Dave & Buster's Entertainment, Inc. - Quarter Report: 2022 May (Form 10-Q)

 

 

 

Form

 

 

FOR THE TRANSITION PERIOD FROM TO

Commission File

 

 

 

 

 

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  ☐

S-T

non-accelerated

12b-2

 

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.  ☐

Rule 12b-2

 48,934,844 shares of common stock, $0.01 par value per share, outstanding

 

 

 

 

See accompanying notes to consolidated financial statements

 

3

(in thousands, except share and per share amounts)

 

(in thousands, except share amounts)

 

 

See accompanying notes to consolidated financial statements.

 

5

(in thousands)

 

See accompanying notes to consolidated financial statements.

 

6

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%

balances and transactions have been eliminated in consolidation.  America for adults and families under the name “Dave & Buster’s”. The Company operates its business as one operating and one reportable segment. During the thirteen weeks ended May 1, 2022, we opened one new store located in Sioux Falls, South Dakota. As of May 1, 2022, we owned and operated 145 stores located in 41 states, Puerto Rico and one Canadian province.

53-week

10-K

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from those estimates. Operating results for the thirteen weeks ended May 1, 2022 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending January 29, 2023.

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. 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 and third-party valuation specialists. These valuation models are based on the present value of expected cash flows using forward rate curves. The fair value of our senior secured notes was $455,387 and $456,204 as of May 1, 2022 and January 30, 2022, respectively. The fair value of the Company’s debt is determined based on a discounted cash flow method, using a sector-specific yield curve based on market-derived, trade price data as of the measurement date, and is classified as a Level Two input within the fair value hierarchy.

non-financial

non-recurring

 

7

Effective February 28, 2019, the Company entered into three interest rate swap agreements to manage our exposure to interest rate movements on our variable rate credit facility. The notional amount of the swap agreements, which mature August 17, 2022, totals

and the fixed rate of interest for all agreements is

%. 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, the Company discontinued the hedging relationship as of April 14, 2020 (de-designation date). Given the continued existence of the hedged interest payments, the Company is reclassifying its accumulated other comprehensive loss of 

de-designation

as of May 1, 2022 will be fully amortized at maturity. 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 weeks ended May 1, 2022 and May 2, 2021, a gain of

The fair value of outstanding interest rate swap derivatives liability was $1,172 and $3,823 as of May 1, 2022 and January 30, 2022, respectively, and the balance is included in “Accrued liabilities” in the Consolidated Balance Sheets.

The following table summarizes the activity in accumulated other comprehensive loss related to our derivative instruments:

 

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 weeks ended May 1, 2022, we recognized revenue of approximately $2,100 related to the amount in deferred gift card revenue as of the end of fiscal 2021, of which approximately $290 was breakage revenue.

— Basic net income (loss) per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per share, the basic weighted average shares outstanding is increased by the dilutive effect of stock options and restricted share awards. Stock options and restricted share awards with an anti-dilutive effect are not included in the diluted net income per share calculation. For the thirteen weeks ended May 1, 2022 and May 2, 2021, the Company excluded anti-dilutive awards from the calculation of approximatel

respectively.

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

 

 

Long-term debt consists of the following:

 

On October 27, 2020, the Company issued $550,000 aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes is payable in arrears on November 1 and May 1 of each year. The Notes mature on November 1, 2025,  $110,000  $3,300 $2,300

 

The interest rates per annum applicable to loans under our existing credit facility are based on a defined LIBOR rate plus an applicable margin, based on a total leverage ratio, as defined. The first amendment to the existing credit facility, effective April 14, 2020, increased the interest rate spread on variable rate debt to 2.00% and set a LIBOR floor of 1.00%. Concurrent and subject to the issuance of the Notes, the Company entered into a second amendment to its existing credit facility, which extended the maturity of the $500,000 revolving portion of the facility from August 17, 2022, to August 17, 2024, and during the financial covenant suspension increased pricing period, increased the interest rate spread to 4.00% and instituted a 1.00% utilization fee. Shortly after the end of the Company’s first quarter of fiscal 2022, the interest rate spread will range from 1.25% to 3.00% and the utilization fee, which is due at maturity, will cease. At the end of the first quarter of fiscal 2022, we had letters of credit outstanding of $7,505 and an unused commitment balance of $492,495 under the revolving credit facility.

 $

and $

s

% and

%, respectively.

We currently lease most of the buildings or sites for our stores, store support center, 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.

“Pre-opening

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:

 

During fiscal 2020 and the first half of fiscal 2021, the Company entered into rent relief agreements with our respective landlords. The Company elected to apply an available practical expedient to account for lease concessions and deferrals resulting directly from the COVID-19 pandemic as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and not account for the concessions as lease modifications unless the concession results in a substantial increase in the Company’s obligations. A total of 208 of our 225 rent relief agreements qualified for this accounting election, and the remaining agreements were treated as lease modifications, primarily due to a significant extension of the lease term. The Company has 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. The current portion of deferred occupancy costs is included in “Accrued liabilities” and the balance, or

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, and other customer-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 a defendant in several lawsuits filed in courts in California alleging violations of California Business and Professions Code, industry wage orders, 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 b

determined to be class actions or Private Attorneys General Act representative actions and seek substantial damages and penalties. During fiscal 2020, the Company settled a portion of the cases at the approximate amount estimated and accrued. For the remaining cases, 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 continues to aggressively defend cases.​​​​​​​

Note 6: Share-Based Compensation

Compensation expense related to stock options and restricted stock units is included in “General and administrative expenses” in the Consolidated Statements of Comprehensive Income and is as follows:

Transactions related to stock option awards during the thirteen weeks ended May 1, 2022 were as follows:

respectively, were recognized in the “Provision for income taxes” in the Consolidated Statement of Comprehensive Income and classified as a source in operating activities in the Consolidated Statement of Cash Flows. 

11

The effective tax rate for the thirteen weeks ended May 1, 2022, was 23.3%, compared to 11.5% for the thirteen weeks ended May 2, 2021. The previous quarter tax provision includes higher excess tax benefits associated with share-based compensation and credits associated with the reversal of certain tax valuation allowances.

COVID-19

100%  $835 

48  3

 

12 

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 as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022. 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 a guarantee 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 filed with the SEC on March 29, 2022. 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 such results or developments may not be indicative of results or developments in subsequent periods.

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 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. We believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting.

Comparable store sales are a comparison of sales to the same period of prior years for the comparable store base. We historically define the comparable store base to include those stores open for a full 18 months before the beginning of the fiscal year and excluding stores permanently closed during the period. Due to the limitations of store operations during the pandemic, the comparable store base for fiscal 2022 is defined as stores open for a full 18 months before the beginning of fiscal 2020 and excludes two stores that the Company elected not to reopen after they were closed in March 2020 due to local operating limitations and one store in Cary, North Carolina that was closed and relocated during the fourth quarter of fiscal 2021. For the first quarter of fiscal 2022, our comparable store base consisted of 113 stores.

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 May 3, 2021 and May 1, 2022, we closed and relocated one store and opened an additional four new stores.

In addition to the results provided in accordance with generally accepted accounting principles (“GAAP”), we provide measures which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP and include Adjusted EBITDA, Adjusted EBITDA Margin, Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin (defined below). These 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 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 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.

. We define “Adjusted EBITDA” as net income (loss) plus interest expense, net, loss on debt extinguishment or refinancing, provision (benefit) for income taxes, depreciation and amortization expense, loss on asset disposal, impairment of long-lived assets, share-based compensation, costs, currency transaction (gains) losses and other costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total revenues.

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

and the costs of opening new stores, which are 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 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.

We operate on a 52 or fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a year when the fourth quarter has 14 weeks. All references to the first quarter of 2022 relate to the period ended May 1, 2022. All references to the first quarter of 2021 relate to the period ended May 2, 2021. All references to the first quarter of 2019 relate to the period ended May 5, 2019. Fiscal 2022, fiscal 2021 and fiscal 2019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.

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

In the first year of operation new store operating margins (excluding 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 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 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 increase 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 pandemic on us or our suppliers, third-party service providers, and/or customers.

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.

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

 

 

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

 

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”).

 

 

17

(“COVID-19”)

To-Go

re-opened

re-opened

COVID-19

re-opened

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

 

COVID-19

COVID-19

re-opened

 

Comparable store revenue increased $153,071 or 71.1%, in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021, due to the reasons noted above, including a 13.9% increase in comparable store operating weeks. Comparable store sales in the first quarter of fiscal 2022 increased 10.9% compared to the first quarter of fiscal 2019.

Food sales at comparable stores increased by $35,502, or 76.1%, to $82,138 in the first quarter of fiscal 2022 from $46,636 in the first quarter of fiscal 2021. Beverage sales at comparable stores increased by $20,137, or 93.2%, to $41,734 in the first quarter of fiscal 2022 from $21,597 in the 2021 comparison period. Comparable store amusement and other revenues in the first quarter of fiscal 2022 increased by $97,432, or 66.2%, to $244,605 from $147,173 in the comparable period of fiscal 2021.

 

18

Non-comparable

The total cost of products was $70,021 for the first quarter of fiscal 2022 and $39,771 for the first quarter of fiscal 2021. The total cost of products as a percentage of total revenues increased 50 basis points to 15.5% for the first quarter of fiscal 2022 compared to 15.0% for the first quarter of fiscal 2021.

Cost of food and beverage products increased to $43,255 compared to $23,157 for the first quarter of fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 150 basis points to 28.5% for the first quarter of fiscal 2022 from 27.0% for the first quarter of fiscal 2021. The unfavorable impacts of commodity cost increases primarily in meat and dairy products during the first quarter of fiscal 2022 were partially offset by food and beverage price increases.

Cost of amusement and other increased to $26,766 in the first quarter of fiscal 2022 compared to $16,614 in the first quarter of fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 40 basis points to 8.9% for the first quarter of fiscal 2022 from 9.3% in the first quarter of fiscal 2021. This decrease was driven primarily by a change in prices at the game level implemented late in fiscal 2021.

Total operating payroll and benefits increased by $43,082, or 85.7%, to $93,361 in the first quarter of fiscal 2022 compared to $50,279 in the first quarter of fiscal 2021. The total cost of operating payroll and benefits as a percentage of total revenues was 20.7% in the first quarter of fiscal 2022 compared to 18.9% in the first quarter of fiscal 2021. This increase is primarily due to an increase in hourly labor cost and an increase in labor hours worked as open positions are filled, offset slightly by favorable leveraging on management labor and benefits.

Other store operating expenses increased by $39,980, or 47.3%, to $124,425 in the first quarter of fiscal 2022 compared to $84,445 in the first quarter of fiscal 2021. The increase is primarily due to the impact of increased store weeks during the first quarter of fiscal 2022 on costs such as utilities, supplies, maintenance, and other services. Other store operating expense as a percentage of total revenues decreased to 27.5% in the first quarter of fiscal 2022 compared to 31.9% in the first quarter of fiscal 2021. This decrease was due primarily to favorable sales leveraging on occupancy costs and utilities.

General and administrative expenses increased by $11,206, or 65.6%, to $28,297 in the first quarter of fiscal 2022 compared to $17,091 in the first quarter of fiscal 2021. The increase in general and administrative expenses was driven primarily by higher incentive compensation, salaries and benefits, and share-based compensation as well as costs related to the potential acquisition of Main Event. General and administrative expenses, as a percentage of total revenues remained relatively unchanged at 6.3% in the first quarter of fiscal 2022 compared to 6.4% in the first quarter of fiscal 2021, due primarily to favorable leverage.

Depreciation and amortization expense was slightly down to $33,288 in the first quarter of fiscal 2022 compared to $35,099 in the first quarter of fiscal 2021. Increased depreciation due to our 2022 and 2021 capital expenditures for new stores, operating initiatives, games, and maintenance capital, was more than offset by other assets reaching the end of their depreciable lives.

Pre-opening

COVID-19

 

19

Interest expense, net decreased by $3,429 to $11,391 in the first quarter of fiscal 2022 compared to $14,820 in the first quarter of fiscal 2021 due primarily to a decrease in average outstanding debt, due to the prepayment of $110,000 outstanding principal amount of the senior secured notes during the second half of fiscal 2021.

The effective tax rate for the first quarter of fiscal 2022 was 23.3%, compared to 11.5% for the first quarter of fiscal 2021. The previous quarter tax provision includes higher excess tax benefits associated with share-based compensation and credits associated with the reversal of certain tax valuation allowances.

We maintain a $500,000 unsecured revolving credit facility, which matures on August 17, 2024. Availability under the revolving credit facility is reduced by outstanding letters of credit, which are used to support our self-insurance programs. At the end of the first quarter of fiscal 2022, we had letters of credit outstanding of $7,505 and an unused commitment balance of $492,495 under the revolving credit facility.

The Company also issued $550,000 aggregate principal amount of 7.625% senior secured notes (the “Notes”) during fiscal 2020. Interest on the Notes is payable in arrears on November 1 and May 1 of each year. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. During fiscal 2021, the Company redeemed a total of $110,000 outstanding principal amount of the Notes in two separate transactions, and paid prepayment premiums of $3,300, plus accrued and unpaid interest to the date of redemptions. The early redemptions are expected to reduce net cash interest on the Notes by approximately $8,400 annually. Beginning October 27, 2022, the Company may elect to further redeem the Notes, in whole or in part, at certain specified redemption prices, plus accrued and unpaid interest, at the redemption date.

The interest rates per annum applicable to loans under our existing credit facility are based on a defined LIBOR rate plus an applicable margin, based on a total leverage ratio, as defined. The first amendment to the existing credit facility, effective April 14, 2020, increased the interest rate spread on variable rate debt to 2.00% and set a LIBOR floor of 1.00%. Concurrent and subject to the issuance of the Notes, the Company entered into a second amendment to its existing credit facility, which extended the maturity of the $500,000 revolving portion of the facility, and during the financial covenant suspension increased pricing period, increased the interest rate spread to 4.00% and instituted a 1.00% utilization fee. Shortly after the end of the Company’s first quarter of fiscal 2022, the interest rate spread will range from 1.25% to 3.00% and the utilization fee, which is due at maturity, will cease.

For the thirteen weeks ended May 1, 2022, and May 2, 2021, respectively, the Company’s weighted average effective interest rate on our total debt facilities (before capitalized interest amounts) was 10.90% and 10.15%, respectively.

Our credit facility and Notes contain restrictive covenants that, among other things, place certain limitations on our ability to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. As of May 1, 2022, the Company was in compliance with the financial covenants of our credit facility and all the restrictive covenants of the Notes and credit facility.

On April 6, 2022, the Company announced its entry into an Agreement and Plan of Merger, pursuant to which the Company has agreed to acquire 100% of the equity interests of Ardent Leisure Holding US, Inc. (“Ardent US”), doing business as “Main Event”, in exchange for cash consideration of $835 million (to be adjusted for cash on hand, Ardent US transaction expenses, payments pursuant to Ardent US’s long term incentive plan, certain capital expenditures, and certain agreed upon working capital adjustments) less the indebtedness of Ardent US immediately prior to the closing of the transaction. The closing of the transaction is subject to completion of customary closing conditions, including approval by the shareholders of Ardent Leisure Group, and the transaction is expected to close in the second quarter. We expect the full amount of the cash consideration paid will be funded by a new term loan facility.

 

20

On December 6, 2021, our Board of Directors approved a share repurchase program with an authorization limit of $100,000, expiring at the end of fiscal 2022. Future decisions to pay cash dividends or repurchase shares continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board of Directors considers relevant. There were no dividends declared or share repurchases during the first quarter of 2022.    

non-acquisition

A comparison of our cash flow activity for the first quarter of fiscal 2022 to the same period of fiscal 2021 follows.

During the first quarter of fiscal 2022, the Company spent approximately $31,300 for new store construction and operating improvement initiatives ($30,600 net of payments from landlords), $1,400 for game refreshment and $7,400 for maintenance capital.

During the first quarter of fiscal 2021, the Company spent approximately $7,600 for new store construction and operating improvement initiatives, $2,100 for game refreshment and $700 for maintenance capital.

Form10-K

10-K

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

 

21

We are exposed to market price fluctuation in food, beverage, supplies and other costs such as energy. 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.

Outstanding borrowings on our revolving credit facility are based on variable rates, and we have historically elected to use LIBOR. Although our borrowing arrangements provide for alternative base rates other than LIBOR, those rates have historically been higher than those we paid based on LIBOR (which currently is subject to a floor of 1.00%). When LIBOR ceases to exist, we will likely need to agree upon a replacement index with our lenders, and the interest rate thereunder will likely change. As of May 1, 2022, there was no balance outstanding on our revolving credit facility.

Severe increases in inflation could affect the United States or global economies and have an adverse impact on our business, financial condition and results of operation. If several of the various costs in our business experience inflation at the same time, such as commodity price increases beyond our ability to control and increased labor costs, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.

 

13a-15

15d-15

Rules 13a-15(f)

15d-15(f))

 

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.

 

10-K

We recently announced an agreement and plan of merger to acquire a business as part of our expansion effort. If the acquisition is finalized, we may not be successful in integrating future acquisitions into our existing operations, which may result in unforeseen operational difficulties, diminished financial performance or our inability to report financial results and may require a disproportionate amount of our management’s attention. If we fail to manage future acquisitions effectively, our results of operations could be adversely affected.

 

22

Our potential acquisition and any future acquisitions will be accompanied by the risks commonly encountered in acquisitions, including:

 

 

 

 

 

 

 

 

23

There were no repurchases of our common stock under our share repurchase plan during the thirteen weeks ended May 1, 2022.

 

24

 

 

 

25

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.

 

 

26