Bowlero Corp

(9)Debt

The following table summarizes the Company’s debt structure as of June 30, 2024 and July 2, 2023:

As of June 30, 2024, minimum repayments of debt by fiscal year were as follows:

Term Loan: Under the Company’s First Lien Credit Agreement, as amended (the “First Lien Credit Agreement”), the Company has made term loans consisting of $1,150,000 of aggregate initial principal amount of debt outstanding (the “Term Loan”). The Term Loan matures on February 8, 2028 and is repaid on a quarterly basis in principal payments of $2,875 beginning on September 29, 2023. The Term Loan bears interest at a rate per annum equal to the Adjusted Term SOFR plus 3.50%. Interest is due on the last day of the interest period. The interest period, as agreed upon between the Company and its lender, can be eitherone, three, orsix months in length. As of June 30, 2024, the interest period isone month.

Revolver: Under the First Lien Credit Agreement, the Company has access to a senior secured revolving credit facility (the “Revolver”). As of June 30, 2024, the Revolver commitment is $285,000. Any outstanding balance on the Revolver is due on December 15, 2026. Interest on borrowings under the Revolver is based on the Adjusted Term SOFR.

On August 23, 2024, the Company entered into a Eleventh Amendment to the First Lien Credit Agreement. In connection with the Company entering into the Eleventh Amendment, the Revolver commitment was increased by $50,000 to an aggregate amount of $335,000.

First Lien Credit Agreement Covenants: Obligations owed under the First Lien Credit Agreement 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. The Company 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 amounts outstanding on the Revolver exceed an amount equal to 35% of the aggregate Revolver commitment (subject to certain exclusions) at the end of such fiscal quarter. In addition, payment of borrowings under the Revolver may be accelerated if there is an event of default, and Bowlero would no longer be permitted to borrow additional funds under the Revolver while a default or event of default were outstanding.

Letters of Credit: Outstanding standby letters of credit as of June 30, 2024 and July 2, 2023 totaled $15,834 and $10,386, respectively, and are guaranteed by JP Morgan Chase Bank, N.A. The available amount of the Revolver is reduced by the outstanding standby letters of credit.

Other Equipment Loans: On August 19, 2022, the Company entered into an equipment loan agreement for a principal amount of $15,350 with JP Morgan Chase Bank, N.A. The loan matures August 19, 2029 and bears a fixed interest rate of 6.24%. The loan is repaid on a monthly basis in fixed payments of $153 plus a final payment at maturity. The loan obligation is secured by a lien on the equipment.

Covenant Compliance: The Company was in compliance with all debt covenants as of June 30, 2024.

Interest rate collars: The Company entered intotwo interest rate collars effective as of March 31, 2023 for an aggregate notional amount of $800,000. The collar hedging strategy stabilizes interest rate fluctuations by setting both a floor and a cap. The hedge transactions have a trade and hedge designation date of April 4, 2023. The hedge transactions, each for a notional amount of $400,000, provide for interest rate collars. The interest rate collars establish a floor on SOFR of 0.9429% and 0.9355%, respectively, and a cap on SOFR of 5.50%. The interest rate collars have a maturity date of March 31, 2026.

The fair value of the collar agreements as of June 30, 2024 and July 2, 2023 was an asset of $696 and $4,608, respectively, and is included within other current assets and other assets in the consolidated balance sheet.

Since SOFR was within the collar cap and floor rates, there was no interest impact for the fiscal year ended June 30, 2024 and July 2, 2023.

The reclassifications from accumulated other comprehensive income (“AOCI”) into income for the interest rate swap and cap agreements which expired in fiscal year 2022 were as follows for each reporting period:

For our previously entered into swaps and caps that have expired, the fair value of the hedging transactions excluded accrued interest and took into consideration current interest rates and current likelihood of the counterparties’ compliance with its contractual obligations. There were no income taxes related to the amounts recorded to AOCI in prior years due to tax credits and the full valuation allowance on deferred taxes.

(10)Income Taxes

Total loss before income taxes consists of:

Income tax benefit consists of the following:

The provision for income taxes differs from the amount computed by applying the statutory rate to the loss 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 and other differences.

For the fiscal year ended June 30, 2024, the Company’s effective tax rate was increased by disallowed expenses associated with the earnout expense, S162(m) limitations, state and foreign income tax expenses and other items. For the fiscal years ended June 30, 2024 and July 2, 2023, the effective tax rate was favorably impacted by the realization and availability of federal income tax credits totaling approximately $2,879 and $7,708, respectively, of which $2,274 relate to fiscal 2023 and the remainder of the credits dating back to fiscal year 2019. These credits were identified in the prior year as the Company developed an appropriate data retrieval process for the current and open tax years. For the fiscal year ended July 2, 2023, the Company’s effective tax rate was impacted by the $135,061 release of the valuation allowances due to the Company’s review of all positive and negative evidence regarding the realization of deferred tax assets.

As of June 30, 2024, the Company had a net consolidated income tax receivable of $2,282 reflected in other current assets and a current consolidated income tax payable of $557 reflected in other current liabilities. As of July 2, 2023, the Company had a net consolidated income tax receivable of $2,507 reflected in other current assets, a current consolidated income tax payable of $267 reflected in other current liabilities.

The tax effects of temporary differences and carryforwards that give rise to significant components of deferred income tax assets and liabilities consist of:

As of June 30, 2024, the Company has U.S. tax credit carryforwards of $9,084, U.S. federal net operating loss carryforwards (NOLs) of $175,882, U.S. state NOLs carryforwards of $55,583 and interest carryforward of $185,234. As of July 2, 2023, the Company has U.S. tax credit carryforwards of $6,205, federal NOLs of $143,277, and interest carryforward of $36,203. The majority of the tax credits were generated in tax years ended June 30, 2019 and thereafter with remaining credits 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. Certain NOL carryforwards will begin to expire in 2024. The interest carryforward and $1,504 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 $36,745 of the Company’s NOLs are subject to limitation due to the changes in ownership that occurred in 2004. During 2023, the Company expensed $208,697 of tax losses that will expire unused due to the 2004 ownership change limitation, even if there is sufficient taxable income to absorb such NOLs. These losses were offset by valuation allowances in previous years. The Company has not experienced an ownership change, as defined under Sections 382 and 383, since July 2017.

The Company regularly evaluates the realization of our net deferred tax assets. During the prior year ended July 2, 2023, the Company released $135,061 of valuation allowances in several jurisdictions based on reviews of all positive and negative evidence. In particular, the Company has experienced additional positive evidence of recent improved profitability to reach a conclusion on a more likely than not basis that the deferred tax assets could be realized and that certain valuation allowances are no longer required. The valuation allowances were further reduced by a net of $2,660 due to the OCI impact on the implementation of FAS 842 and foreign exchange/other adjustments, respectively. The remaining valuation allowance of $884 as of June 30, 2024 is attributed to certain state tax losses that are limited and federal tax credits nearing their expiration date.

A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows:

As of June 30, 2024 and July 2, 2023, 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., which the Company believes that any deferred tax liability recognized would not be material.