Report
of Independent Registered Public Accounting Firm
To the Stockholders and
Board of Directors
Bowlero Corp.:
Opinion
on the Consolidated
Financial Statements
We
have audited the accompanying consolidated balance sheets of Bowlero Corp. and subsidiaries (the Company) as of July 3, 2022
and June 27, 2021, the related consolidated statements of operations, comprehensive loss, temporary equity and stockholders’ deficit,
and cash flows for each of the fiscal years then ended, and the related notes (collectively, the consolidated financial statements). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of July 3, 2022 and June 27, 2021, and the results of its operations and its cash flows for each of the years then ended, in
conformity with U.S. generally accepted accounting principles.
Basis
for Opinion
These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2002.
Richmond,
Virginia
September 15, 2022
Bowlero
Corp.
Consolidated
Balance Sheets
July 3,
2022 and June 27, 2021
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Assets |
|
|
|
Current
assets: |
|
|
|
Cash
and cash equivalents |
$ |
132,236 |
|
|
$ |
187,093 |
|
Accounts
and notes receivable, net of allowance for doubtful accounts of $504
and $204,
respectively |
5,227 |
|
|
3,300 |
|
Inventories,
net |
10,310 |
|
|
8,310 |
|
Prepaid
expenses and other current assets |
12,732 |
|
|
8,056 |
|
Assets
held-for-sale |
8,789 |
|
|
686 |
|
Total
current assets |
169,294 |
|
|
207,445 |
|
|
|
|
|
Property
and equipment, net |
534,721 |
|
|
415,661 |
|
Internal
use software, net |
11,423 |
|
|
9,062 |
|
Property
and equipment under capital leases, net |
262,703 |
|
|
284,077 |
|
Intangible
assets, net |
92,593 |
|
|
96,057 |
|
Goodwill |
742,669 |
|
|
726,156 |
|
Other
assets |
41,022 |
|
|
43,780 |
|
Total
assets |
$ |
1,854,425 |
|
|
$ |
1,782,238 |
|
|
|
|
|
Liabilities,
Temporary Equity and Stockholders’ Deficit |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
38,217 |
|
|
$ |
29,489 |
|
Accrued
expenses |
62,854 |
|
|
63,650 |
|
Current
maturities of long-term debt |
4,966 |
|
|
5,058 |
|
Other
current liabilities |
13,123 |
|
|
9,176 |
|
Total
current liabilities |
119,160 |
|
|
107,373 |
|
|
|
|
|
Long-term
debt, net |
865,090 |
|
|
870,528 |
|
Long-term
obligations under capital leases |
397,603 |
|
|
374,598 |
|
Earnout
liability |
210,952 |
|
|
— |
|
Other
long-term liabilities |
54,418 |
|
|
87,749 |
|
Deferred
income tax liabilities |
14,882 |
|
|
11,867 |
|
Total
liabilities |
1,662,105 |
|
|
1,452,115 |
|
|
|
|
|
Commitments
and Contingencies (Note 11) |
|
|
|
|
|
|
|
Temporary
Equity |
|
|
|
Series
A preferred stock - Old Bowlero |
— |
|
|
141,162 |
|
Series
A preferred stock |
206,002 |
|
|
— |
|
Redeemable
Class A common stock - Old Bowlero |
— |
|
|
464,827 |
|
|
|
|
|
Bowlero
Corp.
Consolidated
Balance Sheets
July 3,
2022 and June 27, 2021
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Stockholders’
Deficit |
|
|
|
Class
A common stock |
$ |
11 |
|
|
$ |
10 |
|
Class
B common stock |
6 |
|
|
— |
|
Additional
paid-in capital |
335,015 |
|
|
— |
|
Treasury
stock, at cost |
(34,557) |
|
|
— |
|
Accumulated
deficit |
(312,851) |
|
|
(266,472) |
|
Accumulated
other comprehensive loss |
(1,306) |
|
|
(9,404) |
|
Total
stockholders’ deficit |
(13,682) |
|
|
(275,866) |
|
Total
liabilities, temporary equity and stockholders’ deficit |
$ |
1,854,425 |
|
|
$ |
1,782,238 |
|
See
accompanying notes to consolidated financial statements.
Bowlero
Corp.
Consolidated
Statements of Operations
Fiscal
Years Ended July 3, 2022 and June 27, 2021
(Amounts
in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Revenues |
$ |
911,705 |
|
|
$ |
395,234 |
|
Costs
of revenues |
609,971 |
|
|
374,255 |
|
Gross
profit |
301,734 |
|
|
20,979 |
|
|
|
|
|
Operating
(income) expenses: |
|
|
|
Selling,
general and administrative expenses |
180,702 |
|
|
78,335 |
|
Asset
impairment |
1,548 |
|
|
386 |
|
Gain
on sale or disposal of assets |
(4,109) |
|
|
(46) |
|
Other
operating expense |
6,968 |
|
|
1,131 |
|
Business
interruption insurance recoveries |
— |
|
|
(20,188) |
|
Total
operating expense |
185,109 |
|
|
59,618 |
|
|
|
|
|
Operating
profit (loss) |
116,625 |
|
|
(38,639) |
|
|
|
|
|
Other
expenses: |
|
|
|
Interest
expense, net |
94,460 |
|
|
88,857 |
|
Change
in fair value of earnout liability |
25,800 |
|
|
— |
|
Change
in fair value of warrant liability |
26,840 |
|
|
— |
|
Other
expense |
149 |
|
|
— |
|
Total
other expense |
147,249 |
|
|
88,857 |
|
|
|
|
|
Loss
before income tax benefit |
(30,624) |
|
|
(127,496) |
|
|
|
|
|
Income
tax benefit |
(690) |
|
|
(1,035) |
|
Net
loss |
(29,934) |
|
|
(126,461) |
|
|
|
|
|
Series
A preferred stock dividends |
(10,233) |
|
|
(8,015) |
|
Net
loss attributable to common stockholders |
$ |
(40,167) |
|
|
$ |
(134,476) |
|
|
|
|
|
Net
loss per share attributable to Class A and B common stockholders, basic and diluted |
$ |
(0.26) |
|
|
$ |
(0.92) |
|
Weighted-average
shares used in computing net loss per share attributable to common stockholders, basic and diluted |
155,837,154 |
|
|
146,848,329 |
|
See
accompanying notes to consolidated financial statements.
Bowlero
Corp.
Consolidated
Statements of Comprehensive Loss
Fiscal
Years Ended July 3, 2022 and June 27, 2021
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
|
Net
loss |
$ |
(29,934) |
|
|
$ |
(126,461) |
|
|
Other
comprehensive income (loss), net of income tax: |
|
|
|
|
Unrealized
gain (loss) on derivatives |
60 |
|
|
(371) |
|
|
Reclassification
to earnings |
8,809 |
|
|
9,002 |
|
|
Foreign
currency translation adjustment |
(771) |
|
|
977 |
|
|
Other
comprehensive income |
8,098 |
|
|
9,608 |
|
|
Total
comprehensive loss |
$ |
(21,836) |
|
|
$ |
(116,853) |
|
|
See
accompanying notes to consolidated financial statements.
Bowlero
Corp.
Consolidated
Statements of Changes in Temporary Equity and Stockholders’ Deficit
Fiscal
Years Ended July 3, 2022 and June 27, 2021
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Class A common stock |
|
Series
A preferred stock |
|
|
Class
A common Stock |
|
Class
B common Stock |
|
Treasury
stock |
|
Additional Paid-in capital |
|
Accumulated deficit |
|
Accumulated other comprehensive loss |
|
Total stockholders’ equity
(deficit) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
|
|
Balance,
June 28, 2020 |
2,069,000 |
|
|
$ |
160,601 |
|
|
106,378 |
|
|
$ |
133,147 |
|
|
|
3,842,428 |
|
|
$ |
1 |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
— |
|
|
$ |
271,776 |
|
|
$ |
(102,701) |
|
|
$ |
(19,012) |
|
|
$ |
150,064 |
|
Retroactive
application of recapitalization |
49,328,025 |
|
|
— |
|
|
2,536,209 |
|
|
— |
|
|
|
91,608,875 |
|
|
9 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(9) |
|
|
— |
|
|
— |
|
Adjusted
balance, beginning of period |
51,397,025 |
|
|
$ |
160,601 |
|
|
2,642,587 |
|
|
$ |
133,147 |
|
|
|
95,451,303 |
|
|
$ |
10 |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
— |
|
|
$ |
271,776 |
|
|
$ |
(102,710) |
|
|
$ |
(19,012) |
|
|
$ |
150,064 |
|
Net
loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(126,461) |
|
|
— |
|
|
(126,461) |
|
Foreign
currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
977 |
|
|
977 |
|
Unrealized
loss on derivatives |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(371) |
|
|
(371) |
|
Reclassification
to earnings |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9,002 |
|
|
9,002 |
|
Accrued
dividends on pre-merger Series A preferred stock |
— |
|
|
— |
|
|
— |
|
|
8,015 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,015) |
|
|
— |
|
|
— |
|
|
(8,015) |
|
Change
in fair value of redeemable Class A common stock of Old Bowlero |
— |
|
|
304,226 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(304,226) |
|
|
— |
|
|
— |
|
|
(304,226) |
|
Stock
based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,164 |
|
|
— |
|
|
— |
|
|
3,164 |
|
Reclass
of negative APIC to accumulated deficit |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
37,301 |
|
|
(37,301) |
|
|
— |
|
|
— |
|
Balance,
June 27, 2021 |
51,397,025 |
|
|
$ |
464,827 |
|
|
2,642,587 |
|
|
$ |
141,162 |
|
|
|
95,451,303 |
|
|
$ |
10 |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(266,472) |
|
|
$ |
(9,404) |
|
|
$ |
(275,866) |
|
Net
loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(29,934) |
|
|
— |
|
|
(29,934) |
|
Foreign
currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(771) |
|
|
(771) |
|
Unrealized
gain on derivatives |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
60 |
|
|
60 |
|
Reclassification
to earnings |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
8,809 |
|
|
8,809 |
|
Reclass
of negative APIC to accumulated deficit |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16,445 |
|
|
(16,445) |
|
|
— |
|
|
— |
|
Accrued
dividends on pre-merger Series A preferred stock |
— |
|
|
— |
|
|
— |
|
|
4,136 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,136) |
|
|
— |
|
|
— |
|
|
(4,136) |
|
Change
in fair value of redeemable Class A common stock of Old Bowlero |
— |
|
|
38,864 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(38,864) |
|
|
— |
|
|
— |
|
|
(38,864) |
|
Stock
based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
93,662 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,804 |
|
|
— |
|
|
— |
|
|
6,804 |
|
Merger
induced stock based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
2,529,360 |
|
|
— |
|
|
5,839,993 |
|
|
1 |
|
|
— |
|
|
— |
|
|
42,555 |
|
|
— |
|
|
— |
|
|
42,556 |
|
Issuance
of common stock and preferred stock in connection with Merger Capitalization, net of Bowlero equity issuance costs and fair value of liability-classified
warrants and earnout |
— |
|
|
— |
|
|
95,000 |
|
|
95,000 |
|
|
|
42,185,233 |
|
|
4 |
|
|
1,074,185 |
|
|
— |
|
|
— |
|
|
— |
|
|
120,805 |
|
|
— |
|
|
— |
|
|
120,809 |
|
Settlement
of pre-merger Series A preferred stock |
— |
|
|
— |
|
|
(2,642,587) |
|
|
(145,298) |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Conversion
of Class A common stock of Old Bowlero to Series A preferred stock |
— |
|
|
— |
|
|
105,000 |
|
|
105,000 |
|
|
|
(10,499,900) |
|
|
(1) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(104,999) |
|
|
— |
|
|
— |
|
|
(105,000) |
|
Consideration
to existing shareholders of Old Bowlero |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
(22,599,800) |
|
|
(2) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(225,998) |
|
|
— |
|
|
— |
|
|
(226,000) |
|
Consideration
paid to Old Bowlero optionholders |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(15,467) |
|
|
— |
|
|
— |
|
|
(15,467) |
|
Exchange
of redeemable Class A common stock of Old Bowlero for Class B common stock |
(51,397,025) |
|
|
(503,691) |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
51,397,025 |
|
|
5 |
|
|
— |
|
|
— |
|
|
503,686 |
|
|
— |
|
|
— |
|
|
503,691 |
|
Accrual
of paid-in-kind dividends on Series A preferred stock |
— |
|
|
— |
|
|
— |
|
|
6,002 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,002) |
|
|
— |
|
|
— |
|
|
(6,002) |
|
Repurchase
of Class A common stock into Treasury stock |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
(3,430,667) |
|
|
— |
|
|
— |
|
|
— |
|
|
3,430,667 |
|
|
(34,557) |
|
|
— |
|
|
— |
|
|
— |
|
|
(34,557) |
|
Class
A common stock issued in conjunction with exercise of warrants |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
4,266,439 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
40,186 |
|
|
— |
|
|
— |
|
|
40,186 |
|
Conversion
of Class B common stock into Class A common stock |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
2,400,000 |
|
|
— |
|
|
(2,400,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Balance,
July 3, 2022 |
— |
|
|
$ |
— |
|
|
200,000 |
|
|
$ |
206,002 |
|
|
|
110,395,630 |
|
|
$ |
11 |
|
|
55,911,203 |
|
|
$ |
6 |
|
|
3,430,667 |
|
|
$ |
(34,557) |
|
|
$ |
335,015 |
|
|
$ |
(312,851) |
|
|
$ |
(1,306) |
|
|
$ |
(13,682) |
|
See
accompanying notes to consolidated financial statements.
Bowlero
Corp.
Consolidated
Statements of Cash Flows
Fiscal
Years Ended July 3, 2022 and June 27, 2021
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Operating
activities |
|
|
|
Net
loss |
$ |
(29,934) |
|
|
$ |
(126,461) |
|
Adjustments
to reconcile net loss to net cash provided by operating activities: |
|
|
|
Asset
impairment |
1,548 |
|
|
386 |
|
Depreciation
and amortization |
106,957 |
|
|
91,851 |
|
Gain
on sale or disposal of assets, net |
(4,109) |
|
|
(46) |
|
Income
from joint venture |
(388) |
|
|
(223) |
|
Loss
on refinance of debt |
953 |
|
|
— |
|
Loss
on settlement of warrants |
149 |
|
|
— |
|
Amortization
of deferred financing costs |
3,502 |
|
|
3,431 |
|
Amortization
of deferred rent incentive |
(281) |
|
|
(1,766) |
|
Non-cash
interest expense on capital lease obligation |
5,098 |
|
|
6,986 |
|
Amortization
of deferred sale lease-back gain |
(1,015) |
|
|
(1,204) |
|
Deferred
income taxes |
(6,879) |
|
|
(1,418) |
|
Stock
based compensation |
50,236 |
|
|
3,164 |
|
Distributions
from joint venture |
401 |
|
|
210 |
|
Change
in fair value of earnout liability |
25,800 |
|
|
— |
|
Change
in fair value of warrant liability |
26,840 |
|
|
— |
|
Changes
in assets and liabilities, net of business acquisitions: |
|
|
|
Accounts
receivable and notes receivable, net |
(1,928) |
|
|
458 |
|
Inventories |
(1,925) |
|
|
(137) |
|
Prepaids,
other current assets and other assets |
(6,301) |
|
|
(2,184) |
|
Accounts
payable and accrued expenses |
(409) |
|
|
40,073 |
|
Other
current liabilities |
6,677 |
|
|
725 |
|
Other
long-term liabilities |
2,678 |
|
|
44,387 |
|
Net
cash provided by operating activities |
177,670 |
|
|
58,232 |
|
|
|
|
|
Investing
activities |
|
|
|
Purchases
of property and equipment |
(162,371) |
|
|
(43,137) |
|
Proceeds
from sale of property and equipment |
17,105 |
|
|
1,273 |
|
Purchases
of intangible assets |
(2,427) |
|
|
(60) |
|
Proceeds
from sale of intangibles |
— |
|
|
140 |
|
Acquisitions,
net of cash acquired |
(72,652) |
|
|
(4,892) |
|
Net
cash used in investing activities |
(220,345) |
|
|
(46,676) |
|
|
|
|
|
Bowlero
Corp.
Consolidated
Statements of Cash Flows
Fiscal
Years Ended July 3, 2022 and June 27, 2021
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Financing
activities |
|
|
|
Repurchase
of Series A preferred stock - Old Bowlero |
$ |
(145,298) |
|
|
$ |
— |
|
Proceeds
from issuance of Series A preferred stock |
95,000 |
|
|
— |
|
Proceeds
from issuance of Class A common stock to Isos investors |
94,413 |
|
|
— |
|
Transaction
costs related to Merger recapitalization |
(20,670) |
|
|
— |
|
Proceeds
from PIPE Investment |
150,604 |
|
|
— |
|
Proceeds
from Forward Investment |
100,000 |
|
|
— |
|
Payment
to existing shareholders of Old Bowlero |
(226,000) |
|
|
— |
|
Consideration
paid to existing option holders of Old Bowlero |
(15,467) |
|
|
— |
|
Repurchase
of treasury stock |
(31,463) |
|
|
— |
|
Repurchase
of warrants |
(5,375) |
|
|
— |
|
Payment
of long-term debt |
(10,263) |
|
|
(8,211) |
|
Payment
of First Lien Credit Facility Revolver |
(39,853) |
|
|
— |
|
Proceeds
from Incremental Liquidity Facility |
— |
|
|
45,000 |
|
Payment
of Incremental Liquidity Facility |
(45,000) |
|
|
— |
|
Payments
of deferred financing costs |
(977) |
|
|
(1,984) |
|
Payments
for tax withholdings on share-based awards |
(503) |
|
|
— |
|
Proceeds
from New Revolver |
86,434 |
|
|
— |
|
Construction
allowance receipts |
2,282 |
|
|
— |
|
Net
cash (used in) provided by financing activities |
(12,136) |
|
|
34,805 |
|
|
|
|
|
Effect
of exchange rates on cash |
(46) |
|
|
27 |
|
|
|
|
|
Net
(decrease) increase in cash and equivalents |
(54,857) |
|
|
46,388 |
|
Cash
and cash equivalents at beginning of year |
187,093 |
|
|
140,705 |
|
Cash
and cash equivalents at end of year |
$ |
132,236 |
|
|
$ |
187,093 |
|
See
accompanying notes to consolidated financial statements.
BOWLERO
CORP.
Notes
to Consolidated Financial Statements
(Amounts
in thousands, except share amounts or otherwise noted)
(1)
Description
of Business
Bowlero
Corp., a Delaware corporation, and its subsidiaries “(collectively, the Company)” are the world’s largest operator of
bowling entertainment centers.
The
Company operates bowling centers under different brand names. The AMF branded centers are traditional bowling centers and the Bowlero
branded centers offer a more upscale entertainment concept with lounge seating, enhanced food and beverage offerings, and more robust
customer service for individuals and group events. The Bowlmor centers were rebranded to Bowlero and offered a more upscale entertainment
concept. Additionally, within the brands, there exists a spectrum where some AMF branded centers are more upscale and some Bowlero branded
centers are more traditional. All of our centers, regardless of branding, are managed in a fully integrated and consistent basis since
all of our centers are in the same business of operating bowling entertainment. The
following summarizes the Company’s centers by country and major brand as of the fiscal years ended July 3, 2022 and June 27,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Bowlero |
161 |
|
|
133 |
|
AMF
& other |
147 |
|
|
136 |
|
Bowlmor |
2 |
|
|
14 |
|
Total
centers in the United States |
310 |
|
|
283 |
|
Mexico
(AMF) |
5 |
|
|
6 |
|
Canada
(AMF and Bowlero) |
2 |
|
|
2 |
|
Total |
317 |
|
|
291 |
|
Impact
of COVID-19
In
mid-March of 2020, the Company temporarily suspended all operations in compliance with local, state, and federal governmental restrictions
to prevent the spread of the novel coronavirus and variants collectively known as COVID-19. Starting in April 2020, the Company began
reopening centers and restoring operations. As of the beginning of fiscal 2022, all of our centers were open except for two
of our centers that re-opened on September 13, 2021. Due to governmental restrictions, the company had two
centers in Canada that closed on January 5, 2022 and reopened on January 31, 2022. Since March of 2020, some centers have not operated
at full capacity due to, among other factors, social distancing requirements, limited hours of operation, limitations on available offerings,
and other operational restrictions. The temporary suspension of our operations and subsequent operational restrictions have had an adverse
impact on the Company’s profitability and cash flows, in response to which the Company has taken and continues to take actions to
address.
Segment
Information
The
Company has one
reporting segment, which consists of operating a bowling entertainment business. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”)
in making decisions regarding resource allocation and assessing performance. Management continually assesses the Company’s operating
structure, and this structure could be modified further based on future circumstances and business conditions. Our CODM assesses performance
based on consolidated as well as bowling center-level revenue and operating profit.
The
Company attributes revenue to individual countries based on the Company’s bowling center locations. The Company’s bowling
centers are located in the United States, Mexico, and Canada. The Company’s revenues generated outside of the United States for
fiscal years 2022 and 2021 were not material. The Company’s long-lived assets located in Mexico and Canada are not material.
(2)
Significant
Accounting Policies
Basis
of Presentation
Reverse
Recapitalization:
On December 15, 2021, (the “Closing Date”), the Company consummated the previously announced Business Combination pursuant
to the Business Combination Agreement (“BCA”) t dated as of July 1, 2021, by and among Bowlero Corp. prior to the Closing
Date (“Old Bowlero”) and Isos Acquisition Corporation (“Isos”).
Notwithstanding
the legal form of the Business Combination pursuant to the BCA, the Business Combination is accounted for as a reverse recapitalization.
Under this method of accounting, Isos is treated as the acquired company and Old Bowlero is treated as the acquirer for accounting and
financial statement reporting purposes.
Old
Bowlero has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
•Old
Bowlero’s existing stockholders have the greatest voting interest in the Company;
•Old
Bowlero’s existing stockholders have the ability to control decisions regarding election and removal of directors and officers of
the Company;
•Old
Bowlero comprises the ongoing operations of the Company;
•Old
Bowlero’s relevant measures, such as assets, revenues, cash flows and earnings, are higher than Isos’; and
•Old
Bowlero’s existing senior management is the senior management of the Company.
As
a result of Old Bowlero being the accounting acquirer, the financial reports filed with the Securities and Exchange Commission (“SEC”)
by the Company subsequent to the Business Combination are prepared as if Old Bowlero is the predecessor and legal successor to the Company.
The historical operations of Old Bowlero are deemed to be those of the Company. Thus, the financial statements included in this report
reflect (i) the historical operating results of Old Bowlero prior to the Business Combination, (ii) the combined results of the Old Bowlero
and Isos following the Business Combination on December 15, 2021, (iii) the assets and liabilities of Old Bowlero at their historical
cost and (iv) the Company’s post-merger equity structure for all periods presented. The recapitalization of the number of shares
of common stock and preferred stock attributable to the purchase of Bowlero Corp. in connection with the Business Combination is reflected
retroactively to the earliest period presented and is utilized for calculating earnings per share in all prior periods presented. No step-up
basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction
as a reverse recapitalization of Isos.
In
connection with the Business Combination, Isos changed its name to Bowlero Corp. The Company’s Class A common stock became listed
on the NYSE under the symbol BOWL and warrants to purchase the Class A common stock became listed on the NYSE under the symbol BOWL.WS
in lieu of the Isos ordinary shares and Isos’s warrants, respectively. Isos’ units automatically separated into the Isos ordinary
shares and Isos’ warrants and ceased trading separately on the NYSE following the Closing Date. Prior to the Business Combination,
Isos neither engaged in any operations nor generated any revenue. Until the Business Combination, based on Isos’ business activities,
it was a shell company as defined under the Exchange Act.
The
consolidated assets, liabilities and results of operations prior to the reverse recapitalization are those of the Company, thus the shares
and corresponding capital amounts and losses per share, prior to the reverse recapitalization, have been retroactively restated based
on shares reflecting the exchange ratio of 24.841
established in the BCA.
Principles
of Consolidation: The
consolidated financial statements and related notes include the accounts of Bowlero Corp. and the subsidiaries it controls. Control is
determined based on ownership rights or, when applicable, based on whether the Company is considered to be the primary beneficiary of
a variable interest entity. The Company’s interest in 20%
to 50%
owned companies that are not controlled are accounted for using the equity method, unless the Company does not sufficiently influence
the management of the investee. All significant intercompany balances and transactions have been eliminated in consolidation.
Fiscal
Year: The
Company reports on a fiscal year ending on the Sunday closest to June 30th with each quarter generally comprising thirteen weeks. Fiscal
year 2022 contained fifty-three weeks and ended on July 3, 2022, and the 53rd week fell within the fourth quarter. Fiscal year 2021
contained fifty-two weeks each and ended on June 27, 2021.
Reclassification:
Certain prior
year amounts have been reclassified for consistency with the current year presentation. Internal use software as of June 27, 2021
has been reclassified on the consolidated balance sheet and in Note
5
-
Property
and Equipment
to conform
to current period presentation. Investment in joint venture as of June 27, 2021 has been reclassified to other assets on the consolidated
balance sheet. In our Consolidated Statement of Operations, we began combining income from joint venture, management fee income and other
operating expense, into one line item as other operating expense to simplify our reporting presentation. The reclassification had no impact
on total operating costs, earnings from operations, net earnings, earnings per share or total equity.
Use
of Estimates: The
preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in the balance sheets, statement of operations
and accompanying notes. Significant estimates made by management include, but are not limited to, cash flow projections; the fair value
of assets and liabilities in acquisitions; derivatives with hedge accounting; stock based compensation; depreciation and impairment of
long-lived assets; carrying amount and recoverability analyses of property and equipment, assets held for sale, goodwill and other intangible
assets; valuation of deferred tax assets and liabilities and income tax uncertainties; and reserves for litigation, claims and self-insurance
costs. Significant assumptions also include the Company’s position that the COVID-19 pandemic is temporary. Actual results could
differ from those estimates.
Fair-value
Estimates: We
have various financial instruments included in our financial statements. Financial instruments are carried in our financial statements
at either cost or fair value. We estimate fair value of assets using the following hierarchy using the highest level possible:
Level
1: Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.
Level
2: Observable prices that are based on inputs not quoted on active markets, but are corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available.
Cash
and Cash Equivalents: The
Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents. The
Company had cash equivalents of $88,067
and $86,003
at July 3, 2022 and June 27, 2021, respectively. The Company accepts a range of debit and credit cards, and these transactions
are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card
transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit
card transactions that settle in less than seven days to be cash equivalents. Amounts due from the banks for these transactions
classified as cash equivalents totaled $8,688
and $8,534
at July 3, 2022 and June 27, 2021, respectively.
Accounts
Receivable: The
Company records accounts receivable at the invoiced amount. Accounts receivable do not bear interest unless specified in a formal agreement.
An allowance for doubtful accounts is provided based on management’s best estimate of the amount of probable credit losses in the
existing accounts receivable. The Company determines the allowance based on a number of factors, including historical write-off experience
and its knowledge of specific customer accounts. Past-due balances meeting specific criteria are reviewed individually for collectability.
The Company reviews all other balances on a pooled basis. Accounts are written off once collection efforts have been exhausted and the
potential for recovery is considered remote. Actual uncollectable accounts could exceed the Company’s estimates, and changes to
estimates are accounted for in the period of change. The Company does not have any off-balance sheet credit exposures to its customers.
Inventories:
Inventory,
which includes operational items such as food and beverages, is valued at the lower of cost or market, with cost determined using an average
cost method.
Prepaid
Expenses and Other Current Assets:
Prepaid expenses consists primarily of payments made for goods and services to be received in the near future. Prepaid expenses consists
of prepaid rents, sales tax, insurance premiums, deposits, and other costs. Other current assets of $676
and $980
at July 3, 2022 and June 27, 2021, respectively, are included with prepaid expenses on our consolidated balance sheets.
Property
and Equipment: Property
and equipment are recorded at cost. Depreciation is calculated principally on the straight-line method based on the estimated useful lives
of individual assets or classes of assets.
Leasehold
improvements are recorded at cost. Amortization of leasehold improvements is calculated principally on the straight-line method over the
lesser of the estimated useful life of the leasehold improvement or the lease term. Renewal periods are included in the lease term when
the renewal is determined to be reasonably assured.
Internal
costs, including compensation and employee benefits for employees directly associated with capital projects, are capitalized and amortized
over the estimated useful life of the asset.
Estimated
useful lives of property and equipment are as follows:
|
|
|
|
|
|
Buildings
and improvements |
2
– 39
years |
Leasehold
improvements |
lesser of asset’s
useful life or lease term (1
month– 20
years) |
Equipment,
furniture, and fixtures |
2
– 15
years |
Expenditures
for routine maintenance and repairs that do not improve or extend the life of an asset are expensed as incurred. Improvements are capitalized
and amortized over the lesser of the remaining life of the asset or, if applicable, the lease term. Upon retirement or sale of an asset,
its cost and related accumulated depreciation are removed from property and equipment and any gain or loss is recognized.
The
Company’s policy is to capitalize interest cost incurred on debt during the construction of major projects. Interest costs are capitalizable
for all assets that require a period of time to get them ready for their intended use (an acquisition period). The amount capitalized
in an accounting period is determined by applying the capitalization rate to the accumulated expenditures for the asset during the period.
The capitalization rate used is based on the rates applicable to borrowings outstanding during the acquisition period.
Leases:
For
operating leases, we recognize rent expense straight-line over the lease term, including rent-free periods. To offset the costs of leasehold
improvements, some leases also provide allowances in the form of cash, or credits against monetary obligations payable by us within the
lease. All lease incentives are recorded as a liability and amortized over the term of the lease. Where applicable, we recognize contingent
rent expense when total gross sales exceed specific thresholds, and we accrue for contingent rent expense when probable those thresholds
will be met. Future payments for contingent rent and other costs such maintenance, insurance, taxes and other expenses are excluded from
minimum lease payments. For capital leases, we record interest expense on the obligation and amortize the asset over the lease term. We
record a capital lease liability equal to the present value of the minimum lease payments over the lease term discounted using the incremental
borrowing rate for that lease. We calculate the current portion of our capital lease obligation as the total payments that are due in
the next 12 months that are attributed to principal payments in the capital lease obligation amortization schedule.
Tenant
Improvement Incentives — The
Company has leasehold improvement allowances of $14,254
and $15,100
as of July 3, 2022 and June 27, 2021, respectively, from landlords recorded as liabilities in other current liabilities and
other long-term liabilities and amortized as a reduction of rent expense over the life of the lease.
Internal
Use Software: We
capitalize qualifying software costs incurred during the “application development stage” when the preliminary project stage
has been completed, management has authorized the project, and it is probable that the project will be completed. The estimated useful
life of internal-use software is between three
and five
years.
Costs
related to the development or purchase of internal-use software are capitalized and depreciated over the estimated useful life of the
software. Costs that are capitalized include external direct costs of materials and services to develop or obtain the software, interest,
and internal costs, including compensation and employee benefits for employees directly associated with a software development project.
As of July 3, 2022 and June 27, 2021, the Company has recognized internal use software, net of amortization, of $11,423
and $9,062,
respectively. Amortization expense was $3,298
and $2,400
for the fiscal years 2022 and 2021, respectively.
Goodwill
and Intangible Assets: Goodwill
is recognized for the excess of the purchase price over the fair value of assets acquired and liabilities assumed of businesses acquired.
Indefinite-lived
intangible assets
include liquor licenses and the Bowlero and Professional Bowlers Association trade names. The cost of purchasing liquor licenses in quota
controlled states are capitalized as indefinite lived intangible assets. Because the number of liquor licenses in a quota controlled state
are based on the population count, the values ascribed to these liquor licenses are primarily dependent on the supply and demand in the
particular jurisdictions in which they are issued. Liquor licenses are an intangible asset which are not assigned a useful life and not
amortized. Bowlero is the corporate name of the Company and the brand name associated with many of the Company’s bowling centers.
Professional Bowlers Association is the brand name of the entity owned by the Company associated with the main sanctioning body for ten-pin
bowling. The fair value of the trade names stems from the customer appeal and revenue streams derived from these brands.
Finite-lived
intangible assets
primarily include
AMF and other acquired trade names, customer relationships and management contracts, which have remaining useful lives ranging from 1
to 9
years. Finite-lived intangible assets are amortized based on the pattern in which the economic benefits are used or on a straight-line
basis.
Favorable
and Unfavorable leases: Favorable
and unfavorable leases are included in other assets and other long-term liabilities, respectively, and are amortized on a straight-line
basis, over remaining lease terms, which range from 1
to 36
years.
Impairment
of Goodwill, Intangible and Long-Lived Assets: Goodwill
is tested at least annually for impairment at the reporting unit level. The Company has determined it has one
reporting unit, operating a bowling entertainment business.
We
perform our annual impairment testing on the first day of our fiscal fourth quarter of each year. When evaluating goodwill and tradenames
for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that its reporting
unit or tradenames are impaired. For fiscal 2021, the Company performed a quantitative assessment of goodwill using the income approach
due to the economic impact of the COVID-19 pandemic with the temporary closure of our centers. For fiscal 2022, the Company performed
a qualitative assessment of goodwill and concluded it was not more likely than not that the fair value of the reporting unit was less
than its carrying value. There were no impairment charges for goodwill or indefinite-lived intangible assets, excluding liquor licenses,
recorded in fiscal years 2022 or 2021.
For
long-lived assets (such as property and equipment and other definite-lived intangibles), an impairment is indicated whenever events or
changes in circumstances indicate that the asset or asset group’s carrying value may not be recoverable. An asset group may not
be recoverable if the total estimated undiscounted cash flows associated with the use and eventual disposition of the asset group is less
than its carrying value. If the asset group isn’t recoverable and the fair value is less than its carrying value, then an impairment
exists and an adjustment is made to write down the asset to its fair value. The Company recognized impairment charges of $1,548
and $386
in fiscal years 2022 and 2021, respectively. The impairment charges in fiscal years 2022 and 2021 relate to long-lived assets and liquor
licenses. We estimated the fair value of these assets utilizing either an income approach that projects the total cash flows from use
and eventual disposition of the asset group discounted using a risk adjusted discount rate, or a market based approach using orderly liquidation
values or broker quotes for sale of similar properties.
Derivatives:
We
are exposed to interest rate risk. To manage these risks, we entered into interest rate swap derivative transactions to manage the interest
rate risk associated with a portion of our outstanding debt. The interest rate swaps were designated for accounting purposes as cash flow
hedges of forecasted floating interest payments on variable rate debt. The Company's interest rate swaps expired on June 30, 2022.
For
financial derivative instruments that are designated as a cash flow hedge for accounting purposes, the effective portion of the gain or
loss on the financial derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in
the same line item associated with the forecasted transaction, and in the same period or periods during which the forecasted transaction
affects earnings. Gains and losses on the financial derivative representing either hedge ineffectiveness or hedge components excluded
from the assessment of effectiveness are recognized in current earnings.
We
have entered into interest rate swap agreements that effectively modified our exposure to interest rate risk by converting a portion of
our interest payments on floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest
expense. These agreements typically involved the receipt of floating rate amounts in exchange for fixed interest rate payments over the
life of the agreements without an exchange of the underlying principal amount. See Note 9 - Debt
for more information.
Self-Insurance
Programs: The
Company is self-insured for a portion of its general liability, workers’ compensation and certain health care exposures. We also
purchase stop-loss insurance coverage through third-party insurers. The undiscounted costs of these self-insurance programs are accrued
based upon estimates of settlements and costs for known and anticipated claims. For claims that exceed the deductible amount, the Company
records a receivable representing expected recoveries pursuant to the stop-loss coverage and a corresponding gross liability for its legal
obligation to the claimant, since the Company is not legally relieved of our obligation to the claimant. The Company
recorded gross estimated liabilities of $15,797
and $17,363
at July 3, 2022 and June 27, 2021, respectively, to cover known general liability, health and workers’ compensation claims,
and the estimate of claims incurred but not reported. Corresponding stop-loss receivables for expected recoveries of self-insured claims
in the amounts of $4,414
and $4,780
were recorded at July 3, 2022 and June 27, 2021, respectively.
The
short-term portion of the self-insurance liabilities is included in accrued expenses in the accompanying consolidated balance sheets.
The long-term portion is included in other long-term liabilities in the accompanying consolidated balance sheets. The stop-loss receivable
is included in other assets.
Income
Taxes: The
Company utilizes the asset and liability approach in accounting for income taxes. We recognize income taxes in each of the jurisdictions
in which we have a presence. For each jurisdiction, we estimate the actual amount of income taxes currently payable or receivable, as
well as deferred income tax assets and liabilities.
Deferred tax
assets and liabilities are recorded to recognize the expected future tax benefits or costs of events that have been, or will be, reported
in different years for financial statement purposes than tax purposes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which
these items are expected to reverse. We review our deferred tax assets to determine if it is more-likely-than-not that they will be realized.
If we determine it is not more-likely-than-not that a deferred tax asset will be realized, we record a valuation allowance to reverse
the previously recognized tax benefit.
The
Company recognizes tax benefits related to uncertain tax positions if we believe it is more likely than not the benefit will be realized.
Recognized income tax positions are measured at the largest amount that is greater than 50%
likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs.
Interest
and penalties were $3
in fiscal year 2022 and $36
in fiscal year 2021. The U.S. federal, and in general, state returns are open to examination for the fiscal year ended June 30, 2019 and
thereafter. The net operating loss carryforward from fiscal year ended July 3, 2005 is also open to examination.
Revenue
Recognition: The
following table presents the Company’s revenue disaggregated by major revenue categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
%
of revenues |
|
June
27, 2021 |
|
%
of revenues |
Major
revenue categories: |
|
|
|
|
|
|
|
Bowling |
$ |
452,349 |
|
|
51 |
% |
|
$ |
203,730 |
|
|
52 |
% |
Food
and beverage |
321,441 |
|
|
35 |
% |
|
128,393 |
|
|
32 |
% |
Amusement |
118,940 |
|
|
13 |
% |
|
48,414 |
|
|
12 |
% |
Media |
18,975 |
|
|
2 |
% |
|
14,697 |
|
|
4 |
% |
Total
revenues |
$ |
911,705 |
|
|
100 |
% |
|
$ |
395,234 |
|
|
100 |
% |
Bowling
revenue —
The Company recognizes revenue for providing bowling services to customers in exchange for consideration that is recognized as revenue
on the day that the services are performed. Any prepayments for bowling revenue are recognized as deferred revenue and recognized when
earned.
Food
and beverage revenue
— Sales of food and beverages at our bowling centers are recognized at a point-in-time.
Amusement
revenue
— Amusement revenue includes amounts earned through arcades and other games. Similar to bowling and food and beverage revenue, almost
all of our revenue is earned at a point-in-time.
Media
revenue —
The Company earns media revenue from sanctioning official PBA tournaments and licensing media content to our customers, which include
television networks and multi-year contracts. The Company considers each tournament as a separate performance obligation because each
tournament’s pricing is negotiated separately and represents its stand-alone selling price based on the terms of the contract and
the relative nature of the services provided. Media revenue is generated through producing and licensing distribution rights to customers,
which is recognized at the point-in-time the Company produces and delivers programming for a respective tournament. Tournament revenue
includes sponsorships, entry and host fees. Fees received for sponsorships and tournaments are recognized as deferred revenue until the
respective tournament occurs, at which point, the Company recognizes those fees as revenue.
The
Company sells gift and game cards that do not expire. Gift and game card revenue is recognized as gift and game cards or game-play tokens
are redeemed by customers. The Company accrues unearned revenue as a liability for the unredeemed tickets that may be redeemed or used
in the future. Gift and game card sales are recorded as an unearned gift and game card revenue liability when sold. Unearned gift and
game card revenue or deferred revenue is reported in accrued expenses in the consolidated balance sheets and is disclosed in Note 8 -
Accrued
Expenses.
The
Company also has a loyalty program called the Most Valuable Bowler (MVB) program. MVB participants earn rewards in the form of coupons
or points based on their cumulative spend with an expiration date. The loyalty program creates material rights, which are valued as separate
performance obligations and deferred until use or expiration. The deferred portion is included in deferred revenue and is not material
to the financial statements.
From
time to time, the Company offers discount vouchers through outside vendors. Revenue for these vouchers is recognized as revenue when the
voucher is redeemed by the guest or as breakage on a pro-rated basis based on historical redemption patterns. Revenue is recognized for
the gross amount paid by customers for purchased vouchers. The fee paid to the outside vendors, in the form of the discount, is recognized
in cost of revenues. We recognize this revenue on a gross basis, as we are responsible for providing the service desired by the customer.
Taxes
collected from customers and remitted to government authorities are excluded from revenue in the consolidated statement of operations.
The remittance obligation is included in accrued liabilities until the taxes are sent to the appropriate taxing authorities.
Costs
of Revenues: The
Company’s costs of revenues all relate to center operations and are comprised primarily of fixed costs that are not variable or
less variable with changes in revenues, and include depreciation, amortization, property taxes, supplies, insurance, fixed rent, and utilities.
Variable costs included within costs of revenues primarily comprise labor, food and beverage costs, supplies, prize funds, variable rent,
tournament production expenses and amusement costs.
Selling,
General and Administrative Expenses (“SG&A”): SG&A
expenses are comprised primarily of employee costs, media and promotional expenses, and depreciation and amortization (excluding those
related to our center operations), and other miscellaneous expenses. A portion of SG&A costs are not variable in nature and do not
fluctuate significantly with changes in revenue, and include such expenses as depreciation, amortization and certain compensation.
Other
Operating Expenses: Other
operating expenses comprise various costs primarily driven by professional fees and transactional related expenses associated with business
acquisitions, and foreign currency gains/losses.
Pre-Opening
Costs:
Pre-opening
costs are expensed as incurred, and primarily consist of labor, rent, occupancy costs, travel, marketing expenses and other miscellaneous
expenses incurred prior to the opening of a new center.
Share-Based
Compensation: Stock
based compensation is recorded based on the grant-date fair value. Bowlero Corp. recognizes share-based compensation on a straight-line
basis or based on a graded vesting schedule over the requisite service period for time-based awards and recognizes the cost for performance-based
awards upon meeting performance targets. The Company does not recognize the effect of forfeitures until they occur. All compensation expense
for an award is recognized by the time it becomes fully vested. Stock based compensation is recorded in cost of revenues and selling,
general and administrative expenses in the consolidated statement of operations based on the employees’ respective functions. The
Company records deferred tax assets for awards that may result in deductions on the Company’s income tax returns, based on the amount
of compensation cost recognized and the Company’s statutory tax rate in the jurisdiction in which it will receive a deduction.
We
use the Black-Scholes-Merton option pricing model to calculate the fair value of stock options. This option valuation model requires the
use of subjective assumptions, including the estimated fair value of the underlying common stock, the expected stock price volatility,
and the expected term of the option.
•Fair
value of common stock
- During the periods in which the Company was privately held, there was no public market for our stock. The fair value of the Company’s
equity was approved by the Company’s Board of Directors using a third-party valuation specialist and factors it believed were material
to the valuation process, including but not limited to, the price at which recent equity was issued by the Company to independent third
parties, actual and projected financial results, risks, prospects, economic and market conditions, and estimates of weighted average cost
of capital. The Company believed the combination of these factors provided an appropriate estimate of the expected fair value of the Company
and reflects the best estimate of the fair value of the Company’s common stock at each grant date. As a publicly held company, we
now determine the fair value of the Company’s common stock based on the closing market price on the date of grant.
•Expected
Term - We
estimate the expected term of our time-based awards to be the weighted average mid-point between the vesting date and the end of the contractual
term. We use this method to estimate the expected term since we do not have sufficient historical exercise data.
•Expected
volatility
– Given the limited market trading history as a publicly held company, and no public market for the Company’s shares prior
to the Closing Date, the expected volatility rate is based on an average historical stock price volatility of comparable publicly-traded
companies in the industry group.
•Risk-free
interest rate — The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected
term of the option.
•Expected
dividend yield — The
Company has not paid and does not expect to pay dividends. Consequently, the Company uses an expected dividend yield of zero.
Advertising
and Television Costs: Costs
for advertising are expensed when incurred and recorded as operating expenses. Total advertising expenses for fiscal years 2022 and 2021
were $3,942
and $3,576,
respectively. Advertising expense is included within costs of revenues on the consolidated statement of operations. Television spending,
including costs associated with bowling tournaments that are televised, are capitalized as prepaid costs and expensed at the time the
event takes place.
Foreign
Currency Translation: The
Company’s financial statements are reported in U.S. dollars. Our foreign subsidiaries maintain their records in the currency of
the country in which they operate.
Assets
and liabilities of foreign subsidiaries are translated into U.S. dollars using rates of exchange at the balance sheet date. Translation
adjustments are recorded in other comprehensive income (loss). Revenues and expenses are translated at rates of exchange in effect during
the year. Transaction gains and losses are recorded in net income (loss).
Commitments
and contingencies: Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable
that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Business
Interruption Insurance: The
Company recognized $20,188
of business interruption insurance recoveries as other operating income in the consolidated statements of operations during fiscal year
2021, as a result of the insured claim resulting from the temporarily suspension of operations in compliance with local, state, and federal
governmental restrictions to prevent the spread of the COVID-19.
Series
A Preferred Stock: As
part of the reverse recapitalization, the Company issued redeemable Preferred Stock that is classified in temporary equity as certain
redemption provisions are not solely within the control of the Company. The pre-merger preferred stock was classified as temporary equity
and settled at the merger date. Please refer to Note 15 - Common
Stock, Preferred Stock and Stockholders' Equity
for more details.
Net
Loss Per Share Attributable to Common Stockholders: We
compute net loss per share of Class A common stock and Class B common stock under the two-class method. Holders of Class A common stock
and Class B common stock have equal rights to the earnings of the Company. Our participating securities include the redeemable convertible
preferred stock that have a non-forfeitable right to dividends in the event that a dividend is paid on common stock, but do not participate
in losses, and thus are not included in a two-class method in periods of loss. Since the Company has reported net losses for all periods
presented, all potentially dilutive securities have been excluded from the calculation of the diluted net loss per share attributable
to common stockholders as their effect is antidilutive and accordingly, basic and diluted net loss per share attributable to common stockholders
is the same for all periods presented. Dilutive securities include convertible preferred stock, warrants, earnouts, stock options, and
restricted stock units (“RSUs”). See Note 17 - Net
Loss Per Share.
Earnouts:
Following
the Closing Date, Isos and Bowlero equity holders at the effective time of the Business Combination have the contingent right to receive,
in the aggregate, up to 22,361,278
shares of Class A common stock if, from the Closing Date until the fifth anniversary thereof, the reported closing trading price of the
Class A common stock exceeds certain thresholds. As of the Closing Date, since earnouts are subject to change in control acceleration
provisions, that result in settlement value not fully indexed to share price, all but 152,370
of the earnout shares are reported as a liability in the consolidated balance sheets. Changes in the value of earnouts are recorded as
a non-operating item in the consolidated statements of operations. Those earnout shares not classified as a liability are classified as
equity compensation to employees. The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model. Inputs
that have a significant effect on the earnout shares valuation include the expected volatility, stock price, expected term, risk-free
interest rate and the performance hurdles. The Company evaluated its earnouts under FASB Accounting Standards Codification (“ASC”)
815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified
in stockholders’ equity. Since these earnouts meet the definition of a derivative under ASC 815, the Company recorded these earnouts
as long-term liabilities on the balance sheet at fair value upon the Closing Date, with subsequent changes in their respective fair values
recognized in the consolidated statements of operations and comprehensive loss at each reporting date. See Note 13 -
Earnouts
and Note 14 - Fair
Value of Financial Instruments
for further information.
Warrants:
Previously
outstanding warrants consisted of public warrants and private warrants, including warrants issued by Isos which continued to exist following
the Closing Date and warrants issued by the Company on the Closing Date. The outstanding warrants were accounted for as freestanding financial
instruments and were classified as liabilities on the Company’s consolidated balance sheets. The estimated fair value of the warrants
is described in Note 12 - Warrants.
Changes in the value of warrants were recorded as a non-operating item in the statements of operations. The Company
evaluated
its warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet
the criteria to be classified in stockholders’ equity. Since these warrants met the definition of a derivative under ASC 815, the
Company recorded these warrants as long-term liabilities on the balance sheet at fair value upon the Closing Date, with subsequent changes
in their respective fair values recognized in the consolidated statements of operations and comprehensive loss at each reporting date.
The Company completed the redemption of all outstanding publicly traded and privately held warrants on May 16, 2022.
Emerging
Growth Company Status: The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and
it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are
not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in its periodic reports and
proxy statements.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended
transition period which means that when a standard is issued or revised and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
Recently
Adopted Accounting Standards: In
April 2020, the FASB issued interpretive guidance (Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic) in
response to the COVID-19 pandemic. The guidance permits entities to elect to not evaluate whether lease-related relief that lessors provide
to mitigate the economic effects of COVID-19 on lessees is a lease modification under Accounting Standards Codification (ASC) 840. This
election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in
the rights of the lessor or our obligations as the lessee, i.e. the total payments required by the modified contract are substantially
the same or less than the total payments required by the original contract. The FASB staff expects that reasonable judgement will be exercised
in making those determinations and expects that there will be multiple ways to account for those deferrals, none of which the staff believes
are more preferable than the others. Two of those methods include:
a.Account
for the concessions as if no changes to the lease were made. Under that method, a lessor would increase its lease receivable, and a lessee
would increase its liabilities as receivables/payments accrue. In its income statement, a lessor would continue to recognize income, and
a lessee would continue to recognize expense during the deferral period.
b.Account
for the deferred payments as variable lease payments.
In
certain circumstances, the Company adopted option (a) for deferrals of rental payments and option (b) for abatements.
Recently
Issued Accounting Standards: In
February 2016, the FASB issued ASU No. 2016-02, Leases (“Topic 842”). Following ASU 2016-02, the FASB issued subsequent guidance
and amendments including ASU 2017-13, 2018-01, 2018-11, 2018-20, 2019-01, and 2020-05 (collectively, including ASU 2016-02, “Topic
842”). Topic 842 will replace the guidance in Topic 840. The main objectives are to increase transparency and comparability among
organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. The right-of-use asset reflects the lessee’s right to direct the use of and obtain substantially all the economic
benefits from that asset over the lease term, and it will be based on the lease liability at commencement, subject to certain adjustments
such as accrued rent, lease incentives, lease intangibles, initial direct costs and prepaid rent. The lease liability reflects the obligation
to make payments for the right to use that asset, which is the present value of future payments. Operating leases will remain being expensed
on the straight-line basis of the lease, and finance leases will retain their front-loaded expense pattern, similar to current capital
leases.
As
a result of ASU 2020-05, Topic 842 will be effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal
years beginning after December 15, 2022. The Company has not adopted Topic 842, which be effective for the Company for its fiscal year
ending 2023. We are currently evaluating our lease population, current processes, internal controls, and timeline required for adoption.
Additionally, we are still evaluating the practical expedients and the methods of adoption that we will use when adopting the new standard.
Although management continues to evaluate the effect on the Company’s consolidated financial statements and disclosures, management
currently estimates
total
operating lease assets and liabilities will increase approximately $430,000
to $530,000,
respectively, upon adoption based on the lease population as of July 3, 2022. The Company estimates that this standard will result
in a material impact to our balance sheet from the recognition of right of use assets and liabilities. We do not believe the adoption
of this standard will have a material impact on our statement of operations or cash flows.
(3)
Business
Combinations and Acquisitions
Business
Combination: For
accounting purposes, the Business Combination was treated as the equivalent of Bowlero Corp. issuing stock for the net assets of Isos,
accompanied by a recapitalization. The
following summarizes the elements of the Business Combination to the consolidated statement of cash flows, including the transaction funding,
sources and uses of cash, and merger-related earnouts and warrants:
|
|
|
|
|
|
|
Recapitalization |
Cash-Isos
Acquisition Corporation Trust |
$ |
254,851 |
|
Less:
Isos transaction costs paid from Trust |
(23,869) |
|
Less:
Redemptions of existing shareholders of Isos |
(136,569) |
|
Net
cash proceeds from SPAC shareholders |
$ |
94,413 |
|
|
|
Cash-PIPE
issuance |
$ |
150,604 |
|
Cash-Forward
issuance |
100,000 |
|
Net
cash proceeds from SPAC shareholders |
94,413 |
|
Cash-Preferred
issuance |
95,000 |
|
Less:
Bowlero transaction costs |
(20,670) |
|
Total
cash received, net of transaction costs |
419,347 |
|
|
|
Payoff
of preferred stock and accumulated dividends |
(145,298) |
|
Consideration
to existing Bowlero shareholders |
(226,000) |
|
Consideration
to Bowlero option holders |
(15,467) |
|
Total
distributions |
(386,765) |
|
Net
cash received |
$ |
32,582 |
|
|
|
Earnout
liability |
$ |
181,113 |
|
Warrant
liability |
22,426 |
|
Total
liabilities recognized |
$ |
203,539 |
|
After
making adjustments to the issuance of the Business Combination consideration shares, the redemption of the Isos ordinary shares, the consummation
of the PIPE Offerings and the Forward Purchase Contract, the roll-over of vested options and the withholding of 1,068,884
shares for tax obligations from certain current and former employees and the conversion of common shares to preferred shares, there were
165,378,145
shares of the Common Stock issued and outstanding as of the Closing Date, of which 107,066,302
shares were Class A common stock and 58,311,203
shares were Class B common stock. There were 17,225,692
warrants outstanding as of the Closing Date.
The
Company expensed $2,956
in transaction costs for amounts allocated to that portion of the earnouts related to Bowlero rather than as an offset to equity.
Acquisitions:
The Company continually evaluates potential acquisitions, which can be either business combinations or asset purchases, that strategically
fit within the Company’s existing portfolio of centers as a key part of the Company’s overall growth strategy in order to
expand our market share in key geographic areas, and to improve our ability to leverage our fixed costs.
Acquisitions
that meet the definition of a business under ASC 805, “Business Combinations,” are accounted for using the acquisition method
of accounting. The Company estimates the fair value of the tangible and intangible assets acquired and liabilities assumed as of the acquisition
date for business combinations and utilizes valuation specialists to assist in doing so. For business combinations, we will continue to
evaluate and refine the estimates used to record the fair value of the assets acquired and liabilities assumed throughout the permitted
measurement period, which may result in
corresponding
offsets to goodwill in future periods. We expect to finalize the valuations as soon as possible, but no later than one year from the acquisition
dates.
The
goodwill acquired in the business combinations represents:
•the
value of an assembled workforce
•future
earnings and cash flow potential of these businesses, and
•the
complementary strategic fit and resulting synergies these businesses bring to existing operations
From
the business combinations during fiscal year 2022, $8,097
of the goodwill recognized is deductible for tax purposes.
Acquisitions
that do not meet the definition of a business under ASC 805 are accounted for as an asset acquisition, using a cost accumulation model.
Assets acquired and liabilities assumed are recognized at cost, which is the consideration the acquirer transfers to the seller, including
direct transaction costs, on the acquisition date. The cost of the acquisition is then allocated to the assets acquired based on their
relative fair values. Goodwill is not recognized in an asset acquisition.
2022
Business Combinations:
The Company’s accounting for the allocations of the purchase price for the acquisitions of bowling businesses that were treated
as business combinations at the dates of the respective acquisitions is based upon its understanding of the fair value of the acquired
assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. The Company completed
eight
acquisitions for a total consideration of $72,737.
The Company's consolidated financial statements reflect final and preliminary allocations of the purchase price to the assets and
liabilities assumed based on fair value as of the date of the acquisition. The total consideration of acquisitions with final purchase
price allocations was $53,146.
The one
transaction with a preliminary purchase allocation, which occurred at the end of the fourth quarter of fiscal 2022, was for a total consideration
of $19,591.
The Company’s preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of
the date of acquisition is subject to change upon finalizing its valuation analysis. The remaining fair value estimates to finalize include
working capital, intangibles, and property and equipment. The final determination may result in changes in the fair value of certain assets
and liabilities as compared to these preliminary estimates, which is expected to be finalized in fiscal year 2023.
The
following table summarizes the final and preliminary purchase price allocations for the fair values of the identifiable assets acquired,
components of consideration transferred and the transactional related expenses using the acquisition method of accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets acquired and liabilities assumed |
|
Final |
|
Preliminary |
|
Total |
Current
assets |
|
$ |
2,531 |
|
|
$ |
16 |
|
|
$ |
2,547 |
|
Property
and equipment |
|
32,718 |
|
|
17,293 |
|
|
50,011 |
|
Identifiable
intangible assets |
|
3,400 |
|
|
620 |
|
|
4,020 |
|
Goodwill |
|
14,944 |
|
|
1,762 |
|
|
16,706 |
|
Total
assets acquired |
|
53,593 |
|
|
19,691 |
|
|
73,284 |
|
|
|
|
|
|
|
|
Current
liabilities |
|
(447) |
|
|
(100) |
|
|
(547) |
|
Total
liabilities assumed |
|
(447) |
|
|
(100) |
|
|
(547) |
|
Total
fair value, net of cash acquired of $49 |
|
$ |
53,146 |
|
|
$ |
19,591 |
|
|
$ |
72,737 |
|
|
|
|
|
|
|
|
Components
of consideration transferred |
|
|
|
|
|
|
Cash |
|
50,068 |
|
|
19,191 |
|
|
69,259 |
|
Holdback |
|
1,608 |
|
|
400 |
|
|
2,008 |
|
Contingent
consideration |
|
1,470 |
|
|
— |
|
|
1,470 |
|
Total
consideration transferred |
|
$ |
53,146 |
|
|
$ |
19,591 |
|
|
$ |
72,737 |
|
Transaction
expenses included in “other operating expense” in the consolidated statement of operations for fiscal year 2022 |
|
$ |
880 |
|
|
$ |
241 |
|
|
$ |
1,121 |
|
2022
Asset Acquisitions:
The
following table summarizes the application of the cost accumulation model to acquired bowling centers treated as asset acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets acquired and liabilities assumed |
|
Bowl
America |
|
Other
Asset Acquisition |
|
Total |
Current
assets |
|
$ |
2,949 |
|
|
$ |
5 |
|
|
$ |
2,954 |
|
Property
and equipment |
|
40,121 |
|
|
8,564 |
|
|
48,685 |
|
Identifiable
intangible assets |
|
1,099 |
|
|
1,136 |
|
|
2,235 |
|
Assets
held for sale |
|
10,985 |
|
|
— |
|
|
10,985 |
|
Current
liabilities |
|
(1,426) |
|
|
(81) |
|
|
(1,507) |
|
Deferred
tax liability |
|
(9,107) |
|
|
— |
|
|
(9,107) |
|
Total
consideration transferred |
|
$ |
44,621 |
|
|
$ |
9,624 |
|
|
$ |
54,245 |
|
2021
Business Combination: The
Company acquired the following bowling business (“2021 Business Combination”) in fiscal year 2021 for a total purchase price
of $2,760,
net of cash acquired. The balance sheets reflect assets acquired and liabilities assumed recorded at fair values and resulting recognition
of goodwill.
The
following table summarizes the purchase price allocation for the fair values of the identifiable assets acquired, components of consideration
transferred and the transactional related expenses using the acquisition method of accounting:
|
|
|
|
|
|
|
|
|
Identifiable
assets acquired and liabilities assumed |
|
Total |
Current
assets |
|
$ |
90 |
|
Property
and equipment |
|
181 |
|
Identifiable
intangible assets |
|
465 |
|
Goodwill |
|
2,350 |
|
Total
assets acquired |
|
3,086 |
|
|
|
|
Current
liabilities |
|
326 |
|
Total
liabilities assumed |
|
326 |
|
Total
fair value, net of cash acquired of $5 |
|
$ |
2,760 |
|
|
|
|
Components
of consideration transferred |
|
|
Cash |
|
$ |
2,760 |
|
Transaction
expenses included in "other operating expense" in the consolidated statement of operations for fiscal year 2021 |
|
$ |
69 |
|
The
following summarizes key valuation approaches and assumptions utilized in calculating the fair values for Business Combinations and Asset
Acquisitions, which are accounted for under the acquisition method of accounting and cost accumulation model, respectively:
Property
and equipment
— Buildings, improvements, and equipment are valued using the cost approach and land is valued at its highest and best use by the
market or sales comparison approach. The fair value of tangible personal property was determined primarily using variations of the cost
approach. Certain assets with an active secondary market were valued using the market approach. The current use of certain nonfinancial
assets acquired differed from their highest and best use, due to local market conditions, the value of the land exceeding the combined
fair values of the land and building, and zoning and commercial viability of the surrounding area. The valuation inputs used to determine
the fair value of the land and building are based on level 3 inputs, including discount rates, sales projections, and future cash flows.
Assets
held for sale
— We utilize a valuation specialist to assist with our determination of the assets held for sale estimated fair value less costs
to sell, using a market approach. These inputs are classified as level 2 fair value measurements.
Intangible
assets —
We acquired intangible assets including trade names, non-competition agreements, customer relationships, and liquor licenses.
–Trade
names: Trade
names are recognized during Business Combinations and Asset Acquisitions using the relief-from-royalty method, which is considered a Level
3 fair value measurement due to the use of unobservable inputs. Significant assumptions used in the calculation include: revenue projections,
a royalty rate based on qualitative factors and the market-derived royalty rates, discount rate based on the Company’s weighted
average cost of capital (WACC) adjusted for risks commonly inherent in trade names and an indefinite life for Professional Bowlers Association
trade name as management intends to use the trade name in perpetuity.
–Non-Competition: Non-compete
agreements are recognized during Business Combinations and Asset Acquisitions. The Company records the fair value of non-competition agreements
using the differential discounted cash flow method income approach, a Level 3 fair value measurement due to the use of unobservable inputs.
Significant assumptions used in the fair value calculations for non-competition agreements include: potential competitor impact on revenue
and expense projections, discount rate based on the Company’s WACC adjusted for risks commonly inherent in intangible assets, specifically
non-compete agreements.
–Customer
relationships: The
Company records customer relationships for bowling leagues for Business Combinations and Asset Acquisitions based on the fair value of
relationships using the excess earnings income approach and discounted cash flow method, which are considered Level 3 fair value measurements
due to the use of unobservable inputs. Significant assumptions used in the fair value calculations for relationships include: revenue
and expense projections, customer retention rate for leagues, discount rate based on the Company’s WACC adjusted for risks inherent
in intangible assets, specifically customer relationships and the remaining useful life.
–Liquor
licenses: The
Company records the fair value of brokered liquor licenses acquired in Business Combinations and Asset Acquisitions using the market approach.
Significant assumptions used in the calculation include approximation based on recent sales of liquor licenses in the respective jurisdictions
and assignment of an indefinite useful life as licenses do not expire and can be sold to third parties.
Contingent
Consideration —
A business combination during fiscal year 2022 included $1,470
of contingent consideration. The contingency depends on approvals by the local township that requires us to transfer real property in
the event of certain decisions being made. The range of contingent consideration is $0
- $1,470.
We recorded the amount based on:
(i)
The probability of the contingency being met
(ii)
A comparable sales approach to determine the value of the non-cash consideration.
These
inputs are classified as level 3 on the fair value hierarchy.
Deferred
Tax Liability
– Since the Bowl America acquisition was a non-taxable stock acquisition, the Company recorded deferred tax liabilities for the
difference between the tax carryover basis and the book value of the opening balances, which were recorded and allocated based on fair
values to the respective assets acquired.
(4)
Goodwill
and Other Intangible Assets
Goodwill:
The
changes in the carrying amount of goodwill for the fiscal years ended July 3, 2022 and June 27, 2021:
|
|
|
|
|
|
Balance June 28,
2020 |
$ |
724,932 |
|
Goodwill
resulting from acquisitions made during fiscal 2021 |
2,350 |
|
Foreign
currency translation adjustment |
(1,126) |
|
Balance as of
June 27, 2021 |
726,156 |
|
Goodwill
resulting from acquisitions during fiscal 2022 |
16,706 |
|
Goodwill
adjustments made during fiscal 2022 |
(193) |
|
Balance as of
July 3, 2022 |
$ |
742,669 |
|
Intangible
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
|
Weighted
average life (in years) |
|
Gross
carrying amount |
|
Accumulated
amortization |
|
Net
carrying amount |
|
Weighted
average life (in years) |
|
Gross
carrying amount |
|
Accumulated
amortization |
|
Net
carrying amount |
Finite-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMF
trade name |
2 |
|
$ |
9,900 |
|
|
$ |
(8,593) |
|
|
$ |
1,307 |
|
|
1 |
|
$ |
9,900 |
|
|
$ |
(7,920) |
|
|
$ |
1,980 |
|
Bowlmor
trade name |
0 |
|
6,500 |
|
|
(6,500) |
|
|
— |
|
|
6 |
|
6,500 |
|
|
(2,600) |
|
|
3,900 |
|
Other
acquisition trade names |
4 |
|
1,761 |
|
|
(651) |
|
|
1,110 |
|
|
7 |
|
1,010 |
|
|
(173) |
|
|
837 |
|
Customer
relationships |
2 |
|
21,112 |
|
|
(13,989) |
|
|
7,123 |
|
|
3 |
|
18,370 |
|
|
(10,471) |
|
|
7,899 |
|
Management
contracts |
2 |
|
1,800 |
|
|
(1,443) |
|
|
357 |
|
|
2 |
|
1,800 |
|
|
(1,150) |
|
|
650 |
|
Non-compete
agreements |
4 |
|
2,450 |
|
|
(1,067) |
|
|
1,383 |
|
|
4 |
|
1,200 |
|
|
(514) |
|
|
686 |
|
PBA
member, sponsor & media relationships |
8 |
|
1,400 |
|
|
(504) |
|
|
896 |
|
|
8 |
|
1,400 |
|
|
(322) |
|
|
1,078 |
|
Other
intangible assets |
4 |
|
921 |
|
|
(133) |
|
|
788 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
45,844 |
|
|
(32,880) |
|
|
12,964 |
|
|
4 |
|
40,180 |
|
|
(23,150) |
|
|
17,030 |
|
Indefinite-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquor
licenses |
|
|
9,629 |
|
|
— |
|
|
9,629 |
|
|
|
|
9,027 |
|
|
— |
|
|
9,027 |
|
PBA
trade name |
|
|
3,100 |
|
|
— |
|
|
3,100 |
|
|
|
|
3,100 |
|
|
— |
|
|
3,100 |
|
Bowlero
trade name |
|
|
66,900 |
|
|
— |
|
|
66,900 |
|
|
|
|
66,900 |
|
|
— |
|
|
66,900 |
|
|
|
|
79,629 |
|
|
— |
|
|
79,629 |
|
|
|
|
79,027 |
|
|
— |
|
|
79,027 |
|
|
|
|
$ |
125,473 |
|
|
$ |
(32,880) |
|
|
$ |
92,593 |
|
|
|
|
$ |
119,207 |
|
|
$ |
(23,150) |
|
|
$ |
96,057 |
|
The
Company reviewed the estimated useful life of its Bowlmor tradename as part of the Company’s plans to rebrand its Bowlmor centers
to Bowlero centers. Based on that review, the Company determined that the intangible asset associated with the Company’s Bowlmor
tradename has a useful life shorter than initially estimated. During the fiscal quarter ended December 26, 2021, the Company adjusted
the remaining useful life of the Bowlmor tradename from 5.75
years to 6
months. The change in useful life was made as a prospective adjustment and resulted in an increase in amortization expense of $3,412
for the fiscal year ended July 3, 2022.
The
following table shows amortization expense for finite-lived intangible assets for each reporting period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Amortization
expense |
$ |
9,461 |
|
|
$ |
6,030 |
|
The
estimated aggregate amortization expense for finite-lived intangibles included in intangible assets in our consolidated Balance Sheet
for the next five fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
2024 |
|
2025 |
|
2026 |
|
2027 |
|
Thereafter |
Amortization
expense |
$ |
6,088 |
|
|
$ |
4,453 |
|
|
$ |
879 |
|
|
$ |
648 |
|
|
$ |
370 |
|
|
$ |
526 |
|
Favorable
and unfavorable leases:
The
Company has favorable lease assets of $30,732
and $34,618,
net of $14,002
and $12,300
accumulated amortization, reported in other assets in the consolidated balance sheets for the fiscal years ended July 3, 2022 and
June 27, 2021, respectively. Total amortization expenses for fiscal years 2022 and 2021 were $4,265
and $3,075,
respectively.
The
Company has unfavorable lease liabilities of $294
and $1,096,
net of $2,537
and $5,135
accumulated amortization, reported in other long-term liabilities in the consolidated balance sheets for the fiscal years ended July 3,
2022 and June 27, 2021, respectively. Total amortization expenses for fiscal years 2022 and 2021 were $478
and $458,
respectively.
(5)
Property
and Equipment
As
of July 3, 2022 and June 27, 2021, property and equipment consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Land |
$ |
77,006 |
|
|
$ |
19,879 |
|
Buildings
and improvements |
69,219 |
|
|
16,155 |
|
Leasehold
improvements |
349,534 |
|
|
313,441 |
|
Equipment,
furniture, and fixtures |
375,780 |
|
|
315,719 |
|
Construction
in progress |
15,638 |
|
|
27,028 |
|
|
887,177 |
|
|
692,222 |
|
Accumulated
depreciation |
(352,456) |
|
|
(276,561) |
|
Property
and equipment, net of accumulated depreciation |
$ |
534,721 |
|
|
$ |
415,661 |
|
The
following table shows depreciation expense related to property and equipment for each reporting period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Depreciation
expense |
$ |
77,471 |
|
|
$ |
67,934 |
|
Assets
held for sale:
Total
assets held for sale at July 3, 2022 and June 27, 2021 of $8,789
and $686,
included liquor licenses of $315
and $175,
respectively. Assets held for sale are valued at the lower of its carrying value or its fair value less the costs to sell. During the
fiscal year ended July 3, 2022, we acquired approximately $8,474
in real property, which we plan to sell within the next 12 months.
(6)
Leases
The
Company leases various assets under non-cancellable operating and capital leases. These assets include bowling centers, office space,
vehicles, and equipment.
The
Company has three
master lease agreements with a single landlord covering over 200
bowling centers. Our three
master leases contain initial terms ending in 2044 and 2047 with 8
renewal options for 10
years each. Most of our real estate leases have terms ranging from 10
to 15
years with renewal options that are typically for five
years each.
Most
of our leases contain payments for some or all of the following: base rent, contingent rent, common area maintenance, insurance, real-estate
taxes, and other operating expenses. Rental payments are subject to escalation depending on future changes in designated indices or based
on pre-determined amounts agreed upon at lease inception.
Operating
Leases: We
recorded accrued rent of $26,417
and $26,853
within other current liabilities and other long-term liabilities on the consolidated balance sheets as of July 3, 2022 and June 27,
2021, respectively.
In
addition to previously received rent concessions, in response to the economic effects of the COVID-19 pandemic, in March 2022, the Company
received a rent concession related to an operating lease in the form of a rent abatement retroactive to April 1, 2020 for amounts which
had been previously recognized as rent expense. We elected to not account for this concession as a modification in accordance with the
relief provided by the FASB staff. As a result, we recognized rent abatements of $7,470
($5,603
allocated to cost of revenues and $1,867
allocated to selling, general and administrative expenses) as a reduction of rent expense during fiscal year 2022.
Capital
Leases: We
had $47,298
and $34,609
in accumulated amortization on property and equipment under capital leases as of July 3, 2022 and June 27, 2021, respectively
The
following tables summarize the Company’s costs for operating and capital leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Operating
Leases |
|
|
|
Rent
expense |
$ |
55,189 |
|
|
$ |
58,114 |
|
|
|
|
|
Capital
Leases |
|
|
|
Interest
expense |
$ |
39,514 |
|
|
$ |
35,599 |
|
Amortization
expense |
12,940 |
|
|
12,870 |
|
Total
capital lease cost |
$ |
52,454 |
|
|
$ |
48,469 |
|
The
future minimum rent payments under our operating and capital leases as of July 3, 2022, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases |
|
Capital
Leases |
2023 |
$ |
49,783 |
|
|
$ |
41,261 |
|
2024 |
46,800 |
|
|
42,524 |
|
2025 |
50,345 |
|
|
42,551 |
|
2026 |
47,767 |
|
|
37,426 |
|
2027 |
48,269 |
|
|
39,989 |
|
Thereafter |
525,028 |
|
|
995,185 |
|
Total
rent payments |
$ |
767,992 |
|
|
$ |
1,198,936 |
|
Less:
Imputed interest payments for capital leases |
|
|
798,306 |
|
Present
value of capital lease obligation |
|
|
$ |
400,630 |
|
(7)
Supplemental
Cash Flow Information
The
table below presents supplemental cash flow information for each reporting period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Cash
paid during the period for: |
|
|
|
Interest |
$ |
88,292 |
|
|
$ |
81,685 |
|
Income
taxes, net of refunds |
3,898 |
|
|
818 |
|
Noncash
investing and financing transactions: |
|
|
|
Capital
expenditures in accounts payable |
8,895 |
|
|
4,193 |
|
Capital
lease assets obtained in exchange for capital lease liabilities |
7,463 |
|
|
5,401 |
|
Modifications
of capital lease assets and liabilities |
(15,001) |
|
|
6,971 |
|
Change
in fair value of interest rate swap |
8,869 |
|
|
8,631 |
|
Issuance
of warrants in Business Combination |
22,426 |
|
|
— |
|
Issuance
of earnout shares in Business Combination |
181,113 |
|
|
— |
|
Warrant
redemption |
(40,156) |
|
|
— |
|
Unsettled
treasury stock trade payable |
3,094 |
|
|
— |
|
(8)
Accrued
Expenses
As
of July 3, 2022 and June 27, 2021, accrued expenses consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Compensation |
$ |
15,746 |
|
|
$ |
13,577 |
|
Taxes
and licenses |
11,568 |
|
|
9,646 |
|
Customer
deposits |
10,728 |
|
|
7,114 |
|
Insurance |
5,229 |
|
|
8,285 |
|
Deferred
revenue |
6,384 |
|
|
5,885 |
|
Utilities |
4,185 |
|
|
3,399 |
|
Deferred
rent |
3,252 |
|
|
4,384 |
|
Professional
fees |
3,062 |
|
|
4,473 |
|
Interest |
498 |
|
|
4,693 |
|
Other |
2,202 |
|
|
2,194 |
|
Total
accrued expenses |
$ |
62,854 |
|
|
$ |
63,650 |
|
(9)
Debt
The
following table summarizes the Company’s debt structure as of July 3, 2022 and June 27, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
First Lien Credit
Facility Term Loan (Maturing July 3, 2024 and bearing variable rate interest; 5.17%
and 4.55%
at July 3, 2022 and June 27, 2021, respectively, excluding impact of hedging) |
$ |
790,271 |
|
|
$ |
800,534 |
|
New Revolver
(Maturing April 4, 2024 and bearing variable rate interest; 4.13%
at July 3, 2022) |
86,434 |
|
|
— |
|
First
Lien Credit Facility Revolver |
— |
|
|
39,853 |
|
Incremental
Liquidity Facility |
— |
|
|
45,000 |
|
|
876,705 |
|
|
885,387 |
|
Less: |
|
|
|
Unamortized
financing costs |
(6,649) |
|
|
(9,800) |
|
Current
portion of unamortized financing costs |
3,245 |
|
|
3,152 |
|
Current
maturities of long-term debt |
(8,211) |
|
|
(8,211) |
|
Total
long-term debt |
$ |
865,090 |
|
|
$ |
870,528 |
|
As
of July 3, 2022, minimum repayments of debt by fiscal year were as follows:
|
|
|
|
|
|
2023 |
$ |
8,211 |
|
2024 |
94,645 |
|
2025 |
773,849 |
|
|
|
|
|
|
$ |
876,705 |
|
First
Lien Credit Facility Term Loan: The
First Lien Credit Facility Term Loan is repaid on a quarterly basis on the last business day of the last month of each calendar quarter
in principal payments of $2,053.
Obligations
owed under the First Lien Credit Facility Term Loan bear interest at a rate per annum equal to the applicable LIBOR rate, subject to a
floor of 1.00%,
plus an applicable margin of 3.50%.
Interest on term loans under the First Lien Facility bearing interest based upon the Base Rate will be due quarterly, and interest on
loans bearing interest based upon the LIBOR rate will be due on the last day of each relevant interest period or, if sooner, on the respective
dates that fall every three months after the beginning of such interest period.
Pursuant
to the First Lien Guarantee and Collateral Agreements, obligations owed under the First Lien Credit Facility are secured by a first priority
security interest on substantially all assets of Bowlero Corp and the guarantor
subsidiaries.
The First Lien Credit Agreement contains customary events of default, restrictions on indebtedness, liens, investments, asset dispositions,
dividends and affirmative and negative covenants.
New
Revolver:
On December 15, 2021, the Company entered into a Sixth Amendment (“Sixth Amendment”) to the First Lien Credit Agreement, by
and among Bowlero, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders.
Pursuant
to the Sixth Amendment, the revolving credit facility under the First Lien Credit Agreement was refinanced and replaced by a $140,000
senior secured revolving credit facility (“New Revolver”), which has a maturity date of the earlier of December 15, 2026 or
the date that is 90
days prior to the scheduled maturity date of any term loans outstanding under the First Lien Credit Agreement in an aggregate
principal amount exceeding $175,000.
Since the term loan under the First Lien Credit Agreement matures on July 3, 2024, the maturity date for the New Revolver is currently
April 4, 2024. Interest on borrowings under the New Revolver is initially based on either the Adjusted Term Secured Overnight Financing
Rate (“SOFR”) or the Alternate Base Rate, as further described in the First Lien Credit Agreement.
In
addition, on December 17, 2021, Bowlero entered into a Seventh Amendment (“Seventh Amendment”) to the First Lien Credit Agreement
pursuant to which the total revolving commitments under the New Revolver were increased by $25,000
to an aggregate amount of $165,000.
No changes, other than increasing the aggregate principal amount of revolving commitments thereunder, were made to the terms of the New
Revolver in connection with the Seventh Amendment.
The
New Revolver is subject to, among other provisions, covenants regarding indebtedness, liens, negative pledges, restricted payments, certain
prepayments of indebtedness, cross-default with other agreements relating to indebtedness, investments, fundamental changes, disposition
of assets, sale and lease-back transactions, transactions with affiliates, amendments of or waivers with respect to restricted debt and
permitted activities of Bowlero. In addition, the New Revolver is subject to a financial covenant requiring that the First Lien Leverage
Ratio (as defined in the First Lien Credit Agreement) not exceed 6.00:1.00
as of the end of any fiscal quarter if the New Revolver is at least 35%
utilized (subject to certain exclusions) at the end of such fiscal quarter.
The
New Revolver is also subject to customary events of defaults. Payment of borrowings under the New Revolver may be accelerated if there
is an event of default, and Bowlero would no longer be permitted to borrow additional funds under the New Revolver while a default or
event of default were outstanding. No changes were made to the terms of the term loan under the First Lien Credit Agreement in connection
with the Sixth Amendment or the Seventh Amendment.
Incremental
Liquidity Facility: On
December 15, 2021, the principal, accrued and unpaid interest and fees outstanding under the Incremental Liquidity Facility were repaid
in full and all commitments to extend credit thereunder were terminated and any security interests and guarantees in connection therewith
were terminated and/or released.
The
Company had previously entered into a $150,000
Incremental Liquidity Facility with JP Morgan Chase Bank, N.A. as the lender with a maturity date of July 3, 2024 at an interest rate
of the applicable LIBOR rate plus an initial applicable margin of 3.00%.
The loan was structured as a revolver, with $45,000
utilized at the closing date and with the remaining $105,000
available subject to approval by Atairos as credit support provider and the prior satisfaction of certain conditions. The Incremental
Liquidity Facility was secured on a pari passu first lien basis with the existing credit facility (with respect to assets of Bowlero Corp.
and its guarantor subsidiaries).
First
Lien Credit Facility Revolver: On
December 15, 2021, the principal, accrued and unpaid interest and fees outstanding under the First Lien Credit Agreement Revolver were
repaid in full and all commitments to extend credit thereunder were terminated and any security interests and guarantees in connection
therewith were terminated and/or released.
The
Company had previously entered into a $50,000
First Lien Credit Facility Revolver with JP Morgan Chase Bank, N.A. as the lender with a maturity date of July 3, 2022. Obligations owed
under the First Lien Credit Facility bore interest at a rate per annum equal to the applicable LIBOR rate, subject to a floor of 1.00%,
plus an applicable margin of 3.75%
to 4.25%
depending on the leverage level. Interest on loans under the First Lien Facility bearing interest based upon the Base Rate was due quarterly,
and interest on loans bearing interest based upon the LIBOR rate was due on the last day of each relevant interest period or, if sooner,
on the respective dates that fall every three months after the beginning of such interest period. The Base Rate was defined as a rate
per annum equal to the highest of (a) the Federal Funds Effective Rate in effect on such day plus 0.50%,
(b) to the extent ascertainable, the Published LIBOR Rate plus 1.00%,
(c) the Prime Rate and (d) solely with respect to the expanded term loan under the July 2018 Credit Agreement, 2.00%.
Pursuant
to the First Lien Credit Agreement collateral and guarantee requirement, obligations owed under the First Lien Credit Facilities were
secured by a first priority security interest on substantially all assets of Bowlero Corp. and the
guarantor
subsidiaries. The First Lien Credit Agreement contained customary events of default, restrictions on indebtedness, liens, investments,
asset dispositions, dividends and affirmative and negative covenants.
Letters
of Credit: Outstanding
standby letters of credit as of July 3, 2022 and June 27, 2021 totaled $9,136
and $9,100,
respectively, and are guaranteed by JP Morgan Chase Bank, N.A. The available amount of the New Revolver is reduced by the outstanding
standby letters of credit as of July 3, 2022 and the available amount of the First Lien Credit Facility Revolver was reduced by the outstanding
standby letters of credit as of June 27, 2021.
Covenant
Compliance: The
Company was in compliance with all debt covenants as of July 3, 2022.
Interest
rate swaps and caps
Derivatives:
The Company
used interest rate swaps and cap agreements which expired as of July 3, 2022, to convert a portion of its variable interest rate
exposure to fixed rates to protect the Company from future interest rate increases. The
Company’s interest rate swap and cap agreements consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
27, 2021 |
|
|
Notional
Amounts |
|
Expiration |
Interest
rate swaps |
|
$ |
552,500 |
|
|
June
30, 2022 |
Interest
rate caps |
|
97,500 |
|
|
March
31, 2022 |
Total
notional amounts |
|
$ |
650,000 |
|
|
|
Under
the swap agreements, the Company paid a fixed rate of interest of 2.561%
and received an average variable rate of the one-month LIBOR adjusted monthly. Under the interest rate cap agreements, the Company paid
a fixed rate fee of 0.179%
on the notional amount and had a strike rate of 3.00%.
The
fair value of the swap and cap agreements as of June 27, 2021 was a liability of $8,869,
and was included in other current liabilities in the consolidated balance sheet.
The
reclassifications from accumulated other comprehensive income (“AOCI”) into income during each reporting period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Interest
expense reclassified from AOCI into net loss |
$ |
8,809 |
|
|
$ |
9,002 |
|
The
fair value of the swap and cap Agreements excludes accrued interest and takes into consideration current interest rates and current likelihood
of the swap counterparties’ compliance with its contractual obligations. There are no income taxes related to the amounts recorded
to AOCI due to tax credits and the full valuation allowance on deferred taxes.
(10)
Income
Taxes
Total
loss before income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Loss
before tax: |
|
|
|
U.S. |
$ |
(31,388) |
|
|
$ |
(123,360) |
|
Foreign |
764 |
|
|
(4,136) |
|
Total
loss before tax |
$ |
(30,624) |
|
|
$ |
(127,496) |
|
Income
tax (benefit) expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Current
income tax provision: |
|
|
|
Federal |
$ |
2,481 |
|
|
$ |
— |
|
State
and local |
3,601 |
|
|
505 |
|
Foreign |
107 |
|
|
(122) |
|
Total
current provision |
6,189 |
|
|
383 |
|
|
|
|
|
Deferred
income tax provision: |
|
|
|
Federal |
(6,307) |
|
|
9 |
|
State
and local |
(895) |
|
|
(1,707) |
|
Foreign |
323 |
|
|
280 |
|
Total
deferred provision |
(6,879) |
|
|
(1,418) |
|
Total
income tax benefit |
$ |
(690) |
|
|
$ |
(1,035) |
|
The
2022 and 2021 provision for income taxes differs from the amount computed by applying the statutory rate to the income before income taxes
primarily due to the changes in the valuation allowance, state and local taxes and for 2022, items associated with the Business Combination
and asset acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
Federal
statutory rate |
$ |
(6,431) |
|
|
21.0 |
% |
|
$ |
(26,774) |
|
|
21.0 |
% |
State
and local tax net of federal benefit |
6,675 |
|
|
(21.8) |
|
|
(6,190) |
|
|
4.9 |
|
Deferred
tax asset valuation allowance |
(29,901) |
|
|
97.6 |
|
|
34,060 |
|
|
(26.7) |
|
Business
Combination and asset acquisition items |
10,800 |
|
|
(35.3) |
|
|
— |
|
|
— |
|
Compensation
limited by section 162(m) of the Internal Revenue Code |
17,590 |
|
|
(57.4) |
|
|
— |
|
|
— |
|
Uncertain
tax positions |
1 |
|
|
— |
|
|
2 |
|
|
0.0 |
|
Foreign
tax rate difference |
65 |
|
|
(0.2) |
|
|
(1,251) |
|
|
1.0 |
|
Other |
511 |
|
|
(1.6) |
|
|
(882) |
|
|
0.6 |
|
Effective
tax rate |
$ |
(690) |
|
|
2.3 |
% |
|
$ |
(1,035) |
|
|
0.8 |
% |
The
Company’s effective tax rate was impacted by the reduction of the valuation allowance due to the recognition of deferred tax liabilities
with the Bowl America acquisition, as well as becoming subject to Section 162(m) of the Internal Revenue Code that limits executive compensation
tax deductibility and non-deductible transaction related costs as a result of the Business Combination. The increase in state and local
tax expense reflects higher taxable income and the impact of having fully utilized net operating losses in certain states.
As
of July 3, 2022, the Company had a net consolidated income tax receivable of $147
reflected in other current assets, a current consolidated income tax payable of $2,417
reflected in other current liabilities and a non-current consolidated income tax payable of $27
reflected in other long-term liabilities. As of June 27, 2021, the Company had a net consolidated income tax receivable of $119
reflected in other current assets and a non-current consolidated income tax payable of $26
reflected in other long-term liabilities.
The
tax effects of temporary differences and carryforwards that give rise to significant components of deferred income tax assets and liabilities
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Deferred
income tax assets: |
|
|
|
Reserves
not currently deductible |
$ |
21,961 |
|
|
$ |
40,458 |
|
Capital
lease liability |
105,157 |
|
|
98,545 |
|
Net
operating loss, interest, and tax credit carryforwards |
109,504 |
|
|
132,184 |
|
Subtotal |
236,622 |
|
|
271,187 |
|
Less:
Valuation allowance |
138,605 |
|
|
166,323 |
|
Total
net deferred income tax assets |
98,017 |
|
|
104,864 |
|
|
|
|
|
Deferred
income tax liabilities: |
|
|
|
Property
and equipment |
83,994 |
|
|
85,377 |
|
Favorable
and unfavorable leases |
7,827 |
|
|
8,886 |
|
Goodwill
and intangibles |
21,078 |
|
|
22,468 |
|
Total
deferred income tax liabilities |
112,899 |
|
|
116,731 |
|
Net
deferred income tax liabilities |
$ |
14,882 |
|
|
$ |
11,867 |
|
As
of July 3, 2022, the Company has U.S. tax credit carryforwards of $209,
U.S. federal net operating loss carryforwards (NOLs) of $460,572,
and interest carryforward of $20,825.
As of June 27, 2021, the Company has U.S. tax credit carryforwards of $209,
U.S. federal net operating loss carryforwards (NOLs) of $546,452,
and interest carryforward of $24,340.
The tax credits were generated in the July 1, 2007 and June 29, 2008 tax years. The credits have a 20-year federal carryover period and
will begin to expire starting in the fiscal year ending 2027. The NOL carryforwards will begin to expire in 2023. The interest carryforward
and $37,851
of NOL carryforwards do not expire.
Realization
of deferred tax assets associated with deductible temporary differences, net operating losses and other carryforwards is dependent on
generating sufficient future taxable income. Under Sections 382 and 383 of the Code, the Company’s federal net operating loss carryforwards
and other tax attributes may become subject to an annual limitation in the event of certain cumulative changes in the ownership of the
Company’s stock. An “ownership change” pursuant to Section 382 of the Code generally occurs if one or more stockholders
or group of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over
their lowest ownership percentage within a rolling three year period. The Company’s ability to utilize certain net operating loss
carryforwards and other tax attributes to offset future taxable income or tax liabilities may be limited as a result of ownership changes.
Similar rules may apply under state laws. It is currently estimated that $276,057
of the Company’s NOLs are subject to limitation due to the changes in ownership that occurred in 2004 and 2017 and that $195,900
of this amount may expire unused even if there is sufficient taxable income to absorb such NOLs. The Company has not experienced an ownership
change, as defined under Section 382 and 383, since July 2017.
Based
on the historical losses of the Company and limitations placed on NOLs due to changes in ownership in 2004 and 2017, the Company believes
it is more-likely-than-not that the Company will not realize the benefit of certain deferred tax assets, and, accordingly, has established
a valuation allowance against certain deferred tax assets of $138,605
as of July 3, 2022 and $166,323
as of June 27, 2021.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits for the fiscal years ended July 3, 2022 and June 27, 2021
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Balance
at beginning of year |
$ |
26 |
|
|
$ |
22 |
|
Additions
for tax positions of prior years |
1 |
|
|
4 |
|
Reductions
for tax positions of prior years |
— |
|
|
— |
|
Tax
settlements |
— |
|
|
— |
|
Balance
at end of year |
$ |
27 |
|
|
$ |
26 |
|
The
amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at July 3, 2022 was $6,
along with $21
affecting deferred taxes. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at June 27,
2021 was $5,
along with $21
affecting deferred taxes.
As
of July 3, 2022 and June 27, 2021, the Company had not recorded an income tax liability on certain undistributed earnings of
its foreign subsidiaries. It is expected that these earnings will be permanently reinvested in the operations within the respective country.
The Company has not calculated the deferred tax liability that would come due if the earnings were distributed to the U.S. as the calculations
are not material.
(11)
Commitments
and Contingencies
Litigation
and Claims: The
Company is currently, and from time to time may be, subject to claims and actions arising in the ordinary course of its business, including
general liability, fidelity, workers’ compensation, employment claims, and Americans with Disabilities Act (“ADA”) claims.
The Company has insurance to cover general liability and workers’ compensation claims and reserves for claims and actions in the
ordinary course. The insurance is subject to a self-insured retention. In some actions, plaintiffs request punitive or other damages that
may not be covered by insurance.
There
is currently a group of approximately 76
pending claims, filed with the Equal Employment Opportunity Commission (the “EEOC”) between 2016 and 2019, generally relating
to claims of age discrimination. To date, the EEOC issued determinations of probable cause as to thirteen
of the charges, which the Company contests and intends to defend vigorously. The EEOC has also alleged a pattern or practice of age discrimination,
which resulted in a determination of probable cause and, on August 22, 2022, a proposal for the Company to participate in conciliation.
The EEOC’s proposal includes a demand for monetary and non-monetary remedies. The Company contests such determination and intends
to defend vigorously. The Company cannot estimate the possible range of loss, if any, associated with these EEOC matters.
(12)
Warrants
Warrant
activity from the Closing Date to July 3, 2022 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding at Closing Date |
|
Repurchased |
|
Exercised
(a) |
|
Redeemed |
|
Warrants
outstanding at July 3, 2022 |
Publicly
traded warrants |
11,827,864 |
|
|
(2,690,272) |
|
|
(9,128,891) |
|
|
(8,701) |
|
|
— |
|
Private
placement warrants |
3,778,480 |
|
|
— |
|
|
(3,778,480) |
|
|
— |
|
|
— |
|
Unvested
private placement warrants |
1,619,348 |
|
|
— |
|
|
(1,619,348) |
|
|
— |
|
|
— |
|
Total |
17,225,692 |
|
|
(2,690,272) |
|
|
(14,526,719) |
|
|
(8,701) |
|
|
— |
|
_____________
a
- As a result of exercising the warrants, 4,266,439
shares of Class A common stock were issued, of which 475,440
shares that were issued in exchange for unvested private placement warrants are subject to additional earnout provisions. Please refer
to Note 13 - Earnouts
for more details on the additional Earnout Shares.
Share
and Warrant Repurchase Plan:
On February 7, 2022, the Company announced that its Board of Directors authorized a share and warrant repurchase program providing for
repurchases of up to $200,000
of the Company’s outstanding Class A common stock and warrants through February 3, 2024. 2,690,272
warrants were repurchased for
Redemption
of Public and Private Placement Warrants:
On April 14, 2022, the Company announced that it would redeem all of its outstanding publicly traded and privately held warrants to purchase
shares of its Class A common stock as of May 16, 2022 (the “Redemption Date”) for a redemption price of $0.10
per warrant (the “Redemption Price”).
After
the announcement and prior to the Redemption Date, holders of the warrants could choose to elect to exercise their warrants on a “cashless
basis” by receiving a number of shares of Class A common stock based on the volume weighted average price of the Class A common
stock for the ten trading days immediately following on the third trading day prior to the date on which notice of redemption was delivered
to holders (the “Redemption Fair Market Value”), which was $12.0985
per warrant. As a result, holders who exercised their warrants on a “cashless” basis before the Redemption Date received 0.2936
shares of Class A common stock per warrant exercised.
As
a result of the completion of the redemption of the warrants, the Company issued 4,266,439
shares of Class A common stock after 9,128,891
publicly traded warrants and 5,397,828
privately held warrants were exercised on a cash or cashless basis. The Company redeemed 8,701
publicly traded warrants at the redemption price of $0.10
per warrant. The amount of cash generated from the exercise of warrants and the amount of cash paid at the redemption price of $0.10
per warrant was not material. In connection with the warrant redemption, the warrants ceased trading on the NYSE and were delisted. The
change in value of the warrants was recorded through earnings through the settlement date. The Company no longer has any warrants outstanding.
(13)
Earnouts
Old
Bowlero’s stockholders and option holders received additional shares of Bowlero common stock (the “Earnout Shares”).
Earnout Shares vest during the period from and after the Closing Date until the fifth anniversary of the Closing Date (the “Earnout
Period”). The following tranches of Earnout Shares were issued to Old Bowlero stockholders:
(a)10,375,000
Earnout Shares, if the closing share price of Bowlero’s Class A common stock, par value $0.0001
per share (Class A common stock) equals or exceeds $15.00
per share for any 10
trading days within any consecutive 20-trading
day period that occurs after the Closing Date and
(b)10,375,000
Earnout Shares, if the closing share price of Class A common stock equals or exceeds $17.50
per share for any 10
trading days within any consecutive 20-trading
day period.
During
the Earnout Period, if Bowlero experiences an Acceleration Event, which as detailed in the BCA includes a change of control, liquidation
or dissolution of the Company, bankruptcy or the assignment for the benefit of creditors the appointment of a custodian, receiver or trustee
for all or substantially all the assets or properties of the Company, then any Earnout Shares that have not been previously issued by
Bowlero (whether or not previously earned) to the Bowlero stockholders or holders of Options or Earnout shares issued but not vested will
be deemed earned and issued or vested by Bowlero as of immediately prior to the Acceleration Event, unless, in the case of an Acceleration
Event, the value of the consideration to be received by the holders of Bowlero common stock in such change of control transaction is less
than the applicable stock price thresholds described above. If the consideration received in such Acceleration Event is not solely cash,
Bowlero’s Board of Directors will determine the treatment of the Earnout Shares.
As
part of the Sponsor Support Agreement, the Sponsor and LionTree were issued 1,611,278
Earnout Shares which vest during the period from and after the Closing Date until the fifth anniversary of the Closing Date: (a) 805,639
Earnout Shares if the closing share price of Bowlero’s Class A common stock equals or exceeds $15.00
per share for any 10
trading days within any consecutive 20-trading
day period that occurs after the Closing Date and (b) 805,639
Earnout Shares, if the closing share price of Class A common stock equals or exceeds $17.50
per share for any 10
trading days within any consecutive 20-trading
day period. As a result of the cashless exercise of their unvested private placement warrants, the Sponsor and LionTree were issued 475,440
additional Earnout Shares, which vest during the period from and after the Closing Date until the fifth anniversary of the Closing Date:
(a) 237,721
Earnout Shares if the closing share price of Bowlero’s Class A common stock equals or exceeds $15.00
per share for any 10
trading days within any consecutive 20-trading
day period that occurs after the Closing Date and (b) 237,719
Earnout Shares, if the closing share price of Class A common stock equals or exceeds $17.50
per share for any 10
trading days within any consecutive 20-trading
day period.
All
but 129,336
Earnout Shares are classified as a liability and changes in the fair value of the Earnout Shares in future periods will be recognized
in the statement of operations. Those Earnout Shares not classified as a liability are classified as equity compensation to employees
and recognized as compensation expense on a straight-line basis over the expected term or upon the contingency being met.
(14)
Fair
Value of Financial Instruments
Debt
The
fair value and carrying value of our debt as of July 3, 2022 and June 27, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
June
27, 2021 |
Carrying
value |
$ |
876,705 |
|
|
$ |
885,387 |
|
Fair
value |
841,637 |
|
|
887,102 |
|
The
fair value of our debt is estimated based on trading levels of lenders buying and selling their participation levels of funding (Level
2).
There
were no transfers in or out of any of the levels of the valuation hierarchy in fiscal years 2022 and 2021.
Items
Measured at Fair Value on a Recurring Basis
The
Company holds certain liabilities that are required to be measured at fair value on a recurring basis. The following table is a summary
of fair value measurements and hierarchy level as of July 3, 2022 and June 27, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
3, 2022 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
Earnout
shares |
$ |
— |
|
|
$ |
— |
|
|
$ |
210,952 |
|
|
$ |
210,952 |
|
Contingent
consideration |
— |
|
|
— |
|
|
1,470 |
|
|
1,470 |
|
Total
liabilities |
$ |
— |
|
|
$ |
— |
|
|
$ |
212,422 |
|
|
$ |
212,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
27, 2021 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
Interest
rate swaps and caps |
$ |
— |
|
|
$ |
8,869 |
|
|
$ |
— |
|
|
$ |
8,869 |
|
Total
liabilities |
$ |
— |
|
|
$ |
8,869 |
|
|
$ |
— |
|
|
$ |
8,869 |
|
The
fair value of earn-out shares was established using a Monte Carlo simulation Model (level 3 inputs). The key inputs into the Monte Carlo
simulation as of July 3, 2022 were as follows:
|
|
|
|
|
|
|
Earnout |
Expected
term in years |
4.45 |
Expected
volatility |
55 |
% |
Risk-free
interest rate |
2.87 |
% |
Stock
price |
$ |
11.00 |
|
Dividend
yield |
— |
|
The
following table sets forth a summary of changes in the estimated fair value of the Company's Level 3 Earnout liability for the year ended
July 3, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
27, 2021 |
|
Issuances
(a) |
|
Settlements |
|
Changes
in fair value |
|
July
3, 2022 |
Earnout
liability |
|
$ |
— |
|
|
$ |
185,152 |
|
|
$ |
— |
|
|
$ |
25,800 |
|
|
$ |
210,952 |
|
_____________
a
- In addition to the earnout liability resulting from the Business Combination, the issuances include $3,854
related to the 475,440
shares subject to earnout provisions that were issued upon the cashless exercise of unvested private placement warrants. Please refer
to Note 13 - Earnouts
for more details on the additional Earnout Shares.
Redeemable
Common Stock - Old Bowlero
The
redeemable common stock of Old Bowlero was not listed on an established public trading market, therefore, market prices were not available.
The Company utilized an independent valuation specialist to assist with determining the fair market value of our redeemable common stock
based upon our estimated enterprise value using the income approach, which includes the use of Level 3 inputs. As a result, the redeemable
common stock was classified within Level 3 of the fair value hierarchy. Key assumptions used in estimating the fair value of Old Bowlero's
redeemable common stock included projected revenue growth and costs and expenses, which were based on internal projections, historical
performance, and the business environment, as well as the selection of an appropriate discount rate based on weighted-average cost of
capital and company-specific risk premium. See Note 15 - Common
Stock, Preferred Stock and Stockholders’ Equity,
for further information.
Items
Measured at Fair Value on a Non-Recurring Basis
The
Company’s significant assets measured at fair value on a non-recurring basis subsequent to their initial recognition include assets
held for sale. We utilize third party broker estimate of value amounts to record the assets held for sale at their fair value less costs
to sell. These inputs are classified as Level 2 fair value measurements.
Other
Financial Instruments
Other
financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses. The financial
statement carrying amounts of these items approximate the fair value due to their short duration.
(15)
Common
Stock, Preferred Stock and Stockholders’ Equity
The
Company is authorized to issue three
classes of stock to be designated, respectively, Class A common stock, Class B common stock (together with Class A common stock, the “Common
Stock”) and Preferred Stock. The total number of shares of capital stock which the Corporation shall have authority to issue is
2,400,000,000,
divided into the following:
Class A:
•Authorized:
2,000,000,000
shares, with a par value of $0.0001
per share as of July 3, 2022. As of June 27, 2021, Old Bowlero authorized 496,829,868
shares at a $.0001
par value per share, which is inclusive of redeemable Common Stock.
•Issued
and Outstanding: 110,395,630
shares (inclusive of 3,209,972
shares contingent on certain stock price thresholds but excluding 3,430,667
shares held in treasury) as of July 3, 2022. As of June 27, 2021, Old Bowlero had 146,848,328
shares issued and outstanding, which is inclusive of redeemable Common Stock.
Class B:
•Authorized:
200,000,000
shares, with a par value of $0.0001
per share as of July 3, 2022. There were no
Class B shares authorized as of June 27, 2021
•Issued
and Outstanding: 55,911,203
shares as of July 3, 2022.
Preferred Stock:
•Authorized:
200,000,000
shares, with a par value of $0.0001
per share as of July 3, 2022. As of June 27, 2021, Old Bowlero had 4,968,299
shares authorized at a $0.0001
par value per share.
•Issued
and Outstanding: 200,000
shares and 2,642,587
shares as of July 3, 2022 and June 27, 2021, respectively
The
rights of the holders of Class A common stock and Class B common stock are identical, except with respect to conversion and voting. Shares
of Class B common stock are convertible into an equivalent number of shares (one-for-one)
of Class A common stock automatically upon transfer, or upon the earliest to occur of the 15th anniversary of the Closing Date, or terms
associated with Thomas F. Shannon, which consists of his death or disability, ceasing to beneficially own at least 10% of the outstanding
shares of Class A common stock and Class B common stock or his employment as our CEO for being terminated for cause. Holders of Class
B common stock may convert their shares into shares of Class A common stock at any time at their option. Holders of Class A common stock
are entitled to one
vote per share and holders of Class B common stock are entitled to ten
votes per share. Any dividends paid to the holders of Class A common stock and Class B common stock will be paid out in shares. On a liquidation
event, any distribution to common stockholders is made on a pro rata basis to the holders of the Class A common stock and Class B common
stock.
Redeemable
Common Stock - Old Bowlero
Old
Bowlero had issued 51,397,025
shares (“Old Bowlero Redeemable Common Stock”) to its Chairman and CEO on July 3, 2017. These shares were subject to
a repurchase option in the event of the Chairman’s death or disability. The amount presented in temporary equity as of June 27,
2021 represents the estimated fair value of those shares. Old Bowlero’s obligation to repurchase these shares would terminate upon
the occurrence of a Change of Control or upon the consummation of a Public Offering. The increase in the repurchase obligation was recorded
via adjustments to additional paid-in capital.
As
of the Closing Date, we exchanged 51,397,025
shares of Old Bowlero Redeemable Common Stock for 51,397,025
shares of Class B Common stock of the Company. As of July 3, 2022, there was no
Old Bowlero Redeemable Common Stock remaining.
Series
A Preferred Stock - Old Bowlero
Old
Bowlero had issued 2,642,587
shares of Old Bowlero Series A Preferred Stock (“Old Bowlero Preferred Stock”) which were outstanding as of June 27,
2021. There were no voting rights associated with the Old Bowlero Preferred Stock. Dividends accumulated on a daily basis commencing from
the July 3, 2017 issue date. The dividend rate was 8%
for the first 3
years. Effective November 15, 2019, the rate following the first three
years was amended from 10%
to 6%.
The Old Bowlero Preferred Stock was redeemable at the option of Old Bowlero at any time on or after July 3, 2020. The Old Bowlero Preferred
Stock was classified as temporary equity because the shares had certain redemption features that were not solely in the control of the
reporting entity.
As
of the Closing Date, we redeemed the Old Bowlero Preferred Stock with a cash payment of $145,298.
As of July 3, 2022, there was no
Old Bowlero Preferred Stock outstanding.
Series
A Preferred Stock
As
of July 3, 2022, the Company had issued and outstanding 200,000
shares of Preferred Stock. Holders of Preferred Stock have voting rights in certain matters that require vote or consent of holders representing
a majority of the outstanding shares of the Preferred Stock. There are no other voting rights associated with the Preferred Stock as long
as management holds over 50%
of the equity voting power.
Dividends
accumulate on a cumulative basis on a 360-day year commencing from the issue date. The dividend rate is fixed at 5.5%
per annum on a liquidation preference of $1,000
per share. Payment dates are June 30 and December 31 of each year with a record date of June 15 for the June 30 payment date and December
15 for the December 31 payment date. Declared dividends will be paid in cash if the Company declares the dividend to be paid in cash.
If the Company does not pay all or any portion of the dividends that have accumulated as of any payment date, then the dollar amount of
the dividends not paid in cash will be added to the liquidation preference and deemed to be declared and paid in-kind. As of July 3,
2022, there have been no dividends declared or paid in cash. For the fiscal year ended July 3, 2022, accumulated dividends in the
amount of $6,002
were added to the liquidation preference and deemed to be declared and paid in-kind. For the fiscal year ended July 3, 2022, dividends
in the amount of $6,097
have accumulated on the Preferred Stock.
The
Preferred Stock is redeemable if a Fundamental Change occurs and each holder will have the right to require the Company to repurchase
such holders’ shares of Preferred Stock or any portion thereof for a cash purchase price. A Fundamental Change includes events such
as a person or a group becoming direct or indirect owners of shares of the Company’s Common Stock representing more than 50%
of the voting power, consummation of a transaction with which all the Common Stock is exchanged for, converted into, acquired for, or
constitutes solely the right to receive cash or other property, Company’s stockholders approve any plan or proposal for the liquidation
or dissolution of the Company, or the Company’s Common Stock ceases to be listed on any of the NYSE or The Nasdaq Global Market
or The Nasdaq Global Select Market (or any of their respective successors).
The
Preferred Stock has conversion options providing (1) the holder the right to submit all, or any whole number of shares that is less than
all, of their shares of Preferred Stock pursuant to an Option Conversion and (2) the Company has the right to exercise at its election
a Mandatory Conversion settled in Common Stock with the exception of the payment of cash in lieu of any fractional shares following the
second anniversary of the initial issue date, if the closing price of the stock exceeds 130%
of the conversion price then in effect for at least 20
trading days (whether or not consecutive) during any 30
consecutive trading day period. Additionally, the Company may, from time to time, repurchase Preferred Stock in the open market purchases
or in negotiated transactions without delivering prior notice to holders of Preferred Stock.
The
Company has classified the Preferred Stock as temporary equity as the shares have certain redemption features that are not solely in the
control of the Company. The Preferred Stock is not currently redeemable because the deemed liquidation provision is considered a substantive
condition that is contingent on the event and it is not currently probable that it will become redeemable.
Shares
and Warrant Repurchase Program
On
February 7, 2022, the Company announced that its Board of Directors authorized a share and warrant repurchase program providing for repurchases
of up to $200,000
of the Company’s outstanding Class A common stock and warrants through February 3, 2024. Repurchases of shares and warrants are
made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions.
The amount and timing of repurchases are based on a variety of factors, including stock price, regulatory limitations, debt agreement
limitations, and other market and economic factors. The share repurchase plan does not require the Company to repurchase any specific
number of shares, and the Company may terminate the repurchase plan at any time. Please refer to Note 12 - Warrants
for more details on warrant repurchases under the program.
As
of July 3, 2022, the remaining balance of the repurchase plan was $160,061.
For the fiscal year ended July 3, 2022, 3,430,667
shares of Class A common stock have been repurchased for a total of $34,557.
(16)
Stock
Based Compensation
The
Company has three stock plans: the 2017 Stock Incentive Plan (“2017 Plan”), the Bowlero Corp. 2021 Omnibus Incentive Plan
(“2021 Plan”) and the Bowlero Corp. Employee Stock Purchase Plan (“ESPP”). These stock incentive plans are designed
to attract and retain key personnel by providing them the opportunity to acquire equity interest in the Company and align the interest
of key personnel with those of the Company’s stockholders.
2017
Stock Incentive Plan
The
2017 Plan was approved on September 29, 2017 and is a broad-based plan that provides for the grant of non-qualified stock options to our
executives and certain other employees for up to a maximum of 16,316,506
shares (retroactively stated for application of the recapitalization). The 2017 Plan was subsequently amended on January 7, 2020
to 50,581,181
shares (retroactively stated for application of the recapitalization). As of the Closing Date, no additional options are available to
be granted under the 2017 Plan. The 2017 Plan was administered by the Board of Directors, which approved grants to individuals, number
of options, terms, conditions, performance measures, and other provisions of the award. Awards were generally granted based on the individual’s
performance. Stock options granted under the 2017 Plan had a maximum contractual term of twelve
years from the date of grant, an exercise price not less than the fair value of the stock on the grant date and generally
vested over four
years in equal quarterly installments for the time-based options and upon occurrence of a liquidity event for the performance-based
options.
The
Company recorded compensation cost for all performance-based and unvested time-based options of $24,516
and $138
respectively, due to the Business Combination on December 15, 2021, since the terms of these options were such that the options vested
upon the occurrence of a liquidity event. The Business Combination was a liquidity event that triggered the vesting of these options.
For the fiscal year ended June 27, 2021, we recorded compensation cost of $3,140
in selling, general and administrative expenses and $24
in cost of revenues within the consolidated statements of operations.
The
aggregate intrinsic value, which is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding
options, is before applicable income taxes and represents the amount option holders realized (in the case of exercised options) or would
realize if all in-the-money options had been exercised on the last business day of
the
period. The total intrinsic value of options exercised during the year ended July 3, 2022 was $70,576,
and the total intrinsic value of options repurchased during the year ended July 3, 2022 was $4,362.
A
summary of the 2017 Plan stock options outstanding at July 3, 2022 and June 27, 2021, and changes during the years then ended
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Options |
|
Weighted
Average Exercise Price Per Share |
|
Weighted
Average Remaining Contractual Term |
|
Aggregate
Intrinsic Value |
Outstanding
at June 28, 2020 |
49,789,060 |
|
|
$ |
8.53 |
|
|
9.00 |
|
$ |
— |
|
Granted |
68,513 |
|
|
3.25 |
|
|
11.00 |
|
— |
|
Exercised
- stock |
— |
|
|
— |
|
|
— |
|
|
— |
|
Forfeited
and cancelled |
(526,093) |
|
|
3.12 |
|
|
— |
|
|
— |
|
Outstanding
at June 27, 2021 |
49,331,480 |
|
|
8.58 |
|
|
9.13 |
|
— |
|
Exercised
- stock |
(10,436,555) |
|
|
3.25 |
|
|
— |
|
|
— |
|
Repurchased
- cash |
(639,122) |
|
|
— |
|
|
— |
|
|
— |
|
Forfeited
and cancelled |
(17,962,453) |
|
|
13.53 |
|
|
— |
|
|
— |
|
Outstanding
at July 3, 2022 |
20,293,350 |
|
|
$ |
7.16 |
|
|
9.48 |
|
$ |
77,948 |
|
Vested as of
July 3, 2022 |
20,293,350 |
|
|
$ |
7.16 |
|
|
9.48 |
|
$ |
77,948 |
|
Exercisable
as of July 3, 2022 |
20,293,350 |
|
|
7.16 |
|
|
9.48 |
|
77,948 |
|
The
fair value of options at the date of grant was estimated using the Black-Scholes model with the following ranges of weighted average assumptions:
|
|
|
|
|
|
|
Options
granted during the fiscal year ended June 27, 2021 |
Expected
term in years |
5.00 |
Interest
rate |
0.54 |
% |
Volatility |
71.5 |
% |
Dividend
yield |
— |
|
The
expected volatility is based on historical volatilities of companies considered comparable to the Company. The risk-free interest rates
are based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.
The average expected life represents the weighted average period of time that options granted are expected to be outstanding
2021
Stock Incentive Plan
The
2021 Plan was effective December 14, 2021 and provides for the grant of equity awards to an individual employed by the Company or Subsidiary,
a director or officer of the Company or Subsidiary, a consultant or advisor to the Company or an Affiliate or to a prospective employee,
director, officer, consultant or director who has accepted an offer of employment or service from the Company. Equity awards include incentive
stock options, nonqualified stock options, stock appreciation rights, restricted stock, RSUs and other stock based awards granted under
the 2021 Plan. Shares to be granted under the 2021 Plan shall be not more than 26,446,033
shares of common stock, subject to an annual increase on the first day of each calendar year beginning January 1, 2022. As of July 3,
2022, the Company had 28,587,357
shares of common stock authorized under the 2021 plan. The Compensation Committee of the Board of Directors or subcommittee thereof, administers
the 2021 Plan. The Compensation Committee may delegate all or any portion of its responsibilities and powers to any person(s) selected
by it, except for grants of Awards to persons who are non-employee members of the Board or are otherwise subject to Section 16 of the
Exchange Act. Any such delegation may be revoked by the Committee at any time. The Board may at any time and from time to time grant awards
and administer the 2021 Plan with respect to such awards. In any such case, the Board shall have all the authority granted to the Compensation
Committee under the 2021 Plan. The Compensation Committee approves grants to individuals, number of options, terms, conditions, performance
measures, and other provisions of the award. Stock options granted under the 2021 Plan have a maximum contractual term of ten
years from the date of grant, unless trading is prohibited by the Company’s insider-trading policy or
a
Company-imposed blackout period, in which case the terms shall be extended automatically, and an exercise price not less than the fair
value of the stock on the grant date. The manner and timing of vesting and expiration are determined by the Compensation Committee.
During
the year ended July 3, 2022, the Company recorded $3,323
in compensation cost recognized for 665,912
fully vested options and $14,228
in compensation cost for 1,422,813
shares for a share-based bonus.
The
Company issued fully vested and unvested stock options to certain employees. The unvested stock options vest based on a service condition.
The average expected life represents the weighted average period of time that options granted are expected to be outstanding. The
following table presents the significant assumptions used in the Black-Scholes model with the following range of weighted average assumptions
for options granted in fiscal 2022:
|
|
|
|
|
|
Expected
term in years |
6.68 |
Interest
rate |
1.39 |
% |
Volatility |
55.6 |
% |
Dividend
yield |
— |
|
A
summary of stock options outstanding under the 2021 Plan at July 3, 2022, and changes during the period then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Options |
|
Weighted
Average Exercise Price Per Share |
|
Weighted
Average Remaining Contractual Term |
|
Aggregate
Intrinsic Value |
Outstanding
at June 28, 2021 |
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
— |
|
Granted |
9,415,912 |
|
|
13.72 |
|
|
10.00 |
|
— |
|
Exercised |
— |
|
|
— |
|
|
— |
|
|
— |
|
Forfeited
and cancelled |
— |
|
|
— |
|
|
— |
|
|
— |
|
Repurchased
or settled |
— |
|
|
— |
|
|
— |
|
|
— |
|
Outstanding
at July 3, 2022 |
9,415,912 |
|
|
$ |
13.72 |
|
|
9.45 |
|
$ |
2,416 |
|
Vested as of
July 3, 2022 |
665,912 |
|
|
$ |
10.00 |
|
|
9.45 |
|
$ |
666 |
|
Exercisable
as of July 3, 2022 |
665,912 |
|
|
10.00 |
|
|
9.45 |
|
666 |
|
The
Company issued RSUs to employees and board members that vest based on service conditions (Service based RSUs). The Company measures the
grant-date fair value based on the price of the Company's shares on the grant date. The
following table presents a summary of RSUs subject to time-based service conditions and changes during the period then ended is presented
below as of July 3, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units |
|
Weighted
Average Grant Date Fair Value Per Share |
|
Weighted
Average Remaining Contractual Term |
|
Aggregate
Intrinsic Value |
Outstanding
at June 28, 2021 |
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
— |
|
Granted |
947,325 |
|
|
9.72 |
|
|
2.51 |
|
— |
|
Vested |
— |
|
|
— |
|
|
— |
|
|
— |
|
Forfeited |
(29,700) |
|
|
9.67 |
|
|
— |
|
|
— |
|
Outstanding
at July 3, 2022 |
917,625 |
|
|
$ |
9.72 |
|
|
2.14 |
|
$ |
10,094 |
|
The
Company issued earnout RSUs to employees that vest upon the achievement of market conditions with a 5-year
expiration date (Earnout RSUs). The fair value of the earnout RSUs was determined based on a Monte-Carlo simulation method reflecting
those market conditions, and the Company recognizes compensation expense evenly over the 5-year
service
period. The following table presents
a summary of the earnout RSUs subject to market conditions and changes during the period then ended as of July 3, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units |
|
Weighted
Average Grant Date Fair Value Per Share |
|
Weighted
Average Remaining Contractual Term |
|
Aggregate
Intrinsic Value |
Outstanding
at June 28, 2021 |
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
— |
|
Granted |
152,370 |
|
|
8.16 |
|
|
5.00 |
|
— |
|
Vested |
— |
|
|
— |
|
|
— |
|
|
— |
|
Forfeited |
(23,034) |
|
|
8.16 |
|
|
— |
|
|
— |
|
Outstanding
at July 3, 2022 |
129,336 |
|
|
$ |
8.16 |
|
|
4.45 |
|
$ |
1,423 |
|
The
Company issued RSUs to employees and board members that vest based upon the achievement of market and service conditions (market and service
based RSUs). The fair value of those RSUs was determined using a Monte-Carlo simulation method reflecting those market conditions. The
following table presents a summary those RSUs subject to market and service conditions, and changes during the period then ended as of
July 3, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units |
|
Weighted
Average Grant Date Fair Value Per Share |
|
Weighted
Average Remaining Contractual Term |
|
Aggregate
Intrinsic Value |
Outstanding
at June 28, 2021 |
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
— |
|
Granted |
266,775 |
|
|
6.64 |
|
|
2.79 |
|
— |
|
Vested |
— |
|
|
— |
|
|
— |
|
|
— |
|
Forfeited |
(9,900) |
|
|
6.64 |
|
|
— |
|
|
— |
|
Outstanding
at July 3, 2022 |
256,875 |
|
|
$ |
6.64 |
|
|
2.45 |
|
$ |
2,826 |
|
As
of July 3, 2022, the total compensation cost not yet recognized is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award
Plan |
|
Unrecognized
Compensation Cost |
|
Weighted
Average Remaining Period of Recognition |
Stock
options |
2021
Plan |
|
$ |
37,273 |
|
|
2.68 |
Service
based RSUs |
2021
Plan |
|
7,211 |
|
|
2.14 |
Market
and service based RSUs |
2021
Plan |
|
1,498 |
|
|
2.45 |
Earnout
RSUs |
2021
Plan |
|
939 |
|
|
4.45 |
Total
unrecognized compensation cost |
|
|
$ |
46,921 |
|
|
2.63 |
Share-based
compensation recognized in the consolidated statement of operations for the fiscal year ended July 3, 2022 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award
Plan |
|
Selling,
general and administrative expenses |
|
Cost
of revenues |
|
Total |
Performance-based
options |
2017
Plan |
|
$ |
24,468 |
|
|
$ |
48 |
|
|
$ |
24,516 |
|
Time-based
options |
2017
Plan |
|
916 |
|
|
36 |
|
|
952 |
|
Stock
options |
2021
Plan |
|
8,505 |
|
|
— |
|
|
8,505 |
|
Service
based RSUs |
2021
Plan |
|
1,652 |
|
|
59 |
|
|
1,711 |
|
Market
and service based RSUs |
2021
Plan |
|
194 |
|
|
14 |
|
|
208 |
|
Earnout
RSUs |
2021
Plan |
|
116 |
|
|
— |
|
|
116 |
|
Share-based
bonus |
— |
|
14,228 |
|
|
— |
|
|
14,228 |
|
Total
share-based compensation expense |
|
|
$ |
50,079 |
|
|
$ |
157 |
|
|
$ |
50,236 |
|
The
Company did not have any recognized income tax benefits, net of valuation allowances, related to our share-based compensation plans.
Employee
Stock Purchase Plan
On
December 14, 2021, the Board of Directors approved the ESPP, subject to stockholder approval. The ESPP became effective July 1, 2022,
and purchase rights may be granted under the ESPP prior to stockholder approval, but no purchase rights may be exercised unless and until
stockholder approval is obtained. The maximum number of shares of the Company’s Class A common stock available for sale under the
ESPP shall not exceed an aggregate of 4,926,989
shares, subject to an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including
January 1, 2031, equal to the least of (i) 1%
of the aggregate number of Shares outstanding on the final day of the immediately preceding calendar year, (ii) 1,753,487
Shares and (iii) such number of shares as is determined by the Board. If the aggregate funds available for purchase of the Shares would
cause an issuance of Shares in excess of the Shares then available for issuance under the ESPP, the Committee will proportionately reduce
the number of Shares that would otherwise be purchased by each participant to eliminate the excess. Under the ESPP, employees are offered
the option to purchase discounted shares of Class A common stock during offering periods designated by the administrator. Each offering
period will be one year commencing each January 1 and ending on December 31 with the exception of the initial offering period, which commenced
on July 1, 2022 and will end on December 31, 2022. Shares are purchased on the applicable exercise dates, which is the last trading day
of each purchase period. The Company uses the Black-Scholes option pricing model to determine the grant date fair values of ESPP awards.
(17)
Net
Loss Per Share
Net
loss per share calculations for all periods prior to the Closing Date have been retrospectively adjusted for the equivalent number of
shares outstanding immediately after the Closing Date to effect the reverse recapitalization. The
computation of basic and diluted net loss per Class A and B common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
July
3, 2022 |
|
June
27, 2021 |
|
Class
A |
|
Class
B |
|
Total |
|
Class
A |
|
Class
B |
|
Total |
Numerator |
|
|
|
|
|
|
|
|
|
|
|
Net
loss allocated to common stockholders |
$ |
(32,198) |
|
|
$ |
(7,969) |
|
|
$ |
(40,167) |
|
|
$ |
(134,476) |
|
|
$ |
— |
|
|
$ |
(134,476) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding |
124,920,063 |
|
|
30,917,091 |
|
|
155,837,154 |
|
|
146,848,329 |
|
|
— |
|
|
146,848,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted |
$ |
(0.26) |
|
|
$ |
(0.26) |
|
|
$ |
(0.26) |
|
|
$ |
(0.92) |
|
|
$ |
— |
|
|
$ |
(0.92) |
|
The
impact of potentially dilutive RSUs, PSUs, stock options, earnouts, and purchases of shares under our ESPP were excluded from the diluted
per share calculations because they would have been antidilutive.