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COVID-19 Impacts
3 Months Ended
May 02, 2020
Asset Impairment Charges [Abstract]  
COVID-19 Impacts COVID-19 Impacts
The near-term macroeconomic conditions have been adversely impacted by the emergence of a novel coronavirus, identified as COVID-19, which was declared a global pandemic by the World Health Organization in March 2020. In efforts to mitigate the continued spread of the virus, numerous governments in geographies where we operate have imposed quarantines, stay-at-home orders, travel restrictions and other similar measures in attempts to limit physical human interaction, often referred to as social distancing. To comply with these measures, we temporarily closed stores in Europe as well as in Canada and New Zealand, which became effective during March 2020. In the United States, effective March 22, 2020, all storefronts were temporarily closed to customers, however, in many of our stores, we continued to process orders offering curbside pick-up, ship from store and e-commerce delivery options. The store locations in Australia have remained opened to the general public and have not been negatively impacted by the COVID-19 restrictions as our other segments and New Zealand.
Impact on Operating Results and Asset Recoverability
In addition to our revenues and operating income for the 13 weeks ended May 2, 2020 being adversely impacted, we currently believe that these impacts could continue through the majority of our second fiscal quarter ending August 1, 2020. While the gaming industry has not been as severely impacted as certain other consumer businesses, we have taken proactive measures to align inventory purchases with demand, reduce discretionary spending and institute temporary pay reductions to partially offset the impact of the store closures. The aggregation of these events caused a review for potential impairments of long-lived assets, primarily consisting of store-level property and equipment and right-of-use assets under existing operating leases. As a result of this asset impairment analysis, we recognized impairment charges for 76 stores for a total of $1.2 million. In addition, the fair value of our corporate aircraft, which was classified as held for sale during the period, was reduced from $11.8 million as of February 1, 2020 to $9.1 million as of May 2, 2020, which was partially attributable to the current economic impacts associated with the COVID-19 pandemic.
Additionally, we assessed the likelihood of realizing the benefits of our deferred tax assets. We estimate our deferred tax assets using several factors, including the weight of available evidence, which includes cumulative book losses recognized in certain jurisdictions, and projections of future taxable income in those jurisdictions. While our view of our longer-term operating outlook has not been significantly impacted by COVID-19, our ability to recover these deferred tax assets depends on several factors, including our results of operations, in both the short-term and long-term. As a result of this analysis, we recorded a valuation allowance primarily associated with U.S. deferred tax assets of $53.0 million. See Note 10, “Income Taxes" for further information.
We also evaluated our existing short-term assets, particularly accounts receivable and inventory.
Accounts receivable are mainly comprised of bankcard receivables and vendor allowances. Given the nature of these receivables and the credit worthiness of the payee, the COVID-19 pandemic did not significantly impact the estimates of allowances for doubtful accounts.
Merchandise inventories are carried at the lower of cost or market generally using the average cost method. We are required to record valuation adjustments to inventory to reflect potential obsolescence or over-valuation as a result of cost exceeding market. In valuing inventory, we consider quantities on hand, recent sales, potential price protections, returns to vendors and other factors. As we believe our store closures are temporary and given the nature of our products, the COVID-19 pandemic did not significantly impact our estimates of inventory valuation. During the 13 weeks ended May 2, 2020, we recorded $13.5 million related to the provision for inventory reserves and obsolescence compared to $9.6 million in the prior year period.
Liquidity and Other Impacts
As of May 2, 2020, we had $570.3 million of cash and cash equivalents. We also have availability under our revolving credit facility that provides us additional liquidity throughout the course of the year to fund our operations. As mentioned above, we have taken actions to align expenses and inventory levels given the impacts of the current operating environment and have projected we will have adequate liquidity for the next 12 months and the foreseeable future to maintain normal operations. Additionally, on June 5, 2020, we announced an exchange offer for our existing Senior Notes, due in March 2021. See Note 11, "Subsequent Events," for further details on the exchange offer and related impacts to our scheduled debt maturities.
During the 13 weeks ended May 2, 2020, we received an immaterial amount of COVID-19-related rent concessions. We are continuing to evaluate our accounting treatment of these concessions. While negotiations are ongoing with landlords in various markets in seeking commercially reasonable lease concessions given the current environment, there have not yet been material confirmed concessions for the remainder of the year.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on a preliminary evaluation of the CARES Act, the Company qualifies for the deferral of payroll and other tax payments and is continuing to evaluate certain employer payroll tax credits.
The COVID-19 pandemic remains a rapidly evolving situation. We will have to comply with all health and safety measures required to resume full operations and ensure the safety of our associates and customers. Additionally, the continuation of the outbreak may cause prolonged periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending. This may lead to increased asset recovery and valuation risks. Further, the uncertainties in the global economy could impact the financial viability of our suppliers which may interrupt our supply chain and require other changes to our operations.
Although the extent and duration of the impact of the COVID-19 pandemic on our business and operations and the overall impact to our customers remains uncertain, the continued spread of COVID-19 and the imposition of related public health measures and restrictions may materially adversely impact our business, financial condition, results of operations and cash flows.