Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORMForm
10-Q
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
November 3, 2019
1, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
Commission File
No. 001-35664
 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
Identification No.)
(214)
357-9588
(Address of principal executive offices) (Zip Code)
(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:
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 StockGlobal 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  
☒
    No  
☐
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
☒
    No  
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 
☒
  
Accelerated filer
 
☐
Non-accelerated filer ☐  Smaller reporting company ☐
Non-accelerated
 filer
☐
Smaller reporting company
☐
Emerging growth company
☐
   Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
☐
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule
 12b-2
of the Exchange Act).    Yes  
☐
    No  
☒
As of December
4, 2019,2020, the registrant had
30,570,973
​​​​​​​ 47,642,029 shares of common stock, $0.01 par value per share, outstanding.
 
 
Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM
10-Q
FOR QUARTERLY PERIOD ENDED NOVEMBER 3, 20191, 2020
TABLE OF CONTENTS
Page
   
PART I
FINANCIAL INFORMATION
  
 
Page
PART I
FINANCIAL INFORMATION
 
   
Item 1.
Financial Statements
3
   
Item 1.
2.
Financial Statements
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
18
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
33
  
31
Item 4.
Controls and Procedures
33
PART II
OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
33
Item 4.
Controls and Procedures
32
   
PART IIItem 1A.
OTHER INFORMATION
 
Risk Factors
33
   
Item 1.
2.
Legal Proceedings
32
Item 1A.
Risk Factors
32
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
33
36
   
Item 6.
Exhibits
34
37
   
 
Signatures
35
38

2
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
         
  
November 3,
2019
 
 
February 3,
2019
 
 
(unaudited)
  
(audited)
 
ASSETS
      
Current assets:
      
Cash and cash equivalents
 $
20,880
  $
21,585
 
Inventories
  
32,620
   
27,315
 
Prepaid expenses
  
12,722
   
20,713
 
Income taxes receivable
  
2,876
   
1,880
 
Other current assets
  
2,511
   
19,600
 
         
Total current assets
  
71,609
   
91,093
 
Property and equipment (net of $657,348 and $578,178 accumulated depreciation as of November 3, 2019 and February 3, 2019, respectively)
  
878,203
   
805,337
 
Operating lease right of use assets
  
967,697
   
—  
 
Deferred tax assets
  
8,934
   
6,736
 
Tradenames
  
79,000
   
79,000
 
Goodwill
  
272,628
   
272,625
 
Other assets and deferred charges
  
20,116
   
18,396
 
         
Total assets
 $
 
 
2,298,187
  $
 
 
1,273,187
 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
      
Current liabilities:
      
Current installments of long-term debt
 $
15,000
  $
15,000
 
Accounts payable
  
65,538
   
60,427
 
Accrued liabilities
  
199,125
   
157,164
 
Income taxes payable
  
1,720
   
11,799
 
         
Total current liabilities
  
281,383
   
244,390
 
Deferred income taxes
  
19,287
   
14,634
 
Deferred occupancy costs
  
—  
   
223,678
 
Operating lease liabilities
  
1,174,772
   
—  
 
Other liabilities
  
34,240
   
24,179
 
Long-term debt, net
  
640,384
   
378,469
 
Commitments and contingencies
      
Stockholders’ equity:
      
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 43,350,485 shares at November 3, 2019 and 43,177,476 shares at February 3, 2019; outstanding: 30,566,973 shares at November 3, 2019 and 37,522,085 shares at February 3, 2019
  
434
   
432
 
Preferred stock, 50,000,000 authorized; NaN issued
  
—  
   
—  
 
Paid-in
capital
  
337,510
   
331,255
 
Treasury stock, 12,783,512 and 5,655,391 shares as of November 3, 2019 and February 3, 2019, respectively
  
(595,041
)  
(297,129
)
Accumulated other comprehensive loss
  
(8,156
)  
(683
)
Retained earnings
  
413,374
   
353,962
 
         
Total stockholders’ equity
  
148,121
   
387,837
 
         
Total liabilities and stockholders’ equity
 $
2,298,187
  $
1,273,187
 
         
 
   
November 1,
2020
  
February 2,
2020
 
   
(unaudited)
  
(audited)
 
ASSETS
   
Current assets:
   
Cash and cash equivalents
  $8,341  $24,655 
Inventories
   26,732   34,477 
Prepaid expenses
   12,080   14,269 
Income taxes receivable
   44,574   2,331 
Other current assets
   665   3,245 
  
 
 
  
 
 
 
Total current assets
   92,392   78,977 
Property and equipment (net of $767,510 and $686,824 accumulated depreciation as of November 1, 2020 and February 2, 2020, respectively)
   846,056   900,637 
Operating lease right of use assets
   1,050,878   1,011,568 
Deferred tax assets
   20,451   7,639 
Tradenames
   79,000   79,000 
Goodwill
   272,643   272,636 
Other assets and deferred charges
   23,641   19,682 
  
 
 
  
 
 
 
Total assets
  $2,385,061  $2,370,139 
  
 
 
  
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
   
Current liabilities:
   
Current installments of long-term debt
  $—    $15,000 
Accounts payable
   42,849   65,359 
Accrued liabilities
   244,163   207,452 
Income taxes payable
   415   3,054 
  
 
 
  
 
 
 
Total current liabilities
   287,427   290,865 
Deferred income taxes
   13,355   19,102 
Operating lease liabilities
   1,277,794   1,222,054 
Other liabilities
   37,896   35,779 
Long-term debt, net
   561,815   632,689 
Commitments and contingencies
  
Stockholders’ equity:
   
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 60,483,730 shares at November 1, 2020 and 43,386,852 shares at February 2, 2020; outstanding: 47,642,029 shares at November 1, 2020 and 30,603,340 shares at February 2, 2020
   605   434 
Preferred stock, 50,000,000 authorized; NaN issued
   —     —   
Paid-in
capital
   529,523   339,161 
Treasury stock, 12,841,701 and 12,783,512 shares as of November 1, 2020 and February 2, 2020, respectively
   (595,957)   (595,041) 
Accumulated other comprehensive loss
   (10,673)   (8,369) 
Retained earnings
   283,276   433,465 
  
 
 
  
 
 
 
Total stockholders’ equity
   206,774   169,650 
  
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $
 
2,385,061  $
 
2,370,139 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.

3
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
Ended
November 3, 2019
  
Thirteen Weeks
Ended
November 4, 2018
 
Food and beverage revenues
 $
124,637
  $
118,807
 
Amusement and other revenues
  
174,715
   
163,332
 
         
Total revenues
  
299,352
   
282,139
 
Cost of food and beverage
  
33,384
   
31,163
 
Cost of amusement and other
  
18,796
   
17,571
 
         
Total cost of products
  
52,180
   
48,734
 
Operating payroll and benefits
  
76,165
   
71,309
 
Other store operating expenses
  
110,713
   
96,267
 
General and administrative expenses
  
16,210
   
15,043
 
Depreciation and amortization expense
  
33,340
   
30,574
 
Pre-opening
costs
  
4,245
   
4,740
 
         
Total operating costs
  
292,853
   
266,667
 
         
Operating income
  
6,499
   
15,472
 
Interest expense, net
  
6,110
   
3,321
 
         
Income before provision (benefit) for income taxes
  
389
   
12,151
 
Provision (benefit) for income taxes
  
(93
)  
295
 
         
Net income
  
482
   
11,856
 
         
Unrealized foreign currency translation gain (loss)
  
59
   
(76
)
Unreali
zed 
loss
 of derivatives, net of tax
  
(1,568
)  
—  
 
         
Total other comprehensive loss
  
(1,509
)  
(76
)
         
Total comprehensive income (loss)
 $
(1,027
) $
11,780
 
         
Net income per share:
      
Basic
 $
0.02
  $
0.30
 
Diluted
 $
0.02
  $
0.30
 
Weighted average shares used in per share calculations:
      
Basic
  
30,980,878
   
38,892,288
 
Diluted
  
31,515,454
   
39,855,648
 
 
   
Thirteen Weeks
Ended
November 1, 2020
  
Thirteen Weeks
Ended
November 3, 2019
 
Food and beverage revenues
  $38,346  $124,637 
Amusement and other revenues
   70,706   174,715 
  
 
 
  
 
 
 
Total revenues
   109,052   299,352 
Cost of food and beverage
   10,664   33,384 
Cost of amusement and other
   7,244   18,796 
  
 
 
  
 
 
 
Total cost of products
   17,908   52,180 
Operating payroll and benefits
   27,704   76,165 
Other store operating expenses
   70,783   110,713 
General and administrative expenses
   11,746   16,210 
Depreciation and amortization expense
   34,384   33,340 
Pre-opening
costs
   2,570   4,245 
  
 
 
  
 
 
 
Total operating costs
   165,095   292,853 
  
 
 
  
 
 
 
Operating income (loss)
   (56,043)   6,499 
Interest expense, net
   8,213   6,110 
Loss on debt refinance
   904   —   
  
 
 
  
 
 
 
Income (loss) before benefit for income taxes
   (65,160)   389 
Benefit for income taxes
   (17,117)   (93) 
  
 
 
  
 
 
 
Net income (loss)
   (48,043)   482 
  
 
 
  
 
 
 
Unrealized foreign currency translation gain
   34   59 
Unrealized gain (loss) on derivatives, net of tax
   1,370   (1,568) 
  
 
 
  
 
 
 
Total other comprehensive income (loss)
   1,404   (1,509) 
  
 
 
  
 
 
 
Total comprehensive loss
  $(46,639)  $(1,027) 
  
 
 
  
 
 
 
Net income (loss) per share:
   
Basic
  $(1.01)  $0.02 
Diluted
  $(1.01)  $0.02 
Weighted average shares used in per share calculations:
   
Basic
   47,613,741   30,980,878 
Diluted
   47,613,741   31,515,454 
See accompanying notes to consolidated financial statements.

4
Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except share and per share amounts)
         
 
 
Thirty-nine
 Weeks
Ended
November 3, 2019
  
Thirty-nine
 Weeks
Ended
N
ovember 4, 2018
 
Food and beverage revenues
 $
410,779
  $
388,804
 
Amusement and other revenues
  
596,754
   
544,713
 
         
Total revenues
  
1,007,533
   
933,517
 
Cost of food and beverage
  
109,072
   
101,181
 
Cost of amusement and other
  
64,456
   
60,248
 
         
Total cost of products
  
173,528
   
161,429
 
Operating payroll and benefits
  
239,965
   
217,939
 
Other store operating expenses
  
321,334
   
284,432
 
General and administrative expenses
  
49,047
   
45,461
 
Depreciation and amortization expense
  
97,226
   
87,129
 
Pre-opening
costs
  
15,970
   
17,121
 
         
Total operating costs
  
897,070
   
813,511
 
         
Operating income
  
110,463
   
120,006
 
Interest expense, net
  
14,771
   
9,406
 
         
Income before provision for income taxes
  
95,692
   
110,600
 
Provision for income taxes
  
20,411
   
22,815
 
         
Net income
  
75,281
   
87,785
 
         
Unrealized foreign currency translation
gain (
loss
)
  
2
   
(438
)
Unrealized loss
of derivatives, net of tax
  
(7,475
)  
—
 
 
 
         
Total other comprehensive loss
  
(7,473
)  
(438
)
         
Total comprehensive income
 $
67,808
  $
87,347
 
         
Net income per share:
      
Basic
 $
2.19
  $
2.23
 
Diluted
 $
2.15
  $
2.18
 
Weighted average shares used in per share calculations:
      
Basic
  
34,405,503
   
39,314,271
 
Diluted
  
35,042,311
   
40,257,231
 
 
   
Thirty-Nine Weeks
Ended
November 1, 2020
  
Thirty-Nine Weeks

Ended
November 3, 2019
 
Food and beverage revenues
  $119,268  $410,779 
Amusement and other revenues
   200,423   596,754 
  
 
 
  
 
 
 
Total revenues
   319,691   1,007,533 
Cost of food and beverage
   32,667   109,072 
Cost of amusement and other
   21,997   64,456 
  
 
 
  
 
 
 
Total cost of products
   54,664   173,528 
Operating payroll and benefits
   85,197   239,965 
Other store operating expenses
   229,137   321,334 
General and administrative expenses
   35,587   49,047 
Depreciation and amortization expense
   104,896   97,226 
Pre-opening
costs
   8,781   15,970 
  
 
 
  
 
 
 
Total operating costs
   518,262   897,070 
  
 
 
  
 
 
 
Operating income (loss)
   (198,571)   110,463 
Interest expense, net
   22,491   14,771 
Loss on debt refinance
   904  —  
  
 
 
  
 
 
 
Income (loss) before provision (benefit) for income taxes
   (221,966)   95,692 
Provision (benefit) for income taxes
   (71,777)   20,411 
  
 
 
  
 
 
 
Net income (loss)
   (150,189)   75,281 
  
 
 
  
 
 
 
Unrealized foreign currency translation gain (loss)
   (97)   2 
Unrealized loss on derivatives, net of tax
   (2,207)   (7,475) 
  
 
 
  
 
 
 
Total other comprehensive loss
   (2,304)   (7,473) 
  
 
 
  
 
 
 
Total comprehensive income (loss)
  $(152,493)  $67,808 
  
 
 
  
 
 
 
Net income (loss) per share:
   
Basic
  $(3.56)  $2.19 
Diluted
  $(3.56)  $2.15 
Weighted average shares used in per share calculations:
   
Basic
   42,185,163   34,405,503 
Diluted
   42,185,163   35,042,311 
See accompanying notes to consolidated financial statements.

5
Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
                                 
 
 
Thirteen Weeks Ended November 3, 2019
 
 
 
Common Stock
  
Paid-In

Capital
  
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  
Total
 
 
 
Shares
  
Amt.
 
Shares
  
Amt.
 
Balance August 4, 2019
  
43,337,125
  $
433
  $
335,599
   
10,358,291
  $
(497,862
) $
(6,647
) $
417,779
  $
249,302
 
Net income
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
482
   
482
 
Unrealized foreign currency translation gain
  
—  
   
—  
   
—  
   
—  
   
—  
   
59
   
—  
   
59
 
Unrealized loss of derivatives, net of tax
  
—  
   
—  
   
—  
   
—  
   
—  
   
(1,568
)  
—  
   
(1,568
)
Share-based compensation
  
—  
   
—  
   
1,747
   
—  
   
—  
   
—  
   
—  
   
1,747
 
Issuance of common stock
  
13,360
   
1
   
164
   
—  
   
—  
   
—  
   
—  
   
165
 
Repurchase of common stock
  
—  
   
—  
      
2,425,221
   
(97,179
)  
—  
   
—  
   
(97,179
)
Dividends declared ($0.16 per share)
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
(4,887
)  
(4,887
)
                                 
Balance November 3, 2019
  
43,350,485
  $
434
  $
337,510
   
12,783,512
  $
(595,041
) $
(8,156
) $
413,374
  $
148,121
 
                                 
    
 
 
Thirteen Weeks Ended November 
4
, 201
8
 
 
 
Common Stock
  
Paid-In

Capital
  
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  
Total
 
 
 
Shares
  
Amt.
 
Shares
  
Amt.
 
Balance August 5, 2018
  
42,937,988
  $
429
  $
325,951
   
3,910,033
  $
(209,084
) $
(611
) $
324,240
  $
440,925
 
Net income
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
11,856
   
11,856
 
Unrealized foreign currency translation
 
loss
  
—  
   
—  
   
—  
   
—  
   
—  
   
(76
)  
—  
   
(76
)
Share-based compensation
  
—  
   
—  
   
1,757
   
—  
   
—  
   
—  
   
—  
   
1,757
 
Issuance of common stock
  
199,988
   
2
   
1,686
   
—  
   
—  
   
—  
   
—  
   
1,688
 
Repurchase of common stock
  
—  
   
—  
   
—  
   
436,706
   
(24,997
)  
—  
   
—  
   
(24,997
)
Dividends declared ($0.15 per share)
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
(5,842
)  
(5,842
)
                                 
Balance November 4, 2018
  
43,137,976
  $
431
  $
329,394
   
4,346,739
  $
(234,081
) $
(687
) $
330,254
  $
425,311
 
                                 
 
 
  
Thirteen Weeks Ended November 1, 2020
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock

At Cost
 
 
Accumulated

Other

Comprehensive

Loss
 
 
Retained
Earnings
 
 
Total
 
 
  
Shares
 
  
Amt.
 
  
 
 
  
Shares
 
  
Amt.
 
 
 
 
 
 
 
 
 
 
Balance August 2, 2020
   60,422,212   $604   $526,253    12,827,300   $(595,728)  $(12,077)  $331,319  $250,371 
Net loss
   —      —      —      —      —     —     (48,043)   (48,043) 
Unrealized foreign currency translation gain
   —      —      —      —      —     34   —     34 
Unrealized gain on derivatives, net of tax
   —      —      —      —      —     1,370   —     1,370 
Share-based compensation
   —      —      2,999    —      —     —     —     2,999 
Issuance of common stock
   61,518    1    271    —      —     —     —     272 
Repurchase of common stock
   —      —      —      14,401    (229)   —     —     (229) 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance November 1, 2020
   60,483,730   $605   $529,523    12,841,701   $(595,957)  $(10,673)  $283,276  $206,774 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
  
 
  
Thirteen Weeks Ended November 3, 2019
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock

At Cost
 
 
Accumulated

Other

Comprehensive

Loss
 
 
Retained

Earnings
 
 
Total
 
 
  
Shares
 
  
Amt.
 
  
 
 
  
Shares
 
  
Amt.
 
 
 
 
 
 
 
 
 
 
Balance August 4, 2019
   43,337,125   $433   $335,599    10,358,291   $(497,862)  $(6,647)  $417,779  $249,302 
Net income
   —      —      —      —      —     —     482   482 
Unrealized foreign currency translation gain
   —      —      —      —      —     59   —     59 
Unrealized loss on derivatives, net of tax
   —      —      —      —      —     (1,568)   —     (1,568) 
Share-based compensation
   —      —      1,747    —      —     —     —     1,747 
Issuance of common stock
   13,360    1    164    —      —     —     —     165 
Repurchase of common stock
   —      —        2,425,221    (97,179)   —     —     (97,179) 
Dividends declared ($0.16 per share)
   —      —      —      —      —     —     (4,887)   (4,887) 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance November 3, 2019
   43,350,485   $434   $337,510    12,783,512   $(595,041)  $(8,156)  $413,374  $148,121 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.

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Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
                                 
  
Thirty-nine Weeks Ended November 3, 2019
 
  
Common Stock
  
Paid-In

Capital
  
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  
Total
 
  
Shares
  
Amt.
 
Shares
  
Amt.
 
Balance February 3, 2019
  
43,177,476
  $
 
 
432
  $
 
 
331,255
   
5,655,391
  $
(297,129
) $
(683
) $
 
 
353,962
  $
387,837
 
Cumulative effect of a change in accounting principle, net of tax
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
(145
)  
(145
)
Net income
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
75,281
   
75,281
 
Unrealized foreign currency translation gain
  
—  
   
—  
   
—  
   
—  
   
—  
   
2
   
—  
   
2
 
Unrealized loss of derivatives, net of tax
  
—  
   
—  
   
—  
   
—  
   
—  
   
(7,475
)  
—  
   
(7,475
)
Share-based compensation
  
—  
   
—  
   
5,479
   
—  
   
—  
   
—  
   
—  
   
5,479
 
Issuance of common stock
  
173,009
   
2
   
776
   
—  
   
—  
   
—  
   
—  
   
778
 
Repurchase of common stock
  
—  
   
—  
      
7,128,121
   
(297,912
)  
—  
   
—  
   
(297,912
)
Dividends declared ($0.46 per share)
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
(15,724
)  
(15,724
)
                                 
Balance November 3, 2019
  
43,350,485
  $
434
  $
337,510
   
12,783,512
  $
(595,041
) $
(8,156
) $
413,374
  $
148,121
 
                                 
 
 
  
Thirty-Nine Weeks Ended November 1, 2020
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock

At Cost
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained

Earnings
 
 
Total
 
 
  
Shares
 
  
Amt.
 
  
 
 
  
Shares
 
  
Amt.
 
 
 
 
 
 
 
 
 
 
Balance February 2, 2020
   43,386,852   $434   $339,161    12,783,512   $(595,041)  $(8,369)  $433,465  $169,650 
Net loss
   —      —      —      —      —     —     (150,189)   (150,189) 
Unrealized foreign currency translation loss
   —      —      —      —      —     (97)   —     (97) 
Unrealized loss on derivatives, net of tax
   —      —      —      —      —     (2,207)   —     (2,207) 
Share-based compensation
   —      —      5,344    —      —     —     —     5,344 
Issuance of common stock
   17,096,878    171    185,018    —      —     —     —     185,189 
Repurchase of common stock
   —      —      —      58,189    (916)   —     —     (916) 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance November 1, 2020
   60,483,730   $605   $529,523    12,841,701   $(595,957)  $(10,673)  $283,276  $206,774 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
  
 
  
Thirty-Nine Weeks Ended November 3, 2019
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock

At Cost
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained

Earnings
 
 
Total
 
 
  
Shares
 
  
Amt.
 
  
 
 
  
Shares
 
  
Amt.
 
 
 
 
 
 
 
 
 
 
Balance February 3, 2019
   43,177,476   $432   $331,255    5,655,391   $(297,129)  $(683)  $
 
353,962  $387,837 
Cumulative effect of a change in accounting principle, net of tax
   —      —      —      —      —     —     (145)   (145) 
Net income
   —      —      —      —      —     —     75,281   75,281 
Unrealized foreign currency translation gain
   —      —      —      —      —     2   —     2 
Unrealized loss on derivatives, net of tax
   —      —      —      —      —     (7,475)   —     (7,475) 
Share-based compensation
   —      —      5,479    —      —     —     —     5,479 
Issuance of common stock
   173,009    2    776    —      —     —     —     778 
Repurchase of common stock
   —      —        7,128,121    (297,912)   —     —     (297,912) 
Dividends declared ($0.46 per share)
   —      —      —      —      —     —     (15,724)   (15,724) 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance November 3, 2019
   43,350,485   $434   $337,510    12,783,512   $(595,041)  $(8,156)  $413,374  $148,121 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
  
Thirty-nine Weeks Ended November 
4
, 201
8
 
  
Common Stock
  
Paid-In

Capital
  
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
  
Retained
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
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
87,785
   
87,785
 
Unrealized foreign currency translation
loss
  
—  
   
—  
   
—  
   
—  
   
—  
   
(438
)  
—  
   
(438
)
Share-based compensation
  
—  
   
—  
   
5,771
   
—  
   
—  
   
—  
   
—  
   
5,771
 
Issuance of common stock
  
477,170
   
4
   
3,135
   
—  
   
—  
   
—  
   
—  
   
3,139
 
Repurchase of common stock
  
—  
   
—  
   
—  
   
1,788,018
   
(86,750
)  
—  
   
—  
   
(86,750
)
Dividends declared ($0.15 per share)
  
—  
   
—  
   
—  
   
—  
   
—  
   
—  
   
(5,842
)  
(5,842
)
                                 
Balance November 4, 2018
  
43,137,976
  $
431
  $
329,394
   
4,346,739
  $
(234,081
) $
(687
) $
330,254
  $
425,311
 
                                 
See accompanying notes to consolidated financial statements.

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DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
         
 
 
Thirty-nine
 Weeks
Ended
November 3, 2019
 
 
Thirty-nine
 Weeks
Ended
November 4, 2018
 
Cash flows from operating activities:
      
Net income
 $
75,281
  $
87,785
 
Adjustments to reconcile net income to net cash provided by operating activities:
      
Depreciation and amortization expense
  
97,226
   
87,129
 
Deferred taxes
  
5,309
   
8,067
 
Loss on disposal of fixed assets
  
1,284
   
813
 
Share-based compensation
  
5,479
   
5,771
 
Other, net
  
928
   
847
 
Changes in assets and liabilities:
      
Inventories
  
(5,305
)  
(170
)
Prepaid expenses
  
(615
)  
(1,436
)
Income tax receivable
  
(996
)  
1,940
 
Other current assets
  
6,050
   
(6,610
)
Other assets and deferred charges
  
(1,775
)  
(1,020
)
Accounts payable
  
5,422
   
5,512
 
Accrued liabilities
  
37,671
   
14,260
 
Income taxes payable
  
(10,079
)  
1,081
 
Deferred occupancy costs
  
—  
   
31,155
 
Other liabilities
  
1,909
   
1,876
 
         
Net cash provided by operating activities
  
217,789
   
237,000
 
         
Cash flows from investing activities:
      
Capital expenditures
  
(172,888
)  
(163,745
)
Proceeds from sales of property and equipment
  
615
   
263
 
Proceeds from insurance
  
—
   
107
 
         
Net cash used in investing activities
  
(172,273
)  
(163,375
)
         
Cash flows from financing activities:
      
Proceeds from debt
  
366,000
   
191,000
 
Payments of debt
  
(104,250
)  
(174,250
)
Proceeds from the exercise of stock options
  
778
   
3,139
 
Repurchase of common stock under share repurchase program
  
(297,317
)  
(86,077
)
Dividends paid
  
(10,837
)  
(5,842
)
Repurchases of common stock to satisfy employee withholding tax obligations
  
(595
)  
(673
)
         
Net cash used in financing activities
  
(46,221
)  
(72,703
)
         
Increase (decrease) in cash and cash equivalents
  
(705
)  
922
 
Beginning cash and cash equivalents
  
21,585
   
18,795
 
         
Ending cash and cash equivalents
 $
20,880
  $
19,717
 
         
Supplemental disclosures of cash flow information:
      
Decrease in fixed asset accounts payable
 $
(311
) $
(474
)
Cash paid for income taxes, net
 $
26,086
  $
11,661
 
Cash paid for interest, net
 $
13,920
  $
8,853
 
Dividend declared, not paid $
4,887
  $
—
 
 
 
 
   
November 1,
 
2020
  
November 3,
 
2019
 
Cash flows from operating activities:
   
Net income (loss)
  $(150,189)  $75,281 
Adjustments to reconcile net income to net cash provided by operating activities:
   
Depreciation and amortization expense
   104,896   97,226 
Non-cash
interest expense
   4,088   0   
Impairment of long-lived assets
   13,727   0   
Deferred taxes
   (17,730)   5,309 
Loss on disposal of fixed assets
   541   1,284 
Loss on debt refinance
   904   0   
Share-based compensation
   5,344   5,479 
Other, net
   1,292   928 
Changes in assets and liabilities:
   
Inventories
   7,745   (5,305) 
Prepaid expenses
   2,761   (615) 
Income tax receivable
   (42,243)   (996) 
Other current assets
   2,580   6,050 
Other assets and deferred charges
   (3)   (1,775) 
Accounts payable
   (11,945)   5,422 
Accrued liabilities
   44,742   37,671 
Income taxes payable
   (2,639)   (10,079) 
Other liabilities
   4,375   1,909 
  
 
 
  
 
 
 
Net cash provided by (used in) operating activities
   (31,754)   217,789 
  
 
 
  
 
 
 
Cash flows from investing activities:
   
Capital expenditures
   (72,604)   (172,888) 
Proceeds from sales of property and equipment
   234   615 
  
 
 
  
 
 
 
Net cash used in investing activities
   (72,370)   (172,273) 
  
 
 
  
 
 
 
Cash flows from financing activities:
   
Proceeds from debt
   688,000   366,000 
Payments of debt
   (760,250)   (104,250) 
Net proceeds from the issuance of common stock
   182,207   0   
Proceeds from the exercise of stock options
   465   778 
Repurchase of common stock under share repurchase program
   0     (297,317) 
Dividends paid
   (4,891)   (10,837) 
Debt issuance costs
   (16,805)   0   
Repurchases of common stock to satisfy employee withholding tax obligations
   (916)   (595) 
  
 
 
  
 
 
 
Net cash provided by (used in) financing activities
   87,810   (46,221) 
  
 
 
  
 
 
 
Decrease
in cash and cash equivalents
   (16,314)   (705) 
Beginning cash and cash equivalents
   24,655   21,585 
  
 
 
  
 
 
 
Ending cash and cash equivalents
  $8,341  $20,880 
  
 
 
  
 
 
 
Supplemental disclosures of cash flow information:
   
Decrease in fixed asset accounts payable
  $(12,315)  $(311) 
Cash paid (refund received) for income taxes, net
  $(9,281)  $26,086 
Cash paid for interest, net
  $17,306  $13,920 
Dividend declared, not paid
  $0    $4,887 
See accompanying notes to consolidated financial statements.

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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
BasisThe 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 three quarters
thirty-
nine
weeks ended November 1, 2020, management made the decision to not
re-open
two stores located in the Chicago, Illinois area and Houston,
Texas area, which are near the end of fiscal 2019, their respective lease terms, and
we opened fourteentwo new stores located in Manchester, New Hampshire and permanently closed one store in Duluth (Atlanta), Georgia on March 3, 2019.Lehigh, Pennsylvania. As of November 3, 2019,1, 2020, we owned and operated 134137 stores located in 3940 states, Puerto Rico and 1 Canadian province.
The accompanying unaudited consolidated financial statements includeCompany operates on a 52 or
53-week
fiscal year that ends on the accounts ofSunday after the CompanySaturday closest to January 31. Each quarterly period reported has 13 weeks. Fiscal 2020 and its wholly-owned subsidiaries. All intercompany accounts2019, 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 thirty-nine weeks ended November 3, 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.
COVID-19 Considerations
— On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic and on March 13, 2020, the United States declared a National Public Health Emergency. As a result, several state and local mandates were implemented that encouraged the practice of social distancing, placed restrictions from individuals gathering in groups and, in many areas, placed complete restrictions on non-essential movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions
on businesses
, some of which allowed To-Go or curbside service only while others limited capacity in the dining room or midway. By March 20, 2020, all of our 137 operating stores were temporarily closed (including our one new store that opened on March 16).
During our first quarter, one store
re-opened
to the public with limited food and beverage offerings and 2 additional stores offered
off-premise
dining options. During our second and third quarters, we have progressively
re-opened
limited operations in an additional 101 stores and 1 new store in Manchester, New Hampshire and 1 new store in Lehigh Valley, Pennsylvania.
NaN stores that re-opened during the second quarter were re-closed during the third quarter (1 of which re-opened on November 14, 2020).
As of November 1, 2020, 104 of our 137 stores were open, in limited capacity, in 36 states, Puerto Rico and Canada.
As of November 1, 2020, 33 of the Company’s stores were closed to in-person guests as a result of local COVID-19 restrictions (31 of which have been closed since March 20, 2020). Subsequent to the third quarter, some local and state governments began to roll back their re-opening plans in light of climbing COVID-19 case counts. As of December 4, 2020, 4
8
 stores were closed due to jurisdictional restrictions.    
The Company has been
in
ongoing discussions with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations. As of November 1, 2020, a total of 123 rent relief agreements related to our operating locations and corporate headquarters were executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations. We operate onhave also been successful in negotiating extended and reduced payment terms with several vendors. In addition to reducing expenses, including capital expenditures and
discretionary spending
, the Company obtained additional liquidity through the sale of common stock during our first and second quarters, which resulted in net proceeds of $182,207.
On
 October
27,
2020, D&B Inc, a 52 orwholly owned subsidiary, completed the private sale of $550,000 in aggregate principal amount of 7.625% senior secured notes due 2025. At the same time,
53-week
the
revolving credit commitments under our existing credit facility
were extended
through August 17, 2024
,
and the suspension of our financial ratio covenants
was extended
until
the
last
day
of
the first quarter of fiscal year 2022.
See Note 3, Debt,
for more information on these transactions.
The measures taken by the Company provide sufficient liquidity to meet estimated cash flow needs and covenant compliance obligations for at least the next twelve months from the issuance of the financial statements.
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Table of Contents
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that ends onaffect the Sunday afterreported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the Saturday closest todate of the consolidated financial statements and for the period then ended. Actual results could differ from those estimates. Operating results for the
 thirteen and
thirty-nine weeks ended November 1, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending January 31. Each quarterly period reported has 13 weeks. Fiscal 2019 and 2018, which end on February 2, 2020 and February 3, 2019, contain 52 weeks.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 overdraftsThere was 0 book overdraft as of $2,246 and $12,782 areNovember 1, 2020. A book overdraft of $14,026 is presented in “Accounts payable” in the Consolidated Balance Sheets as of November 3, 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 facilitydebt, which was refinanced during the third quarter, approximates its fair value because the interest rates are adjusted regularly based onreflect current market conditions. The fair value of the Company’s credit facilitydebt 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
During the first quarter of fiscal 2020, the Company recorded an impairment charge for its long-lived assets, are measured at fair value when they were evaluated for impairment.including ROU assets, of $6,746, primarily driven by the expected impact of the
COVID-19
pandemic on future cash flows of specific stores. During the second and third quarters of fiscal 2020, the Company did not identify additional triggering events which would require a change in management’s estimate regarding the recoverability of store asset values, and 0 additional impairment related to our operating stores was recognized. The Company has determined no events and circumstances existed during the thirty-nine weeks ended November 3, 2019, there were 01, 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 recognized.

could be identified in future periods, and such amounts could be material.
Table
Additionally, the Company is continuing discussions to terminate or delay possession on several executed lease contracts that have not yet commenced. The Company has also curtailed several potential new store projects that were in the early stage of Contentsdevelopment. During the thirteen and thirty-nine weeks ended November 1, 2020, we recorded an impairment loss and related contract termination costs of $0 and $6,981, respectively, related to these projects, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
Interest rate swaps
— TheEffective February 28, 2019, the Company entered into three interest rate swap agreements to manage our exposure to interest rate movements on our variable rate credit facility. The agreements entitle the Company to receive at specified intervals, a variable rate of interest based on
one-month
LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreements. The notional amount of the swap agreements, which mature August 17, 2022, total $350,000
s
$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 hasinitially designated its interest rate swap agreements as a cash flow hedge and accountsaccounted for the underlying activity in accordance with hedge accounting. ToEffective April 14, 2020, the extent thatCompany amended its existing credit facility agreement to obtain relief from its financial covenants, and as a result, the swaps are effective in offsettingvariable interest rate terms were modified to create an interest rate floor of 1.00%. Accordingly, and as a result of the variabilitycurrent 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 is
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Table of Contents
reclassifying its accumulated other comprehensive loss of $
17,609
as of the
de-designation
date into “Interest expense, net” using a straight-line approach over the remaining life of the originally designated hedging relationship. The amount of
pre-tax
losses in accumulated other comprehensive loss that was reclassified into interest expense subsequent to the
de-designation
date was $
1,886
and $
4,088
for the thirteen and thirty-nine weeks ended November 1, 2020, respectively, and the Company expects to reclassify $
7,547
within the next twelve months. Effective with the
de-designation,
any gain or loss on the derivatives are recognized in earnings in the period in which the change occurs. For the thirteen and thirty-nine weeks ended November 1, 2020, a gain of $
218
and a loss of $
1,578
were recognized, respectively, which are included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
Prior to the
de-designation,
changes in the fair valuevalues 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 earningsinterest 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 hedgedan adjustment to interest payments are made on our variable rate debt.expense. Cash flows related to the interest rate swaps are were
included as a component
of interest expense and in operating activities. Any portion
Credit risk related to the failure of our counterparties to perform under the terms of the fair valueswap 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 swaps determined toindebtedness has been accelerated, the Company could also be ineffective will be recognized currentlydeclared 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
  
November 3, 2019
 
Derivatives designated as hedging instruments:
      
Interest rate swaps
  
Accrued liabilities
  $
(3,202
)
Interest rate swaps
  
Other liabilities
   
(7,083
)
         
Total derivatives
    $
 (10,285
)
         
 
 
  
 
 
  
Fair Value
 
 
  
Balance Sheet Location
 
  
November 1, 2020
 
  
February 2, 2020
 
Interest rate swaps
  
 
Accrued liabilities
 
  
$
(8,191
) 
  
$
(3,518
) 
Interest rate swaps
  
 
Other liabilities
 
  
 
(6,479
) 
  
 
(6,967
) 
 
  
   
  
 
 
 
  
 
 
 
Total derivatives (1)
  
   
  
$
(14,670
) 
  
$
(10,485
) 
 
  
   
  
 
 
 
  
 
 
 
 
(1)
The balance at November 1, 2020 relates to our swap agreements after hedge accounting was discontinued, effective April 14, 2020.
The following table summarizes the activity in accumulated other comprehensive loss related to our interest rate swap derivative instruments:
 ��       
 
 
Thirteen
Weeks Ended
November 3, 2019
  
Thirty-nine
Weeks Ended
November 3, 2019
 
Loss recognized in accumulated other comprehensive loss
 $
(2,483
) $
(10,623
)
Loss reclassified from accumulated other comprehensive loss into net earnings (1)
 $
326
  $
338
 
Income tax benefit of interest rate swaps in accumulated other comprehensive loss
 $
589
  $
2,810
 
 
   
Thirteen Weeks Ended
  
Thirty-Nine Weeks Ended
 
  
November 1,
2020
  
November 3,
2019
  
November 1,
2020
  
November 3,
2019
 
Amount of loss recorded in accumulated other comprehensive income
  $0     2,483  $7,602   10,623 
Amount of loss reclassified into income (1)
  $(1,886)   (326)  $(4,566)   (338) 
Income tax expense (benefit) in accumulated other comprehensive income
  $516   (589)  $(829)   (2,810) 
 
(1)
Amounts reclassified into net earningsincome 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 tobased on an estimated rate of future use by customers of unused game play credits which we believe ourand the material right provided to customers will utilizeto redeem tickets in the future.future for prizes. During the thirteen weeks and thirty-nine weeks ended November 3, 2019,1, 2020, we recognized revenue of approximately $3,000$3,300 and $20,000,$15,400, 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 thirty-nine weeks ended November 3, 2019,1, 2020, we recognized revenue of approximately $2,800$640 and $4,100,$2,080, respectively, related to the amount in deferred gift card revenue as of the end of fiscal 2018,2019, of which approximately $260$380 and $690$590 was gift card
breakage revenue.
11
Table of Contents
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 itstotal share repurchase authorization to $800,000. Theis $
800,000
and the share repurchase authorization expires at the end of fiscal 2020.
During the thirteen and thirty-nine weeks ended November 3, 2019, first quarter of fiscal 2020,
the Company purchased 2,425,021 and 7,116,585 shares of common stock at an average cost of $40.07 and $41.78 perindefinitely
suspended all share respectively.repurchase activity. As of November 3, 2019,August 2, 2020, we have approximately $172,820 $
172,820
of share repurchase authorization remaining under the current plan.

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In our consolidated financial statements, the Company treats shares withheld for tax purposes on behalf of our employees in connection with the vesting of time-based and performance restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan. During the thirty-nine weeks ended November 1, 2020 and November 3, 2019, we withheld 58,189 and 11,536 shares of common stock to satisfy $916 and $595 of employees’ tax obligations.obligations, respectively. The share activity in the thirty-nine weeks ended November 1, 2020 includes the settlements of $2,517 cash obligations through the issuance of 160,540 shares of common stock.
Effective March 18, 2020, the Board of Directors of the Company adopted a
364-day
duration Shareholder Rights Plan (the “Rights Plan”) and declared a dividend of one preferred share purchase right for each outstanding share of common stock to shareholders of record on March 30, 2020 to purchase from the Company
one-ten
thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company for an exercise price of $45.00 once the rights become exercisable, subject to adjustment as provided in the related rights agreement.
On April 14, 2020, pursuant to an open market sale agreement, the Company sold 6,149,936 shares of its common stock at a price of $12.20 per share, for proceeds of $75,000, prior to deducting offering expenses related to the offering. On May 4, 2020, the Company entered into an underwriting agreement, pursuant to which it sold 9,578,545 shares of its common stock at a price of $10.44 per share, and on May 18, 2020, the underwriter exercised its over-allotment option for an additional 1,014,871 shares at $10.44 per share, resulting in additional proceeds of $110,600 prior to deducting offering costs.
On June 23, 2020, shareholders approved a proposal to amend our 2014 Omnibus Incentive Plan (“Plan”) to increase the number of shares available for awards under the Plan by 3,000,000 shares.
Recently adopted accounting guidance
— 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 ha
s
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 inCompany adopted this standard as of the beginning of fiscal years beginning after December 15, 2019year 2020, and should be applied on a prospective basis. The Company does not expect the adoption willdid 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 updateCompany 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, 20192020 and for interim periods within those fiscal years, with early adoption permitted. The Company
does not anticipate is currently assessing the updated guidance will have a material impact of this new standard on itsour consolidated financial statements.

In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Reform on Financial Reporting
, which provides temporary optional expedients and exceptions to the current guidance for contract modifications and hedging relationships through December 31, 2022, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. A contract modification resulting from reference rate reform may be accounted for as a continuation of the existing contract rather than the creation of a new contract. Additionally, changes in the critical terms of hedging relationships, caused by reference rate reform, should not result in the
de-designation
of the instrument, provided certain criteria are met. As of the end of the third quarter of fiscal 2020, the Company’s exposure to LIBOR rates included its credit facility and swap agreements. The Company is currently evaluating the impact of this new standard on our consolidated financial statements.
12
Table of Contents
Note 2: Accrued Liabilities
Accrued liabilities consist of the following as of the end of each period:
         
 
November 3, 2019
  
February 3, 2019
 
Current portion of operating lease liabilities, net (refer to
Note 4)
 $
44,666
  $
—  
 
Current portion of deferred occupancy costs
  
—  
   
15,737
 
Deferred amusement revenue
  
50,331
   
44,232
 
Amusement redemption liability
  
20,341
   
19,911
 
Compensation and benefits
  
19,928
   
24,280
 
Property taxes
  
10,513
   
7,278
 
Customer deposits
  
8,713
   
3,731
 
Deferred gift card revenue
  
8,127
   
9,450
 
Current portion of long-term insurance
  
5,600
   
5,900
 
Dividend payable
  
4,887
   
—  
 
Utilities
  
4,103
   
4,032
 
Sales and use taxes
  
4,037
   
5,226
 
Inventory liabilities
  
3,798
   
2,876
 
Current portion of derivatives
  
3,202
   
—  
 
Variable rent liabilities
  
1,931
   
2,245
 
Other (refer to Note 5)
  
8,948
   
12,266
 
         
Total accrued liabilities
 $
199,125
  $
157,164
 
 
   
November 1, 2020
   
February 2, 2020
 
Deferred amusement revenue
  $79,210   $75,113 
Current portion of operating lease liabilities, net (1)
   51,850    45,611 
Rent payable (
Note
 
4)
   40,542    —   
Variable rent liabilities (
Note
4)
   7,559    1,331 
Deferred gift card revenue
   10,330    11,253 
Property taxes
   10,285    7,226 
Compensation and benefits
   9,914    23,421 
Current portion of derivatives
   8,191    3,518 
Current portion of long-term insurance
   5,100    6,500 
Utilities
   4,111    4,442 
Customer deposits
   1,594    4,324 
Inventory liabilities
   1,948    2,179 
Sales and use taxes
   1,160    4,000 
Dividend payable
   —      4,891 
Other
   12,369    13,643 
  
 
 
   
 
 
 
Total accrued liabilities
  $244,163   $207,452 
  
 
 
   
 
 
 
 
(1)
The balance of leasehold incentive receivables of $5,434 and $6,339 at November 1, 2020 and February 2, 2020, respectively, is reflected as a reduction of the current portion of operating lease liabilities.
Note 3: Debt
Long-term debt consists of the following as of:
         
 
November 3, 2019
  
February 3, 2019
 
Credit facility
 -
 
term
 $
270,000
  $
281,250
 
Credit facility
 - 
revolver
  
386,000
   
113,000
 
         
Total debt outstanding
  
656,000
   
394,250
 
Less:
      
Current installments
 - 
term
  
(15,000
)  
(15,000
)
Debt issuance costs
 - 
term
  
(616
)  
(781
)
         
Long-term debt, net
 $
640,384
  $
378,469
 
         
 
   
November 1, 2020
   
February 2, 2020
 
Senior Secured Notes
  $550,000   $—   
Credit facility - term
   —      266,250 
Credit facility - revolver
   26,000    382,000 
  
 
 
   
 
 
 
Total debt outstanding
   576,000    648,250 
Current installments
   —      (15,000) 
Debt issuance costs
   (14,185)    (561) 
  
 
 
   
 
 
 
Long-term debt, net
  $561,815   $632,689 
  
 
 
   
 
 
 
Effective April 14, 2020, we amended our existing credit facility, which provided relief from compliance with financial covenants through the third quarter of fiscal 2020. The interest rate increased to LIBOR plus 2.00% with a LIBOR floor of 1.00%.
On August 17, 2017, we entered into aOctober 27, 2020, the Company issued $550,000 aggregate principal amount of 7.625% 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 paymentsnotes (the “Notes”). Interest on the term loan facilityNotes accrues from October 27, 2020 and is payable in arrears on November 1 and May 1 of each year, commencing on May 1, 2021. The Notes mature on November 1, 2025, unless earlier redeemed, and are $3,750 per quarter through maturity, whensubject to the remaining balance is due. Our current credit facility is securedterms and conditions set forth in the related indenture. The Notes were issued by the assets of D&B Inc and isare unconditionally guaranteed by D&B Holdings and eachcertain of D&B Inc’s existing and future wholly owned material domestic subsidiaries, which is substantially the same as the guarantors of the Company’s existing credit facility.
Concurrent and subject to the issuance of the Notes, the Company entered into a second amendment to its directexisting credit facility, which included relief from testing compliance with certain financial covenants until the last day of the fiscal quarter ending on May 1, 2022. During the financial covenant suspension period the Company is required to maintain minimum liquidity (primarily
availability
13
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under
 the credit facility) of
 $
150,000
. The second amendment
extended
the maturity date of the $
500,000
revolving portion of the facility from August 17, 2022 to
August 17, 2024
, and indirect domestic wholly-owned subsidiaries.the interest rate spread increased from
2.00
% to
4.00
% during the financial covenant suspension period, with an additional
1.00
% utilization fee due at maturity. After the financial covenant suspension period, the interest rate spread ranges from
1.25
% to
3.00
%. The second amendment terminated the term loan portion of the credit facility, which triggered payment of $
1,900
of lender debt costs associated with the first amendment.
The Company used the proceeds of the Notes offering, along with cash on hand, to repay the $255,000 principal balance of the term loan facility, $463,000 of borrowings under the revolving credit facility, and related accrued
interest.    The Company
 incurred debt costs of $18,200, which are being amortized over the terms of the respective Notes and revolving credit facility. As of November 3, 2019, we1, 2020, approximately $3,300 of these debt costs had lettersnot been paid. The Company also recorded a loss of credit outstanding$904 related to the unamortized debt costs associated with the term portion of $8,147 and $105,853 of borrowing available under our
revolvingthe credit facility.
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% forFor the term loansthirty-nine weeks ended November 1, 2020, and the revolving loans. The interest rate at November 3, 2019 was based on one-month LIBOR plus 1.50%. As of November 3, 2019, the Company’s weighted average interest rate on outstanding borrowings was 4.17% and 4.03%, including the impactrespectively. As of the interest rate swap agreements. The weighted average effective rate includes amortizationNovember 1, 2020, we had letters of debt issuance costs,credit outstanding of $9,686 and an unused commitment and other fees.balance of $464,314 under
the
revolving credit facility.

Our credit facility containsand Notes contain 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 of November 3, 2019, we were in compliance with our restrictive and financial ratio covenants of our credit facility.
Interest expense, net
— The following tables settable sets forth our recorded interest expense, net for the periods indicated:
         
  
Thirteen Weeks
Ended
November 3, 2019
  
Thirteen Weeks
Ended
November 4, 2018
 
Interest expense on credit facilities
 $
6,095
  $
3,358
 
Amortization of issuance cost
  
198
   
198
 
Interest income
  
(24
)  
(27
)
Capitalized interest
  
(159
)  
(192
)
Change in fair value of interest rate cap
  
—  
   
(16
)
         
Total interest expense, net
 $
6,110
  $
3,321
 
         
       
  
Thirty-nine
 Weeks
Ended
November 3, 2019
  
Thirty-nine
 Weeks
Ended
November 4, 2018
 
Interest expense on credit facilities
 $
15,010
  $
9,637
 
Amortization of issuance cost
  
594
   
594
 
Interest income
  
(75
)  
(83
)
Capitalized interest
  
(758
)  
(720
)
Change in fair value of interest rate cap
  
—  
   
(22
)
         
Total interest expense, net
 $
14,771
  $
9,406
 
         
 
   
Thirteen Weeks Ended
   
Thirty-Nine Weeks Ended
 
  
November 1, 2020
   
November 3, 2019
   
November 1, 2020
   
November 3, 2019
 
Interest expense on
debt
  $6,092    5,769   $17,255    14,672 
Interest associated with swap agreements
   1,886    326    4,566    338 
Amortization of issuance cost
   427    198    1,081    594 
Interest income
   —      (24)    (22)    (75) 
Capitalized interest
   (192)    (159)    (389)    (758) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total interest expense, net
  $8,213   $6,110   $22,491   $14,771 
  
 
 
   
 
 
   
 
 
   
 
 
 
Note 4: Leases
We currently lease the building or site for our stores, corporate office and warehouse space under facility operating leases. These leases typically have initial terms ranging from ten to twenty years and include one or more options to renew. When determining the lease term, we include option periods for which renewal is reasonably certain. Most of the leases require us to pay property taxes, insurance and maintenance of the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating leases also includes certain equipment leases that have a term in excess of one year. Certain facility leases also have provisions for additional contingent rentals based on revenues. 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
November 3, 2019
  
Thirty-nine
 Weeks
Ended
November 3, 2019
 
Operating
 $
31,489
  $
91,729
 
Variable
  
88
   
2,080
 
Short-term
  
108
   
324
 
         
Total
 $
31,685
  $
94,133
 
         
Storecost and short-term lease expensecost 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 incosts” 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
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The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are included withinas follows for the “Operatingfiscal year ended:
   
Thirteen Weeks Ended
   
Thirty-Nine Weeks Ended
 
  
November 1, 2020
   
November 3, 2019
   
November 1, 2020
   
November 3, 2019
 
Operating lease cost
  $33,278    31,489   $100,162    91,729 
Variable lease cost
   5,351    7,692    18,405    22,335 
Short-term lease cost
   102    108    329    324 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $38,731   $39,289   $118,896   $114,388 
  
 
 
   
 
 
   
 
 
   
 
 
 
During the thirty-nine weeks ended November 1, 2020, the Company entered into 123 rent relief agreements with our respective landlords on operating locations and our corporate headquarters. Under these agreements, certain rent payments will be abated, deferred or modified without penalty for various periods, generally providing for full deferral for three months beginning April 2020, with partial deferrals continuing for periods of up to six months at approximately 50% of those locations. The Company has elected to account for lease right of use assets”, “Accrued liabilities”concessions and “Operating lease liabilities”deferrals resulting directly from
COVID-19
as though the enforceable rights and obligations to the deferrals existed in the Consolidated Balance Sheets. Operatingrespective contracts at lease ROU assetsinception and will not account for the concessions as lease liabilities are recognized at commencement date based onmodifications, unless the present valueconcession results in a substantial increase in the Company’s obligations. During the thirty-nine weeks ended November 1, 2020, 113 of our 123 rent relief agreements qualified for this accounting election, and the remaining agreements were treated as lease payments overmodifications, primarily due to a significant extension of 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 November 3, 2019, the balance of leasehold improvement incentive receivables was $5,907 and is reflectedterm. Further, as a reductionresult of the current
COVID-19
pandemic and its impact on our financial condition, the Company has chosen not to pay rent or to pay a portion of operating lease liabilities. The Company uses its incremental borrowing rate at commencement date in determiningobligations as they become due for eight properties without rent relief agreements as of the present valueend 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.

Tablethe third quarter. As of Contents
Other information related to leases is as follows:
     
 
November 3,
2019
 
Cash paid for amounts included in the measurement of lease liabi
li
ties
   
Operating cash flows from operating leases
 $
91,595
 
ROU assets obtained in exchange for new operating lease liabilities
 $
157,873
 
Weighted-average remaining lease term
 
- 
operating leases (in years)
  
15.8
 
Weighted-average discount rate
 - 
operating leases
  
5.9
%
The maturities ofNovember 1, 2020, we have bifurcated our current operating lease liabilities are as follows as of November 3, 2019:
     
Remainder of 2019
 $
22,491
 
2020
  
132,635
 
2021
  
127,769
 
2022
  
119,779
 
2023
  
116,224
 
Thereafter
  
1,436,809
 
     
Total
 $
1,955,707
 
Less: Interest
  
730,362
 
     
Total discounted operating lease liabilities
 $
1,225,345
 
     
Operating lease payments ininto the table above includes minimum lease payments for
six future sites for which the lease has commenced,portion that remains subject to accretion and the stores are expected to open in fiscal 2019 and the first halfportion that is accounted for as a deferral of fiscal 2020. Operating lease payments exclude minimum lease payments for seventeen executed facility leases
for which 
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 net costs of settlement, including 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. During the third quarter of fiscal 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.

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The Company is currently a defendant in several lawsuits filed in courts in California alleging violations of California Business and Professions Code, industry wage orders,
wage-and-hour
laws and rules and regulations pertaining primarily to the failure to pay proper regular and overtime wages, failure to pay for missed meals and rest periods, pay stub violations, failure to pay all wages due at the time of termination and other employment related claims (the “California Cases”). Some of the California Cases purport or may be determined to be class actions or Private Attorneys General Act representative actions and seek substantial damages and penalties. With respect to thesea portion of the California Cases, wherethe Company has estimated and accrued for the most likely amount of loss. Where the Company has determined that a loss is reasonably possible but not probable, the Company is unable to estimate the amount or range of the reasonably possible loss due to the inherent difficulties of predicting the outcome of uncertainties regarding legal proceedings. The Company’s assessments are based on 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
, as well as other lawsuits,
could change because of future determinations or the discovery of facts that are not presently known. Accordingly, the ultimate costs of resolving these cases may be substantially higher or lower than estimated. The Company is aggressively defending these cases.

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Note 6: Earnings per share
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and unvested), unvested time-based restricted stock units (RSU’s) and unvested performance RSU’s to the extent performance measures were attained as of the end of the reporting period, calculated using the treasury-stock method. Potential dilutive shares are excluded from the computation of earnings per share (“EPS”) if their effect is anti-dilutive. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation. The weighted average anti-dilutive options excluded from the calculation of common equivalent shares were 235,368 and 11,222134,450 in the thirteen weeks ended November 3, 2019 and November 4, 2018, respectively, and 134,450 and 60,154 in the thirty-nine weeks ended November 3, 2019 and November 4, 2018, respectively.2019.
15
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The following table sets forth the computation of EPS, basic and diluted for the periods indicated:
         
 
Thirteen Weeks
Ended
November 3, 2019
  
Thirteen Weeks
Ended
November 4, 2018
 
Numerator:
      
Net income
 $
482
  $
11,856
 
Denominator:
      
Weighted average number of common shares outstanding (basic)
  
30,980,878
   
38,892,288
 
Weighted average dilutive impact of equity-based awards
  
534,576
   
963,360
 
Weighted average number of common and common equivalent shares outstanding (diluted)
  
31,515,454
   
39,855,648
 
Net income per share:
      
Basic
 $
0.02
  $
0.30
 
Diluted
 $
0.02
  $
0.30
 
       
 
Thirty-nine
 Weeks
Ended
November 3, 2019
  
Thirty-nine
 Weeks
Ended
November 4, 2018
 
Numerator:
      
Net income
 $
75,281
  $
87,785
 
Denominator:
      
Weighted average number of common shares outstanding (basic)
  
34,405,503
   
39,314,271
 
Weighted average dilutive impact of equity-based awards
  
636,808
   
942,960
 
Weighted average number of common and common equivalent shares outstanding (diluted)
  
35,042,311
   
40,257,231
 
Net income per share:
      
Basic
 $
2.19
  $
2.23
 
Diluted
 $
2.15
  $
2.18
 
 
   
Thirteen Weeks
Ended
November 1, 2020
  
Thirteen Weeks
Ended
November 3, 2019
 
Numerator:
   
Net income (loss)
  $(48,043)  $482 
Denominator:
   
Weighted average number of common shares
outstanding (basic)
   47,613,741   30,980,878 
Weighted average dilutive impact of equity-based
awards (1)
   —     534,576 
Weighted average number of common and common equivalent shares outstanding (diluted)
   47,613,741   31,515,454 
Net income (loss) per share:
   
Basic
  $(1.01)  $0.02 
Diluted
  $ (1.01)  $0.02 
   
 
  
Thirty-Nine Weeks

Ended

November 1, 2020
 
  
Thirty-Nine Weeks

Ended

November 3, 2019
 
Numerator:
  
   
  
   
Net income (loss)
  
$
(150,189
) 
  
$
75,281
 
Denominator:
  
   
  
   
Weighted average number of common shares outstanding (basic)
  
 
42,185,163
 
  
 
34,405,503
 
Weighted average dilutive impact of equity-based awards (1)
  
 
—  
 
  
 
636,808
 
Weighted average number of common and common equivalent shares outstanding (diluted)
  
 
42,185,163
 
  
 
35,042,311
 
Net income (loss) per share:
  
   
  
   
Basic
  
$
(3.56
) 
  
$
2.19
 
Diluted
  
$
(3.56
) 
  
$
2.15
 
 

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(1)
Due to the net loss for the thirteen and thirty-nine weeks ended November 1, 2020, 0 incremental shares are included because the effect would be anti-dilutive.
Note 7: Share-Based Compensation
Compensation expense related to stock options time-based and performance-based RSU’s and restricted stock areunits (“RSU’s”) is included in general
“
General
and
administrative expenses
” in the Consolidated Statements of Comprehensive Income (Loss)
and wereis as follows:
                 
 
Thirteen Weeks Ended
  
Thirty-Nine Weeks Ended
 
November 3, 2019
  
November 4, 2018
  
November 3, 2019
  
November 4, 2018
 
Stock options
 $
731
   
631
  $
2,294
  $
2,649
 
RSU’s and restricted stock
  
1,016
   
1,126
   
3,185
   
3,122
 
                 
Total share-based compensation expense
 $
1,747
  $
1,757
  $
5,479
  $
5,771
 
                 
   
Thirteen Weeks Ended
   
Thirty-Nine Weeks Ended
 
  
November 1, 2020
   
November 3, 2019
   
November 1, 2020
   
November 3, 2019
 
Stock options
  $269    731   $1,099    2,294 
RSU’s
   2,730    1,016    4,245    3,185 
  
 
 
   
 
 
   
 
 
   
 
 
 
Share-based compensation expense
  $2,999   $1,747   $5,344   $5,479 
  
 
 
   
 
 
   
 
 
   
 
 
 
 
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Transactions related to stock option awards during the thirty-nine weeks ended November 3, 20191, 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
  
(12,220
)  
36.30
   
(58,384
)  
5.73
 
Forfeited
  
(11,824
)  
49.29
   
—  
   
—  
 
                 
Outstanding at November 3, 2019
  
1,332,440
  $
37.04
   
301,600
  $
6.63
 
                 
Exercisable at November 3, 2019
  
927,447
  $
31.57
   
301,600
  $
6.63
 
                 
 
   
2014 Stock Incentive Plan
   
2010 Stock Incentive Plan
 
   
Number
of Options
   
Wtd. Avg.
Exercise Price
   
Number
of Options
   
Wtd. Avg.
Exercise Price
 
Outstanding at February 2, 2020
   1,323,495   $36.97    266,900   $6.72 
Granted
   —      —      —      —   
Exercised
   —      —      (90,391)    5.14 
Forfeited
   (84,395)    38.79    —      —   
  
 
 
   
 
 
   
 
 
   
 
 
 
Outstanding at November 1, 2020
   1,239,100   $36.84    176,509   $7.54 
  
 
 
   
 
 
   
 
 
   
 
 
 
Exercisable at November 1, 2020
   1,047,124   $34.64    176,509   $7.54 
  
 
 
   
 
 
   
 
 
   
 
 
 
The total intrinsic value of options exercised during the thirty-nine weeks ended November 3, 20191, 2020 was $2,736.$904. The unrecognized expense related to our stock option plan totaled approximately $3,056$869 as of November 3, 20191, 2020 and will be expensed over a weighted average period of 2.21.2 years.
Transactions related to time-based and performance-based RSU’s and restricted stock during the thirty-nine weeks ended November 3, 20191, 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
  
(102,405
)  
40.08
 
Forfeited
  
(4,244
)  
49.58
 
         
Outstanding at November 3, 2019
  
214,321
  $
51.79
 
         
 

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Shares
   
Wtd. Avg.
Fair Value
 
Outstanding at February 2, 2020
   216,815   $51.58 
Granted
   1,063,209    12.74 
Change in performance units
   4,352    59.67 
Vested
   (102,595)    38.11 
Forfeited
   (50,736)    27.72 
  
 
 
   
 
 
 
Outstanding at November 1, 2020
   1,131,045   $17.39 
  
 
 
   
 
 
 
Fair value of our 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-basedthe RSU’s and unvested restricted stock was $5,751$9,919 as of November 3, 20191, 2020 and will be expensed over a weighted average period of 2.12.2 years.
During the thirty-nine weeks ended November 1, 2020 and November 3, 2019, and November 4, 2018, excess tax benefitsexpense (benefit) of $912$431 and $4,555,($912), respectively, were recognized as a benefitan 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
Note 8: Income Taxes
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Intended to provide economic relief to those impacted by the
COVID-19
pandemic, the CARES Act includes provisions, among others, addressing the carryback of net operating losses for specific periods, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement
property. Additionally, the
CARES Act, in efforts to enhance business’ liquidity, provides for the deferral of the employer-paid portion of social security taxes. As of November 1, 2020, we have elected to defer employer-paid portion of social security taxes of $3,398, which is included in “Other liabilities” in the Consolidated Balance Sheets.
The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annualized effective tax rate for the full fiscal year to “ordinary” income or loss for the reporting period. Due to the uncertainty created by the events surrounding the
COVID-19
pandemic, the actual effective tax rate for the year to date period was used to calculate the income tax benefit for the thirty-nine weeks ended November 1, 2020. The effective tax rate for the thirty-nine weeks ended November 1, 2020, was a benefit
of
32.3
%, compared to an
expense
of
21.3
% for the thirty-nine weeks ended November 3, 2019, primarily due to the impact of a decrease in operating earnings before income tax and the impact of the tax provisions within the CARES Act. As a result of the impact of the technical amendments for qualified improvement property within the CARES Act, the Company generated a taxable loss in 2019, which together with the taxable loss in 2020, can be carried back to prior years when the statutory federal tax rate was
approximately
35.0
%. As of November 1, 2020, the Company has recognized a current benefit of $34,090 related to estimated atfiscal year 2019 and 2020 tax net operating losses that will be carried back to recover taxes paid in
prior periods. The estimated tax benefit from the time of grant and adjusted if necessary,net operating losses is included in subsequent periods, if actual forfeitures differ from those estimates. The forfeiture rate is based on historical experience.
18
“Income taxes receivable” in the Consolidated Balance Sheets.
 
17
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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 businesses, some of which allowed
To-Go
or curbside service only while others limited capacity in the dining room or midway. By March 20, 2020, all of our 137 operating stores were temporarily closed (including our one new store that opened on March 16). During our first quarter, one store
re-opened
to the public with limited food and beverage offerings and two additional stores offered
off-premise
dining options. During our second and third quarters, we have progressively
re-opened
limited operations in an additional 101 stores and one new store in Manchester, New Hampshire and one new store in Lehigh Valley, Pennsylvania. Two stores that
re-opened
during the second quarter were
re-closed
during the third quarter (one of which
re-opened
on November 14, 2020). As of November 1, 2020, 104 of our 137 stores were open, in limited capacity, in 36 states, Puerto Rico and Canada. Our current scaled-down operating model includes a limited
15-item
menu, reduced dining capacity and suspended use of some games in our midway for social distancing, reduced operating hours and reduced staffing levels designed to be responsive to restrictions imposed by various jurisdictions related to
COVID-19
re-openings.
As of November 1, 2020, 33 of the Company’s stores were closed to
in-person
guests as a result of local
COVID-19
restrictions (31 of which have been closed since March 20, 2020). Subsequent to the third quarter, some local and state governments began to roll back their
re-opening
plans in light of climbing
COVID-19
case counts. As of December 4, 2020, 48 stores were closed due to jurisdictional restrictions.
As a result of these developments, the Company is experiencing a significant decrease in traffic which has impacted the Company’s operating results during the thirteen and thirty-nine weeks ended November 1, 2020. We expect our operating results to continue to be severely impacted until such time that state and local restrictions are lifted, and our dining rooms and midways can
re-open
at full capacity. We cannot predict how long the pandemic will last or when the state and local restrictions will be lifted or potentially
re-imposed.
In addition, we cannot predict how quickly our guests will return to our stores once such restrictions have been lifted or the impact this will have on consumer spending habits.
In response to the ongoing pandemic, the Company and its Board of Directors implemented the following measures to enhance financial flexibility:
reduced expenses broadly, including by furloughing all of our hourly store team members and approximately 94% of store management personnel, on or about March 19, 2020, while enacting
12-week
salary reductions for remaining
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managers. In addition, effective March 24, 2020, the Company furloughed all but a small team of essential corporate and administrative staff, enacted
12-week
salary reductions ranging from 10% to 50%, and suspended all cash board fees through the remainder of fiscal 2020. As stores reopen with a reduced workforce a portion of the furloughed personnel at our stores and corporate office have returned to work;
canceled or delayed all
non-essential
planned capital spending for the remainder of fiscal 2020;
halted or delayed planned store openings after our one store opening in Chattanooga, TN, on March 16, 2020, with the exception of two new stores that opened during the third quarter and several planned store openings, all of which commenced construction prior to the pandemic;
stopped work on future planned sites and commenced negotiations to terminate related contracts, as applicable;
suspended our share repurchase program and declaration of dividends;
negotiated amendments to our credit facility resulting in an extension of the maturity date of our revolving credit facility to August 17, 2024;
issued $550,000 of senior secured notes, maturing November 1, 2025;
sold shares of our common stock, which generated gross proceeds of approximately $185,600; and
negotiated with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments and obtain other concessions. As of November 1, 2020, a total of 123 rent relief agreements related to our operating locations and corporate headquarters were executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations.
The
re-opening
process has been a gradual one with the safety of our employees and guests as our top priority. All of our
re-opened
stores are operating with streamlined menus, reduced games, new seating and game configurations, reduced operating hours, and reduced staff levels. As dining room and midway restrictions continue to ease and sales begin to improve, some labor inefficiencies and increased cleaning and supply costs are anticipated as stores adjust to improved sales volumes and enhanced health and safety protocols. On an ongoing basis, we will also continue to pursue long-term operating efficiencies and fixed cost restructuring opportunities.
Given the level of volatility and uncertainty surrounding the future impact of the pandemic, we have not provided a full year financial outlook for fiscal 2020.
General
We are a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families under the name “Dave & Buster’s”. Founded in 1982, the core of our concept is to offer our customers the opportunity to “Eat, Drink, Play and Watch” all in one location. Eat and Drink are offered through a full menu of entrées and appetizers and a full 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 appealbrand appeals to a diverse customer base by providing a highly customizable experiencerelatively 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 41,00040,000 square feet, range in size between 16,000 and 66,00070,000 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, which has been deployed across 37 stores at the end of the third quarter of fiscal 2019, is designed to drive greater traffic and food and beverage penetration. We will continue to invest in food, beverage, amusement and viewing innovations to enhance our offerings and 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, which we launched 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, by enabling easier access to our product offerings, limited time offers and targeted promotions.

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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 savings 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 thirty-nine weeks of fiscal 2019, the Company opened fourteen new stores, compared to twelve new store openings in the comparable 2018 period. We currently anticipate opening 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 three quarters of fiscal 2019 we increased our total share repurchase authorization to $800 million and executed additional share repurchases totaling $297,317. We also declared dividends totaling $15,724 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 ofseveral 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. OurAs of November 1, 2020, our comparable store base consisted of 99114 stores, as of November 3, 2019.which 30 stores were closed.
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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 November 4, 20183, 2019 and November 3, 2019,1, 2020, we opened seventeenfive new stores nine of which were(two in new markets.fiscal 2019 and three 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 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 third quarter of 2020 relate to the
13-week
period ended November 1, 2020. All references to the third quarter of 2019 relate to the
13-week
period ended November 3, 2019. All references to the third quarter of 2018 relate to the
13-week
period ended November 4, 2018. Fiscal 20192020 and fiscal 20182019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
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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 typicallyhistorically open with sales volumes in excess of their expected long termlong-term
run-rate
levels, which we refer to as a “honeymoon” effect. We traditionally 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 willmay result in significant fluctuations in quarterly results.
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 tomight be partially offset by selected menu price increases whereif 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.
21

Table of Contents
Thirteen Weeks Ended November 3, 20191, 2020 Compared to Thirteen Weeks Ended November 4, 20183, 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
 
November 3, 2019
 
November 4, 2018
   
Thirteen Weeks

Ended

November 1, 2020
 
Thirteen Weeks

Ended

November 3, 2019
 
Food and beverage revenues
 $
124,637
   
41.6
% $
118,807
   
42.1
%  $38,346    35.2%  $124,637    41.6% 
Amusement and other revenues
  
174,715
   
58.4
   
163,332
   
57.9
    70,706    64.8  174,715    58.4 
              
 
   
 
  
 
   
 
 
Total revenues
  
299,352
   
100.0
   
282,139
   
100.0
    109,052    100.0  299,352    100.0 
Cost of food and beverage (as a percentage of food and beverage revenues)
  
33,384
   
26.8
   
31,163
   
26.2
    10,664    27.8  33,384    26.8 
Cost of amusement and other (as a percentage of amusement and other revenues)
  
18,796
   
10.8
   
17,571
   
10.8
    7,244    10.2  18,796    10.8 
              
 
   
 
  
 
   
 
 
Total cost of products
  
52,180
   
17.4
   
48,734
   
17.3
    17,908    16.4  52,180    17.4 
Operating payroll and benefits
  
76,165
   
25.4
   
71,309
   
25.3
    27,704    25.4  76,165    25.4 
Other store operating expenses
  
110,713
   
37.1
   
96,267
   
34.1
    70,783    64.9  110,713    37.1 
General and administrative expenses
  
16,210
   
5.4
   
15,043
   
5.3
    11,746    10.8  16,210    5.4 
Depreciation and amortization expense
  
33,340
   
11.1
   
30,574
   
10.8
    34,384    31.5  33,340    11.1 
Pre-opening
costs
  
4,245
   
1.4
   
4,740
   
1.7
    2,570    2.4  4,245    1.4 
              
 
   
 
  
 
   
 
 
Total operating costs
  
292,853
   
97.8
   
266,667
   
94.5
    165,095    151.4  292,853    97.8 
              
 
   
 
  
 
   
 
 
Operating income
  
6,499
   
2.2
   
15,472
   
5.5
 
Operating income (loss)
   (56,043)    (51.4)  6,499    2.2 
Interest expense, net
  
6,110
   
2.1
   
3,321
   
1.2
    8,213    7.6  6,110    2.1 
Loss on debt refinance
   904    0.8   —      —   
              
 
   
 
  
 
   
 
 
Income before provision (benefit) for income taxes
  
389
   
0.1
   
12,151
   
4.3
 
Provision (benefit) for income taxes
  
(93
)  
(0.1
)  
295
   
0.1
 
Income (loss) before benefit for income taxes
   (65,160)    (59.8)  389    0.1 
Benefit for income taxes
   (17,117)    (15.7)  (93)    (0.1) 
              
 
   
 
  
 
   
 
 
Net income
 $
482
   
0.2
% $
11,856
   
4.2
%
Net income (loss)
  $(48,043)    (44.1)%  $482    0.2% 
              
 
   
 
  
 
   
 
 
Change in comparable store sales (1)
     
(4.1
)%     
(1.3
)%     (65.6)%     (4.1)% 
Company-owned stores open at end of period (1)
     
134
      
118
 
Comparable stores open at end of period (1)
     
99
      
86
 
Company-owned stores at end of period
(1)
     137     134 
Comparable stores at end of period
(1)
     114     99 
 
(1)
As
of the end of the third quarter of fiscal 2020, 104 of our 137 stores were open and 84 of our 114 comparable stores were open. Our total and comparable store counts as of the end of the third quarter of fiscal 2020 exclude a store in Chicago, Illinois and a store in Houston, Texas which are near the end of their respective lease terms 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 beenis excluded from fiscal 2019 store counts and comparable store sales.
 

22
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:
                 
 
Thirteen Weeks
  
Thirteen Weeks
 
 
Ended
  
Ended
 
 
November 3, 2019
  
November 4, 2018
 
Net income
 $
482
   
0.2
% $
11,856
   
4.2
%
Interest expense, net
  
6,110
      
3,321
    
Provision (benefit) for income taxes
  
(93
)     
295
    
Depreciation and amortization expense
  
33,340
      
30,574
    
                 
EBITDA
  
39,839
   
13.3
%  
46,046
   
16.3
%
Loss on asset disposal
  
458
      
120
    
Share-based compensation
  
1,747
      
1,757
    
Pre-opening
costs
  
4,245
      
4,740
    
Other costs (1)
  
1
      
6
    
                 
Adjusted EBITDA
 $
46,290
   
15.5
% $
52,669
   
18.7
%
                 
 
   
Thirteen Weeks

Ended

November 1, 2020
  
Thirteen Weeks

Ended

November 3, 2019
 
Net income (loss)
  $(48,043)    -44.1%  $482    0.2% 
Interest expense, net
   8,213     6,110   
Loss on debt refinance
   904     —     
Benefit for income taxes
   (17,117)     (93)   
Depreciation and amortization expense
   34,384     33,340   
  
 
 
    
 
 
   
EBITDA
   (21,659)    -19.9%   39,839    13.3% 
Loss on asset disposal
   124     458   
Share-based compensation
   2,999     1,747   
Pre-opening
costs
   2,570     4,245   
Other costs (1)
   (5)     1   
  
 
 
    
 
 
   
Adjusted EBITDA
  $(15,971)    -14.6%  $46,290    15.5% 
  
 
 
    
 
 
   
 
(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
 
 
November 3, 2019
  
November 4, 2018
 
Operating income
 $
6,499
   
2.2
% $
15,472
   
5.5
%
General and administrative expenses
  
16,210
      
15,043
    
Depreciation and amortization expense
  
33,340
      
30,574
    
Pre-opening
costs
  
4,245
      
4,740
    
                 
Store Operating Income Before Depreciation and Amortization
 $
60,294
   
20.1
% $
65,829
   
23.3
%
                 
 
   
Thirteen Weeks

Ended

November 1, 2020
  
Thirteen Weeks

Ended

November 3, 2019
 
Operating income (loss)
  $(56,043)    -51.4%  $6,499    2.2% 
General and administrative expenses
   11,746     16,210   
Depreciation and amortization expense
   34,384     33,340   
Pre-opening
costs
   2,570     4,245   
  
 
 
    
 
 
   
Store Operating Income Before Depreciation and Amortization
  $(7,343)    -6.7%  $60,294    20.1% 
  
 
 
    
 
 
   
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 formfrom landlords”).
         
 
Thirteen Weeks
  
Thirteen Weeks
 
 
Ended
  
Ended
 
 
November 3, 2019
  
November 4, 2018
 
New store and operating initiatives
 $
52,147
  $
43,431
 
Games
  
2,825
   
6,897
 
Maintenance capital
  
5,831
   
5,149
 
         
Total capital additions
 $
60,803
  $
55,477
 
         
Payments from landlords
 $
7,240
  $
2,552
 
 
   
Thirteen Weeks

Ended

November 1, 2020
   
Thirteen Weeks

Ended

November 3, 2019
 
New store and operating initiatives
  $7,700   $52,147 
Games
   361    2,825 
Maintenance capital
   1,208    5,831 
  
 
 
   
 
 
 
Total capital additions
  $9,269   $60,803 
  
 
 
   
 
 
 
Payments from landlords
  $4,709   $7,240 
 

23
Table of Contents
Results of Operations
Revenues
In response to the
COVID-19
outbreak, which was declared a global pandemic on March 11, 2020 and a National Public Health Emergency in the United States on March 13, the Company temporarily closed of all of our 137 stores by March 20, 2020 (including our one new store opening March 16). On April 30, 2020, the Company
re-opened
the first store to the public, and an additional 83 stores were
re-opened
during the second quarter.
During the third quarter of fiscal year 2020, the Company
re-opened
an additional 20 stores and one new store in Manchester, New Hampshire and one new store in Lehigh Valley, Pennsylvania. Two stores that
re-opened
during the second quarter were
re-closed
during the third quarter.
As of November 1, 2020, 104 of our 137 stores were open. Of these 104 open stores, 84 are comparable stores. 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
November 1,
2020
   
Thirteen
weeks ended
November 3,
2019
   
Change
 
Total revenues
  $109,052   $299,352   $(190,300) 
Total store operating weeks
   1,221    1,722    (501) 
Comparable store revenues
  $89,592   $260,131   $(170,539) 
Comparable store operating weeks
   993    1,482    (489) 
Noncomparable store revenues
  $20,092    40,131   $(20,039) 
Noncomparable store operating weeks
   228    240    (12) 
Other revenues
  $(632)   $(910)   $278 
Total revenues increased $17,213,decreased $190,300, or 6.1%63.6%, to $109,052 in the third quarter of fiscal 2020 compared to total revenues of $299,352 in the third quarter of fiscal 2019 compared2019. The decline in revenue is attributable primarily to total revenues of $282,139fewer store operating weeks in the third 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 November 1, 2020, we derived 23.2% of our total revenue from food sales, 12.0% from beverage sales, 64.4% from amusement sales and 0.4% from other sources. For the thirteen weeks ended November 3, 2019, we derived 27.9% of our total revenue from food sales, 13.7% from beverage sales, 57.4% from amusement sales and 1.0% from other sources. For the thirteen weeks ended November 4, 2018, we derived 28.3% of our total revenue from food sales, 13.8% from beverage sales, 57.1% from amusement sales and 0.8% from other sources.
The net increase in revenues for the third quarter of fiscal 2019 compared to the third quarter of 2018 were from the following sources:
     
Comparable stores
 $
(9,718
)
Non-comparable
stores
  
26,230
 
Other
  
701
 
     
Total
 $
17,213
 
     
Comparable store revenue decreased $9,718,$170,539 or 4.1%65.6%, in the third quarter of fiscal 20192020 compared to the third quarter of fiscal 2018. Comparable store revenue compared2019, due primarily to prior year was negatively impacted by sales transfers to new stores that we openeda 33.0% reduction in markets where we operate and increased competitive pressure. Comparable
walk-in
revenues, which accounted for 90.9% of comparable store revenue foroperating weeks and lower customer volumes as stores
re-opened
with limited operations. During the third quarter of fiscal 2019, decreased 4.6% compared to2020, the similar period in fiscal 2018. Comparable store special events revenues, which accounted for 9.1%number of comparable stores operating increased from 68 at the beginning of the quarter to 84 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 third quarter of fiscal 2019, increased 0.7% comparedperformance after
re-opening
was impacted by changes in local operating restrictions and consumer reactions to the third quarter of fiscal 2018.changes in local
COVID-19
infection rates.
Food sales at comparable stores decreased by $3,228,$51,838, or 4.9%71.4%, to $63,042$20,793 in the third quarter of fiscal 20192020 from $66,270$72,631 in the third quarter of fiscal 2018.2019. Beverage sales at comparable stores decreased by $1,160,$24,936, or 3.6%69.7%, to $31,278$10,830 in the third quarter of fiscal 20192020 from $32,438$35,766 in the 20182019 comparison period. Comparable store amusement and other revenues in the third quarter of fiscal 20192020 decreased by $5,330,$93,765, or 3.9%61.8%, to $130,510$57,969 from $135,840$151,734 in the comparable thirteen weeks of fiscal 2018.2019. The decrease
COVID-19
pandemic driven reduction in amusement sales was dueoperating 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 $26,230 for the third quartermix away from food and beverage revenues to amusements and other revenues of fiscal 2019approximately 630 basis points when compared to the third quarter of fiscal 2018. The increase in2019.
non-comparable
Non-comparable
store revenue was primarily driven by 212 additional operating store weeks contributed by our thirty-five
non-comparable
stores, seventeendecreased $20,039 in the third quarter of which opened subsequentfiscal 2020 compared to the third quarter of fiscal 2018, partially offset by a decrease in revenue due to2019, for the closuresame reasons noted above, including 12 net fewer store operating weeks.
24
Table of our store in Duluth (Atlanta), Georgia on March 3, 2019.Contents
Cost of products
The total cost of products was $17,908 for the third quarter of fiscal 2020 and $52,180 for the third quarter of fiscal 2019 and $48,734 for the third quarter of fiscal 2018.2019. The total cost of products as a percentage of total revenues was 17.4% and 17.3%decreased 100 basis points to 16.4% for the third quarter of fiscal 2019 and2020 compared to 17.4% for the third quarter of fiscal 2018, respectively.2019.
Cost of food and beverage products increaseddecreased to $33,384 in the third quarter of fiscal 2019$10,664 compared to $31,163$33,384 for the third 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 60100 basis points to 27.8% for the third quarter of fiscal 2020 from 26.8% for the third quarter of fiscal 2019 from 26.2% for2019. Cost of food and beverage products during the third quarter of fiscal 2018. The unfavorable year-over-year increase in2020 was negatively impacted by food and beverage spoilage costs as a percentage of revenue was primarily driven by increased poultry costs in the current year due to additional weeks featuring our “All You Can Eat” wings and higher costs due to our shift to fresh juices at the bar.approximately $550 associated with store closures.
Cost of amusement and other increaseddecreased to $7,244 in the third quarter of fiscal 2020 compared to $18,796 in the third quarter of fiscal 2019 compared to $17,571 in the third quarter of fiscal 2018.2019. The costs of amusement and other, as a percentage of amusement and other revenues, remained unchanged at 10.8%decreased 60 basis points to 10.2% for both the third quarter of fiscal 2019 and2020 from 10.8% in the third quarter of fiscal 2018. Increases in2019. This decrease was driven by lower freight costs, lower cost per ticket and higher revenue per game play credit sold as a result of amusements due to recently imposed tariffs were largelyless discounting of amusement revenues, partially offset by price increasesan unfavorable shift in WIN!.ticket redemption patterns.

Table of Contents
Operating payroll and benefits
Total operating payroll and benefits increaseddecreased by $4,856,$48,461, or 6.8%63.6%, to $27,704 in the third quarter of fiscal 2020 compared to $76,165 in the third quarter of fiscal 2019 compared to $71,309 in the third quarter2019. Nearly all of fiscal 2018. This increase was primarily due to labor associatedour store workforce, with the additional operating store weeksexception of oura small team of essential personnel, were furloughed in
non-comparablemid-March.
stores.Hourly team members returned 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 10 basis points toremained unchanged at 25.4% in both the third quarter of fiscal 2019 compared to 25.3% for2020 and the third quarter of fiscal 2018. This increase was due to margin pressure on2019. Favorable results in hourly labor were offset by the deleveraging impact of management labor due to decreased comparableas a result of the temporary store sales offset by hourly labor improvements compared toclosures and continued benefit coverage for furloughed employees. Additionally, late in the prior year.third quarter, we recalled a core group of store managers at unopened stores.
Other store operating expenses
Other store operating expenses increaseddecreased by $14,446,$39,930, or 15.0%36.1%, to $70,783 in the third quarter of fiscal 2020 compared to $110,713 in the third quarter of fiscal 2019 compared to $96,267 in the third quarter of fiscal 2018,2019. The decrease is primarily due to newreduced spend on marketing, maintenance and other services due to temporary store openings.closures. Other store operating expensesexpense as a percentage of total revenues increased 300 basis pointsto 64.9% in the third quarter of fiscal 2020 compared to 37.1% in the third quarter of fiscal 2019 compared to 34.1% in the third quarter of fiscal 2018.2019. This increase was due primarily to highersales deleveraging on occupancy costs associated with our
non-comparable
stores and utilities as a result of the deleveraging impact of lower comparabletemporary store sales, the absence of $2,195 of business interruption insurance recoveries recognized during the third quarter of fiscal 2018 and additional legal and marketing costs in the current quarter. These cost increases were partially offset by lower maintenance costs.closures.
General and administrative expenses
General and administrative expenses increaseddecreased by $1,167,$4,464, or 7.8%27.5%, to $11,746 in the third quarter of fiscal 2020 compared to $16,210 in the third quarter of fiscal 2019 compared to $15,043 in the third quarter of fiscal 2018.2019. The increasedecrease in general and administrative expenses was primarily driven by increasedlower labor costs due to continued furloughs and elimination of a significant number of positions at our corporate office, lower professional services, costsreduced travel expenses and board of director fees. These cost reductions were partially offset by lower labor costs, mainly incentiveincreased share-based compensation at our corporate headquarters. General and administrative expenses, as a percentageresult of total revenues increased 10 basis points to 5.4% innew grants issued during the third quarter of fiscal 2019 compared to 5.3% in the third quarter of fiscal 2018.second quarter.
Depreciation and amortization expense
Depreciation and amortization expense increased by $2,766$1,044 or 9.0%3.1%, to $34,384 in the third quarter of fiscal 2020 compared to $33,340 in the third quarter of fiscal 2019 compared to $30,574 in the third quarter of fiscal 2018.2019. Increased depreciation due to our 20182020 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 $495$1,675 to $2,570 in the third quarter of fiscal 2020 compared to $4,245 in the third quarter of fiscal 2019 compareddue to $4,740a 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.
25
Table of Contents
Interest expense, net & Loss on debt refinance
Interest expense, net increased by $2,103 to $8,213 in the third quarter of fiscal 2018
.
Interest expense, net
Interest expense, net increased by $2,7892020 compared to $6,110 in the third quarter of fiscal 2019 compareddue to $3,321an increase in the average outstanding debt and an increase in the weighted average effective interest rate. In connection with the October 27, 2020 debt refinancing, which is explained in Note 3 to the Unaudited Consolidated Financial Statements, the Company recorded a charge of $904 during the third quarter of fiscal 2018 due primarily to an increase in average outstanding debt.
2020.
Provision (benefit) for income taxes
The incomeeffective tax rate for the thirteen weeks ended November 1, 2020, was a benefit of $9326.3%, compared to 24.1% in the third quarter of fiscal 2019, was driven primarily bydue to the impact of a reductiondecrease in our estimated annual effectiveoperating 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 back tax net operating losses from fiscal years 2020 and 2019 to years with a higher federal corporate income tax rate. The lower estimatedprior year effective tax rate is drivenwas also impacted by the impact of lower projected state tax expense and the favorable rate impact of tax credits. During the third quarter of fiscal 2018, the effective tax rate of 2.4% was favorably impacted by excess tax benefits associated with share-based compensation, which had little impact in the third quarter of fiscal 2019.

Table of Contents
Thirty-nineThirty-Nine Weeks Ended November 1, 2020 Compared to Thirty-Nine Weeks Ended November 3, 2019 Compared to Thirty-nine Weeks Ended November 4, 2018
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).
                 
 
Thirty-nine Weeks
Ended
  
Thirty-nine Weeks
Ended
 
November 3, 2019
  
November 4, 2018
 
Food and beverage revenues
 $
410,779
   
40.8
% $
388,804
   
41.6
%
Amusement and other revenues
  
596,754
   
59.2
   
544,713
   
58.4
 
                 
Total revenues
  
1,007,533
   
100.0
   
933,517
   
100.0
 
Cost of food and beverage (as a percentage of food and beverage revenues)
  
109,072
   
26.6
   
101,181
   
26.0
 
Cost of amusement and other (as a percentage of amusement and other revenues)
  
64,456
   
10.8
   
60,248
   
11.1
 
                 
Total cost of products
  
173,528
   
17.2
   
161,429
   
17.3
 
Operating payroll and benefits
  
239,965
   
23.8
   
217,939
   
23.3
 
Other store operating expenses
  
321,334
   
31.9
   
284,432
   
30.5
 
General and administrative expenses
  
49,047
   
4.9
   
45,461
   
4.9
 
Depreciation and amortization expense
  
97,226
   
9.6
   
87,129
   
9.3
 
Pre-opening
costs
  
15,970
   
1.6
   
17,121
   
1.8
 
                 
Total operating costs
  
897,070
   
89.0
   
813,511
   
87.1
 
                 
Operating income
  
110,463
   
11.0
   
120,006
   
12.9
 
Interest expense, net
  
14,771
   
1.5
   
9,406
   
1.1
 
                 
Income before provision for income taxes
  
95,692
   
9.5
   
110,600
   
11.8
 
Provision for income taxes
  
20,411
   
2.0
   
22,815
   
2.4
 
                 
Net income
 $
75,281
   
7.5
% $
87,785
   
9.4
%
                 
Change in comparable store sales (1)
     
(1.9
)%     
(3.0
)%
Company-owned stores open at end of period (1)
     
134
      
118
 
Comparable stores open at end of period (1)
     
99
      
86
 
 
   
Thirty-Nine Weeks

Ended

November 1, 2020
  
Thirty-Nine Weeks

Ended

November 3, 2019
 
Food and beverage revenues
  $119,268    37.3%  $410,779    40.8% 
Amusement and other revenues
   200,423    62.7   596,754    59.2 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total revenues
   319,691    100.0   1,007,533    100.0 
Cost of food and beverage (as a percentage of food and beverage revenues)
   32,667    27.4   109,072    26.6 
Cost of amusement and other (as a percentage of amusement and other revenues)
   21,997    11.0   64,456    10.8 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total cost of products
   54,664    17.1   173,528    17.2 
Operating payroll and benefits
   85,197    26.6   239,965    23.8 
Other store operating expenses
   229,137    71.8   321,334    31.9 
General and administrative expenses
   35,587    11.1   49,047    4.9 
Depreciation and amortization expense
   104,896    32.8   97,226    9.6 
Pre-opening
costs
   8,781    2.7   15,970    1.6 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total operating costs
   518,262    162.1   897,070    89.0 
  
 
 
   
 
 
  
 
 
   
 
 
 
Operating income (loss)
   (198,571)    (62.1)   110,463    11.0 
Interest expense, net
   22,491    7.0   14,771    1.5 
Loss on debt refinance
   904    0.3   —      —   
  
 
 
   
 
 
  
 
 
   
 
 
 
Income (loss) before provision (benefit) for income taxes
   (221,966)    (69.4)   95,692    9.5 
Provision (benefit) for income taxes
   (71,777)    (22.4)   20,411    2.0 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net income (loss)
  $(150,189)    (47.0)  $75,281    7.5% 
  
 
 
   
 
 
  
 
 
   
 
 
 
Change in comparable store sales
(1)
     (70.2)%     (1.9)% 
Company-owned stores at end of period
(1)
     137     134 
Comparable stores at end of period
(1)
     114     99 
 
(1)
As of the end of the third quarter of fiscal 2020, 104 of our 137 stores were open and 84 of our 114 comparable stores were open. Our total and comparable store counts as of the end of the third quarter of fiscal 2020 exclude a store in Chicago, Illinois and a store in Houston, Texas which are near the end of their respective lease terms 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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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:
                 
 
Thirty-nine Weeks
  
Thirty-nine Weeks
 
 
Ended
  
Ended
 
 
November 3, 2019
  
November 4, 2018
 
Net income
 $
75,281
   
7.5
% $
87,785
   
9.4
%
Interest expense, net
  
14,771
      
9,406
    
Provision for income taxes
  
20,411
      
22,815
    
Depreciation and amortization expense
  
97,226
      
87,129
    
                 
EBITDA
  
207,689
   
20.6
%  
207,135
   
22.2
%
Loss on asset disposal
  
1,284
      
813
    
Share-based compensation
  
5,479
      
5,771
    
Pre-opening
costs
  
15,970
      
17,121
    
Other costs (1)
  
34
      
127
    
                 
Adjusted EBITDA
 $
230,456
   
22.9
% $
230,967
   
24.7
%
                 
 
   
Thirty-Nine Weeks

Ended

November 1, 2020
  
Thirty-Nine Weeks

Ended

November 3, 2019
 
Net income (loss)
  $(150,189)    -47.0%  $75,281    7.5% 
Interest expense, net
   22,491     14,771   
Loss on debt refinance
   904     —     
Provision (benefit) for income taxes
   (71,777)     20,411   
Depreciation and amortization expense
   104,896     97,226   
  
 
 
    
 
 
   
EBITDA
   (93,675)    -29.3%   207,689    20.6% 
Loss on asset disposal
   541     1,284   
Impairment of long-lived assets
   13,727     —     
Share-based compensation
   5,344     5,479   
Pre-opening
costs
   8,781     15,970   
Other costs (1)
   54     34   
  
 
 
    
 
 
   
Adjusted EBITDA
  $(65,228)    -20.4%  $230,456    22.9% 
  
 
 
    
 
 
   
 
(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:
                 
 
Thirty-nine Weeks
  
Thirty-nine Weeks
 
 
Ended
  
Ended
 
 
November 3, 2019
  
November 4, 2018
 
Operating income
 $
110,463
   
11.0
% $
120,006
   
12.9
%
General and administrative expenses
  
49,047
      
45,461
    
Depreciation and amortization expense
  
97,226
      
87,129
    
Pre-opening
costs
  
15,970
      
17,121
    
                 
Store Operating Income Before Depreciation and Amortization
 $
272,706
   
27.1
% $
269,717
   
28.9
%
                 
 
   
Thirty-Nine Weeks

Ended

November 1, 2020
  
Thirty-Nine Weeks

Ended

November 3, 2019
 
Operating income (loss)
  $(198,571)    -62.1%  $110,463    11.0% 
General and administrative expenses
   35,587     49,047   
Depreciation and amortization expense
   104,896     97,226   
Pre-opening
costs
   8,781     15,970   
  
 
 
    
 
 
   
Store Operating Income Before Depreciation and Amortization
  $(49,307)    -15.4%  $272,706    27.1% 
  
 
 
    
 
 
   
Capital Additions
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for Payments from landlords.
         
 
Thirty-nine
 Weeks
  
Thirty-nine
 Weeks
 
 
Ended
  
Ended
 
 
November 3, 2019
  
November 4, 2018
 
New store and operating initiatives
 $
143,594
  $
121,895
 
Games
  
12,667
   
25,501
 
Maintenance capital
  
16,316
   
15,875
 
         
Total capital additions
 $
172,577
  $
163,271
 
         
Payments from landlords
 $
28,581
  $
33,097
 
 
   
Thirty-Nine Weeks

Ended

November 1, 2020
   
Thirty-Nine Weeks

Ended

November 3, 2019
 
New store and operating initiatives
  $48,222   $143,594 
Games
   9,079    12,667 
Maintenance capital
   2,988    16,316 
  
 
 
   
 
 
 
Total capital additions
  $60,289   $172,577 
  
 
 
   
 
 
 
Payments from landlords
  $8,723   $28,581 
 

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Table of Contents
Results of Operations
Revenues
Selected revenue and store data for the periods indicated are as follows:
   
Thirty-nine
weeks ended
November 1, 2020
   
Thirty-nine
weeks ended
November 3, 2019
   
Change
 
Total revenues
  $319,691   $1,007,533   $(687,842) 
Total store operating weeks
   2,682    5,012    (2,330) 
Comparable store revenues
  $268,426   $901,837   $(633,411) 
Comparable store operating weeks
   2,184    4,446    (2,262) 
Noncomparable store revenues
  $54,763   $110,231   $(55,468) 
Noncomparable store operating weeks
   498    566    (68) 
Other revenues
  $(3,498)   $(4,535)   $1,037 
Total revenues increased $74,016,decreased $687,842, or 7.9%68.3%, to $1,007,533$319,691 in the thirty-nine week periodweeks ended November 3, 20191, 2020 compared to total revenues of $933,517$1,007,533 in the thirty-nine week periodweeks ended November 4, 2018.3, 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 thirty-nine weeks ended November 1, 2020, we derived 24.6% of our total revenue from food sales, 12.7% from beverage sales, 62.2% from amusement sales and 0.5% from other sources. For the thirty-nine weeks ended November 3, 2019, we derived 27.9% of our total revenue from food sales, 12.9% from beverage sales, 58.4% from amusement sales and 0.8% from other sources. For
Comparable store revenue decreased $633,411, or 70.2%, in the thirty-nine weeks ended November 4, 2018, we derived 28.5% of our total revenue from food sales, 13.1% from beverage sales, 57.7% from amusement sales and 0.7% from other sources.
The net increase in revenues for1, 2020 compared to the thirty-nine weeks ended November 3, 2019, compareddue primarily to a 50.9% reduction in comparable store operating weeks and lower customer volumes as stores
re-opened
with limited operations. As of March 20, 2020, all the thirty-nine week period ended November 4, 2018,Company’s 114 comparable stores were fromclosed due to operating restrictions put in place by local jurisdictions in response to the following sources:
COVID-19
pandemic. Beginning April 30, 2020, we began
re-opening
     
Comparable stores
 $
(15,520
)
Non-comparable
stores
  
88,451
 
Other
  
1,085
 
     
Total
 $
74,016
 
     
Comparable store revenue decreased $15,520, or 1.9%,our stores based on changes in operating restrictions in the thirty-ninevarious jurisdictions. As of November 1, 2020, 84 of our comparable stores had
re-opened
under limited operating conditions. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks ended November 3, 2019 compared to the thirty-nine weeks ended November 4, 2018. Comparableincreased. Individual store revenue compared to prior year performance after
re-opening
was negatively impacted by an unfavorable shiftchanges in the current year holiday/school break calendar, sales transferslocal operating restrictions and consumer reactions to new stores that we openedchanges in markets where we operate and increased competitive pressure. local
COVID-19
infection rates.
Comparable
walk-in
revenues, which accounted for 91.2%96.2% of comparable store revenue for the thirty-nine weeks ended November 3, 2019,1, 2020, decreased 2.2%68.6% compared to the similar period in fiscal 2018.2019. Comparable store special events revenues, which accounted for 8.8%3.8% of comparable store revenue for the thirty-nine weeks ended November 3, 2019, increased 1.2%1, 2020, decreased 87.1% 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 $8,504,$185,463, or 3.7%73.9%, to $219,396$65,627 in the thirty-nine weeks ended November1, 2020 from $251,090 in the thirty-nine weeks ended November 3, 2019 from $227,900 in the thirty-nine weeks ended November 4, 2018.2019. Beverage sales at comparable stores decreased by $3,453,$81,691, or 3.3%70.4%, to $101,811$34,381 in the thirty-nine week periodweeks ended November 3, 20191, 2020 from $105,264$116,072 in the 20182019 comparison period. Comparable store amusement and other revenues in the thirty-nine week periodweeks ended November 3, 20191, 2020 decreased by $3,563,$366,257, or 0.8%68.5%, to $463,199$168,418 from $466,762$534,675 in the comparable thirty-nine weeks of fiscal 2018. The decrease in amusement sales was due 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.2019.
Non-comparable
store revenue increased $88,451, fordecreased $55,468 in the thirty-nine weeks ended November 1, 2020 compared to the thirty-nine weeks ended November 3, 2019. During the first four-week period of fiscal 2020,
non-comparable
stores contributed an additional $9,668 of revenue and 54 additional operating weeks over the same period of fiscal 2019. During the remainder of the thirty-nine week period ended November 3, 2019 compared to the thirty-nine week period ended November 4, 2018. The increase in1, 2020,
non-comparable
store revenue was primarily driven by 606 additionaldecreased $65,136 for the same reasons noted above, including 122 fewer store operating store weeks contributed by our thirty-five
non-comparable
stores, seventeen of which opened subsequent to the third 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 $54,664 for the thirty-nine weeks ended November 1, 2020 and $173,528 for the thirty-nine week periodweeks ended November 3, 2019 and $161,429 for the thirty-nine week period ended November 4, 2018.2019. The total cost of products as a percentage of total revenues was 17.1% and 17.2% for the thirty-nine weeks November 1, 2020 and 17.3%the thirty-nine weeks ended November 3, 2019, respectively.
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Table of Contents
Cost of food and beverage products decreased to $32,667 in the thirty-nine weeks ended November 1, 2020 compared to $109,072 for the thirty-nine weeks ended November 3, 2019 and the thirty-nine week period ended November 4, 2018, respectively.
Cost of food and beverage products increased to $109,072 in the thirty-nine week period ended November 3, 2019 compared to $101,181 for the thirty-nine week period ended November 4, 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 6080 basis points to 27.4% for the thirty-nine weeks ended November 1, 2020 from 26.6% for the thirty-nine week periodweeks ended November 3, 2019 from 26.0% for the thirty-nine week period ended November 4, 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 thirty-nine weeks ended November 1, 2020, was negatively impacted by food and beverage spoilage costs of approximately $1,572 associated with store closures, offset partially by cost reductions resulting from vendor payment negotiations.
Cost of amusement and other increaseddecreased to $21,997 in the thirty-nine weeks ended November 1, 2020 compared to $64,456 in the thirty-nine week periodweeks ended November 3, 2019 compared to $60,248 in the thirty-nine week period ended November 4, 2018.2019. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 30increased 20 basis points to 11.0% for the thirty-nine weeks ended November 1, 2020 from 10.8% for the thirty-nine week periodweeks ended November 3, 2019, from 11.1% for the thirty-nine week period ended November 4, 2018. The decrease in cost of amusement and other as a percentage of revenue was due in part,primarily to lower expense associated with our estimated amusement redemption liabilities, an increase in the price of power cards and a shift in game play to
non-redemption
games.

ticket redemption patterns.
Operating payroll and benefits
Total operating payroll and benefits increaseddecreased by $22,026,$154,768, or 10.1%64.5%, to $85,197 in the thirty-nine weeks ended November 1, 2020 compared to $239,965 in the thirty-nine week periodweeks ended November 3, 2019 compared to $217,939 in the thirty-nine week period ended November 4, 2018. This increase was primarily due to labor associated with the additional operating store weeks2019. Nearly all of our store workforce, except a small team of essential personnel, were furloughed in
non-comparablemid-March.
stores.Hourly team members returned 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 50280 basis points to 26.6% in the thirty-nine week period ended November 1, 2020 compared to 23.8% in the thirty-nine week period ended November 3, 2019, compareddue primarily to 23.3%sales deleveraging of management labor as a result of the temporary store closures and partially attributable to continued benefit coverage for furloughed employees. Late in the thirty-nine week period ended November 4, 2018. This increase was due to an hourly wage rate increasethird quarter, we recalled a core group of 4.3% and unfavorable leverage on decreased comparable store sales.managers at unopened stores.
Other store operating expenses
Other store operating expenses increaseddecreased by $36,902,$92,197, or 13.0%28.7%, to $229,137 in the thirty-nine weeks ended November 1, 2020 compared to $321,334 in the thirty-nine week periodweeks ended November 3, 2019 compared to $284,432 in the thirty-nine week period ended November 4, 2018, primarily2019. Decreased spend on marketing, maintenance and other services due to newtemporary 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 $1,578. Other store operating expensesexpense as a percentage of total revenues increased 140 basis pointsto 71.8% in the thirty-nine weeks ended November 1, 2020 compared to 31.9% in the thirty-nine week periodweeks ended November 3, 2019 compared to 30.5% in the thirty-nine week period ended November 4, 2018.2019. This increase was due primarily to highersales deleveraging on occupancy costs associated with our
non-comparable
storesand utilities as a result of the temporary store closures and the deleveraging impact of lower comparable store sales, the absence of hurricane-related business interruption proceeds recorded in the prior year and incremental legal and sports viewing costs.charges for impairment.
General and administrative expenses
General and administrative expenses increaseddecreased by $3,586,$13,460, or 7.9%27.4%, to $35,587 in the thirty-nine weeks ended November 1, 2020 compared to $49,047 in the thirty-nine week periodweeks ended November 3, 2019 compared to $45,461 in the thirty-nine week period ended November 4, 2018.2019. The increasedecrease in general and administrative expenses was driven primarily driven by increased compensationlower labor resulting from continued furloughs and elimination of a significant number of positions at the corporate office, temporarily reducing pay and benefits for employees that were not furloughed for a twelve-week period, lower professional services costs, at our corporate headquarters. General and administrativereduced travel expenses as a percentageand board of total revenues remained unchanged at 4.9% in both thirty-nine week periods ended November 3, 2019 and November 4, 2018.director fees.
Depreciation and amortization expense
Depreciation and amortization expense increased by $10,097$7,670 or 11.6%7.9%, to $104,896 in the thirty-nine weeks ended November 1, 2020 compared to $97,226 in the thirty-nine week periodweeks ended November 3, 2019 compared to $87,129 in the thirty-nine week period ended November 4, 2018.2019. Increased depreciation due to our 20182020 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 $1,151$7,189 to $8,781 in the thirty-nine weeks ended November 1, 2020 compared to $15,970 in the thirty-nine week periodweeks ended November 3, 2019, compareddue to $17,121a decrease in the comparable time period of fiscal 2018 due to the timingnumber of new store openings in the current year, as construction was put on hold or delayed, 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.
.
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Table of Contents
Interest expense, net and Loss on debt refinance
Interest expense, net increased by $5,365$7,720 to $22,491 in the thirty-nine weeks ended November 1, 2020 compared to $14,771 in the thirty-nine week periodweeks ended November 3, 2019, compared to $9,406 in the thirty-nine week period ended November 4, 2018 due primarily to an increase in average outstanding debt and to a lesser extent,slightly higher weighted average effective interest rates.
rate. In connection with the October 27, 2020 debt refinancing, which is explained in Note 3 of the Unaudited Consolidated Financial Statements, the Company recorded a charge of $904 during the third quarter of fiscal 2020.
Provision (benefit) for income taxes
The effective income tax rate increasedfor the thirty-nine weeks ended November 1, 2020, was a benefit of 32.3%, compared to an expense of 21.3% infor the thirty-nine weeks ended November 3, 2019, comparedprimarily due to 20.6%the impact of a decrease in operating earnings before income tax as well as the thirty-nine week period ended November 4, 2018. The increase primarily reflects lower excessimpact of provisions of the CARES Act, including technical amendments to qualified improvement property and the impact of carrying back tax benefits associatednet operating losses from fiscal years 2020 and 2019 to years with share-based compensation, partially offset bya higher federal corporate income tax credits and a favorable change in the mix of jurisdictional earnings.rate.
Liquidity and Capital Resources
In response to the business disruption caused by the
Cash and Cash EquivalentsCOVID-19
pandemic, the Company has taken the following actions to enable it to meet its obligations over the next twelve months:
At November 3, 2019, we had cashDuring the first and cash equivalentssecond quarters of $20,880 and a net working capital deficit of $209,774. 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.fiscal year 2020, we:
 
reduced expenses broadly;

canceled or delayed all
non-essential
planned capital spending for the remainder of fiscal 2020 and halted or delayed all planned store openings;
suspended our share repurchase program and our 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 third quarterly periods of fiscal 2020;
sold shares of our common stock, which generated gross proceeds of $185,600;
initiated negotiations with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments and obtain other concessions; and
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.
In addition, during the third quarter of fiscal 2020, we:
continued discussions with our landlords, vendors and other business partners to reduce our lease and contract payments and obtain concessions. As of November 1, 2020, a total of 123 rent relief agreements relating 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;
negotiated a second amendment with our lenders, resulting in an extension of the maturity date of our revolving credit facility and extended relief from compliance with financial covenants until the first quarter of fiscal year 2022; and
issued $550,000 of senior secured notes, maturing November 1, 2025.
Although uncertainty surrounds the timing of
re-opening
of our remaining stores and lifting of capacity restrictions and other requirements, as well as how quickly customers will return to our stores, due to continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, the Company has taken measures to provide sufficient liquidity to meet estimated cash flow needs and covenant compliance obligations for at least the next twelve months from the issuance of the financial statements.
30
Table of Contents
Based on our current business plan, we believe our cash and cash equivalents combined with expected cash flows from operations, available borrowings under the revolving portion of our credit facility and expected payments from landlords should be sufficient not only for our operating requirements but also 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 at least the next twelve months and the foreseeable future.    
We expect to spend between $249,000 and $254,000 ($215,000 to $220,000 net of payments from landlord) in capital additions during fiscal 2019. The fiscal 2019 additions are expected to include approximately $201,000 to $206,000 ($167,000 to $172,000 net of payments from landlords) for new store construction and operating improvement initiatives, $19,000 for game refreshment and $29,000 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
WeEffective April 14, 2020, we amended our existing credit facility, which provided relief from compliance with financial covenants through the third quarter of fiscal 2020. The interest rate increased to LIBOR plus 2.00% with a LIBOR floor of 1.00%.
On October 27, 2020, the Company issued $550,000 aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes accrues from October 27, 2020 and is payable in arrears on November 1 and May 1 of each year, commencing on May 1, 2021. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by D&B Inc and are unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries, which is substantially the same as the guarantors of the Company’s existing credit facility.
Concurrent and subject to the issuance of the Notes, the Company entered into a second amendment to its existing credit facility, which included relief from testing compliance with certain financial covenants until the last day of the fiscal quarter ending on May 1, 2022. During the financial covenant suspension period the Company is required to maintain a minimum liquidity (primarily availability under the credit facility) of $150,000. The second amendment extended the maturity date of the $500,000 unsecured revolving portion of the facility from August 17, 2022 to August 17, 2024, and the interest rate spread increased from 2.00% to 4.00% during the financial covenant suspension period, with an additional 1.00% utilization fee due at maturity. After the financial covenant suspension period, the interest rate spread ranges from 1.25% to 3.00%. The second amendment terminated the term loan portion of the credit facility. Availabilityfacility, which triggered payment of $1,900 of lender debt costs associated with the first amendment.
The Company used the proceeds of the Notes offering, along with cash on hand, to repay the $255,000 principal balance of the term loan facility, $463,000 of borrowings under the revolving credit facility, is reduced by outstanding lettersand related accrued interest. The Company incurred debt issuance costs of credit,$18,200, which are used to support our self-insurance programs. At November 3, 2019, we had net availability for borrowingsbeing amortized over the terms of $105,853 based on an outstanding revolver balance of $386,000 and $8,147 in standby letters of credit. We had total outstanding debt obligation of $656,000 under the existing term loanrespective Notes and revolving credit facility, which matures in August 2022. Atfacility. As of November 1, 2020, approximately $3,300 of these debt costs had not been paid. The Company also recorded a loss of $904 related to the unamortized debt costs associated with the term portion of the credit facility.
For the thirty-nine weeks ended November 1, 2020, and November 3, 2019, the CompanyCompany’s weighted average interest rate on outstanding borrowings was 4.17% and 4.03%, respectively. We expect this rate to increase in compliance with all our covenants contained in our existingfuture quarters as a result of the issuance of the Notes and the second amendment to the credit facility. As of November 1, 2020, we had letters of credit outstanding of $9,686 and an unused commitment balance of $464,314 under the revolving credit facility.
Our credit facility and none are expectedNotes contain restrictive covenants that, among other things, place certain limitations on our ability to impact our liquidityincur additional indebtedness, make loans or capital resources.advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets.
We useDuring fiscal 2019, we entered into interest rate swaps in the management ofswap 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 first amendment to our credit facility.
Dividends and Share Repurchases
Our Board of Directors approvedThe 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. At November 3, 2019,1, 2020, we had approximately $172,820 remaining of a total $800,000 share repurchase authorization. The existing share repurchase program expires at the end of fiscal 2020. DuringAs a result of the thirty-nine weeks ended November 3, 2019, we declared cash dividends of $15,724. Our Board of Directors may authorize capital allocation initiatives, including additional dividends,impacts to return value to shareholders as allowable under our existing credit facility.business arising from the COVID
-19
pandemic, share purchases and dividend payments have been indefinitely suspended.
Cash Flow Summary
At November 1, 2020, we had cash and cash equivalents of $8,341.
Operating Activities
— Net cash provided by operating activities decreased $19,211 in the thirty-nine weeks ended November 3, 2019 compared to the thirty-nine weeks ended November 4, 2018 driven primarily by net cash flows associated with changes in working capital as well as lower operating income.
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.
 
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Net cash provided by operating activities decreased $249,543 in the thirty-nine weeks ended November 1, 2020 compared to the thirty-nine weeks ended November 3, 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 101 additional stores with limited operations through the end of our third quarter. The impact of approximately 2,330 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 thirty-nine weeks ended November 3, 2019,1, 2020, the Company spent approximately $146,000$55,800 for new store construction and operating improvement initiatives ($117,00047,100 net of payments from landlords), $9,500 for game refreshment and $7,300 for maintenance capital.
During the thirty-nine weeks ended November 3, 2019, we spent approximately $145,700 ($117,100 net of payments from landlords) for new store construction and operating improvement initiatives, $12,000$12,400 for game refreshment and $15,000 for maintenance capital.

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During the thirty-nine weeks ended November 4, 2018, we spent approximately $122,000 ($89,000 net of payments from landlords) for new store construction and operating improvement initiatives, $25,000 for game refreshment and $17,000$14,800 for maintenance capital.
Financing Activities
— CashDuring the first quarter of fiscal year 2020, the Company drew down substantially all the available credit under our revolving credit facility, or approximately $100,000. During the third quarter, the Company issued $550,000 of senior secured notes in a private offering and amended the existing credit facility. The proceeds from the offering, along with cash on hand, were used in financing activities primarily reflected approximately $297,000to pay debt issuance costs, the $255,000 balance of share repurchasesthe term portion of the credit facility, and approximately $11,000$463,000 of cash dividends paid, partially offset by $261,750outstanding borrowings under the revolving portion of the credit facility. Additionally, the Company received net proceeds of approximately $182,200 from borrowingsthe issuance of debt inshares of our common stock during the first and second quarter of fiscal year 2020. In the thirty-nine weeks ended November 3, 2019. In the thirty-nine weeks ended November 4, 2018,2019, cash used in financing activities primarily reflected approximately $86,000$297,300 of share repurchases and approximately $6,000$10,800 of cash dividends paid, partially offset by $17,000$261,800 of net proceeds from borrowings.
Contractual Obligations and Commitments
Effective October 27, 2020, the Company issued $550,000 of senior secured notes and entered into the second amendment to its existing credit facility, which was first amended on April 14, 2020. There have been no other 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. The following table sets forth the contractual obligations related to the Company’s debt obligations as of November 1, 2020.
   
Total
   
1 Year
   
2-3 Years
   
4-5 Years
   
After 5 Years
 
Senior Secured Notes
  $550,000   $—     $—     $550,000   $—   
Credit Facility - Revolver (1)
   26,000    —      —      26,000    —   
Interest requirements (2)
   225,395    46,328    91,087    87,980    —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $801,395   $46,328   $91,087   $663,980   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
(1) 
Available commitments under the revolving credit facility were $464,314 as of November 1, 2020, subject to a $150,000 liquidity covenant.
(2) 
The cash obligations for the variable portion of the interest requirements on the outstanding balance of the revolving credit facility and the unused commitment are based on an interest rate of 6.00% and 0.50%, respectively, through the end of the first quarter of fiscal year 2022, reduced to 4.00% and 0.40%, respectively, for the remainder of the term of the credit facility. The interest requirement on the Notes is based on a fixed rate of 7.625%.
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.
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Item 3.
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 theOur variable rate indebtedness under our credit facility. Borrowings pursuant to our$500,000 revolving credit facility bear interest at a floating rateis based on
one-month
LIBOR, plus an applicable margin. Effective February 28, 2019, the Company entered into anwith a LIBOR floor of 1.00%. Our interest rate swap agreementagreements, with a combined notional amount of $350,000, to manage our exposure to interest rate movements on our variable rate credit facility. The agreement convertsconvert the floating portion of the interest rate to a fixed interest rate of approximately 2.5% plus a spread from the effective date2.47% through the termAugust 17, 2022. As of our existing credit facility.November 1, 2020,
one-month
LIBOR is below 1.00%.
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 numberA 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.

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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.
Item 4.
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 processes 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 third quarter ended November 3, 2019,1, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1.
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 1A.
Risk Factors
There have been no material changes inThe Company is supplementing the risk factorsRisk Factors previously disclosed in ourItem 1A of the Annual Report as filed on Form
10-K
on Aprilfor the fiscal year ended February 2, 2019.
2020, (the “Annual Report”). The following risk factor should be read in conjunction with the Risk Factors disclosed in the Annual Report.

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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.
We face risks related to our substantial indebtedness and limitations on future sources of liquidity.
As of November 1, 2020, we had total borrowings of $576,000, which consisted of $550,000 of secured indebtedness represented by our Notes and $26,000 of senior secured borrowings under our revolving credit facility. Our substantial indebtedness could have important consequences to us, including:
making it more difficult for us to satisfy our obligations with respect to our debt, and any failure to comply with the obligations under our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing our indebtedness increasing our vulnerability to general economic and industry conditions, including as a result of disruption caused by the global
COVID-19
pandemic;
requiring a substantial portion of our cash flow from operations to be dedicated to the payment of obligations with respect to our debt, thereby reducing our ability to use our cash flow to fund our operations, lease payments, capital expenditures, selling and marketing efforts, product development, future business opportunities and other purposes;
exposing us to the risk of increased interest rates as a substantial portion of our borrowings are at variable rates;
restricting us from making strategic acquisitions;
limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and
limiting our ability to plan for, or adjust to, changing market conditions and placing us at a competitive disadvantage compared to our competitors who may be less highly leveraged.
Any of these risks could materially impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition and results of operations.
Covenants in our debt agreements restrict our business and could limit our ability to implement our business plan.
The credit facility and the indenture governing the Notes contain covenants that may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in opportunistic transactions, such as strategic acquisitions. In addition, if we fail to satisfy the covenants contained in the credit facility, our ability to borrow under the revolving credit loans portion of the credit facility may be restricted. The credit facility and the indenture governing the Notes include covenants restricting, among other things, our ability to do the following under certain circumstances:
incur or guarantee additional indebtedness or issue certain disqualified or preferred stock;
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pay dividends or make other distributions on, or redeem or purchase, any equity interests or make other restricted payments;
make certain acquisitions or investments;
create or incur liens;
transfer or sell assets;
incur restrictions on the payments of dividends or other distributions from our restricted subsidiaries;
alter the business that we conduct;
enter into transactions with affiliates; and
consummate a merger or consolidation or sell, assign, transfer, lease or otherwise dispose of all or substantially all of our assets.
The covenants in the credit facility are generally more restrictive than the covenants in the indenture governing the Notes and place certain limitations on our ability to: incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. In addition, other than during the second amendment suspension period, our credit facility requires us to comply with a total leverage ratio that is no greater than the applicable financial covenant level and a fixed charge ratio that is no greater than 1.25:1.00, respectively, which are each tested as of the last day of each fiscal quarter. During the second amendment suspension period, our credit facility requires us to maintain minimum liquidity of $150,000 at all times.
Events beyond our control, including the impact of
COVID-19,
may affect our ability to comply with our covenants, even after the cessation of the second amendment suspension period.
If we default under the credit facility or the indenture governing the Notes, because of a covenant breach or otherwise, all outstanding amounts thereunder could become immediately due and payable. We cannot assure you that we will be able to comply with our covenants under the credit facility, or the indenture governing the Notes or that any covenant violations will be waived in the future. Any violation that is not waived could result in an event of default, permitting our lenders to declare outstanding indebtedness and interest thereon due and payable, and permitting the lenders under the revolving credit loans provided under the credit facility to suspend commitments to make any advance, or require any outstanding letters of credit to be collateralized by an interest bearing cash account, any or all of which could have a material adverse effect on our business, financial condition and results of operations. In addition, if we fail to comply with our financial or other covenants under the credit facility or the indenture governing the Notes, we may need additional financing in order to service or extinguish our indebtedness. We may not be able to obtain financing or refinancing on commercially reasonable terms, or at all. We cannot assure you that we would have sufficient funds to repay outstanding amounts under the credit facility or the indenture governing the Notes and any acceleration of amounts due would have a material adverse effect on our liquidity and financial condition.
Changes in interest rates could adversely impact the price of our shares, our ability to issue equity or incur debt for acquisitions or other purposes.
Interest rates on future borrowings, credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. In addition, LIBOR and other “benchmark” rates are subject to ongoing national and international regulatory scrutiny and reform. On July 27, 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has proposed an alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate, or “SOFR.” We are unable to predict the effect of the FCA Announcement or other reforms, whether currently enacted or enacted in the future. The outcome of reforms may result in increased interest expense to us. Changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our shares, and a rising interest rate environment could have an adverse impact on the price of our shares, our ability to issue equity or incur debt for acquisitions or other purposes.
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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
There has been no material change in the use of proceeds disclosed in our prospectus supplement to our registration statement on Form
S-3,
filed with the SEC on April 14, 2020.
Information regarding repurchaseThere were no repurchases of our common stock in thousands, exceptunder our share amounts,repurchase plan during the thirteen weeks ended November 3, 2019:1, 2020.
                 
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)
 
August 5, 2019 – September 1, 2019
  
2,000,000
  $
39.65
   
2,000,000
  $
190,683
 
September 2, 2019 – October 6, 2019
  
425,021
  $
42.03
   
425,021
  $
172,820
 
October 7, 2019 – November 3, 2019
  
—  
  $
—  
   
—  
  $
172,820
 
 
(1)Monthly information is presented by reference to our fiscal periods during the thirteen weeks ended November 3, 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 November 3, 2019.

36
Item 6.
Exhibits
 
Item 6.    Exhibits
Exhibit
Number
  
Description
  10.1*  Dave & Buster’s Select Executive Retirement Plan as amended and restated by Dave & Buster’s Management Corporation, Inc., effective as of January 1, 2017.
  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*  
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
Inline XBRL Interactive Data files
104  
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
 
*
Filed herein
 
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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: December 10, 2019
2020		 
By:
 
/s/ Brian A. Jenkins
  
Brian A. Jenkins
  
Chief Executive Officer
Date: December 10, 2019
2020		 
By:
 
/s/ Scott J. Bowman
  
Scott J. Bowman
  
Chief Financial Officer
 

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