Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
 
 
Form
10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED August 2,November 1, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
                     TO                     
TO
Commission File
No. 001-35664
 
 
Dave & Buster’s Entertainment, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
35-2382255
(State of Incorporation)
 
(I.R.S. Employer ID)
2481 Mañana Drive, Dallas, Texas, 75220
 
(214)
357-9588
(Address of principal executive offices) (Zip Code)
 
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock $0.01 par value
 
PLAY
 
NASDAQ Global Select Market
Preferred Stock Purchase Rights
 
PLAY
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
 
 
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    
Yes
  ☒    No  ☐
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
Accelerated filer
  Accelerated filer 
Non-accelerated
filer
Smaller reporting company
Non-accelerated filer   Smaller reporting company
Emerging Growth Company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes  ☐    No  ☒
As of
September
December 4, 2020, the registrant had 47,594,91247,642,029 shares of common stock, $0.01 par value per share, outstanding.
 
 
 

DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM
10-Q
FOR QUARTERLY PERIOD ENDED AUGUST 2,NOVEMBER 1, 2020
TABLE OF CONTENTS
 
 
 
 
  
Page
 
PART I
 
  
   
   
Item 1.
 
  
 
3
 
   
Item 2.
 
  
 
18
 
   
Item 3.
 
  
 
3133
 
   
Item 4.
 
  
 
3133
 
   
PART II
 
  
   
   
Item 1.
 
  
 
3233
 
   
Item 1A.
 
  
 
3233
 
   
Item 2.
 
  
 
3236
 
   
Item 6.
 
  
 
3337
 
   
 
 
  
 
3438
 
 
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)
 
  
August 2,
 
February 2,
 
2020
 
2020
   
November 1,
2020
 
February 2,
2020
 
  
(unaudited)
 
 
 
 
(audited)
   
(unaudited)
 
(audited)
 
ASSETS
       
Current assets:
       
Cash and cash equivalents
  $224,305  $24,655   $8,341  $24,655 
Inventories
   31,189  34,477    26,732   34,477 
Prepaid expenses
   12,751  14,269    12,080   14,269 
Income taxes receivable
   23,805  2,331    44,574   2,331 
Other current assets
   934  3,245    665   3,245 
  
 
  
 
   
 
  
 
 
Total current assets
   292,984  78,977    92,392   78,977 
Property and equipment (net of $739,805 and $686,824 accumulated depreciation as of August 2, 2020 and February 2, 2020, respectively)
   872,010  900,637 
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
   1,062,266  1,011,568    1,050,878   1,011,568 
Deferred tax assets
   21,491  7,639    20,451   7,639 
Tradenames
   79,000  79,000    79,000   79,000 
Goodwill
   272,650  272,636    272,643   272,636 
Other assets and deferred charges
   19,566  19,682    23,641   19,682 
  
 
  
 
   
 
  
 
 
Total assets
  $2,619,967  $2,370,139   $2,385,061  $2,370,139 
  
 
  
 
   
 
  
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
Current liabilities:
       
Current installments of long-term debt
  $15,000  $15,000   $—    $15,000 
Accounts payable
   59,539  65,359    42,849   65,359 
Accrued liabilities
   238,651  207,452    244,163   207,452 
Income taxes payable
   624  3,054    415   3,054 
  
 
  
 
   
 
  
 
 
Total current liabilities
   313,814  290,865    287,427   290,865 
Deferred income taxes
     19,102    13,355   19,102 
Operating lease liabilities
   1,285,533  1,222,054    1,277,794   1,222,054 
Other liabilities
   38,603  35,779    37,896   35,779 
Long-term debt, net
   731,646  632,689    561,815   632,689 
Commitments and contingencies
     
Stockholders’ equity:
       
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 60,422,212 shares at August 2, 2020 and 43,386,852 shares at February 2, 2020; outstanding: 47,594,912 shares at August 2, 2020 and 30,603,340 shares at February 2, 2020
   604  434 
Preferred stock, 50,000,000 authorized; 0ne issued
   —     —   
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
   526,253  339,161    529,523   339,161 
Treasury stock, 12,827,300 and 12,783,512 shares as of August 2, 2020 and February 2, 2020, respectively
   (595,728 (595,041
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
   (12,077 (8,369   (10,673  (8,369
Retained earnings
   331,319  433,465    283,276   433,465 
  
 
  
 
   
 
  
 
 
Total stockholders’ equity
   250,371  169,650    206,774   169,650 
  
 
  
 
   
 
  
 
 
Total liabilities and stockholders’ equity
  $2,619,967  $2,370,139   $
 
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
 
Thirteen Weeks
 
Ended
 
Ended
 
August 2, 2020
 
August 4, 2019
   
Thirteen Weeks
Ended
November 1, 2020
 
Thirteen Weeks
Ended
November 3, 2019
 
Food and beverage revenues
  $17,002  $137,921   $38,346  $124,637 
Amusement and other revenues
   33,831   206,678    70,706   174,715 
  
 
  
 
   
 
  
 
 
Total revenues
   50,833   344,599    109,052   299,352 
Cost of food and beverage
   4,659   36,934    10,664   33,384 
Cost of amusement and other
   4,025   22,689    7,244   18,796 
  
 
  
 
   
 
  
 
 
Total cost of products
   8,684   59,623    17,908   52,180 
Operating payroll and benefits
   13,756   80,927    27,704   76,165 
Other store operating expenses
   62,682   104,376    70,783   110,713 
General and administrative expenses
   9,278   15,991    11,746   16,210 
Depreciation and amortization expense
   35,160   32,745    34,384   33,340 
Pre-opening
costs
   2,388   4,723    2,570   4,245 
  
 
  
 
   
 
  
 
 
Total operating costs
   131,948   298,385    165,095   292,853 
  
 
  
 
   
 
  
 
 
Operating income (loss)
   (81,115  46,214    (56,043  6,499 
Interest expense, net
   8,163   4,605    8,213   6,110 
Loss on debt refinance
   904   —   
  
 
  
 
   
 
  
 
 
Income (loss) before provision (benefit) for income taxes
   (89,278  41,609 
Provision (benefit) for income taxes
   (30,676  9,253 
Income (loss) before benefit for income taxes
   (65,160  389 
Benefit for income taxes
   (17,117  (93
  
 
  
 
   
 
  
 
 
Net income (loss)
   (58,602  32,356    (48,043  482 
  
 
  
 
   
 
  
 
 
Unrealized foreign currency translation gain
   304   134    34   59 
Unrealized gain (loss)
on
derivatives, net of tax
   1,372   (3,373   1,370   (1,568
  
 
  
 
   
 
  
 
 
Total other comprehensive
income (
loss
)
   1,676   (3,239
Total other comprehensive income (loss)
   1,404   (1,509
  
 
  
 
   
 
  
 
 
Total comprehensive income (loss)
  $(56,926 $29,117 
Total comprehensive loss
  $(46,639 $(1,027
  
 
  
 
   
 
  
 
 
Net income (loss) per share:
      
Basic
  $(1.24 $0.91   $(1.01 $0.02 
Diluted
  $(1.24 $0.90   $(1.01 $0.02 
Weighted average shares used in per share calculations:
      
Basic
   47,111,763   35,407,965    47,613,741   30,980,878 
Diluted
   47,111,763   36,015,710    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 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 
   
Twenty-Six Weeks
  
Twenty-Six Weeks
 
  
Ended
  
Ended
 
  
August 2, 2020
  
August 4, 2019
 
Food and beverage revenues
  $80,922  $286,142 
Amusement and other revenues
   129,717   422,039 
  
 
 
  
 
 
 
Total revenues
   210,639   708,181 
Cost of food and beverage
   22,003   75,688 
Cost of amusement and other
   14,753   45,660 
  
 
 
  
 
 
 
Total cost of products
   36,756   121,348 
Operating payroll and benefits
   57,493   163,800 
Other store operating expenses
   158,354   210,621 
General and administrative expenses
   23,841   32,837 
Depreciation and amortization expense
   70,512   63,886 
Pre-opening
costs
   6,211   11,725 
  
 
 
  
 
 
 
Total operating costs
   353,167   604,217 
  
 
 
  
 
 
 
Operating income (loss)
   (142,528  103,964 
Interest expense, net
   14,278   8,661 
  
 
 
  
 
 
 
Income (loss) before provision (benefit) for income taxes
   (156,806  95,303 
Provision (benefit) for income taxes
   (54,660  20,504 
  
 
 
  
 
 
 
Net income (loss)
   (102,146  74,799 
  
 
 
  
 
 
 
Unrealized foreign currency translation loss
   (131  (57
Unrealized loss
on
derivatives, net of tax
   (3,577  (5,907
  
 
 
  
 
 
 
Total other comprehensive loss
   (3,708  (5,964
  
 
 
  
 
 
 
Total comprehensive income (loss)
  $(105,854 $68,835 
  
 
 
  
 
 
 
Net income (loss) per share:
   
Basic
  $(2.59 $2.07 
Diluted
  $(2.59 $2.03 
Weighted average shares used in per share calculations:
   
Basic
   39,470,874   36,117,815 
Diluted
   39,470,874   36,803,001 
See accompanying notes to consolidated financial statements.
 
5

Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
 
   
Thirteen Weeks Ended August 2, 2020
 
   
Common Stock
   
Paid-In

Capital
   
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
  
Total
 
   
Shares
   
Amt.
   
 
   
Shares
   
Amt.
  
 
   
 
  
 
 
Balance May 3, 2020
   49,578,351   $496   $411,048    12,786,624   $(595,077 $(13,753 $389,921  $192,635 
Net loss
   —      —      —      —      —     —     (58,602  (58,602
Unrealized foreign currency translation gain
   —      —      —      —      —     304   —     304 
Unrealized gain on derivatives, net of tax
   —      —      —      —      —     1,372   —     1,372 
Share-based compensation
   —      —      2,734    —      —     —     —     2,734 
Issuance of common stock
   10,843,861    108    112,471    —      —     —     —     112,579 
Repurchase of common stock
   —      —      —      40,676    (651  —     —     (651
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance August 2, 2020
   60,422,212   $604   $526,253    12,827,300   $(595,728 $(12,077 $331,319  $250,371 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
  
Thirteen Weeks Ended 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 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
Thirteen Weeks Ended August 4, 2019
 
   
Common Stock
   
Paid-In

Capital
   
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  
Total
 
   
Shares
   
Amt.
   
 
   
Shares
   
Amt.
  
 
  
 
  
 
 
Balance May 5, 2019
   43,323,049   $433   $333,515    6,958,291   $(361,186) $(3,408) $390,771  $360,125 
Net income
   —      —      —      —      —     —     32,356   32,356 
Unrealized foreign currency translation gain
   —      —      —      —      —     134   —     134 
Unrealized loss
on
derivatives, net of tax
   —      —      —      —      —     (3,373)  —     (3,373
Share-based compensation
   —      —      1,907    —      —     —     —     1,907 
Issuance of common stock
   14,076    —      177    —      —     —     —     177 
Repurchase of common stock
   —      —        3,400,000    (136,676)  —     —     (136,676
Dividends declared ($0.15 per share)
   —      —      —      —      —     —     (5,348)  (5,348
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance August 4, 2019
   43,337,125   $433   $335,599    10,358,291   $(497,862) $(6,647) $417,779  $249,302 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
 
6

Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
 
   
Twenty-Six
Weeks Ended August 2, 2020
 
   
Common Stock
   
Paid-In

Capital
   
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  
Total
 
   
Shares
   
Amt.
   
 
   
Shares
   
Amt.
  
 
  
 
  
 
 
Balance February 2, 2020
   43,386,852   $434   $339,161    12,783,512   $(595,041 $(8,369 $433,465  $169,650 
Net loss
   —      —      —      —      —     —     (102,146  (102,146
Unrealized foreign currency translation loss
   —      —      —      —      —     (131  —     (131
Unrealized loss
on
derivatives, net of tax
   —      —      —      —      —     (3,577  —     (3,577
Share-based compensation
   —      —      2,345    —      —     —     —     2,345 
Issuance of common stock
   17,035,360    170    184,747    —      —     —     —     184,917 
Repurchase of common stock
   —      —      —      43,788    (687  —     —     (687
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance August 2, 2020
   60,422,212   $604   $526,253    12,827,300   $(595,728 $(12,077 $331,319  $250,371 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
  
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 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
Twenty-Six
Weeks Ended August 4, 2019
 
   
Common Stock
   
Paid-In

Capital
   
Treasury Stock
At Cost
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  
Total
 
   
Shares
   
Amt.
   
 
   
Shares
   
Amt.
  
 
  
 
  
 
 
Balance February 3, 2019
   43,177,476   $432   $331,255    5,655,391   $(297,129 $(683 $353,962  $387,837 
Cumulative effect of a change in accounting principle, net of tax
             (145  (145
Net income
   —      —      —      —      —     —     74,799   74,799 
Unrealized foreign currency translation loss
   —      —      —      —      —     (57  —     (57
Unrealized loss
on
derivatives, net of tax
   —      —      —      —      —     (5,907  —     (5,907
Share-based compensation
   —      —      3,732    —      —     —     —     3,732 
Issuance of common stock
   159,649    1    612    —      —     —     —     613 
Repurchase of common stock
   —      —        4,702,900    (200,733  —     —     (200,733
Dividends declared ($0.30 per share)
   —      —      —      —      —     —     (10,837  (10,837
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance August 4, 2019
   43,337,125   $433   $335,599    10,358,291   $(497,862 $(6,647 $417,779  $249,302 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
 
7

DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
  
Twenty-Six Weeks

Ended
 
Twenty-Six Weeks

Ended
 
August 2, 2020
 
August 4, 2019
   
November 1,
 
2020
 
November 3,
 
2019
 
Cash flows from operating activities:
      
Net income (loss)
  $(102,146 $74,799   $(150,189 $75,281 
Adjustments to reconcile net income to net cash provided by operating activities:
      
Depreciation and amortization expense
   70,512   63,886    104,896  97,226 
Non-cash
interest expense
   2,201   —      4,088   0   
Impairment of long-lived assets
   13,727   —      13,727   0   
Deferred taxes
   (31,609  4,659    (17,730 5,309 
Loss on disposal of fixed assets
   417   826    541  1,284 
Loss on debt refinance
   904   0   
Share-based compensation
   2,345   3,732    5,344  5,479 
Other, net
   173   376    1,292  928 
Changes in assets and liabilities:
      
Inventories
   3,288   (94   7,745  (5,305
Prepaid expenses
   2,089   (4,811   2,761  (615
Income tax receivable
   (21,474  311    (42,243 (996
Other current assets
   2,311   (444   2,580  6,050 
Other assets and deferred charges
   107   (1,163   (3 (1,775
Accounts payable
   6,646   (428   (11,945 5,422 
Accrued liabilities
   37,522   22,057    44,742  37,671 
Income taxes payable
   (2,430  (7,362   (2,639 (10,079
Other liabilities
   2,817   346    4,375  1,909 
  
 
  
 
   
 
  
 
 
Net cash provided by
(us
e
d in
)
operating activities
   (13,504  156,690 
Net cash provided by (used in) operating activities
   (31,754 217,789 
  
 
  
 
   
 
  
 
 
Cash flows from investing activities:
      
Capital expenditures
   (63,486  (117,875   (72,604 (172,888
Proceeds from sales of property and equipment
   152   375    234  615 
  
 
  
 
   
 
  
 
 
Net cash used in investing activities
   (63,334  (117,500   (72,370 (172,273
  
 
  
 
   
 
  
 
 
Cash flows from financing activities:
      
Proceeds from debt
   138,000   233,000    688,000  366,000 
Payments of debt
   (38,500  (59,500   (760,250 (104,250
Net proceeds from the issuance of common stock
   182,207   —      182,207   0   
Proceeds from the exercise of stock options
   359   613    465  778 
Repurchase of common stock under share repurchase program
   —     (200,147   0    (297,317
Dividends paid
   (4,891  (10,837   (4,891 (10,837
Debt issuance costs
   (16,805  0   
Repurchases of common stock to satisfy employee withholding tax obligations
   (687  (586   (916 (595
  
 
  
 
   
 
  
 
 
Net cash provided by (used in) financing activities
   276,488   (37,457   87,810  (46,221
  
 
  
 
   
 
  
 
 
Increase in cash and cash equivalents
   199,650   1,733 
Decrease
in cash and cash equivalents
   (16,314 (705
Beginning cash and cash equivalents
   24,655   21,585    24,655  21,585 
  
 
  
 
   
 
  
 
 
Ending cash and cash equivalents
  $224,305  $23,318   $8,341  $20,880 
  
 
  
 
   
 
  
 
 
Supplemental disclosures of cash flow information:
      
Decrease in fixed asset accounts payable
  $(12,466 $(6,101  $(12,315 $(311
Cash paid for income taxes, net
  $752  $22,850 
Cash paid (refund received) for income taxes, net
  $(9,281 $26,086 
Cash paid for interest, net
  $11,295  $8,050   $17,306  $13,920 
Dividend declared, not paid
  $0    $4,887 
See accompanying notes to consolidated financial statements.
 
8

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
The accompanying unaudited consolidated financial statements include the accounts of Dave & Buster’s Entertainment, Inc. (referred to herein as the “Company”, “we,” “us” and “our”), any predecessor companies and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”), which owns 100% of the outstanding common stock of Dave & Busters, Inc. (“D&B Inc”), the operating company. All intercompany balances and transactions have been eliminated in consolidation. The Company, headquartered in Dallas, Texas, is a leading operator of high-volume entertainment and dining venues (“stores”) in North America for adults and families under the name “Dave & Buster’s”. The Company operates its business as 1 operating and 1 reportable segment. During the
thirty-
nine
weeks ended November 1, 2020, management made the decision to not
re-open
two stores located in the Chicago, Illinois area and Houston,
Texas area, which are near the end of their respective lease terms, and
we opened two new stores located in Manchester, New Hampshire and Lehigh, Pennsylvania. As of August 2,November 1, 2020, we owned and operated 137 stores located in 3940 states, Puerto Rico and 1 Canadian province.
The Company operates on a 52 or
53-week
fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period reported has 13 weeks. Fiscal 2020 and 2019, which end on January 31, 2021 and February 2, 2020, respectively, contain 52 weeks.
The Company’s financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information as prescribed by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Our quarterly financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended February 2, 2020, included in our Annual Report on Form
10-K
as filed with the SEC.
Going concern —COVID-19 Considerations
During
— 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 period from March 14, 2020 todining room or midway. By March 20, 2020, the Company
c
losed
100
%all of its
our 137
operating stores in compliance with guidance and orders issued by federal, state and local governments to combat the spread of the
COVID-19
pandemic. The extent of impact of these conditions will be based in partwere temporarily closed (including our one new store that opened on the duration of the store closures orMarch 16).
re-opening
of stores at full capacity and the timing and extent of customers
re-engaging
with the brand.
During our first quarter, one store
re-opened
to the public with limited food and beverage offerings and 2 additional stores offered
off-premise
dining options. During our second quarter,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).
83
As of November 1, 2020, 104 of our 137 stores were open, in
27
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 endthird quarter, some local and state governments began to roll back their re-opening plans in light of our second quarter, we
re-opened
one store and opened a new store located in Manchester, New Hampshire.climbing COVID-19 case counts. As of SeptemberDecember 4, 2020, 524
8
 stores arewere closed due to jurisdictional restrictions.    The Company is unable to determine whether, when or the manner in which the conditions surrounding the
COVID-19
pandemic will change, including when any restrictions or closure requirements will be lifted or potentially
re-imposed
in certain states or local jurisdictions, whether it will be able to successfully staff stores, and the degree to which it will be able to
re-engage
customers. These developments have caused a material adverse impact on the Company’s revenues, results of operations and cash flows, including the Company’s ability to meet its obligations when due. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date the financial statements are issued.
The Company has taken several steps to reduce operating costs and to conserve cash. The Company initially furloughed nearly all its workforce, except a small team of essential personnel and temporarily reduced pay and benefits for the remaining employees for a twelve-week period. On March 18, 2020, the Company borrowed substantially all the remaining availability under its revolving credit facility, and the Company continues to actively manage its daily cash flows. During our first and second quarter, the Company obtained additional liquidity through the sale of common stock, which resulted been
in net proceeds of $182,207.
Additionally, the Company initiated ongoing discussions with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations. As of August 2,November 1, 2020, a total of 92123 rent relief agreements related to our operating locations and corporate headquarters were executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations. We have also been successful in negotiating extended and reduced payment terms with several vendors. In addition to reducing expenses, including capital expenditures and
discretionary spending
, the Company obtained additional liquidity through the sale of common stock during our first and second quarters, which resulted in net proceeds of $182,207.
On
 October
27,
2020, D&B Inc, a wholly owned subsidiary, completed the private sale of $550,000 in aggregate principal amount of 7.625% senior secured notes due 2025. At the same time,
the
revolving credit commitments under our existing credit facility
were extended
through August 17, 2024
,
and the suspension of our financial ratio covenants
was extended
until
the
last
day
of
the first quarter of fiscal year 2022.
See Note 3, Debt,
for more information on these transactions.
Effective April 14, 2020,
The measures taken by the Company negotiated an amendmentprovide sufficient liquidity to its existing credit facility, which included reliefmeet estimated cash flow needs and covenant compliance obligations for at least the next twelve months from compliance with financial covenants for the periods ended May 3, 2020, August 2, 2020 and November 1, 2020. Duringissuance of the financial covenant suspension period, the Company is required to maintain a minimum liquidity amount of $30,000. If the Company is not in compliance with financial covenants after the suspension period or some other event of default arises, the Company’s lenders could instruct the administrative agent under the existing credit facility to exercise remedies including declaring the principal of and accrued interest on all outstanding indebtedness due and payable, terminating all remaining commitments and obligations under the revolving credit facility and requiring the posting of cash collateral in respect of 103% 
of
the outstanding letters of credit under the revolving credit facility. Additionally, the full amount due under the interest rate swapstatements.
9

agreements would become due. Although the lenders under the existing credit facility may waive the default or forebear the exercise of remedies, they are not obligated to do so. Failure to obtain additional waivers would have a material adverse effect on the Company’s liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code to implement a restructuring plan.
The consolidated financial statements have been prepared assuming the Company will continue as a going concern.
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from those estimates. Operating results for the
twenty-six
 thirteen and
thirty-nine weeks ended August 2,November 1, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending January 31, 2021.
Cash and cash equivalents
— We consider transaction settlements in process from credit card companies and all highly-liquid investments with
original maturities of three months or less to be cash equivalents. Our cash management system provides for the daily funding of all major bank disbursement accounts as checks are presented for payment. Under this system, outstanding checks in excess of the cash balances at certain banks creates book overdrafts. There was 0 book overdraft as of August 2,November 1, 2020. A book overdraft of $14,026 is presented in “Accounts payable” in the Consolidated Balance Sheets as of February 2, 2020. Changes in the book overdraft position are presented within “Net cash provided by
(used (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 reflect 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.
The disruption in operations and reduction in revenues have led the Company to consider the impact of the
COVID-19
pandemic on the recoverability of its property and equipment and ROU assets for operating leases.
During the first quarter
of
fiscal
2020, each store’s past and present operating performance was reviewed in combination with projected future results primarily through projected undiscounted cash flows that included management’s current expectation of future financial impacts from
COVID-19.
If the store’s assets
were
not
determined to be
recoverable
through comparison of the asset’s carrying value to its undiscounted cash flows, the Company compared the carrying amount of each store’s assets to its fair value as estimated by management to calculate the impairment amount The fair value of the store’s assets is generally determined using a discounted cash flow projection model, which is based on Level Three inputs. Store asset impairment charges represent the excess of the carrying amount over the estimated fair value of the store asset.
The Company recorded an impairment charge for its long-lived assets, including ROU assets, of $6,746, during the
first qu
ar
ter of fis
c
al
2020, primarily driven by the expected impact of the
COVID-19
pandemic on future cash flows of specific stores.
During the second quarterand 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
a
dditional
additional impairment related to our operating stores was recognized
.
recognized. The Company has determined no events and circumstances existed during the
twenty-six
week
s
thirty-nine weeks ended August 2,November 1, 2020 that would indicate it is more likely than not that its goodwill or tradename are impaired. The ultimate severity and longevity of the
COVID-19
pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.
Additionally, the Company
is c
ontinu
ing
continuing discussions to terminate or delay possession on several executed lease contracts that have not yet commenced. The Company ishas also curtailingcurtailed several potential new store projects that were in the early stage of development. During the thirteen and
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, we recorded an impairment loss and related contract termination costs of $2,178$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).
10

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%. 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 initially designated its interest rate swap agreements as a cash flow hedge and accounted for the underlying activity in accordance with hedge accounting. Effective April 14, 2020, the Company amended its existing credit facility agreement to obtain relief from its financial covenants, and as a result, the variable interest rate terms were modified to create an interest rate floor
of
1.00%. Accordingly, and as a result of the current forward interest rate curve, the Company discontinued the hedging relationship as of April 14, 2020
(de-designation
date). Given the continued existence of the hedged interest payments, the Company will reclassifyis
10

reclassifying its accumulated other comprehensive
loss
of $
17,609
as of the de-
d
e
si
gnationde-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 $
1,8871,886
and $
2,2014,088
for the thirt
eenthirteen and twenty
-sixthirty-nine weeks ended August 2,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
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, a gain of $
218
and a loss of $
9761,578
and $
1,796
waswere recognized,
respectively,
which
are
included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
Prior to the
de-designation,
changes in the fair values of the interest rate swaps were recorded as a component of other comprehensive loss until the interest payments being hedged were recorded as interest expense, at which time the amounts in accumulated other comprehensive loss were reclassified as an adjustment to interest expense. Cash flows related to the interest rate swaps were
included as a component
of interest expense and in operating activities.
Credit risk related to the failure of the our counterparties to perform under the terms of the swap agreements is minimized by entering into transactions with carefully selected, credit-worthy parties and the fact that the swap contracts are distributed among several financial institutions to reduce the concentration of credit risk. Our swap agreements with our derivative counterparties contain a provision where if the Company defaults on any of its indebtedness, and repayment of the indebtedness has been accelerated, the Company could also be declared in default on its derivative obligations.
The following derivative instruments were outstanding as of the end of the periods indicated:
 
       
Fair Value
 
   
Balance Sheet Location
   
August 2, 2020
   
February 2, 2020
 
Interest rate swaps
   Accrued liabilities   $(8,215  $(3,518
Interest rate swaps
   Other liabilities    (8,724   (6,967
    
 
 
   
 
 
 
Total derivatives (1)
    $(16,939  $(10,485
    
 
 
   
 
 
 
 
  
 
 
  
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 August 2,November 1, 2020 relates to our swap agreements after hedge accounting was discontinued, effective April 14, 2020.
The following table summarizes the activity in accumulated other comprehensive loss related to our derivative instruments:
 
   
Thirteen Weeks Ended
   
Twenty-six
Weeks Ended
 
  
August 2, 2020
   
August 4, 2019
   
August 2, 2020
   
August 4, 2019
 
Amount of loss recorded in accumulated other comprehensive income
  $—      4,668   $7,602    8,140 
Amount of loss reclassified into income (1)
  $(1,887   (27  $(2,680   (12
Income tax expense (benefit) in accumulated other comprehensive income
  $515    (1,268  $(1,345   (2,221
   
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 income are included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income (Loss).
Revenue recognition
— Amusement revenues are primarily recognized upon utilization of game play credits on power cards purchased and used by customers to activate video and redemption games. Redemption games allow customers to earn tickets, which may be redeemed for prizes in our WIN! area. We have deferred a portion of amusement revenues for the estimated unfulfilled performance obligations based on an estimated rate of future use by customers of unused game play credits and the material right provided to customers to redeem tickets in the future for prizes. During the thirteen and twenty-sixthirty-nine weeks ended August 2,November 1, 2020, we recognized revenue of approximately $
2,500$3,300 and $
12,100
,$15,400, respectively, related to the amount in deferred amusement revenue as of the end of fiscal 2019.
2019
11
.

In jurisdictions where we do not have a legal
obligation
to remit unredeemed gift card balances to a legal authority, we recognize revenue on unredeemed gift cards in proportion to the pattern of redemption by the customers. During the thirteen and
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, we recognized revenue of approximately $
140
$640 and $1,440,$2,080, respectively, related to the amount in deferred gift card revenue as of the end of fiscal 2019, of which approximately $
40
$380 and $210$590 was
breakage revenue.
11

Stockholders’ equity
— Our Board
of Directors has approved a share repurchase program under which the Company may repurchase shares on the open market, through privately negotiated transactions and through trading plans. The total share repurchase authorization is $800,000 $
800,000
and the share repurchase authorization expires at the end of fiscal 2020.
During the first quarter of fiscal 2020,
twenty-six
week
s
ended August 2, 2020, the Company indefinitely
suspended all share repurchase activity. As of August 2, 2020, we have approximately $172,820 $
172,820
of share repurchase authorization remaining under the current plan.
In our consolidated financial statements, the Company treats shares withheld for tax purposes on behalf of our employees in connection with the vesting of time-based and performance restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan. During the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 and August 4,November 3, 2019, we withheld 43,78858,189 and 11,33611,536 shares of common stock to satisfy $687$916 and $586$595 of employees’ tax obligations, respectively. The share activity in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 includes the settlements of $2,351$2,517 cash obligations through the issuance of 150,455160,540 shares of common stock.
Effective March 18, 2020, the Board of Directors of the Company adopted a
364-day
duration Shareholder Rights Plan (the “Rights Plan”) and declared a dividend of one preferred share purchase right for each outstanding share of common stock to shareholders of record on March 30, 2020 to purchase from the Company
one-ten
thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company for an exercise price of $45.00 once the rights become exercisable, subject to adjustment as provided in the related rights agreement.
On April 14, 2020, pursuant to an open market sale agreement, the Company sold 6,149,936 shares of its common stock at a price of $12.20 per share, for proceeds of $75,000, prior to deducting offering expenses related to the offering. On May 4, 2020, the Company entered into an underwriting agreement, pursuant to which it sold 9,578,545 shares of its common stock at a price of $10.44 per share, and on May 18, 2020, the underwriter exercised its over-allotment option for an additional 1,014,871 shares at $10.44 per share, resulting in additional proceeds of $110,600 prior to deducting offering costs.
On June 23, 2020, shareholders approved a proposal to amend our 2014 Omnibus Incentive Plan (“Plan”) to increase the number of shares available for awards under the Plan by 3,000,000 shares.
Recently adopted accounting guidance
— In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU
2016-13
, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
which requires measurement and recognition of expected versus incurred losses for financial assets held. The guidance primarily relates to our credit card and tenant incentive receivables. The Company adopted this standard as of the beginning of fiscal year 2020, and the adoption did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU
2017-04
, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company adopted this standard as of the beginning of fiscal year 2020, and the adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
, which eliminates, modifies and adds disclosure requirements for fair value measurements. The Company adopted this standard as of the beginning of fiscal year 2020, and the adoption did not have a material impact on our consolidated financial statements.
Recent accounting pronouncements
— In
December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
, which removes certain exceptions related to the approach for
intraperiod
tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for taxable goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those years, with early adoption permitted. The Company is currently assessing the impact of this new standard on our consolidated financial statements.
12

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 firstthird quarter of fiscal 2020, the Company’s exposure to LIBOR rates included its senior credit facility and swap agreements. The Company is currently evaluating the impact of this new standard on our consolidated financial statements.
12

Note 2: Accrued Liabilities
Accrued liabilities consist of the following as of the end of each period:
 
   
August 2, 2020
   
February 2, 2020
 
Deferred amusement revenue
  $78,159   $75,113 
Current portion of operating lease liabilities, net (1)
   52,636    45,611 
Rent payable (note 4)
   31,589    —   
Variable rent liabilities (note 4)
  
9,037
 
  
 
1,331
 
Deferred gift card revenue
   10,832    11,253 
Property taxes
   9,936    7,226 
Compensation and benefits
   8,664    23,421 
Current portion of derivatives
   8,215    3,518 
Current portion of long-term insurance
   6,200    6,500 
Utilities
   4,219    4,442 
Customer deposits
   1,840    4,324 
Inventory liabilities
   1,737    2,179 
Sales and use taxes
   973    4,000 
Dividend payable
   —      4,891 
Other
   14,614    13,643 
  
 
 
   
 
 
 
Total accrued liabilities
  $238,651   $207,452 
  
 
 
   
 
 
 
   
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 $2,231$5,434 and $6,339 at August 2,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:
 
   
August 2, 2020
   
February 2, 2020
 
Credit facility
term
  $258,750   $266,250 
Credit facility
revolver
   489,000    382,000 
  
 
 
   
 
 
 
Total debt outstanding
   747,750    648,250 
Current installments
term
   (15,000   (15,000
Debt issuance costs
term
   (1,104   (561
  
 
 
   
 
 
 
Long-term debt, net
  $731,646   $632,689 
  
 
 
   
 
 
 
   
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

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 August 2,November 1, 2020, approximately $3,300 of these debt costs had not been paid. The Company also recorded a loss of $904 related to the unamortized debt costs associated with the term portion of the credit facility.
For the thirty-nine weeks ended November 1, 2020, and November 3, 2019, the Company’s weighted average interest rate on outstanding borrowings was 4.17% and 4.03%, respectively. As of November 1, 2020, we had letters of credit outstanding of $9,686 and an unused commitment balance of $1,314$464,314 under of
the
revolving credit facility.
13

The interest rates per annum applicable to loans, other than swing loans, under our existing credit facility are currently set based on a defined LIBOR rate plus an applicable margin. Swing loans bear interest at a base rate plus an applicable margin.
The loans bear interest subject to a pricing grid based on a total leverage ratio, at one-month LIBOR plus a spread ranging from 1.25% to 2.00% for the term loans and the revolving loans.
Our credit facility containsand Notes contain restrictive covenants that, among other things, place certain limitations on our ability to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. In addition, our credit facility requires us to maintain certain financial ratio covenants.
Effective April 14, 2020, we amended our existing credit facility, which included relief from compliance with financial covenants for the quarterly periods ended May 3, 2020, August 2, 2020 and November 1, 2020. During the financial covenant suspension period, a $30,000 liquidity covenant was added as well as certain additional reporting requirements, and the termination of additional borrowings under our revolving credit facility during the suspension period. The interest rate increased to LIBOR plus 2.00% with a LIBOR floor of 1.00%. For the
twenty-six
weeks ended August 2, 2020,
and August 4, 2019, the Company’s weighted average interest rate on outstanding borrowings was 3.98% and 4.11%, respectively. In connection with the amendment, we incurred debt costs of $2,000, which are being amortized over the life of the credit facility. These costs are payable at the maturity date of the credit facility, with earlier payment required in the event of certain conditions, as defined in the agreement.
Interest expense, net
— The following table sets forth our recorded interest expense, net for the periods indicated:
 
   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
  
August 2, 2020
   
August 4, 2019
   
August 2, 2020
   
August 4, 2019
 
Interest expense on credit facilities
  $5,865    4,708   $11,163    8,903 
Interest associated with swap agreements
  
1,887
 
  
 
27
 
  
 
2,680
 
  
 
12
 
Amortization of issuance cost
   411    198    654    396 
Interest income
   0      (25   (22   (51
Capitalized interest
   0      (303   (197   (599
  
 
 
   
 
 
   
 
 
   
 
 
 
Total interest expense, net
  $8,163   $4,605   $14,278   $8,661 
   
Thirteen Weeks Ended
   
Thirty-Nine Weeks Ended
 
  
November 1, 2020
   
November 3, 2019
   
November 1, 2020
   
November 3, 2019
 
Interest expense on
debt
  $6,092    5,769   $17,255    14,672 
Interest associated with swap agreements
   1,886    326    4,566    338 
Amortization of issuance cost
   427    198    1,081    594 
Interest income
   —      (24   (22   (75
Capitalized interest
   (192   (159   (389   (758
  
 
 
   
 
 
   
 
 
   
 
 
 
Total interest expense, net
  $8,213   $6,110   $22,491   $14,771 
  
 
 
   
 
 
   
 
 
   
 
 
 
Note 4: Leases
We currently lease the building or site for our stores, corporate office and warehouse space under facility operating leases. These leases typically have initial terms ranging from ten to twenty years and include one or more options to renew. When determining the lease term, we include option periods for which renewal is reasonably certain. Most of the leases require us to pay property taxes, insurance and maintenance of the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating leases also includes certain equipment leases that have a term in excess of one year. Certain facility leases also have provisions for additional contingent rentals based on revenues.
Operating lease cost, variable lease cost and short-term lease cost related primarily to our facilities is included in “Other store operating expenses” for our operating stores,
“Pre-opening
costs” for our stores not yet operating, or “General and administrative expenses” for our corporate office and warehouse, in the Consolidated Statements of Comprehensive Income (Loss).
14

The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are as follows for the fiscal year ended:
 
   
Thirteen Weeks Ended
   
Twenty-six
Weeks Ended
 
  
August 2, 2020
   
August 4, 2019
   
August 2, 2020
   
August 4, 2019
 
Operating lease cost
  $
33,321
    30,448   $
66,884
    60,240 
Variable lease cost
  
5,688
   6,713   
13,054
   14,643 
Short-term lease cost
  
140
   116   
227
   217 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $39,149   $37,277   $80,165   $75,100 
  
 
 
   
 
 
   
 
 
   
 
 
 
14

   
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
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, the Company entered into 92123 rent relief agreements with our respective landlords on operating locations and our corporate headquarters. Under these agreements, certain rent payments will be abated, deferred or modified without penalty for various periods, generally providing for full deferral for three months beginning April 2020, with partial deferrals continuing for periods of up to six months at approximately 50% of those locations. The Company has elected to account for lease concessions and deferrals resulting directly from
COVID-19
as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications, unless the concession results in a substantial increase in the Company’s obligations. During the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, 84113 of our 92123 rent relief agreements qualified for this accounting election, and the remaining eight agreements were treated as lease modifications, primarily due to a significant extension of the lease term. Further, as a result of the
COVID-19
pandemic and its impact on our financial condition, the Company has chosen not to pay the majorityrent or to pay a portion of its remaining facility operating lease obligations as they become due for eight properties without rent relief agreements as of the end of the secondthird quarter. As of August 2,November 1, 2020, we have bifurcated our current operating lease liabilities into the portion that remains subject to accretion and the portion that is accounted for as a deferral of payments or as short payments.
Note 5: Commitments and Contingencies
We are subject to certain legal proceedings and claims that arise in the ordinary course of our business, including claims alleging violations of federal and state law regarding workplace and employment matters, discrimination,
slip-and-fall
and other guest-related incidents, and similar matters. In the opinion of management, based upon consultation with legal counsel, the amount of ultimate liability with respect to such legal proceedings and claims will not materially affect the consolidated results of our operations or our financial condition. Legal costs related to such claims are expensed as incurred.
The Company is currently a defendant in several lawsuits filed in courts in California alleging violations of California Business and Professions Code, industry wage orders,
wage-and-hour
laws and rules and regulations pertaining primarily to the failure to pay proper regular and overtime wages, failure to pay for missed meals and rest periods, pay stub violations, failure to pay all wages due at the time of termination and other employment related claims (the “California Cases”). Some of the California Cases purport or may be determined to be class actions or Private Attorneys General Act representative actions and seek substantial damages and penalties. With respect to a portion of the California Cases, the Company has estimated and accrued for the most likely amount of loss. Where the Company has determined that a loss is reasonably possible but not probable, the Company is unable to estimate the amount or range of the reasonably possible loss due to the inherent difficulties of predicting the outcome of uncertainties regarding legal proceedings. The Company’s assessments are based on assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. Management’s assessment of these California Cases
, as well as other lawsuits,
could change because of future determinations or the discovery of facts that are not presently known. Accordingly, the ultimate costs of resolving these cases may be substantially higher or lower than estimated. The Company is aggressively defending these cases.
Note 6: Earnings per share
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and unvested), unvested time-based restricted stock units (RSU’s) and unvested performance RSU’s to the extent performance measures were attained as of the end of the reporting period, calculated using the treasury-stock method. Potential dilutive shares are excluded from the computation of earnings per share (“EPS”) if their effect is anti-dilutive. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation. The weighted average anti-dilutive options excluded from the calculation of common equivalent shares were 160,967235,368 and 97,502134,450 in the thirteen and
twenty-six
thirty-nine weeks ended August 4,November 3, 2019.
 
15

The following table sets forth the computation of EPS, basic and diluted for the periods indicated:
   
Thirteen Weeks
Ended
November 1, 2020
  
Thirteen Weeks
Ended
November 3, 2019
 
Numerator:
   
Net income (loss)
  $(48,043 $482 
Denominator:
   
Weighted average number of common shares
outstanding (basic)
   47,613,741   30,980,878 
Weighted average dilutive impact of equity-based
awards (1)
   —     534,576 
Weighted average number of common and common equivalent shares outstanding (diluted)
   47,613,741   31,515,454 
Net income (loss) per share:
   
Basic
  $(1.01 $0.02 
Diluted
  $ (1.01 $0.02 
   
 
  
Thirty-Nine Weeks

Ended

November 1, 2020
 
  
Thirty-Nine Weeks

Ended

November 3, 2019
 
Numerator:
  
   
  
   
Net income (loss)
  
$
(150,189
  
$
75,281
 
Denominator:
  
   
  
   
Weighted average number of common shares outstanding (basic)
  
 
42,185,163
 
  
 
34,405,503
 
Weighted average dilutive impact of equity-based awards (1)
  
 
—  
 
  
 
636,808
 
Weighted average number of common and common equivalent shares outstanding (diluted)
  
 
42,185,163
 
  
 
35,042,311
 
Net income (loss) per share:
  
   
  
   
Basic
  
$
(3.56
  
$
2.19
 
Diluted
  
$
(3.56
  
$
2.15
 
 
   
Thirteen Weeks
   
Thirteen Weeks
 
   
Ended
   
Ended
 
   
August 2, 2020
   
August 4, 2019
 
Numerator:
    
Net income (loss)
  $(58,602  $32,356 
Denominator:
    
Weighted average number of common shares
 
outstanding (basic)
   47,111,763    35,407,965 
Weighted average dilutive impact of equity-based
 
awards (1)
   —      607,745 
Weighted average number of common and common
 
equivalent shares outstanding (diluted)
   47,111,763    36,015,710 
Net income (loss) per share:
    
Basic
  $(1.24  $0.91 
Diluted
  $(1.24  $0.90 
(1)
   
Twenty-Six Weeks

Ended
August 2, 2020
   
Twenty-Six Weeks

Ended
August 4, 2019
 
Numerator:
    
Net income (loss)
  $(102,146  $74,799 
Denominator:
    
Weighted average number of common shares outstanding (basic)
   39,470,874    36,117,815 
Weighted average dilutive impact of equity-based awards (1)
   —      685,186 
Weighted average number of common and common equivalent shares
outstanding (diluted)
   39,470,874    36,803,001 
Net income (loss) per share:
    
Basic
  $(2.59  $2.07 
Diluted
  $(2.59  $2.03 
(1)
Due to the net loss for the thirteen and
twenty-six
thirty-nine weeks ended August 2,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’srestricted stock units (“RSU’s”) is included in general
General
and
administrative expenses
” in the Consolidated Statements of Comprehensive Income (Loss)
and is as follows:
 
  
Thirteen Weeks Ended
   
Twenty-six
Weeks Ended
   
Thirteen Weeks Ended
   
Thirty-Nine Weeks Ended
 
August 2, 2020
   
August 4, 2019
   
August 2, 2020
   
August 4, 2019
 
November 1, 2020
   
November 3, 2019
   
November 1, 2020
   
November 3, 2019
 
Stock options
  $290    804   $830    1,563   $269    731   $1,099    2,294 
RSU’s
   2,444    1,103    1,515    2,169    2,730    1,016    4,245    3,185 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Share-based compensation expense
  $2,734   $1,907   $2,345   $3,732   $2,999   $1,747   $5,344   $5,479 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
16

Transactions related to stock option awards during the
twenty-six
thirty-nine weeks ended August 
2
,
November 1, 2020
were as follows:
 
   
2014 Stock Incentive Plan
   
2010 Stock Incentive Plan
 
   
Number
   
Wtd. Avg.
   
Number
   
Wtd. Avg.
 
  
of Options
   
Exercise Price
   
of Options
   
Exercise Price
 
Outstanding at February 2, 2020
   1,323,495   $36.97    266,900   $6.72 
Granted
   —      —      —      —   
Exercised
   —      —      (79,142)   4.54 
Forfeited
   (82,741)   38.60    —      —   
  
 
 
   
 
 
   
 
 
   
 
 
 
Outstanding at August 2, 2020
   1,240,754   $36.86    187,758   $7.64 
  
 
 
   
 
 
   
 
 
   
 
 
 
Exercisable at August 2, 2020
   1,037,513   $34.49    187,758   $7.64 
  
 
 
   
 
 
   
 
 
   
 
 
 
16

   
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
twenty-six
thirty-nine weeks ended August 
2
,
November 1, 2020
was $
792
.$904. The unrecognized expense related to our stock option plan totaled approximately $
1,157
$869 as of August 
2
,
November 1, 2020
and will be expensed over a weighted average period of
1.5
1.2 years.
Transactions related to time-based and performance-based RSU’s during the
twenty-six
thirty-nine weeks ended August 
2
,
November 1, 2020,
, were as follows:
 
       
Wtd. Avg.
 
    
Shares
   
Fair Value
 
Outstanding at February 2, 2020
   216,815   $51.58 
Granted
   1,061,926    12.74 
Change in performance units
   4,352    59.67 
Vested
   (62,411   53.81 
Forfeited
   (48,409   28.14 
  
 
 
   
 
 
 
Outstanding at August 2, 2020
   1,172,273   $17.27 
  
 
 
   
 
 
 
   
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 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 was $12,658$9,919 as of August 2,November 1, 2020 and will be expensed over a weighted average period of 2.32.2 years.
During the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 and August 4,November 3, 2019, excess tax expense (benefit) of $477$431 and ($884)912), respectively, were recognized as an expense (benefit) in the “Provision (benefit) for income taxes” in the Consolidated Statement of Comprehensive Income (Loss) and classified as a source in operating activities in the Consolidated Statement of Cash Flows.
Note 8: Income Taxes
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Intended to provide economic relief to those impacted by the
COVID-19
pandemic, the CARES Act includes provisions, among others, addressing the carryback of net operating losses for specific periods, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement
property. Additionally, the
CARES Act, in efforts to enhance business’ liquidity, provides for the deferral of the employer-paid portion of social security taxes. As of August 2,November 1, 2020, we have elected to defer employer-paid portion of social security taxes of $1,448,$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
twenty-six
thirty-nine weeks ended August 2,November 1, 2020. The effective tax rate for the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, was a benefit
of 34.9%
32.3
%, compared to an effective tax rate
expense
of 21.5%
21.3
% for the
twenty-six
thirty-nine weeks ended August 4,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 now be carried back to prior years when the statutory federal tax rate was at 35.0%
approximately
35.0
%. As of November 1, 2020, the Company has recognized a current benefit of $34,090 related to estimated fiscal year 2019 and 2020 tax net operating losses that will be carried back to recover taxes paid in
prior periods. The estimated tax benefit from the net operating losses is included in “Income taxes receivable” in the Consolidated Balance Sheets.
 
17

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the accompanying unaudited consolidated financial statements and the related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form
10-K
as filed with the Securities and Exchange Commission (“SEC”) on April 3, 2020. Unless otherwise specified, the meanings of all defined terms in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are consistent with the meanings of such terms as defined in the Notes to Unaudited Consolidated Financial Statements. This discussion contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this quarterly report as a result of various factors, including those set forth in the section entitled “Risk Factors” in our Annual Report on Form
10-K
filed with the SEC on April 3, 2020. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form
10-Q,
those results or developments may not be indicative of results or developments in subsequent periods.
Recent Developments
On March 11, 2020, the World Health Organization declared the
COVID-19
outbreak to be a global pandemic and on March 13, 2020, the United States declared a National Public Health Emergency. As a result, several state and local mandates were implemented that encouraged the practice of social distancing, placed restrictions from individuals gathering in groups and, in many areas, placed complete restrictions on
non-essential
movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions on restaurants,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.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 quarter,and third quarters, we have progressively
re-opened
limited operations in an additional 83101 stores and one new store in 27Manchester, 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. Additionally, eight stores were
re-opened
during the second quarter and subsequently closed prior to August 2, 2020, due to changes in jurisdictional operating limits. Our 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 endthird quarter, some local and state governments began to roll back their
re-opening
plans in light of our second quarter, weclimbing
re-openedCOVID-19
one store and opened a new store located in Manchester, New Hampshire.case counts. As of SeptemberDecember 4, 2020, 5248 stores arewere closed due to jurisdictional restrictions.
As a result of these developments, the Company is experiencing a significant decrease in traffic which has impacted the Company’s operating results during the thirteen and
twenty-six
thirty-nine weeks ended August 2,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 restaurantsstores 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 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;
18

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;
 
18

halted or delayed planned store openings after our one store opening in Chattanooga, TN, on March 16, 2020, including delayedwith the exception of two new stores that opened during the third quarter and several planned store openings, all of which commenced construction throughprior to the second quarter of fiscal 2020;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;
 
drew down substantially all the remaining credit available under our $500,000 revolving credit facility;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 August 2,November 1, 2020, a total of 92123 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 brand appeals to a relatively balanced mix of male and female adults, as well as families and teenagers, in low to middle-income households.
Our stores average 41,00040,000 square feet, range in size between 16,000 and 70,000 square feet and are open seven days a week, with normal hours of operation typically from 11:30 a.m. to midnight on Sunday through Thursday and 11:30 a.m. to 2:00 a.m. on Friday and Saturday.
Key Measures of Our Performance
We monitor and analyze several key performance measures to manage our business and evaluate financial and operating performance. These measures include:
Comparable store sales.
Comparable store sales are a year-over-year comparison of sales at stores open at the end of the period which have been open for at least 18 months as of the beginning of each of the fiscal years. It is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends. As of August 2,November 1, 2020, our comparable store base consisted of 115114 stores, of which 4730 stores were closed.
19

New store openings.
Our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets. The success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models. Between August 4,November 3, 2019 and August 2,November 1, 2020, we opened sevenfive new stores (six(two in fiscal 2019 and onethree 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
19

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.
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 secondthird quarter of 2020 relate to the
13-week
period ended August 2,November 1, 2020. All references to the secondthird quarter of 2019 relate to the
13-week
period ended August 4,November 3, 2019. Fiscal 2020 and fiscal 2019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
20

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 historically open with sales volumes in excess of their expected long-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 may result in significant fluctuations in quarterly results.
20

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 might be partially offset by selected menu price increases if competitively appropriate. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the
COVID-19
pandemic on us or our suppliers, third-party service providers, and/or customers.
21

Thirteen Weeks Ended August 2,November 1, 2020 Compared to Thirteen Weeks Ended August 4,November 3, 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 (loss).
 
   
Thirteen Weeks
Ended
August 2, 2020
  
Thirteen Weeks
Ended
August 4, 2019
 
Food and beverage revenues
  $17,002    33.4 $137,921    40.0
Amusement and other revenues
   33,831    66.6   206,678    60.0 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total revenues
   50,833    100.0   344,599    100.0 
Cost of food and beverage (as a percentage of food and beverage revenues)
   4,659    27.4   36,934    26.8 
Cost of amusement and other (as a percentage of amusement and other revenues)
   4,025    11.9   22,689    11.0 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total cost of products
   8,684    17.1   59,623    17.3 
Operating payroll and benefits
   13,756    27.1   80,927    23.5 
Other store operating expenses
   62,682    123.2   104,376    30.3 
General and administrative expenses
   9,278    18.3   15,991    4.6 
Depreciation and amortization expense
   35,160    69.2   32,745    9.5 
Pre-opening
costs
   2,388    4.7   4,723    1.4 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total operating costs
   131,948    259.6   298,385    86.6 
  
 
 
   
 
 
  
 
 
   
 
 
 
Operating income (loss)
   (81,115   (159.6  46,214    13.4 
Interest expense, net
   8,163    16.0   4,605    1.3 
  
 
 
   
 
 
  
 
 
   
 
 
 
Income (loss) before provision (benefit) for income taxes
   (89,278   (175.6  41,609    12.1 
Provision (benefit) for income taxes
   (30,676   (60.3  9,253    2.7 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net income (loss)
  $(58,602   (115.3)%  $32,356    9.4
  
 
 
   
 
 
  
 
 
   
 
 
 
Change in comparable store sales
(1)
     (87.0)%     (1.8)% 
Company-owned stores at end of period
(1)
     137     130 
Comparable stores at end of period
(1)
     115     99 
   
Thirteen Weeks

Ended

November 1, 2020
  
Thirteen Weeks

Ended

November 3, 2019
 
Food and beverage revenues
  $38,346    35.2 $124,637    41.6
Amusement and other revenues
   70,706    64.8   174,715    58.4 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total revenues
   109,052    100.0   299,352    100.0 
Cost of food and beverage (as a percentage of food and beverage revenues)
   10,664    27.8   33,384    26.8 
Cost of amusement and other (as a percentage of amusement and other revenues)
   7,244    10.2   18,796    10.8 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total cost of products
   17,908    16.4   52,180    17.4 
Operating payroll and benefits
   27,704    25.4   76,165    25.4 
Other store operating expenses
   70,783    64.9   110,713    37.1 
General and administrative expenses
   11,746    10.8   16,210    5.4 
Depreciation and amortization expense
   34,384    31.5   33,340    11.1 
Pre-opening
costs
   2,570    2.4   4,245    1.4 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total operating costs
   165,095    151.4   292,853    97.8 
  
 
 
   
 
 
  
 
 
   
 
 
 
Operating income (loss)
   (56,043   (51.4  6,499    2.2 
Interest expense, net
   8,213    7.6   6,110    2.1 
Loss on debt refinance
   904    0.8   —      —   
  
 
 
   
 
 
  
 
 
   
 
 
 
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 (loss)
  $(48,043   (44.1)%  $482    0.2
  
 
 
   
 
 
  
 
 
   
 
 
 
Change in comparable store sales
(1)
     (65.6)%     (4.1)% 
Company-owned stores at end of period
(1)
     137     134 
Comparable stores at end of period
(1)
     114     99 
 
(1)
As
As of the end of the secondthird quarter of fiscal 2020, 84104 of our 137 stores were open and 84 of our 114 comparable stores were open. Our total and comparable store countcounts as of the end of the secondthird quarter of fiscal 2020 excludesexclude a store in Chicago, Illinois and a store in Houston, Texas which isare near the end of itstheir respective lease termterms 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.
 
2122

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
Ended
August 2, 2020
  
Thirteen Weeks
Ended
August 4, 2019
 
Net income (loss)
  $(58,602   -115.3 $32,356    9.4
Interest expense, net
   8,163     4,605   
Provision (benefit) for income taxes
   (30,676    9,253   
Depreciation and amortization expense
   35,160     32,745   
  
 
 
    
 
 
   
EBITDA
   (45,955   -90.4  78,959    22.9
Loss on asset disposal
   264     406   
Impairment of long-lived assets
   2,178     —     
Share-based compensation
   2,734     1,907   
Pre-opening
costs
   2,388     4,723   
Other costs (1)
   (88    (13  
  
 
 
    
 
 
   
Adjusted EBITDA
  $(38,479   -75.7 $85,982    25.0
  
 
 
    
 
 
   
   
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
Ended
August 2, 2020
  
Thirteen Weeks
Ended
August 4, 2019
 
Operating income (loss)
  $(81,115   -159.6 $46,214    13.4
General and administrative expenses
   9,278     15,991   
Depreciation and amortization expense
   35,160     32,745   
Pre-opening
costs
   2,388     4,723   
  
 
 
    
 
 
   
Store Operating Income Before Depreciation and Amortization
  $(34,289   -67.5 $99,673    28.9
  
 
 
    
 
 
   
   
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 from landlords”).
 
   
Thirteen Weeks
Ended
August 2, 2020
   
Thirteen Weeks
Ended
August 4, 2019
 
New store and operating initiatives
  $1,921   $40,029 
Games
   810    6,146 
Maintenance capital
   838    4,190 
  
 
 
   
 
 
 
Total capital additions
  $3,569   $50,365 
  
 
 
   
 
 
 
Payments from landlords
  $4,014   $7,099 
   
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 
 
2223

Results of Operations
Revenues
In response to the business disruption caused by 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 has taken the following actions, related to its store operations:
Temporarily closurestemporarily closed of all of our 137 stores completed by March 20, 2020 (including our one new store opening March 16);
. On April 30, 2020, one storethe Company
re-opened
the first store to the public, with limited food and beverage offerings. Two additional stores offered limited food and beverage for
off-premises
dining; and
During the thirteen weeks ended August 2, 2020, an additional 83 stores were
re-opened.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
August 2, 2020
   
Thirteen weeks
ended
August 4, 2019
   
Change
 
Total revenues
  $50,833   $344,599   $(293,766
Total store operating weeks
   628    1,674    (1,046
Comparable store revenues
  $40,201   $308,995   $(268,794
Comparable store operating weeks
   493    1,495    (1,002
Noncomparable store revenues
  $10,435    36,487   $(26,052
Noncomparable store operating weeks
   135    179    (44
Other revenues
  $197   $(883  $1,080 
   
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 decreased $293,766,$190,300, or 85.2%63.6%, to $50,833$109,052 in the secondthird quarter of fiscal 2020 compared to total revenues of $344,599$299,352 in the secondthird quarter of fiscal 2019. The decline in revenue is attributable primarily to fewer store operating weeks in the secondthird quarter of 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 thirteen weeks ended August 2,November 1, 2020, we derived 22.2% of our total revenue from food sales, 11.2% from beverage sales, and 66.6% from amusement sales and less than 0.1% from other sources. For the thirteen weeks ended August 4, 2019, we derived 28.0%23.2% of our total revenue from food sales, 12.0% from beverage sales, 59.1%64.4% from amusement sales and 0.9%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.
Comparable store revenue decreased $268,794$170,539 or 87.0%65.6%, in the secondthird quarter of fiscal 2020 compared to the secondthird quarter of fiscal 2019, due primarily to a 67.0%33.0% reduction in comparable store operating weeks and lower customer volumes as stores
re-opened
with limited operations. During the secondthird quarter of fiscal 2020, the number of comparable stores operating increased from one68 at the beginning of the quarter to 6884 at the end of the quarter. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store performance after
re-opening
was impacted by changes in local operating restrictions and consumer reactions to changes in local
COVID-19
infection rates.
Food sales at comparable stores decreased by $77,714,$51,838, or 89.6%71.4%, to $8,982$20,793 in the secondthird quarter of fiscal 2020 from $86,696$72,631 in the secondthird quarter of fiscal 2019. Beverage sales at comparable stores decreased by $32,508,$24,936, or 87.5%69.7%, to $4,652$10,830 in the secondthird quarter of fiscal 2020 from $37,160$35,766 in the 2019 comparison period. Comparable store amusement and other revenues in the secondthird quarter of fiscal 2020 decreased by $158,572,$93,765, or 85.7%61.8%, to $26,567$57,969 from $185,139$151,734 in the comparable thirteen weeks of fiscal 2019. The
COVID-19
pandemic driven reduction in operating hours and product offerings contributed to a shift in our comparable store revenue mix away from food and beverage revenues to amusements and other revenues of approximately 600630 basis points when compared to the secondthird quarter of fiscal 2019.
Non-comparable
store revenue decreased $26,052$20,039 in the secondthird quarter of fiscal 2020 compared to the secondthird quarter of fiscal 2019, for the same reasons noted above, including 4412 net fewer store operating weeks.
 
2324

Cost of products
The total cost of products was $8,684$17,908 for the secondthird quarter of fiscal 2020 and $59,623$52,180 for the secondthird quarter of fiscal 2019. The total cost of products as a percentage of total revenues was relatively unchanged at 17.1%decreased 100 basis points to 16.4% for the secondthird quarter of fiscal 2020 compared to 17.3%17.4% for the secondthird quarter of fiscal 2019.
Cost of food and beverage products decreased to $4,659$10,664 compared to $36,934$33,384 for the secondthird quarter of fiscal 2019. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 60100 basis points to 27.4%27.8% for the secondthird quarter of fiscal 2020 from 26.8% for the secondthird quarter of fiscal 2019. Cost of food and beverage products during the secondthird quarter of 2020 was negatively impacted by a shift in mix to poultry resulting from our streamlined menu offering and food and beverage spoilage costs of approximately $500$550 associated with store closures, offset by cost reductions resulting from vendor payment negotiations.closures.
Cost of amusement and other decreased to $4,025$7,244 in the secondthird quarter of fiscal 2020 compared to $22,689$18,796 in the secondthird quarter of fiscal 2019. The costs of amusement and other, as a percentage of amusement and other revenues, increased 90decreased 60 basis points to 11.9%10.2% for the secondthird quarter of fiscal 2020 from 11.0%10.8% in the secondthird quarter of fiscal 2019, due primarily to2019. This decrease was driven by lower freight costs, lower cost per ticket and higher revenue per game play credit sold as a result of less discounting of amusement revenues, partially offset by an unfavorable shift in ticket redemption patterns.
Operating payroll and benefits
Total operating payroll and benefits decreased by $67,171,$48,461, or 83.0%63.6%, to $13,756$27,704 in the secondthird quarter of fiscal 2020 compared to $80,927$76,165 in the secondthird quarter of fiscal 2019. Nearly all of our store workforce, with the exception of a small team of essential personnel, were furloughed in
mid-March,mid-March.
returningHourly 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 360 basis points to 27.1%remained unchanged at 25.4% in both the secondthird quarter of fiscal 2020 compared to 23.5% forand the secondthird quarter of fiscal 2019. This increase was primarily due to salesFavorable results in hourly labor were offset by the deleveraging impact of management labor as a result of the temporary store closures and partially attributable to continued benefit coverage for furloughed employees. Additionally, late in the third quarter, we recalled a core group of store managers at unopened stores.
Other store operating expenses
Other store operating expenses decreased by $41,694,$39,930, or 39.9%36.1%, to $62,682$70,783 in the secondthird quarter of fiscal 2020 compared to $104,376$110,713 in the secondthird quarter of fiscal 2019. DecreasedThe decrease is primarily due to reduced spend on marketing, maintenance and other services due to temporary store closures and $1,000 insurance proceeds related to the
COVID-19
business disruptions were partially offset by a $2,178 charge for impairment of long-lived assets and a net loss on derivatives of $976.closures. Other store operating expense as a percentage of total revenues increased to 123.2%64.9% in the secondthird quarter of fiscal 2020 compared to 30.3%37.1% in the secondthird quarter of fiscal 2019. This increase was due primarily to sales deleveraging on occupancy costs and utilities as a result of the temporary store closures and the charges for impairment.closures.
General and administrative expenses
General and administrative expenses decreased by $6,713,$4,464, or 42.0%27.5%, to $9,278$11,746 in the secondthird quarter of fiscal 2020 compared to $15,991$16,210 in the secondthird quarter of fiscal 2019. The decrease in general and administrative expenses was primarily driven by lower labor costs due to the furloughingcontinued furloughs and elimination of mosta significant number of positions at our corporate employees, temporarily reducing pay and benefits for the remaining employees through the first seven weeks of the second quarter,office, lower professional services, reduced travel expenses and board of director fees. These cost reductions were partially offset by increased share-based compensation as a result of new grants issued during the second quarter.
Depreciation and amortization expense
Depreciation and amortization expense increased by $2,415$1,044 or 7.4%3.1%, to $35,160$34,384 in the secondthird quarter of fiscal 2020 compared to $32,745$33,340 in the secondthird quarter of fiscal 2019. Increased depreciation due to our 2020 and 2019 capital expenditures for new stores, operating initiatives, games and maintenance capital, was partially offset by other assets reaching the end of their depreciable lives.
Pre-opening
costs
Pre-opening
costs decreased by $2,335$1,675 to $2,388$2,570 in the secondthird quarter of fiscal 2020 compared to $4,723$4,245 in the secondthird quarter of fiscal 2019 due to a decrease in the number of new store openings in the current year, as construction was put on hold, with
pre-opening
costs being primarily limited to
pre-opening
rent expense after the disruption of our business as a result of the
COVID-19
pandemic.
 
2425

Interest expense, net & Loss on debt refinance
Interest expense, net increased by $3,558$2,103 to $8,163$8,213 in the secondthird quarter of fiscal 2020 compared to $4,605$6,110 in the secondthird quarter of fiscal 2019 due primarily to an increase in the average outstanding debt a slightly higherand an increase in the weighted average effective interest rate andrate. In connection with the absenceOctober 27, 2020 debt refinancing, which is explained in Note 3 to the Unaudited Consolidated Financial Statements, the Company recorded a charge of capitalized interest.$904 during the third quarter of fiscal 2020.
Provision (benefit) for income taxes
The effective tax rate for the thirteen weeks ended August 2,November 1, 2020, was a benefit of 34.4%26.3%, compared to an effective tax rate24.1% in the third quarter of 22.2% for the thirteen weeks ended August 4,fiscal 2019, primarily due to the impact of a decrease in operating earnings before income tax as well as the impact of provisions of the CARES Act, including technical amendments to qualified improvement property and the impact of carrying back tax net operating losses from fiscal years 2020 and 2019 back to years with a higher federal corporate income tax rate. The prior year effective tax rate was also impacted by lower projected state tax expense and the favorable impact of tax credits.
Twenty-Six
Thirty-Nine Weeks Ended August 2,November 1, 2020 Compared to
Twenty-Six
Thirty-Nine Weeks Ended August 4,November 3, 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 (loss).
 
   
Twenty-Six
Weeks
  
Twenty-Six
Weeks
 
  
Ended
  
Ended
 
  
August 2, 2020
  
August 4, 2019
 
Food and beverage revenues
  $80,922    38.4 $286,142    40.4
Amusement and other revenues
   129,717    61.6   422,039    59.6 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total revenues
   210,639    100.0   708,181    100.0 
Cost of food and beverage (as a percentage of food and beverage revenues)
   22,003    27.2   75,688    26.5 
Cost of amusement and other (as a percentage of amusement and other revenues)
   14,753    11.4   45,660    10.8 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total cost of products
   36,756    17.4   121,348    17.1 
Operating payroll and benefits
   57,493    27.3   163,800    23.1 
Other store operating expenses
   158,354    75.3   210,621    29.8 
General and administrative expenses
   23,841    11.3   32,837    4.6 
Depreciation and amortization expense
   70,512    33.5   63,886    9.0 
Pre-opening
costs
   6,211    2.9   11,725    1.7 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total operating costs
   353,167    167.7   604,217    85.3 
  
 
 
   
 
 
  
 
 
   
 
 
 
Operating income (loss)
   (142,528   (67.7  103,964    14.7 
Interest expense, net
   14,278    6.7   8,661    1.2 
  
 
 
   
 
 
  
 
 
   
 
 
 
Income (loss) before provision (benefit) for income taxes
   (156,806   (74.4  95,303    13.5 
Provision (benefit) for income taxes
   (54,660   (25.9  20,504    2.9 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net income (loss)
  $(102,146   (48.5)%  $74,799    10.6
  
 
 
   
 
 
  
 
 
   
 
 
 
Change in comparable store sales
(1)
     (72.2)%     (1.0)% 
Company-owned stores at end of period
(1)
     137     130 
Comparable stores at end of period
(1)
     115     99 
   
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 secondthird quarter of fiscal 2020, 84104 of our 137 stores were open and 84 of our 114 comparable stores were open. Our total and comparable store countcounts as of the end of the secondthird quarter of fiscal 2020 excludesexclude a store in Chicago, Illinois and a store in Houston, Texas which isare near the end of itstheir respective lease termterms 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.
 
2526

Reconciliations of
Non-GAAP
Financial Measures
Adjusted EBITDA
The following table reconciles (in dollars and as a percent of total revenues) Net income (loss) to Adjusted EBITDA for the periods indicated:
 
   
Twenty-Six
Weeks
Ended
August 2, 2020
  
Twenty-Six
Weeks
Ended
August 4, 2019
 
Net income (loss)
  $(102,146   -48.5 $74,799    10.6
Interest expense, net
   14,278     8,661   
Provision (benefit) for income taxes
   (54,660    20,504   
Depreciation and amortization expense
   70,512     63,886   
  
 
 
    
 
 
   
EBITDA
   (72,016   -34.2  167,850    23.7
Loss on asset disposal
   417     826   
Impairment of long-lived assets
   13,727     —     
Share-based compensation
   2,345     3,732   
Pre-opening
costs
   6,211     11,725   
Other costs (1)
   59     33   
  
 
 
    
 
 
   
Adjusted EBITDA
  $(49,257   -23.4 $184,166    26.0
  
 
 
    
 
 
   
   
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:
 
   
Twenty-Six
Weeks
Ended
August 2, 2020
  
Twenty-Six
Weeks
Ended
August 4, 2019
 
Operating income (loss)
  $(142,528   -67.7 $103,964    14.7
General and administrative expenses
   23,841     32,837   
Depreciation and amortization expense
   70,512     63,886   
Pre-opening
costs
   6,211     11,725   
  
 
 
    
 
 
   
Store Operating Income Before Depreciation and Amortization
  $(41,964   -19.9 $212,412    30.0
  
 
 
    
 
 
   
   
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.
 
   
Twenty-Six Weeks

Ended
August 2, 2020
   
Twenty-Six Weeks

Ended
August 4, 2019
 
New store and operating initiatives
  $40,522   $91,447 
Games
   8,718    9,842 
Maintenance capital
   1,780    10,485 
  
 
 
   
 
 
 
Total capital additions
  $51,020   $111,774 
  
 
 
   
 
 
 
Payments from landlords
  $4,014   $21,341 
   
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 
 
2627

Results of Operations
Revenues
Selected revenue and store data for the periods indicated are as follows:
 
   
Twenty-six

weeks ended
August 2, 2020
   
Twenty-six

weeks ended
August 4, 2019
   
Change
 
Total revenues
  $210,639   $708,181   $(497,542
Total store operating weeks
   1,461    3,290    (1,829
Comparable store revenues
  $179,662   $645,839   $(466,177
Comparable store operating weeks
   1,196    2,990    (1,794
Noncomparable store revenues
  $33,843   $65,968   $(32,125
Noncomparable store operating weeks
   265    300    (35
Other revenues
  $(2,866  $(3,626  $760 
   
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 decreased $497,542,$687,842, or 70.3%68.3%, to $210,639$319,691 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to total revenues of $708,181$1,007,533 in the
twenty-six
thirty-nine weeks ended August 4,November 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
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, we derived 25.3%24.6% of our total revenue from food sales, 13.1%12.7% from beverage sales, 61.1%62.2% from amusement sales and 0.5% from other sources. For the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, we derived 27.9% of our total revenue from food sales, 12.5%12.9% from beverage sales, 58.8%58.4% from amusement sales and 0.8% from other sources.
Comparable store revenue decreased $466,177,$633,411, or 72.2%70.2%, in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, due primarily to a 60.0%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 Company’s 115114 comparable stores were closed due to operating restrictions put in place by local jurisdictions in response to the
COVID-19
pandemic. Beginning April 30, 2020, we began
re-opening
our stores based on changes in operating restrictions in the various jurisdictions. As of August 2,November 1, 2020, 6884 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 increased. Individual store performance after
re-opening
was impacted by changes in local operating restrictions and consumer reactions to changes in local
COVID-19
infection rates.
Comparable
walk-in
revenues, which accounted for 94.4%96.2% of comparable store revenue for the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, decreased 71.3%68.6% compared to the similar period in fiscal 2019. Comparable store special events revenues, which accounted for 5.6%3.8% of comparable store revenue for the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, decreased 81.9%87.1% compared to the similar period in fiscal 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 $134,470,$185,463, or 74.9%73.9%, to $45,025$65,627 in the
twenty-six
thirty-nine weeks ended August 2,November1, 2020 from $179,495$251,090 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. Beverage sales at comparable stores decreased by $57,165,$81,691, or 70.7%70.4%, to $23,672$34,381 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 from $80,837$116,072 in the 2019 comparison period. Comparable store amusement and other revenues in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 decreased by $274,542,$366,257, or 71.2%68.5%, to $110,965$168,418 from $385,507$534,675 in the comparable
twenty-six
thirty-nine weeks of fiscal 2019.
Non-comparable
store revenue decreased $32,125$55,468 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to the
twenty-six
thirty-nine weeks ended August 4,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 first quarter and during the second quarter of fiscalthirty-nine week period ended November 1, 2020,
non-comparable
store revenue decreased $41,793$65,136 for the same reasons noted above, including 89122 fewer store operating weeks.
Cost of products
The total cost of products was $36,756$54,664 for the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 and $121,348$173,528 for the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. The total cost of products as a percentage of total revenues was 17.4%17.1% and 17.1%17.2% for the
twenty-six
thirty-nine weeks August 2,November 1, 2020 and the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, respectively.
 
2728

Cost of food and beverage products decreased to $22,003$32,667 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $75,688$109,072 for the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 7080 basis points to 27.2%27.4% for the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 from 26.5%26.6% for the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. Cost of food and beverage products in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, was negatively impacted by food and beverage spoilage costs of approximately $1,022$1,572 associated with store closures, offset partially by cost reductions resulting from vendor payment negotiations.
Cost of amusement and other decreased to $14,753$21,997 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $45,660$64,456 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. The costs of amusement and other, as a percentage of amusement and other revenues, increased 6020 basis points to 11.4%11.0% for the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 from 10.8% for the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, due primarily to a shift in ticket redemption patterns.
Operating payroll and benefits
Total operating payroll and benefits decreased by $106,307,$154,768, or 64.9%64.5%, to $57,493$85,197 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $163,800$239,965 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. Nearly all of our store workforce, except a small team of essential personnel, were furloughed in
mid-March,mid-March.
returningHourly 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 420280 basis points to 27.3%26.6% in the
twenty-six
thirty-nine week period ended August 2,November 1, 2020 compared to 23.1%23.8% in the
twenty-six
thirty-nine week period ended August 4,November 3, 2019, due primarily to 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 third quarter, we recalled a core group of store managers at unopened stores.
Other store operating expenses
Other store operating expenses decreased by $52,267,$92,197, or 24.8%28.7%, to $158,354$229,137 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $210,621$321,334 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. Decreased spend on marketing, maintenance and other services due to temporary store closures and $1,000 insurance proceeds related to the
COVID-19
business disruptions were partially offset by a $13,727 charge for impairment of long-lived assets and a net loss on derivatives of $1,796.$1,578. Other store operating expense as a percentage of total revenues increased to 75.3%71.8% in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to 29.8%31.9% in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. This increase was due primarily to sales deleveraging on occupancy costs and utilities as a result of the temporary store closures and the charges for impairment.
General and administrative expenses
General and administrative expenses decreased by $8,996,$13,460, or 27.4%, to $23,841$35,587 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $32,837$49,047 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. The decrease in general and administrative expenses was driven primarily by lower labor due toresulting from continued furloughs and elimination of a significant number of positions at the furloughing of most of our corporate employees during the first quarter of fiscal 2020,office, temporarily reducing pay and benefits for the remaining employees that were not furloughed for a twelve-week period, lower share-based compensation due to changes in performance stock unit expense during the first quarter,professional services costs, and reduced travel slightly offset by higher professional services costs.expenses and board of director fees.
Depreciation and amortization expense
Depreciation and amortization expense increased by $6,626$7,670 or 10.4%7.9%, to $70,512$104,896 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $63,886$97,226 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019. Increased depreciation due to our 2020 and 2019 capital expenditures for new stores, operating initiatives, games and maintenance capital, was partially offset by other assets reaching the end of their depreciable lives.
Pre-opening
costs
Pre-opening
costs decreased by $5,514$7,189 to $6,211$8,781 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $11,725$15,970 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, due to a decrease in the number 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.
29

Interest expense, net and Loss on debt refinance
Interest expense, net increased by $5,617$7,720 to $14,278$22,491 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to $8,661$14,771 in the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, due primarily to an increase in average outstanding debt offsetand a slightly by a lowerhigher weighted average effective interest 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.
28

Provision (benefit) for income taxes
The effective tax rate for the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, was a benefit of 34.9%32.3%, compared to an effective tax rateexpense of 21.5%21.3% for the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, primarily due to the impact of a decrease in operating earnings before income tax as well as the impact of provisions of the CARES Act, including technical amendments to qualified improvement property and the impact of carrying back tax net operating losses from fiscal years 2020 and 2019 back to years with a higher federal corporate income tax rate.
Liquidity and Capital Resources
In response to the business disruption caused by the
COVID-19
pandemic, the Company has taken the following actions to enable it to meet its obligations over the next twelve months:
During the first quarterand second quarters of 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 $75,000; and$185,600;
 
initiated negotiations with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments and obtain other concessions.concessions; and
In addition, during the second quarter of fiscal 2020, we:
sold additional shares of common stock, which generated gross proceeds of $110,600;
 
submitted a proposal, approved by our shareholders, increasing the number of shares available for incentive awards, which enables management to maintain key talent while preserving the Company’s liquidity by minimizing cash outlays; andoutlays.
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 August 2,November 1, 2020, a total of 92123 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.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.
While these measures have been successful in obtaining temporary relief, and we continue to negotiate additional relief measures, given theAlthough uncertainty surroundingsurrounds the timing of
re-opening
of our remaining stores and lifting of capacity restrictions and other requirements, andas well as how quickly customers will return to our stores, which may be a function ofdue to continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, substantial doubt exists about our abilitythe Company has taken measures to provide sufficient liquidity to meet ourestimated cash flow needs and covenant compliance obligations when they become due.for at least the next twelve months from the issuance of the financial statements.
30

Debt and Derivatives
During the first quarter of fiscal year 2020, we drew down substantially all the available credit under our $500,000 revolving credit facility. Current availability under the revolving credit facility is reduced by $9,686 of outstanding letters of credit, which are used to support our self-insurance programs. As of August 2, 2020, we had an unused commitment balance of $1,314 and total outstanding debt obligations of $747,750 under the existing credit facility, which matures in August 2022.
Effective April 14, 2020, we amended our existing credit facility, which includedprovided relief from compliance with financial covenants forthrough the quarterly periods ended May 3, 2020, August 2, 2020, and November 1,third quarter of fiscal 2020. During the financial covenant suspension period, a $30,000 liquidity covenant was added as well as certain additional reporting requirements, and the termination of additional borrowings under our revolving credit facility during the suspension period. The interest rate increased to LIBOR plus 2.00% with a LIBOR floor of 1.00%. In connection
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 we incurred debt costs of $2,000, which are payable atextended the maturity date of the $500,000 revolving portion of the facility from August 17, 2022 to August 17, 2024, and the interest rate spread increased from 2.00% to 4.00% during the financial covenant suspension period, with an additional 1.00% utilization fee due at maturity. After the financial covenant suspension period, the interest rate spread ranges from 1.25% to 3.00%. The second amendment terminated the term loan portion of the credit facility, which triggered payment of $1,900 of lender debt costs associated with earlier payment required in the event of certain conditions, as defined in the agreement. Forfirst 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 issuance costs of $18,200, which are being amortized over the terms of the respective Notes and revolving credit facility. As of November 1, 2020, approximately $3,300 of these debt costs had not been paid. The Company also recorded a loss of $904 related to the unamortized debt costs associated with the term portion of the credit facility.
29

For the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, and November 3, 2019, the Company’s weighted average interest rate on outstanding borrowings was 3.98%.4.17% and 4.03%, respectively. We expect this rate to increase slightly in future quarters as a result of the amendment. Further, if there isissuance 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 eventunused commitment balance of default$464,314 under the revolving credit facility.
Our credit facility and Notes contain restrictive covenants that, among other things, place certain limitations on our revolving credit facility, the entire balance plus accrued interest may become dueability to incur additional indebtedness, make loans or advances to subsidiaries and payableother entities, pay dividends, acquire other businesses or our interest rate could change to the default rate of interest, as defined, which would be higher than the current interest rate.sell assets.
During fiscal 2019, we entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates on our variable rate credit facility. Our swap agreements with our derivative counterparties contain a provision where if the Company defaults on any of its indebtedness and repayment of the indebtedness has been accelerated, the Company could also be declared in default on its derivative obligations. Refer to Note 1 of the Unaudited Consolidated Financial Statements for further discussion 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
The Company had previously established a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule
10b5-1
of the Exchange Act. At August 2,November 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. As a result of the impacts to our business arising from the COVID
-19
pandemic, share purchases and dividend payments have been indefinitely suspended.
Cash Flow Summary
At August 2,November 1, 2020, we had cash and cash equivalents of $224,305. The April 14, 2020 amendment to our credit facility requires that the Company maintain a minimum cash balance of $30,000 with our lenders.$8,341.
Operating Activities
— 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.
31

Net cash provided by operating activities decreased $170,194$249,543 in the
twenty-six
thirty-nine weeks ended August 2,November 1, 2020 compared to the
twenty-six
thirty-nine weeks ended August 4,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 83101 additional stores with limited operations through the end of our secondthird quarter. The impact of approximately 1,8292,330 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
twenty-six
thirty-nine weeks ended August 2,November 1, 2020, the Company spent approximately $48,800$55,800 for new store construction and operating improvement initiatives ($44,80047,100 net of payments from landlords), $8,600$9,500 for game refreshment and $6,100$7,300 for maintenance capital.
During the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, we spent approximately $99,500$145,700 ($78,200117,100 net of payments from landlords) for new store construction and operating improvement initiatives, $9,800$12,400 for game refreshment and $8,600$14,800 for maintenance capital.
Financing Activities
Cash provided by financing activitiesDuring 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
twenty-six
weeks ended August 2, 2020, primarily reflected $99,500 existing credit facility. The proceeds from the offering, along with cash on hand, were used to pay debt issuance costs, the $255,000 balance of the term portion of the credit facility, and $463,000 of outstanding borrowings under the revolving portion of the credit facility. Additionally, the Company received net proceeds from borrowings of debt and approximately $182,200 of net proceeds from the issuance of shares of our common stock.stock during the first and second quarter of fiscal year 2020. In the
twenty-six
thirty-nine weeks ended August 4,November 3, 2019, cash used in financing activities primarily reflected approximately $200,000$297,300 of share repurchases and approximately $10,800 of cash dividends paid, partially offset by $173,500$261,800 of net proceeds from borrowings.
Contractual Obligations and Commitments
Other thanEffective October 27, 2020, the Company issued $550,000 of senior secured notes and entered into the second amendment to ourits existing credit facility, effectivewhich was first amended on April 14, 2020, there2020. There have been no other material changes outside the ordinary course of business to our contractual obligations since February 2, 2020, as reported on Form
10-K
filed with the SEC on April 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   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
30

(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 3, 2020.
Recent accounting pronouncements
Refer to Note 1 to the Unaudited Consolidated Financial Statements for information regarding new accounting pronouncements.
 
32

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. At August 2, 2020, borrowings pursuant to our$500,000 revolving credit facility of $747,750 bear interest at a floating rateis based on
one-month
LIBOR, plus 2.00%, with a LIBOR floor of 1.00%. We currently have anOur interest rate swap agreement to manage our exposure to interest rate movements on our variable rate credit facility up to theagreements, with a combined notional amount of $350,000. The agreement converts$350,000, convert the floating portion of the interest rate to a fixed interest rate of approximately 2.47% from the effective datethrough August 17, 2022. As of the agreements through the term 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.
A large portion of our hourly employees are paid wage rates at or based on the applicable federal, state or city minimum wage and increases in the minimum wage will increase our labor costs. Several states and local jurisdictions in which we operate have enacted legislation to increase the minimum wage and/or minimum tipped wage rates by varying amounts, with more planned increases in the future.
In general, we have been able to partially offset cost increases resulting from inflation by increasing menu prices, improving productivity, or other operating changes. We may or may not be able to offset cost increases in the future.
 
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
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 secondthird quarter ended August 2,November 1, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
31

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
The Company is supplementing the Risk Factors previously disclosed in Item 1A of the Annual Report on Form
10-K
for the fiscal year ended February 2, 2020, (the “Annual Report”). The following risk factor should be read in conjunction with the Risk Factors disclosed in the Annual Report.
33

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.
There were no repurchases of our common stock under our share repurchase plan during the thirteen weeks ended August 2,November 1, 2020.
 
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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: SeptemberDecember 10, 2020 By: 
/s/ Brian A. Jenkins
  Brian A. Jenkins
  Chief Executive Officer
Date: SeptemberDecember 10, 2020 By: 
/s/ Scott J. Bowman
  Scott J. Bowman
  Chief Financial Officer
 
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