| Summary of Significant Accounting Policies | Note 1: Summary of Significant Accounting Policies The accompanying unaudited consolidated financial statements include the accounts of Dave & Buster’s Entertainment, Inc. (referred to herein as the “Company”, “we,” “us” and “our”), any predecessor companies and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”), which owns 100% of the outstanding common stock of Dave & Busters, Inc. (“D&B Inc”), the operating company. All intercompany balances and transactions have been eliminated in consolidation. The Company, headquartered in Dallas, Texas, is a leading operator of high-volume entertainment and dining venues (“stores”) in North America for adults and families under the name “Dave & Buster’s”. The Company operates its business as one operating and one reportable segment. As of August 2, 2020, we owned and operated 137 stores located in 39 states, Puerto Rico and one Canadian province. The Company operates on a 52 or 53-week 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 Going concern — the period from March 14, 2020 to March 20, 2020, the Company c losed % of its operating stores in compliance with guidance and orders issued by federal, state and local governments to combat the spread of the COVID-19 re-opening re-engaging re-opened off-premise re-opened stores in states, Puerto Rico and Canada. Subsequent to the end of our second quarter, we re-opened COVID-19 re-imposed re-engage 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 in net proceeds of $182,207. Additionally, the Company initiated ongoing discussions with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations. As of August 2, 2020, a total of 92 rent relief agreements related to our operating locations and corporate headquarters were executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations. We have also been successful in negotiating extended and reduced payment terms with several vendors. Effective April 14, 2020, the Company negotiated an amendment to its existing credit facility, which included relief from compliance with financial covenants for the periods ended May 3, 2020, August 2, 2020 and November 1, 2020. During the financial covenant suspension period, the Company is required to maintain a minimum liquidity amount of $30,000. If the Company is not in compliance with financial covenants after the suspension period or some other event of default arises, the Company’s lenders could instruct the administrative agent under the existing credit facility to exercise remedies including declaring the principal of and accrued interest on all outstanding indebtedness due and payable, terminating all remaining commitments and obligations under the revolving credit facility and requiring the posting of cash collateral in respect of 103% of 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 Cash and cash equivalents (used in) Fair value of financial instruments The carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, and other current liabilities approximate fair value because of their short-term nature. We believe that the carrying amount of our credit facility approximates its fair value because the interest rates reflect current market conditions. The fair value of the Company’s credit facility was determined to be a Level Two instrument as defined by GAAP. The fair value of the Company’s interest rate swap is determined based upon Level Two inputs which includes valuation models as reported by our counterparties. These valuation models are based on the present value of expected cash flows using forward rate curves. Non-financial right-of-use The disruption in operations and reduction in revenues have led the Company to consider the impact of the COVID-19 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. were determined to be 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. first qu ar c COVID-19 During the second quarter of fiscal 2020, the Company did not identify additional triggering events which would require a change in management’s estimate regarding the recoverability of store asset values, and no a dditional impairment related to our operating stores was recognized . twenty-six s COVID-19 Additionally, the Company is c ontinu ing twenty-six related to these projects, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss). Interest rate swaps one-month 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 (de-designation date). Given the continued existence of the hedged interest payments, the Company will reclassify its accumulated other comprehensive loss as of the de- d e gnation date The amount of pre-tax losses in accumulated other comprehensive loss that was reclassified into interest expense subsequent to the de-designation date was $ and $ for the thirt een and twenty -six weeks ended August 2, 2020 , respectively, and the Company expects to reclassify $ within the next twelve months. Effective with the de-designation, any gain or loss on the derivatives are recognized in earnings in the period in which the change occurs. For the thirteen and twenty-six weeks ended August 2, 2020, a loss of $ and $ was recognized, respectively, are Prior to the de-designation, 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 )
(1) The balance at August 2, 2020 relates to our swap agreements after hedge accounting was discontinued, effective April 14, 2020. The following table summarizes the activity in accumulated other comprehensive loss related to our derivative instruments:
Thirteen Weeks Ended Twenty-six
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 )
(1) Amounts reclassified into income are included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income (Loss). Revenue recognition 2,500 and $ , respectively, related to the amount in deferred amusement revenue as of the end of fiscal 2019. In jurisdictions where we do not have a legal obligation to remit unredeemed gift card balances to a legal authority, we recognize revenue on unredeemed gift cards in proportion to the pattern of redemption by the customers. During the thirteen and twenty-six 140 40 Stockholders’ equity twenty-six s 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 twenty-six Effective March 18, 2020, the Board of Directors of the Company adopted a 364-day one-ten On April 14, 2020, pursuant to an open market sale agreement, the Company sold 6,149,936 shares of its common stock at a price of $12.20 per share, for proceeds of $75,000, prior to deducting offering expenses related to the offering. On May 4, 2020, the Company entered into an underwriting agreement, pursuant to which it sold 9,578,545 shares of its common stock at a price of $10.44 per share, and on May 18, 2020, the underwriter exercised its over-allotment option for an additional 1,014,871 shares at $10.44 per share, resulting in additional proceeds of $110,600 prior to deducting offering costs. On June 23, 2020, shareholders approved a proposal to amend our 2014 Omnibus Incentive Plan (“Plan”) to increase the number of shares available for awards under the Plan by 3,000,000 shares. Recently adopted accounting guidance 2016-13 , Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, In January 2017, the FASB issued ASU 2017-04 , Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, 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 Recent accounting pronouncements 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 tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for taxable goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those years, with early adoption permitted. The Company is currently assessing the impact of this new standard on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Reform on Financial Reporting de-designation |
