Bowlero Corp

(4)Goodwill and Other Intangible Assets

Goodwill:

The changes in the carrying amount of goodwill for the fiscal years ended June 30, 2024 and July 2, 2023:

Intangible Assets:

(1)During the fiscal year ended June 30, 2024, the company has decided to phaseout the Bowlero trade name over the next three fiscal years. See Note 2 -Significant Accounting Policies for more information on the Bowlero trade name impairment.

The following table shows amortization expense for finite-lived intangible assets for each reporting period:

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:

(5)Property and Equipment

As of June 30, 2024 and July 2, 2023, property and equipment consists of:

The following table shows depreciation expense related to property and equipment for each reporting period:

(6)Leases

Disclosures under the New Lease Accounting Standard ASC 842:

Fiscal 2024 - VICI Transaction

On October 19, 2023, the Company completed a transaction with VICI relating to the transfer of the land and real estate assets of 38 locations for an aggregate value of $432,900. The transaction was structured as a tax-deferred capital contribution with cash proceeds of $408,510 and a $24,390 limited partner interest in a subsidiary of VICI, which is accounted for as an equity method investment.

Simultaneously with the transfer, the Company entered into a triple-net master lease agreement with VICI. The master lease has an initial total annual rent of $31,600, and will escalate at the greater of 2.0% or the consumer price index (CPI) (subject to a 2.5% ceiling). The master lease has an initial term of 25 years, andsix five-year tenant renewal options. Based on an analysis of the economic, market, asset and contractual characteristics of the master lease, the Company determined that allsix renewal options were reasonably assured, and therefore, the lease term for accounting purposes is 55 years.

The Company concluded that the transfer was not a sale for accounting purposes as control of the underlying assets remained with the Company, and therefore, the Company recognized a financing obligation equal to the contribution value of $432,900, net of transaction costs. Consistent with the Company’s other financing obligations, the lease payments will be allocated between principal and interest on the financing obligation.

Fiscal 2023 - Master Lease Modifications

In October 2022, the Company had a modification event that impactedtwo of our master leases. This modification event was due to the termination of a lease component and change in consideration in the contract. As a result, we removed a lease component with an immaterial gain on termination, reassessed classification of the remaining lease components, and remeasured the lease liability with a corresponding adjustment to the right-of-use asset for the remaining lease components. We reassessed the economic factors supporting the lease term assessment, and concluded it was reasonably certain we will exerciseone of the remaining eight renewal options for all of the assets included within thetwo master leases, thereby extending the lease term for accounting purposes from 2047 to 2057. Using the updated lease term, we remeasured the lease liability and recorded a corresponding adjustment to the right of use asset. The lease liability was adjusted by $102,321 with a corresponding adjustment to the right-of-use assets. As a result of reassessing classification and increasing our assessment of the lease term, it resulted in certain lease components (primarily land) switching classification from operating to finance. Substantially all of the building components remained classified as finance leases. In total, $33,135 of right-of-use assets changed from operating to finance and $31,413 lease liabilities changed from operating to finance.

In December 2022, we executed a sale-leaseback with our master lease landlord by addingtwo bowling entertainment locations into the master leases and adjusted the consideration in the contract. The modification was not accounted for as a separate contract. We concluded the sale-leaseback was not a sale as control of the underlying assets was not transferred from the Company, and therefore, we recognized a financing obligation of $10,363. For the other lease components impacted by the modification, we remeasured the lease liability and recorded a corresponding adjustment to the right of use asset. In total, the lease liability was adjusted by $5,403 with a corresponding adjustment to the right-of-use assets.

In February 2023, we obtained a rent reduction from our master lease landlord fortwo of our master leases, which resulted in a modification event due to a change in the consideration in the contract. We remeasured the lease liability and recorded a corresponding adjustment to the right of use asset. In total, the lease liability was adjusted by $40,764 with a corresponding adjustment to the right-of-use assets. This modification event resulted in certain lease components (primarily land) switching classification from operating to finance, which was primarily due to updating our estimate of the IBR as of the modification date. In total, $28,609 of right-of-use assets changed from operating to finance and $27,206 lease liabilities changed from operating to finance.

Due to constructing significant capital improvements at several bowling locations within our third master lease, the Company had a reassessment event which resulted in updating our assessment of the lease term. We concluded it is reasonably certain that we will exerciseone of the remaining eight renewal options for substantially all the assets included in the master lease, thereby extending the lease term for accounting purposes from 2044 to 2054. Using an updated lease term, we remeasured the lease liability and recorded a corresponding adjustment to the right- of-use asset. In total, the lease liability was adjusted by $76,561 with a corresponding adjustment to the right-of-use assets. As a result of reassessing classification and increasing our assessment of the lease term, it resulted in certain lease components (primarily land) switching classification from operating to finance. Substantially all of the building components remained classified as finance leases. In total, $63,652 of right-of-use assets changed from operating to finance and $63,634 lease liabilities changed from operating to finance.

Fiscal 2023 - Other Modification Events

For our non-master leases, there was a resolution of a contingency whereby previously variable rent for a real estate lease became fixed. This was due to the activation of a minimum annual guarantee clause and rent floors in future periods that fixed previously variable lease payments. We concluded that this event resulted in a remeasurement of the operating lease liability, with a corresponding decrease to our lease liability and right-of-use asset of $21,475.

The following table summarizes the components of the net lease cost:

(1)Operating lease costs includes both cash and non-cash expenses for operating leases. The operating lease costs associated with our locations are recognized evenly over the lease term, therefore, the timing of the expense may differ from the timing of actual cash payments. Cash payments and lease costs can differ due to (a) the timing of cash payments relative to the level expense, (b) non-cash adjustments as a result of purchase accounting, and (c) various other non-cash adjustments to lease costs. Please see the table below for cash paid for amounts included within our lease liabilities.

(2)Percentage rental costs for our locations primarily represents leases where we pay an extra rental amount based on a percentage of revenue in excess of predetermined revenue thresholds.

(3)Equipment and other operating lease costs primarily represents operating leases costs for equipment leases, common area maintenance charges, and other variable lease costs for operating leases where the lease payments escalate based on an index or rate.

(4)Variable occupancy costs primarily represents utilities, property insurance, and real estate taxes.

(5)Other lease costs primarily includes short-term lease costs and other variable payments for various equipment leases.

(6)Sublease income primarily represents short-term leases with pro-shops and various retail tenants.

Cash Paid for amounts included in the measurement of lease liabilities was as follows:

(1)This table includes cash paid for amounts included in the measurement of our lease liabilities. Since the lease liability only includes amounts that are contractually fixed, this table excludes cash paid for amounts that are variable in nature, such as utilities, common area maintenance, property insurance, real estate taxes, and percentage rent.

(2)The total cash amounts within the above table include deferred repayments of $4,249 for operating leases and $9,163 for finance leases for the fiscal year ended June 30, 2024, and $2,131 for operating leases and $4,597 for finance leases for the fiscal year ended July 2, 2023 . As of June 30, 2024, approximately $6,354 in deferred payments are remaining, which will be repaid on a monthly basis through December 31, 2024, and are included within our lease liabilities.

Other supplemental cash flow information related to leases was as follows:

(1)The change in lease assets is substantially the same as the change in lease liabilities

Supplemental balance sheet information related to leases was as follows:

(1)Lease incentive receivables from landlords of $15,311 and $8,055 as of June 30, 2024 and July 2, 2023, respectively, are reflected as a reduction of the operating and finance lease liability

The following table summarizes the weighted average remaining lease term and weighted average remaining discount rate:

The following table summarizes the maturity of our operating leases, finance leases, and financing obligations as of June 30, 2024:

Leases that have yet to commence

The Company has leases with build-out provisions for which the Company is generally not deemed to control the asset under construction. Therefore, the Company will determine the lease classification upon lease commencement. Our future lease obligations for these are $14,668 and $33,223 as of June 30, 2024 and July 2, 2023, respectively.

Disclosures under the previous Lease Accounting Standard ASC 840:

The Company adopted the new leasing standard, ASC 842 on July 4, 2022 using the modified retrospective method. We applied the new standard to all leases through a cumulative-effect adjustment to beginning retained earnings. As a result of the method used, the Company’s comparative financial information as of and for the years ended July 3, 2022 has not been restated and continues to be reported under ASC 840, the lease accounting standard in effect for those periods.

The adoption of the new standard as of July 4, 2022, resulted in an after-tax cumulative effect change to retained earnings of $11,144. Total assets and liabilities increased $450,029 and $438,885, respectively, primarily driven from adding operating leases onto the balance sheet.

Fiscal 2022 - Operating Lease Rent Abatement: 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.

The following table summarizes the Company’s costs for operating and capital leases:

(7)Supplemental Cash Flow Information

The table below presents supplemental cash flow information for each reporting period:

See Note 6 -Leases for supplementary information relating to leasing transactions.

(8)Accounts Payable and Accrued Expenses

As of June 30, 2024 and July 2, 2023, accounts payable and accrued expenses consist of: