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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR
- --- THE QUARTER ENDED MAY 5, 2002.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
- --- OF 1934 FOR THE TRANSACTION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 0-25858
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DAVE & BUSTER'S, INC.
(Exact Name of Registrant as Specified in Its Charter)
MISSOURI 43-1532756
(State of Incorporation) (I.R.S. Employer Identification No.)
2481 MANANA DRIVE
DALLAS, TEXAS 75220
(Address of Principle Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(214) 357-9588
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of May 30, 2002 was 13,269,611shares.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
13 Weeks Ended
May 5, 2002 May 6, 2001
----------- -----------
Food and beverage revenues $ 48,743 $ 43,612
Amusements and other revenues 48,499 44,598
--------- ---------
Total revenues 97,242 88,210
Cost of revenues 18,116 16,495
Operating payroll and benefits 30,765 27,224
Other store operating expenses 27,943 24,209
General and administrative expenses 6,111 5,296
Depreciation and amortization expense 7,555 6,751
Preopening costs 152 1,079
--------- ---------
Total costs and expenses 90,642 81,054
Operating income 6,600 7,156
Interest expense, net 2,008 2,322
--------- ---------
Income before provision for income taxes 4,592 4,834
Provision for income taxes 1,676 1,750
--------- ---------
Income before cumulative effect of a
change in an accounting principle $ 2,916 $ 3,084
Cumulative effect of a change in an
accounting principle 7,096 0
--------- ---------
Net (loss)/income $ (4,180) $ 3,084
========= =========
Net (loss)/income per share - basic
Before cumulative effect of a change
in an accounting principle $ 0.22 $ 0.24
Cumulative effect of a change in an
accounting principle (0.55) 0
--------- ---------
$ (0.33) $ 0.24
Net (loss)/income per share - diluted
Before cumulative effect of a change
in an accounting principle $ 0.22 $ 0.24
Cumulative effect of a change in an
accounting principle (0.53) 0
--------- ---------
$ (0.31) $ 0.24
Basic weighted average shares outstanding 12,971 12,953
Diluted weighted average shares outstanding 13,307 13,068
</Table>
See accompanying notes to consolidated financial statements.
DAVE & BUSTER'S, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<Table>
<Caption>
May 5, 2002 February 3,
(unaudited) 2002
----------- -----------
Current assets:
Cash $ 1,624 $ 4,521
Inventories 26,058 25,964
Prepaid expense 3,576 1,442
Other current assets 2,681 2,445
---------- ----------
Total current assets 33,939 34,372
Property and equipment, net 256,127 258,302
Goodwill, net of accumulated amortization of $2,612 0 7,096
Other assets 8,932 9,364
---------- ----------
Total assets $ 298,998 $ 309,134
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 6,200 $ 5,500
Accounts Payable 14,081 15,991
Accrued liabilities 10,591 11,085
Income Tax Payable 2,980 5,054
Deferred income taxes 1,205 1,220
---------- ----------
Total current liabilities 35,057 38,850
Deferred income taxes 8,143 8,143
Other liabilities 7,669 7,099
Long-term debt, less current installments 81,969 84,896
Commitments and contingencies
Stockholders' equity:
Preferred stock, 10,000,000 authorized; none issued Common stock,
$0.01 par value, 50,000,000 authorized
12,977,611 and 12,959,209 shares issued and outstanding
as of May 5, 2002 and February 3, 2002, respectively 131 131
Paid in capital 115,849 115,701
Restricted stock awards 428 382
Retained earnings 51,598 55,778
---------- ----------
168,006 171,992
Less: treasury stock, at cost (175,000 shares) (1,846) (1,846)
---------- ----------
Total stockholders' equity 166,160 170,146
Total liabilities and stockholders' equity $ 298,998 $ 309,134
========== ==========
</Table>
See accompanying notes to consolidated financial statements.
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Common Stock
----------------------- Paid in Restricted Retained Treasury
Shares Amount Capital Stock Awards Earnings Stock Total
---------- ---------- ---------- ------------ ---------- ---------- ----------
Balance, February 3, 2002 12,959 $ 131 $ 115,701 $ 382 $ 55,778 $ (1,846) $ 170,146
Proceeds from exercising
stock options 19 -- 133 -- -- -- 133
Tax benefit related to stock
option exercises -- -- 15 -- -- -- 15
Amortization of
restricted stock awards -- -- -- 46 -- -- 46
Net (loss)/income -- -- -- -- (4,180) -- (4,180)
------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, May 5, 2002 12,978 $ 131 $ 115,849 $ 428 $ 51,598 $ (1,846) $ 166,160
</Table>
See accompanying notes to consolidated financial statements.
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
13 Weeks Ended
---------------------
May 5, May 6,
2002 2001
-------- --------
Cash flows from operating activities
Net income before cumulative change in an accounting principle $ 2,916 $ 3,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,555 6,751
Provision for deferred income taxes (15) 12
Restricted stock awards -- --
Changes in assets and liabilities
Inventories (94) (1,202)
Prepaid expenses (2,134) (1,527)
Other current assets (236) --
Other assets 432 (379)
Accounts payable (1,910) 1,593
Accrued liabilities (494) (920)
Income taxes payable (2,074) 244
Other liabilities 570 159
-------- --------
Net cash provided by operating activities 4,516 7,815
-------- --------
Cash flows from investing activities:
Capital expenditures (5,632) (8,885)
Proceeds from sale of property and equipment 252 --
-------- --------
Net cash used by investing activities (5,380) (8,885)
-------- --------
Cash flows from financing activities:
Borrowing under long-term debt 6,852 8,000
Repayments under long-term debt (9,079) (8,437)
Purchases of treasury stock -- --
Proceeds from issuance of common stock 194 --
-------- --------
Net cash used by financing activities (2,033) (437)
-------- --------
Decrease in cash and cash equivalents (2,897) (1,507)
Beginning cash and cash equivalents 4,521 3,179
-------- --------
Ending cash and cash equivalents $ 1,624 $ 1,672
</Table>
See accompanying notes to consolidated financial statements.
DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 5, 2002
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: RESULTS OF OPERATIONS
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year. The information furnished
herein reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary to fairly
present the results of operations and financial position for the interim
periods.
NOTE 2: BASIS OF PRESENTATION
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Dave & Buster's, Inc. and wholly owned subsidiaries (the "Company").
All material intercompany accounts and transactions have been eliminated in
consolidation. The consolidated balance sheet data presented herein for February
3, 2002 was derived from the Company's audited consolidated financial statements
for the fiscal year then ended. The preparation of financial statements in
accordance with generally accepted accounting principles requires the Company's
management to make certain estimates and assumptions for the reporting periods
covered by the financial statements. These estimates and assumptions affect the
reported amounts of assets, liabilities, revenues and expenses. Actual amounts
could differ from these estimates. The Company's one industry segment is the
ownership and operation of restaurant/entertainment Complexes (a "Complex" or
"Store") under the name "Dave & Buster's" which are principally located in the
United States.
CHANGE IN ACCOUNTING PRINCIPLE. In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets ("Statements"),
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives.
The Company has applied the new standards on accounting for goodwill and other
intangible assets during the first quarter of 2002. The Company performed the
required impairment test of goodwill and other intangible assets during the
first quarter of 2002, which resulted in a one-time charge of $7.1 million
representing the cumulative effect of a change in accounting principle. The
write off of goodwill resulted in a negative $.53 per diluted share in the first
quarter. If the application of the non-amortization provisions of the Statement
had been adopted as of the first quarter of 2001, net income would have
increased by $.1 million ($0.01 per diluted share) or pro forma earnings of
$0.25 per diluted share. The remaining intangible (trademark) has a net carrying
value of $118,000 and amortization of this intangible is insignificant.
RECENT ACCOUNTING PRONOUNCEMENTS. The FASB recently issued FAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"),
which we adopted on February 4, 2002. The FASB's new rules on asset impairment
supersede FAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of ("FAS 121").
The adoption of FAS 144 did not have a significant effect on our financial
condition or results of operations.
NOTE 3: INVENTORIES
Inventories, which consist of food, beverage and merchandise are reported at the
lower of cost or market determined on a first-in, first-out method. Static
supplies inventory is capitalized at each store opening date and reviewed
periodically for valuation.
NOTE 4: LONG-TERM DEBT
At May 5, 2002, long-term debt consisted of the following:
<Table>
Long-term debt $ 88,169
Less current installments (6,200)
---------
$ 81,969
========
</Table>
On November 19, 2001, the Company amended its senior secured revolving credit
and term loan facility. The amendment allows proceeds from sales/leaseback
transactions to be applied to both the revolving credit and the term loans. At
May 5, 2002, $3,360 was available under this facility.
NOTE 5: CONTINGENCIES
The Company is subject to certain legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, based on
discussions with and advice of legal counsel, the amount of ultimate liability
with respect to these actions will not materially affect the consolidated
results of operations or financial conditions of the Company.
NOTE 6: SUBSEQUENT EVENTS
On May 30, 2002 Dave & Buster's, Inc. announced that it had entered into a
definitive agreement under which a group led by its founders and certain members
of Dave & Buster's senior executive management, together with Investcorp, a
global investment group, and international investors organized by Investcorp
will acquire the company through a newly-formed holding company, D&B Holdings I,
Inc. The transaction is structured as a cash tender offer by D&B Acquisition
Sub, Inc., a wholly-owned subsidiary of D&B Holdings, for all outstanding shares
of common stock of Dave & Buster's at a price of $12.00 per share, to be
followed by a merger which would result in Dave & Buster's becoming a
wholly-owned subsidiary of D&B Holdings. Shares of Dave & Buster's common stock
not purchased in the tender offer will be cancelled and converted into the right
to receive $12.00 per share in cash. The total transaction value is
approximately $255 million, including the refinancing of Dave & Buster's debt.
The cash tender offer is subject to the tender of at least 80 percent of Dave &
Buster's shares, exclusive of approximately one million shares held by founders
and certain members of senior management which will be exchanged for equity
securities of the new holding company. A special committee of three independent,
non-employee directors, with the advice of Houlihan Lokey Howard & Zukin,
recommended approval of the transaction, which was also unanimously approved by
the Board of Directors of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)
Results of Operations - 13 Weeks Ended May 5, 2002 Compared to 13 Weeks Ended
May 6, 2001
Total revenues increased to $97,242 for the 13 weeks ended May 5, 2002 from
$88,210 for the 13 weeks ended May 6, 2001, an increase of $9,032 or 10.2%. New
stores opened in fiscal 2001 increased revenues during the period by $12,039,
while revenues at comparable stores decreased 2.4% for the 13 week period ended
May 5, 2002. The decrease in comparable store revenues was primarily attributed
to decline in company sponsored private parties. Total revenues for the 13 week
period ended May 5, 2002 from licensing agreements were $200.
Cost of revenues increased to $18,116 for the 13 weeks ended May 5, 2002 from
$16,495 for the 13 weeks ended May 6, 2001, an increase of $1,621 or 9.8%. As a
percentage of revenues, cost of revenues decreased to 18.6% from 18.7% in the 13
weeks ended May 6, 2001 due to lower grocery and dairy costs.
Operating payroll and benefits increased to $30,765 for the 13 weeks ended May
5, 2002 from $27,224 for the 13 weeks ended May 6, 2001, an increase of $3,541
or 13.0%. As a percentage of revenues, operating payroll and benefits increased
to 31.6% in the 13 weeks ended May 5, 2002 from 30.9% for the 13 weeks ending
May 6, 2001 due to new store openings and higher management labor.
Other store operating expenses increased to $27,943 for the 13 weeks ended May
5, 2002 from $24,209 for the 13 weeks ended May 6, 2001, an increase of $3,734
or 15.4% primarily attributed to increased occupancy cost as a result of the
sale/leaseback of the corporate headquarters. As a percentage of revenues, other
store operating expenses were 28.7% of revenues in the 13 weeks ended May 5,
2002 compared to 27.4% of revenues for the 13 weeks ended May 6, 2001 due to new
store openings and repair & maintenance charges.
General and administrative expenses increased to $6,111 for the 13 weeks ended
May 5, 2002 from $5,296 for the 13 weeks ended May 6, 2001, an increase of $815
or 15.4%. As a percentage of revenues, general and administrative expenses
increased to 6.3% in the 13 weeks ended May 5, 2002 from 6.0% in the 13 weeks
ended May 6, 2001. The increase is due to occupancy costs for the sale/
leaseback of the corporate office and higher insurance costs.
Depreciation and amortization increased to $7,555 for the 13 weeks ended May 5,
2002 from $6,751 for the 13 weeks ended May 6, 2001, an increase of $804 or
11.9%. As a percentage of revenues, depreciation and amortization increased to
7.8% from 7.7% for the comparable period due to new store openings in fiscal
2001.
Preopening costs decreased to $152 for the 13 weeks ended May 5, 2002 from
$1,079 for the 13 week period ended May 6, 2001. The decrease is attributed to
no store openings in the first quarter of fiscal 2002.
Interest expense decreased to $2,008 for the 13 weeks ended May 5, 2002 from
$2,322 for comparable period in fiscal 2001. The decrease is due to both a lower
level of debt and interest rates.
The effective tax rate for the 13 weeks ended May 5, 2002 was 36.5% as compared
to 36.2% for the 13 weeks ended May 6, 2001 primarily as a result of higher
state income taxes.
The cumulative effect of a change in an accounting principle charge of $7,096,
represents a one-time charge to income for the write-off of goodwill in
accordance with FAS 142.
Liquidity and Capital Resources
Cash flows from operations was $4,516 for the 13 weeks ended May 5, 2002
compared to $7,815 for the 13 weeks ended May 6, 2001. The decrease in cash flow
was attributable to an increase in prepaid expenses and decrease in accounts
payable and income taxes payable.
Cash used in investing activities was $5,380 for the 13 weeks ended May 5, 2002
compared to $8,885 for the 13 weeks ended May 6, 2001. The decrease was the
result of no new store openings scheduled in the first half of 2002.
Financing activities resulted in a use of cash of $2,033 compared to $437 for
the 13 weeks ended May 6, 2001. This increased use of cash was directly
attributed to net repayment of long-term debt during the quarter.
The Company has a $110,000 senior secured revolving credit and term loan
facility. The facility includes a five-year revolver and a five and seven-year
term debt. The facility agreement calls for quarterly payments of principal on
the term debt through maturity. Borrowings under the facility bear interest at a
floating rate based on LIBOR (1.901% at May 5, 2002) or, at the Company's
option, the bank's prime rate (4.75% at May 5, 2002) plus, in each case, a
margin based upon financial performance. The facility is secured by all assets
of the Company. The facility has certain financial covenants including a minimum
consolidated tangible net worth level, a maximum leverage ratio, minimum fixed
charge coverage and maximum level of capital expenditures. On November 19, 2001,
the Company amended the facility to allow proceeds from sale/leaseback
transactions to be applied to both the revolving credit and the term loans. At
May 5, 2002, $3,360 was available under this facility.
The Company has entered into an agreement that expires in 2007, to change a
portion of its variable rate debt to fixed-rate debt. Notional amounts
aggregating $51,255 at May 5, 2002 are fixed at 5.44%. The Company is exposed to
credit losses for periodic settlements of amounts due under the agreements if
LIBOR decreases. A charge of $466 was incurred in the first quarter of 2002
under the agreement.
The market risks associated with the agreements are mitigated because increased
interest payments under the agreement resulting from reductions in LIBOR are
effectively offset by a reduction in interest expense under the debt obligation.
The Company's plan is to open one new complex in fiscal 2002. The preopening and
construction costs of the new store will be provided from internal cash flow.
The Company's credit facility, as amended, restricts the Company from opening
any new complexes in fiscal 2003 or in any fiscal year thereafter without the
unanimous consent of the bank group.
We believe that available cash and cash flow from operations, together with
borrowings under the new credit facility, will be sufficient to cover our
working capital, capital expenditures and debt service needs in the foreseeable
future. Our ability to make scheduled payments of principal or interest on, or
to refinance, our indebtedness, or to fund planned capital expenditures, will
depend on our future performance, which is subject to general economic
conditions, competitive environment and other factors. We may not generate
sufficient cash flow from operations, realize anticipated revenue growth and
operating improvements or obtain future capital in a sufficient amount or on
acceptable terms, to enable us to service our indebtedness or to fund our other
liquidity needs.
Quarterly Fluctuations, Seasonality and Inflation
As a result of the substantial revenues associated with each new Complex, the
timing of new Complex openings will result in significant fluctuations in
quarterly results. The Company expects seasonality to be a factor in the
operation or results of its business in the future due to expected lower third
quarter revenues due to the fall season and expects higher fourth quarter
revenues associated with the year-end holidays. The effects of supplier price
increases are not expected to be material. The Company believes low inflation
rates in its market areas have contributed to stable food and labor costs in
recent years.
However, there is no assurance that low inflation rates will continue or that
the Federal minimum wage rate will not increase.
Subsequent Events
On May 30, 2002 Dave & Buster's, Inc. announced that it had entered into a
definitive agreement under which a group led by its founders and certain members
of Dave & Buster's senior executive management, together with Investcorp, a
global investment group, and international investors organized by Investcorp
will acquire the company through a newly-formed holding company, D&B Holdings I,
Inc. The transaction is structured as a cash tender offer by D&B Acquisition
Sub, Inc., a wholly-owned subsidiary of D&B Holdings, for all outstanding shares
of common stock of Dave & Buster's at a price of $12.00 per share, to be
followed by a merger which would result in Dave & Buster's becoming a
wholly-owned subsidiary of D&B Holdings. Shares of Dave & Buster's common stock
not purchased in the tender offer will be cancelled and converted into the right
to receive $12.00 per share in cash. The total transaction value is
approximately $255 million, including the refinancing of Dave & Buster's debt.
The cash tender offer is subject to the tender of at least 80 percent of Dave &
Buster's shares, exclusive of approximately one million shares held by founders
and certain members of senior management which will be exchanged for equity
securities of the new holding company. A special committee of three independent,
non-employee directors, with the advice of Houlihan Lokey Howard & Zukin,
recommended approval of the transaction, which was also unanimously approved by
the Board of Directors of the Company.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements in this Report on Form 10-Q are not based on historical facts
but are "forward-looking statements" that are based on numerous assumptions made
as of the date of this report. Forward looking statements are generally
identified by the words "believes", "expects", "intends", "anticipates",
"scheduled", and certain similar expressions. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance, or achievements of Dave & Buster's, Inc.
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; availability; locations and terms of sites for Complex development;
quality of management; changes in, or the failure to comply with, government
regulations; and other risks indicated in this filing and discussed under
"Risks" in the Company's Form 10-K filed with the Securities and Exchange
Commission.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 2000, the former shareholders of Edison Brothers Stores, Inc. brought a
third party action against us and our directors. The plaintiff class consists of
former shareholders of EBS who received stock in our company following its
spin-off from EBS in 1995. Within five months after the spin-off, EBS filed for
protection under the bankrupt laws. The bankruptcy trustee of EBS is pursuing
fraudulent conveyance claims on behalf of unsecured creditors of EBS against the
former shareholders arising out of the spin-off distribution of our stock. The
former shareholders' third party action against us alleges that, if it is
determined that the distribution of our stock to the former shareholders
rendered EBS insolvent and was therefore a fraudulent conveyance, then we and
our directors aided and abetted the fraud and are liable for contribution and/or
indemnification. We dispute the former shareholders' third party claims against
us and are vigorously defending this litigation. The trial court dismissed the
case against us and our directors on a statute of limitations defense. Such
ruling has been appealed by the former shareholders. If we are unsuccessful in
our defense of this litigation it could have a material adverse affect on us and
our operations.
We have been served with a complaint filed purportedly on behalf of our
stockholders alleging breach of fiduciary duties by our directors in connection
with their approval of the transactions contemplated by the Merger Agreement.
The purported class action, filed in state district court in Dallas County,
Texas on May 31, 2002, purports to seek an injunction preventing consummation of
the proposed transaction and unspecified damages. We have received three similar
complaints filed in the State of Missouri, one in the circuit court of Greene
County and two in the circuit court of Cole County, each filed on June 3, 2002.
We and each member of our Board of Directors have been named as defendants in
each of the complaints. Based upon a preliminary review of the four complaints,
we believe the allegations are without merit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the 13 weeks ended
May 5, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAVE & BUSTER'S, INC.
Dated: June 14, 2002 by /s/ David O. Corriveau
------------- --------------------------------
David O. Corriveau
Co-Chairman of the Board,
Co-Chief Executive Officer
and President
Dated: June 14, 2002 by /s/ W. C. Hammett, Jr.
------------- --------------------------------
W. C. Hammett, Jr.
Vice President,
Chief Financial Officer