable at the maturity date of the credit facility, with earlier payment required in the event of certain conditions, as defined in the agreement. For

the

twenty-six

weeks ended August 2, 2020, the Company’s weighted average interest rate ~~swaps~~on outstanding borrowings was 3.98%. We expect this rate to increase slightly in future quarters as a result of the ~~management~~amendment. Further, if there is an event of default on our revolving credit facility, the entire balance plus accrued interest may become due and payable or our interest rate could change to the default rate of interest, as defined, which would be higher than the current interest rate.

During fiscal 2019, we entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates on our variable rate credit facility. 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. Refer to Note 1 of the Unaudited Consolidated Financial Statements for further ~~discussion.~~discussion of our swap agreements, which were

de-designated

as hedges effective April 14, 2020, the date of the amendment to our credit facility.

Dividends and Share Repurchases

~~Our Board of Directors approved~~The Company had previously established a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule

10b5-1

of the Exchange Act. ~~The share repurchase program may be modified, suspended or discontinued at any time. As of~~At August ~~4, 2019,~~2, 2020, we had approximately ~~$269,990~~$172,820 remaining of a total $800,000 share repurchase authorization. The existing share repurchase program expires at the end of fiscal 2020. ~~During~~As a result of the impacts to our business arising from the COVID

-19

~~twenty-six~~

~~weeks ended August 4, 2019, we declared~~pandemic, share purchases and paid cash dividends of $10,837. Our Board of Directors may authorize capital allocation initiatives, including additional dividends, to return value to shareholders as allowable under our existing credit facility.dividend payments have been indefinitely suspended.

Cash Flow Summary

At August 2, 2020, we had cash and cash equivalents of $224,305. The April 14, 2020 amendment to our credit facility requires that the Company maintain a minimum cash balance of $30,000 with our lenders.

Operating Activities

— ~~Net cash provided by operating activities decreased $28,221 in the~~

~~twenty-six~~

~~weeks ended August 4, 2019 compared to the~~

~~twenty-six~~

~~weeks ended August 5, 2018 driven primarily by net cash flows associated with changes in working capital.~~

Cash flow generated from operations typically provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations and occupancy costs.

Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, the timing of cash receipts and payments, and vendor payment terms.

Net cash provided by operating activities decreased $170,194 in the

twenty-six

weeks ended August 2, 2020 compared to the

twenty-six

weeks ended August 4, 2019 driven primarily by the closure of all of our 137 operating stores as of March 20, 2020. Operations ceased until April 30, 2020, when we

re-opened

our first store, followed by the progressive

re-opening

of 83 additional stores with limited operations through the end of our second quarter. The impact of approximately 1,829 fewer store weeks and limited operations was lessened somewhat by reduced income tax payments as well as our efforts to actively manage the Company’s daily cash flows, including deferrals and short payments of rent and other payments to landlords.

Investing Activities

— Cash used in investing activities primarily reflects capital expenditures.

During the

twenty-six

weeks ended August ~~4, 2019,~~2, 2020, the Company spent ~~$99,483~~approximately $48,800 for new store construction and operating improvement initiatives ($~~78,142~~44,800 net of payments from landlords), $8,600 for game refreshment and $6,100 for maintenance capital.

During the

twenty-six

weeks ended August 4, 2019, we spent approximately $99,500 ($78,200 net of payments from landlords) for new store construction and operating improvement initiatives, ~~$9,763~~$9,800 for game refreshment and ~~$8,629~~$8,600 for maintenance capital.

~~During~~

Financing Activities

— Cash provided by financing activities in the

twenty-six

weeks ended August ~~5, 2018, we spent $86,979 ($56,434~~2, 2020, primarily reflected $99,500 of net proceeds from borrowings of ~~payments~~debt and approximately $182,200 of net proceeds from ~~landlords) for new store construction and operating improvement initiatives, $19,065 for game refreshment and $10,580 for maintenance capital.~~the issuance of shares of our common stock. In the

twenty-six

~~Financing Activities~~

~~— Cash~~weeks ended August 4, 2019, cash used in financing activities primarily reflected approximately $200,000 of share repurchases and approximately ~~$11,000~~$10,800 of cash dividends paid, partially offset by $173,500 of net proceeds from ~~borrowings of debt in the~~

~~twenty-six~~

~~weeks ended August 4, 2019. Cash used in financing activities primarily reflected approximately $61,000 of share repurchases and $4,500 of net repayments of debt in the~~

~~twenty-six~~

~~weeks ended August 5, 2018.~~

~~Table of Contents~~

borrowings.

Contractual Obligations and Commitments

~~There~~Other than the amendment to our credit facility effective April 14, 2020, there have been no material changes outside the ordinary course of business to our contractual obligations since February ~~3, 2019,~~2, 2020, as reported on Form

10-K

filed with the SEC on April ~~2, 2019.~~3, 2020.

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Accounting policies and estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. Our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis, and we adjust our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying consolidated financial statements. A complete description of our critical accounting policies and estimates is included in our annual consolidated financial statements and the related notes in our Annual Report on Form

10-K

filed with the SEC on April ~~2, 2019.~~3, 2020.

Recent accounting pronouncements

Refer to Note 1 to the Unaudited Consolidated Financial Statements for information regarding new accounting pronouncements.

~~ITEM~~

Item 3.

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

We are exposed to market price fluctuation in food and beverage product prices. Given the historical volatility of certain of our food product prices, including proteins, seafood, produce, dairy products, and cooking oil, these fluctuations can materially impact our food costs. While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease or inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate. Additionally, the cost of purchased materials may be influenced by tariffs and other trade regulations which are outside of our control. To the extent that we do not pass along cost increases to our customers, our results of operations may be adversely affected. At this time, we do not use financial instruments to hedge our commodity risk.

Interest Rate Risk

We are exposed to interest rate risk arising from changes in interest rates due to the variable rate indebtedness under our credit facility. ~~Borrowings~~At August 2, 2020, borrowings pursuant to our credit facility of $747,750 bear interest at a floating rate based on

~~one-month~~

LIBOR plus ~~an applicable margin. Effective February 28, 2019, the Company entered into~~2.00%, with a LIBOR floor of 1.00%. We currently have an interest rate swap agreement ~~with a notional amount of $350,000~~ to manage our exposure to interest rate movements on our variable rate credit ~~facility.~~facility up to the notional amount of $350,000. The agreement converts the floating portion of the interest rate to a fixed interest rate of approximately ~~2.5% plus a spread~~2.47% from the effective date of the agreements through the term of our existing credit facility.

Inflation

The primary inflationary factors affecting our operations are food, labor costs, and energy costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Finally, the cost of constructing our stores is subject to inflationary increases in the costs of labor and material.

~~We have a substantial number~~A large portion of our hourly employees ~~who~~ are paid wage rates at or based on the applicable federal, state or city minimum wage and increases in the minimum wage will increase our labor costs. Several states and local jurisdictions in which we operate have enacted legislation to increase the minimum wage and/or minimum tipped wage rates by varying amounts, with more planned increases in the future.

In general, we have been able to partially offset cost increases resulting from inflation by increasing menu prices, improving productivity, or other operating changes. We may or may not be able to offset cost increases in the future.

~~Table of Contents~~

~~ITEM~~

Item 4.

~~CONTROLS AND PROCEDURES~~

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules

13a-15

and

15d-15

promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

Effective February 4, 2019 we adopted the new guidance for lease accounting (Topic 842). As a result, changes to processes and procedures occurred that affected the Company’s internal control over financial reporting. While we believe the Company’s internal control over financial reporting for affected process and procedures is effective, we will continue to evaluate and monitor these changes and assess the effectiveness of our internal control over financial reporting as of the end of our fiscal year.

There were no changes in our internal control over financial reporting (as defined in the Exchange Act

Rules

13a-15(f)

and

15d-15(f))

that occurred during our second quarter ended August ~~4, 2019,~~2, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II – OTHER INFORMATION

~~ITEM~~

Item 1.

~~LEGAL PROCEEDINGS~~

Legal Proceedings

Information regarding legal proceedings is incorporated by reference from Note 5 to our Unaudited Consolidated Financial Statements set forth in Part I of this report.

~~ITEM~~

Item 1A.

~~RISK FACTORS~~

Risk Factors

The Company is supplementing the Risk Factors previously disclosed in Item 1A of the Annual Report on Form

10-K

for the fiscal year ended February 2, 2020, (the “Annual Report”). The following risk factor should be read in conjunction with the Risk Factors disclosed in the Annual Report.

The

COVID-19

pandemic has disrupted and is expected to continue to disrupt our business, which could have a material adverse impact on our business, results of operations, liquidity and financial condition for an extended period of time.

The recent outbreak of

COVID-19,

and any other outbreaks of contagious diseases or other adverse public health developments in the United States or worldwide, could have a material adverse effect on our business, results of operations, liquidity and financial condition. In 2020, the

COVID-19

pandemic has significantly impacted the economy in general, and our business specifically, and it will continue to negatively affect our business in a number of ways. These effects could include, but are not limited to:

the uncertain and unprecedented impact of the coronavirus and the disease it causes

(COVID-19)

on our business and operations and the related impact on our liquidity needs;

our ability to continue as a going concern;

our ability to obtain additional waivers or amendments, and thereafter continue to satisfy covenant requirements (even as they may be amended), under our amended credit agreement and derivative contract payables;

our ability to access other funding sources;

the duration of government-mandated and voluntary shutdowns, and the impact of ongoing mitigation restrictions on our operations once our stores can

re-open;

the speed with which our stores safely can be

re-opened

and the level of customer demand following

re-opening;

the economic impact of

COVID-19

and related disruptions on the communities we serve; and

our overall level of indebtedness.

The extent to which the

COVID-19

pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impacts our business, results of operations, liquidity and financial condition is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the

COVID-19

pandemic on us or our suppliers, third-party service providers, and/or customers.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

There ~~have~~has been no material ~~changes~~change in the ~~risk factors previously~~use of proceeds disclosed in our ~~Annual Report as filed~~prospectus supplement to our registration statement on Form

~~10-K~~S-3,

filed with the SEC on April ~~2, 2019.~~

14, 2020.

There were no repurchases of our common stock under our share repurchase plan during the thirteen weeks ended August 2, 2020.

Table of Contents

~~ITEM 2.~~

Item 6.

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

Exhibits

~~Information regarding repurchase of our common stock, in thousands, except share~~

~~amounts, during the thirteen weeks ended~~

~~August 4, 2019:~~

Period (1)

Total Number
of Shares
Repurchased

Average Price
Paid per Share

Total Number of Shares
Repurchased as Part of
Publicly Announced Plan (2)

Approximate Dollar Value of
Shares That May Yet Be
Repurchased Under the Plan (3)

May 6, 2019 – June 2, 2019

—
$
—

—
$
406,666

June 3, 2019 – July 7, 2019

1,400,000
$
39.93

1,400,000
$
350,766

July 8, 2019 – August 4, 2019

2,000,000
$
40.39

2,000,000
$
269,990

~~(1)~~

~~Monthly information is presented by reference to our fiscal periods during the thirteen weeks ended August 4, 2019.~~

~~(2)~~

Our Board of Directors approved a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule

~~10b5-1~~

~~of the Securities Exchange Act of 1934, as amended. The share repurchase program may be modified, suspended or discontinued at any time.~~

~~(3)~~

~~Based on total share repurchase authorization in effect on August 4, 2019.~~

~~Table of Contents~~

~~ITEM 6.~~

~~EXHIBITS~~


Exhibit Number			Description

31.1*
	31.1*			Certification of Brian A. Jenkins, Chief Executive Officer of the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).

	31.2*	��		Certification of Scott J. Bowman, Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).

32.1*
	32.1*	��		Certification of Brian A. Jenkins, Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*
	32.2*			Certification of Scott J. Bowman, Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101
	~~101~~			XBRL Interactive Data ~~files.~~ files

104
	~~104~~			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*	~~Filed herein~~

*	Filed herein

Table of Contents

~~SIGNATURES~~Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	DAVE & BUSTER’S ENTERTAINMENT, INC., a Delaware corporation

Date: September 10, ~~2019~~ 2020	By:	/s/ Brian A. Jenkins
		Brian A. Jenkins
		Chief Executive Officer

Date: September 10, ~~2019~~ 2020	By:	/s/ Scott J. Bowman
		Scott J. Bowman
		Chief Financial Officer


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 ~~Stock~~Global Select Market ~~LLC~~


	Thirteen Weeks Ended August 4, 2019			Twenty-six Weeks Ended August 4, 2019
Gain (loss) recognized in accumulated other comprehensive loss	$	(4,668	)	$	(8,140	)
Loss reclassified from accumulated other comprehensive loss into net earnings (1)	$	27		$	12
Income tax (expense) benefit of interest rate swaps on accumulated other comprehensive loss	$	1,268		$	2,221


	August 4,			February 3,
	2019			2019
	(unaudited)			(audited)
ASSETS
Current assets:
Cash and cash equivalents	$	23,318		$	21,585
Inventories		27,409			27,315
Prepaid expenses		16,918			20,713
Income taxes receivable		1,569			1,880
Other current assets		9,001			19,600

Total current assets		78,215			91,093
Property and equipment (net of $627,036 and $578,178 accumulated depreciation as of August 4, 2019 and February 3, 2019, respectively)		851,715			805,337
Operating lease right of use assets		924,461			—
Deferred tax assets		8,529			6,736
Tradenames		79,000			79,000
Goodwill		272,633			272,625
Other assets and deferred charges		19,524			18,396

Total assets	$	2,234,077		$	1,273,187
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	15,000		$	15,000
Accounts payable		53,898			60,427
Accrued liabilities		183,306			157,164
Income taxes payable		4,437			11,799

Total current liabilities		256,641			244,390
Deferred income taxes		18,822			14,634
Deferred occupancy costs		—			223,678
Operating lease liabilities		1,125,874			—
Other liabilities		31,359			24,179
Long-term debt, net		552,079			378,469
Commitments and contingencies
Stockholders’ equity:

Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 43,337,125 shares at August 4, 2019 and 43,177,476 shares at February 3, 2019; outstanding: 32,978,834 shares at August 4, 2019 and 37,522,085 shares at February 3, 2019		433			432
Preferred stock, 50,000,000 authorized; NaN issued		—			—
Paid-in capital		335,599			331,255
Treasury stock, 10,358,291 and 5,655,391 shares as of August 4, 2019 and February 3, 2019, respectively		(497,862	)		(297,129	)
Accumulated other comprehensive loss		(6,647	)		(683	)
Retained earnings		417,779			353,962

Total stockholders’ equity		249,302			387,837

Total liabilities and stockholders’ equity	$	2,234,077		$	1,273,187


	Twenty-Six Weeks Ended August 4, 2019			Twenty-Six Weeks Ended August 5, 2018
Food and beverage revenues	$	286,142		$	269,997
Amusement and other revenues		422,039			381,381

Total revenues		708,181			651,378
Cost of food and beverage		75,688			70,018
Cost of amusement and other		45,660			42,677

Total cost of products		121,348			112,695
Operating payroll and benefits		163,800			146,630
Other store operating expenses		210,621			188,165
General and administrative expenses		32,837			30,418
Depreciation and amortization expense		63,886			56,555
Pre-opening costs		11,725			12,381

Total operating costs		604,217			546,844

Operating income		103,964			104,534
Interest expense, net		8,661			6,085

Income before provision for income taxes		95,303			98,449
Provision for income taxes		20,504			22,520

Net income		74,799			75,929

Unrealized foreign currency translation loss		(57	)		(362	)
Change in fair value of derivatives, net of tax		(5,907	)		—

Total other comprehensive loss		(5,964	)		(362	)

Total comprehensive income	$	68,835		$	75,567
Net income per share:
Basic	$	2.07		$	1.92
Diluted	$	2.03		$	1.88
Weighted average shares used in per share calculations:
Basic		36,117,815			39,525,263
Diluted		36,803,001			40,444,201
Cash dividends declared per share	$	0.30		$	—


	Thirteen Weeks Ended August 4, 2019
	Common Stock				Paid-In Capital		Treasury Stock At Cost					Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares		Amt.				Shares		Amt.
Balance May 5, 2019		43,323,049	$	433	$	333,515		6,958,291	$	(361,186	)	$	(3,408	)	$	390,771		$	360,125
Net income		—		—		—		—		—			—			32,356			32,356
Unrealized foreign currency translation gain		—		—		—		—		—			134			—			134
Change in fair value of derivatives, net of tax		—		—		—		—		—			(3,373	)		—			(3,373	)
Share-based compensation		—		—		1,907		—		—			—			—			1,907
Issuance of common stock		14,076		—		177		—		—			—			—			177
Repurchase of common stock		—		—				3,400,000		(136,676	)		—			—			(136,676	)
Dividends declared ($0.15 per share)		—		—		—		—		—			—			(5,348	)		(5,348	)

Balance August 4, 2019		43,337,125	$	433	$	335,599		10,358,291	$	(497,862	)	$	(6,647	)	$	417,779		$	249,302

	Thirteen Weeks Ended August 5, 2018
	Common Stock				Paid-In Capital		Treasury Stock At Cost					Accumulated Other Comprehensive Loss			Retained Earnings		Total
	Shares		Amt.				Shares		Amt.
Balance May 6, 2018		42,801,006	$	428	$	323,211		3,181,280	$	(175,372	)	$	(518	)	$	290,461	$	438,210
Net income		—		—		—		—		—			—			33,779		33,779
Unrealized foreign currency translation loss		—		—		—		—		—			(93	)		—		(93	)
Share-based compensation		—		—		1,626		—		—			—			—		1,626
Issuance of common stock		136,982		1		1,114		—		—			—			—		1,115
Repurchase of common stock		—		—		—		728,753		(33,712	)		—			—		(33,712	)

Balance August 5, 2018		42,937,988	$	429	$	325,951		3,910,033	$	(209,084	)	$	(611	)	$	324,240	$	440,925


	Twenty-Six Weeks Ended August 4, 2019
												Accumulated
												Other
					Paid-In		Treasury Stock					Comprehensive			Retained
	Common Stock				Capital		At Cost					Loss			Earnings			Total
	Shares		Amt.				Shares		Amt.

Balance February 3, 2019		43,177,476	$	432	$	331,255		5,655,391	$	(297,129	)	$	(683	)	$	353,962		$	387,837
Cumulative effect of a change in accounting principle, net of tax		—		—		—		—		—			—			(145	)		(145	)
Net income		—		—		—		—		—			—			74,799			74,799
Unrealized foreign currency translation loss		—		—		—		—		—			(57	)		—			(57	)
Change in fair value of derivatives, net of tax		—		—		—		—		—			(5,907	)		—			(5,907	)
Share-based compensation		—		—		3,732		—		—			—			—			3,732
Issuance of common stock		159,649		1		612		—		—			—			—			613
Repurchase of common stock		—		—				4,702,900		(200,733	)		—			—			(200,733	)
Dividends declared ($0.30 per share)		—		—		—		—		—			—			(10,837	)		(10,837	)

Balance August 4, 2019		43,337,125	$	433	$	335,599		10,358,291	$	(497,862	)	$	(6,647	)	$	417,779		$	249,302


	Twenty-Six Weeks Ended August 5, 2018
												Accumulated
												Other
					Paid-In		Treasury Stock					Comprehensive			Retained
	Common Stock				Capital		At Cost					Loss			Earnings			Total
	Shares		Amt.				Shares		Amt.

Balance February 4, 2018		42,660,806	$	427	$	320,488		2,558,721	$	(147,331	)	$	(249	)	$	248,311		$	421,646
Net income		—		—		—		—		—			—			75,929			75,929
Unrealized foreign currency translation loss		—		—		—		—		—			(362	)		—			(362	)
Share-based compensation		—		—		4,014		—		—			—			—			4,014
Issuance of common stock		277,182		2		1,449		—		—			—			—			1,451
Repurchase of common stock		—		—		—		1,351,312		(61,753	)		—			—			(61,753	)

Balance August 5, 2018		42,937,988	$	429	$	325,951		3,910,033	$	(209,084	)	$	(611	)	$	324,240		$	440,925


	August 4, 2019		February 3, 2019
Current portion of operating lease liabilities, net (refer to Note 4)	$	31,754	$	—
Current portion of deferred occupancy costs		—		15,737
Deferred amusement revenue		48,939		44,232
Compensation and benefits		24,555		24,280
Amusement redemption liability		20,717		19,911
Property taxes		9,089		7,278
Deferred gift card revenue		8,195		9,450
Current portion of long-term insurance		5,900		5,900
Sales and use taxes		4,903		5,226
Customer deposits		4,373		3,731
Utilities		4,247		4,032
Inventory liabilities		2,480		2,876
Variable rent liabilities		2,310		2,245
Current portion of derivatives		1,977		—
Other (refer to Note 5)		13,867		12,266

Total accrued liabilities	$	183,306	$	157,164


	August 4, 2019			February 3, 2019
Credit facility - term	$	273,750		$	281,250
Credit facility - revolver		294,000			113,000

Total debt outstanding		567,750			394,250
Less:
Current installments - term		(15,000	)		(15,000	)
Debt issuance costs - term		(671	)		(781	)

Long-term debt, net	$	552,079		$	378,469


	Thirteen Weeks Ended August 4, 2019			Thirteen Weeks Ended August 5, 2018
Interest expense on credit facilities	$	4,735		$	3,255
Amortization of issuance cost		198			198
Interest income		(25	)		(28	)
Capitalized interest		(303	)		(201	)
Change in fair value of interest rate cap		—			4

Total interest expense, net	$	4,605		$	3,228


	Thirteen Weeks Ended August 4, 2019		Twenty-six Weeks Ended August 4, 2019
Operating	$	30,448	$	60,240
Variable		774		1,992
Short-term		116		217

Total	$	31,338	$	62,449


	Twenty-six Weeks Ended August 4, 2019
Cash paid for amounts included in the measurement of lease liabities
Operating cash flows from operating leases	$	60,148
ROU assets obtained in exchange for new operating lease liabilities	$	94,059
Weighted-average remaining lease term - operating leases (in years)		15.8
Weighted-average discount rate - operating leases		6.0	%


Remainder of 2019	$	54,285
2020		127,561
2021		122,026
2022		114,033
2023		110,512
Thereafter		1,356,431

Total	$	1,884,848
Less: Interest		709,738

Total discounted operating lease liabilities	$	1,175,110


2019	$	122,501
2020		117,908
2021		111,642
2022		104,195
2023		100,779
Thereafter		1,229,803

Total	$	1,786,828


	Thirteen Weeks Ended August 4, 2019		Thirteen Weeks Ended August 5, 2018
Numerator:
Net income	$	32,356	$	33,779
Denominator:
Weighted average number of common shares outstanding (basic)		35,407,965		39,355,105
Weighted average dilutive impact of equity-based awards		607,745		925,196
Weighted average number of common and common equivalent shares outstanding (diluted)		36,015,710		40,280,301
Net income per share:
Basic	$	0.91	$	0.86
Diluted	$	0.90	$	0.84

	Twenty- s ix Weeks Ended August 4, 2019		Twenty-six Weeks Ended August 5, 2018
Numerator:
Net income	$	74,799	$	75,929
Denominator:
Weighted average number of common shares outstanding (basic)		36,117,815		39,525,263
Weighted average dilutive impact of equity-based awards		685,186		918,938
Weighted average number of common and common equivalent shares outstanding (diluted)		36,803,001		40,444,201
Net income per share:
Basic	$	2.07	$	1.92
Diluted	$	2.03	$	1.88


	2014 Stock Incentive Plan					2010 Stock Incentive Plan
	Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
Outstanding at February 3, 2019		1,134,218		$	34.22		359,984		$	6.48
Granted		222,266			52.04		—			—
Exercised		(8,390	)		37.86		(52,135	)		5.67
Forfeited		(2,882	)		49.62		—			—

Outstanding at August 4, 2019		1,345,212		$	37.11		307,849		$	6.62

Exercisable at August 4, 2019		920,104		$	31.35		307,849		$	6.62


	Shares			Weighted Average Fair Value
Outstanding at February 3, 2019		220,830		$	47.79
Granted		72,768			52.09
Change in units based on performance		27,372			39.10
Vested		(99,124	)		39.64
Forfeited		(1,562	)		49.34

Outstanding at August 4, 2019		220,284		$	51.79


	Thirteen Weeks Ended				Thirteen Weeks Ended
	August 4, 2019				August 5, 2018
Food and beverage revenues	$	137,921	40.0	%	$	130,242	40.8	%
Amusement and other revenues		206,678	60.0			188,946	59.2

Total revenues		344,599	100.0			319,188	100.0
Cost of food and beverage (as a percentage of food and beverage revenues)		36,934	26.8			33,998	26.1
Cost of amusement and other (as a percentage of amusement and other revenues)		22,689	11.0			21,558	11.4

Total cost of products		59,623	17.3			55,556	17.4
Operating payroll and benefits		80,927	23.5			73,736	23.1
Other store operating expenses		104,376	30.3			94,825	29.7
General and administrative expenses		15,991	4.6			14,764	4.6
Depreciation and amortization expense		32,745	9.5			29,049	9.1
Pre-opening costs		4,723	1.4			5,328	1.7

Total operating costs		298,385	86.6			273,258	85.6

Operating income		46,214	13.4			45,930	14.4
Interest expense, net		4,605	1.3			3,228	1.0

Income before provision for income taxes		41,609	12.1			42,702	13.4
Provision for income taxes		9,253	2.7			8,923	2.8

Net income	$	32,356	9.4	%	$	33,779	10.6	%
Change in comparable store sales (1)			(1.8	)%			(2.4	)%
Company-owned stores open at end of period (1)			130				117
Comparable stores open at end of period (1)			99				86


Comparable stores	$	(4,877	)
Non-comparable stores		29,633
Other		655

Total	$	25,411


	Twenty-six Weeks Ended				Twenty-six Weeks Ended
	August 4, 2019				August 5, 2018
Food and beverage revenues	$	286,142	40.4	%	$	269,997	41.5	%
Amusement and other revenues		422,039	59.6			381,381	58.5

Total revenues		708,181	100.0			651,378	100.0
Cost of food and beverage (as a percentage of food and beverage revenues)		75,688	26.5			70,018	25.9
Cost of amusement and other (as a percentage of amusement and other revenues)		45,660	10.8			42,677	11.2

Total cost of products		121,348	17.1			112,695	17.3
Operating payroll and benefits		163,800	23.1			146,630	22.5
Other store operating expenses		210,621	29.8			188,165	28.9
General and administrative expenses		32,837	4.6			30,418	4.7
Depreciation and amortization expense		63,886	9.0			56,555	8.7
Pre-opening costs		11,725	1.7			12,381	1.9

Total operating costs		604,217	85.3			546,844	84.0

Operating income		103,964	14.7			104,534	16.0
Interest expense, net		8,661	1.2			6,085	0.9

Income before provision for income taxes		95,303	13.5			98,449	15.1
Provision for income taxes		20,504	2.9			22,520	3.4

Net income	$	74,799	10.6	%	$	75,929	11.7	%
Change in comparable store sales (1)			(1.0	)%			(3.7	)%
Company-owned stores open at end of period (1)			130				117
Comparable stores open at end of period (1)			99				86


Comparable stores	$	(5,802	)
Non-comparable stores		62,221
Other		384

Total	$	56,803


Period (1)	Total Number of Shares Repurchased		Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plan (2)		Approximate Dollar Value of Shares That May Yet Be Repurchased Under the Plan (3)
May 6, 2019 – June 2, 2019		—	$	—		—	$	406,666
June 3, 2019 – July 7, 2019		1,400,000	$	39.93		1,400,000	$	350,766
July 8, 2019 – August 4, 2019		2,000,000	$	40.39		2,000,000	$	269,990