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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 AUGUST 4, 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 September 4, 2002 was 13,283,279 shares.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
13 WEEKS ENDED 26 WEEKS ENDED
--------------------------- ----------------------------
AUGUST 4, AUGUST 5, AUGUST 4, AUGUST 5,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Food and beverage revenues $ 46,156 $ 41,542 $ 94,899 $ 85,154
Amusements and other revenues 45,994 42,080 94,493 86,678
----------- ----------- ----------- -----------
Total revenues 92,150 83,622 189,392 171,832
Cost of revenues 16,715 15,761 34,831 32,256
Operating payroll and benefits 28,583 25,410 58,962 52,634
Other store operating expenses 28,199 24,782 56,527 48,991
General and administrative expenses 7,601 4,958 13,712 10,254
Depreciation and amortization expense 7,561 7,157 15,116 13,908
Preopening costs 248 821 401 1,900
----------- ----------- ----------- -----------
Total costs and expenses 88,907 78,889 179,549 159,943
Operating income 3,243 4,733 9,843 11,889
Interest expense, net 1,792 2,058 3,801 4,380
----------- ----------- ----------- -----------
Income before provision for income taxes 1,451 2,675 6,042 7,509
Provision for income taxes 530 968 2,205 2,718
----------- ----------- ----------- -----------
Income before cumulative effect of a
change in an accounting principle $ 921 $ 1,707 $ 3,837 $ 4,791
Cumulative effect of a change in an
accounting principle 0 0 (7,096) 0
----------- ----------- ----------- -----------
Net income (loss) $ 921 $ 1,707 $ (3,259) $ 4,791
=========== =========== =========== ===========
Net income (loss) per share - basic
Before cumulative effect of a change
in an accounting principle $ 0.07 $ 0.13 $ 0.30 $ 0.37
Cumulative effect of a change in an
accounting principle 0 0 (0.55) 0
----------- ----------- ----------- -----------
$ 0.07 $ 0.13 $ (0.25) $ 0.37
Net income (loss) per share - diluted
Before cumulative effect of a change
in an accounting principle $ 0.07 $ 0.13 $ 0.29 $ 0.37
Cumulative effect of a change in an
accounting principle 0 0 (0.53) 0
----------- ----------- ----------- -----------
$ 0.07 $ 0.13 $ (0.24) $ 0.37
Basic weighted average shares outstanding 12,986 12,954 12,978 12,954
Diluted weighted average shares outstanding 13,435 13,028 13,382 13,049
See accompanying notes to consolidated financial statements.
DAVE & BUSTER'S, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
August 4, 2002 February 3,
(unaudited) 2002
-------------- -----------
Current assets:
Cash $ 2,362 $ 4,521
Inventories 25,849 25,964
Prepaid expense 5,715 1,442
Other current assets 1,997 2,445
----------- -----------
Total current assets 35,923 34,372
Property and equipment, net 260,694 258,302
Goodwill, net of accumulated amortization of $2,612 0 7,096
Other assets 8,655 9,364
----------- -----------
Total assets $ 305,272 $ 309,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 6,900 $ 5,500
Accounts payable 21,070 15,991
Accrued liabilities 11,885 11,085
Income tax payable 3,469 5,054
Deferred income taxes 1,177 1,220
----------- -----------
Total current liabilities 44,501 38,850
Deferred income taxes 8,143 8,143
Other liabilities 8,401 7,099
Long-term debt, less current installments 76,894 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
12,997,779 and 12,959,209 shares issued and outstanding
as of August 4, 2002 and February 3, 2002, respectively 131 131
Paid-in-capital 116,047 115,701
Restricted stock awards 482 382
Retained earnings 52,519 55,778
----------- -----------
169,179 171,992
Less: treasury stock, at cost (175,000 shares) (1,846) (1,846)
----------- -----------
Total stockholders' equity 167,333 170,146
----------- -----------
Total liabilities and stockholders' equity $ 305,272 $ 309,134
=========== ===========
See accompanying notes to consolidated financial statements.
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
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 39 -- 303 -- -- -- 303
Tax benefit related to stock
option exercises -- -- 43 -- -- -- 43
Amortization of
restricted stock awards -- -- -- 100 -- -- 100
Net loss -- -- -- -- (3,259) -- (3,259)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, August 4, 2002 12,998 $ 131 $ 116,047 $ 482 $ 52,519 $ (1,846) $ 167,333
========== ========== ========== ========== ========== ========== ==========
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
26 Weeks Ended 26 Weeks Ended
August 4, 2002 August 5, 2001
--------------- ---------------
Cash flows from operating activities
Income before cumulative change in an accounting principle $ 3,837 $ 4,791
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,116 13,908
Provision for deferred income taxes (43) 1,035
Restricted stock awards 0 47
Gain on sale of assets (101) 0
Changes in assets and liabilities:
Inventories 115 (723)
Prepaid expenses (4,273) (731)
Other current assets 448 0
Other assets 709 (626)
Accounts payable 5,079 3,024
Accrued liabilities 800 1,483
Income taxes payable (1,585) (330)
Other liabilities 1,302 783
--------------- ---------------
Net cash provided by operating activities 21,404 22,661
--------------- ---------------
Cash flows from investing activities
Capital expenditures (17,889) (22,326)
Proceeds from sale of property and equipment 482 0
--------------- ---------------
Net cash used by investing activities (17,407) (22,326)
--------------- ---------------
Cash flows from financing activities
Borrowing under long-term debt 10,852 13,250
Repayments under long-term debt (17,454) (14,046)
Proceeds from issuance of common stock 446 0
--------------- ---------------
Net cash used by financing activities (6,156) (796)
--------------- ---------------
Decrease in cash and cash equivalents (2,159) (461)
Beginning cash and cash equivalents 4,521 3,179
--------------- ---------------
Ending cash and cash equivalents $ 2,362 $ 2,718
=============== ===============
See accompanying notes to consolidated financial statements.
DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 4, 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. 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 our audited consolidated financial statements for the fiscal year
then ended. The preparation of financial statements in accordance with generally
accepted accounting principles requires our 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. Our one industry segment is the ownership and operation of
restaurant/entertainment Complexes (a "Complex" or "Store") under the name "Dave
& Buster's" which are 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.
We have applied the new standards on accounting for goodwill and other
intangible assets during the first quarter of 2002. We 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, second quarter net income would have increased
by $.1 million ($0.01 per diluted share) or pro forma earnings of $0.14 per
diluted share. The year to date income would have increased $.2 million ($0.2
per diluted share) or pro forma earnings of $.39 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 August 4, 2002, long-term debt consisted of the following:
Long-term debt $ 83,794
Less: current installments (6,900)
--------
$ 76,894
========
On November 19, 2001, we amended the senior secured revolving credit and term
loan facility. The amendment allows proceeds from sale/leaseback transactions to
be applied to both the revolving credit and the term loans. At August 4, 2002,
$6,360 was available under this facility.
NOTE 5: CONTINGENCIES
We are 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 our financial conditions.
In March 2000, the former shareholders of Edison Brothers Stores, Inc. brought a
third party action against us and our directors in Federal district court in
Delaware. 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. The Third Circuit appellate court heard oral argument on such
appeal in July 2002, but has not yet ruled on the matter. 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 breaches of fiduciary duty 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 originally proposed tender offer and merger transaction and unspecified
damages. We have received four similar complaints filed in the State of
Missouri, one in the circuit court of Greene County and three in the circuit
court of Cole County, each filed in June 2002. We and each member of our Board
of Directors have been named as defendants in each of the complaints. We have
answered the complaint filed in Dallas County, denying all
of the allegations of the plaintiffs, which we believe to be without merit. We
have filed a motion to dismiss for the complaint filed in Greene County for
improper venue, which motion is currently pending before the court. In July
2002, the plaintiffs in the Dallas County and one of the Cole County complaints
filed amended class action complaints alleging that the cash consideration in
the amended merger transaction of $13.50 per share is inadequate and renewing
the initial allegations of their complaints. We have not yet filed an answer in
any of the Cole County cases.
NOTE 6: OTHER MATTERS
On May 30, 2002 we announced that we entered into a definitive merger agreement
under which a group led by our founders and certain members of our senior
executive management, together with Investcorp S.A., a global investment group,
and co-investors organized by Investcorp will acquire the company through a
newly-formed holding company, D&B Holdings I, Inc. The transaction was
originally 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 our
common stock 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. On July 10, 2002, we announced that the tender offer by D&B
Acquisition Sub. had expired without sufficient shares being tendered to
complete the transaction. On July 12, 2002, we entered into an amendment to the
merger agreement providing that the consideration proposed to be paid for our
common stock was increased to $13.50 in cash per share and that we would proceed
with a single-step, all-cash merger which would be submitted for a vote at a
special meeting of our shareholders. Shareholders representing at least 66 2/3
of our outstanding common stock must vote in favor of the merger for it to be
completed. We further announced that D&B Acquisition Sub had secured the written
agreement of three of our largest shareholders to vote in favor of the merger.
The total transaction value is approximately $275 million, including the
refinancing of Dave & Buster's debt. A special committee of three independent,
non-employee directors, with the advice of Houlihan Lokey Howard & Zukin,
recommended approval of the merger transaction as so amended, which was also
unanimously approved by our Board of Directors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)
Results of Operations - 13 Weeks Ended August 4, 2002 Compared to 13 Weeks Ended
August 5, 2001
Total revenues increased to $92,150 for the 13 weeks ended August 4, 2002 from
$83,622 for the 13 weeks ended August 5, 2001, an increase of $8,528 or 10.2%.
New stores opened after the first quarter of 2001 increased revenues during the
period by $9,937. Revenues at comparable stores decreased 1.8% for the 13 weeks
ended August 4, 2002. The decrease in comparable store revenues is attributable
to a continued weak economic environment. In an effort to improve sales, the
Company is redirecting marketing funds from media buys towards direct marketing
for the individual locations. Emphasis is also being placed upon the special
events portion of the business, particularly holiday parties and other corporate
functions. In addition, the Company introduced new menu items during the second
quarter, expanding the seafood entrees offered.
Cost of revenues increased to $16,715 for the 13 weeks ended August 4, 2002 from
$15,761 for the 13 weeks ended August 5, 2001, an increase of $954 or 6.1%. The
increase is attributable to the 10.2% increase in revenues, offset by cost
savings at comparable stores. As a percentage of revenues, cost of revenues
decreased from 18.8% for the 13 weeks ended August 5, 2001 to 18.1% for the 13
weeks ended August 4, 2002 due to lower meat, dairy and redemption costs offset
by higher beverage costs. The new menu introduced in the second quarter is in
keeping with the initiatives the Company implemented in 2001 to streamline its
kitchen operations and provide greater efficiency.
Operating payroll and benefits increased to $28,583 for the 13 weeks ended
August 4, 2002 from $25,410 for the 13 weeks ended August 5, 2001, an increase
of $3,173 or 12.5%. As a percentage of revenues, operating payroll and benefits
increased to 31.0% in the 13 weeks ended August 4, 2002 from 30.4% in the 13
weeks ended August 5, 2001. The increase in payroll and benefits as a percentage
of revenues, is due to the decline in comparable store sales and new store
openings in fiscal year 2001. The Company is monitoring labor costs and
adjusting its staffing levels in response to the current economic environment.
Other store operating expenses increased to $28,199 for the 13 weeks ended
August 4, 2002 from $24,782 for the 13 weeks ended August 5, 2001, an increase
of $3,417 or 13.8%. As a percentage of revenues, other store operating expenses
were 30.6% of revenues in the 13 weeks ended August 4, 2002 as compared to 29.6%
of revenues in the 13 weeks ended August 5, 2001. Other store operating expense
as a percentage of revenues increased due to the decline in comparable store
sales, new store openings in fiscal year 2001 and the sale/leaseback
transactions of the Houston and Atlanta locations.
General and administrative expenses increased to $7,601 for the 13 weeks ended
August 4, 2002 from $4,958 for the 13 weeks ended August 5, 2001, an increase of
$2,643 or 53.3%. As a percentage of revenues, general and administrative
expenses increased to 8.2% in the 13 weeks ended August 4, 2002 from 5.9% in the
13 weeks ended August 5, 2001. The increase is attributable to one-time
transaction costs of $1.2 million related to our proposed merger agreement with
D&B Holdings and D&B Acquisition Sub along with higher fringe benefit and
occupancy costs. The Company anticipates cost savings as system enhancements are
completed over the next 18 to 24 months.
Depreciation and amortization increased to $7,561 for the 13 weeks ended August
4, 2002 from $7,157 for the 13 weeks ended August 5, 2001, an increase of $404
or 5.6%. As a percentage of revenues, depreciation and amortization expense
decreased to 8.2% of revenues from 8.6% in the 13 weeks ended August 5, 2001.
Preopening costs decreased to $248 for the 13 weeks ended August 4, 2002 from
$821 for the 13 weeks ended August 5, 2001. The decrease is due to the timing of
new store openings. There were no openings during the first half of fiscal 2002.
Interest expense decreased to $1,792 for the 13 weeks ended August 4, 2002 from
$2,058 for the 13 weeks ended August 5, 2001. The decrease is due to both lower
average debt and interest rates in fiscal year 2002.
The effective tax rate for the 13 weeks ended August 4, 2002 was 36.5% as
compared to 36.2% for the 13 weeks ended August 5, 2001, as a result of higher
estimated state income taxes.
Results of Operations - 26 Weeks Ended August 4, 2002 Compared to 26 Weeks Ended
August 5, 2001
Total revenues increased to $189,392 for the 26 weeks ended August 4, 2002 from
$171,832 for the 26 weeks, ended August 5, 2001, an increase of $17,560 or
10.2%. New stores opened after the first quarter of 2001 increased revenues
during the period by $21,324. Revenues at comparable stores were down by 2.6%
for the 26 weeks ended August 4, 2002. The decrease in comparable store revenues
is attributable to a continued weak economic environment. Total revenues for the
26 weeks ended August 4, 2002 from licensing agreements were $214. . In an
effort to improve sales, the Company is redirecting marketing funds from media
buys towards direct marketing for the individual locations. Emphasis is also
being placed upon the special events portion of the business, particularly
holiday parties and other corporate functions. In addition, the Company
introduced new menu items during the second quarter, expanding the seafood
entrees offered.
Cost of revenues increased to $34,831 for the 26 weeks ended August 4, 2002 from
$32,256 for the 26 weeks ended August 5, 2001, an increase of $2,575 or 8.0%.
The increase is attributable to the 10.2% increase in revenues, offset by cost
savings at comparable stores. As a percentage of revenues, cost of revenues
decreased from 18.8% for the 26 weeks ended August 5, 2001 to 18.4% for the 26
weeks ended August 4, 2002 with food costs being down 1.8% offset by beverage
costs and amusement costs being up .6% and .1%, respectively. The new menu
introduced in the second quarter is in keeping with the initiatives the Company
implemented in 2001 to streamline its kitchen operations and provide greater
efficiency.
Operating payroll and benefits increased to $58,962 for the 26 weeks ended
August 4, 2002 from $52,634 for the 26 weeks ended August 5, 2001, an increase
of $6,328 or 12.0%. As a percentage of revenues, operating payroll and benefits
increased to 31.1% in the 26 weeks ended August 4, 2002 from 30.6% in the 26
weeks ended August 5, 2001. The increase in payroll and benefits as a percentage
of revenues, is due to the decline in comparable store sales and new store
openings in fiscal year 2001. The Company is monitoring labor costs and
adjusting its staffing levels in response to the current economic environment.
Other store operating expenses increased to $56,527 for the 26 weeks ended
August 4, 2002 from $48,991 for the 26 weeks ended August 5, 2001, an increase
of $7,536 or 15.4%. As a percentage of revenues, other store operating expenses
were 29.8% of revenues in the 26 weeks ended August 4, 2002 as compared to 28.5%
of revenues in the 26 weeks ended August 5, 2001. Other store operating expenses
as a percentage of revenues increased due to the decline in comparable store
sales and new store openings in fiscal year 2001 and the sale/leaseback
transactions of the Houston and Atlanta locations.
General and administrative expenses increased to $13,712 for the 26 weeks ended
August 4, 2002 from $10,254 for the 26 weeks ended August 5, 2001, an increase
of $3,458 or 33.7%. As a percentage of revenues, general and administrative
expenses increased to 7.2% in the 26 weeks ended August 4, 2002 from 6.0% in the
26 weeks ended August 4, 2001. The increase is attributable to one-time
transaction costs of $1.2 million related to our proposed merger agreement with
D&B Holdings and D&B Acquisition Sub along with higher fringe benefit and
occupancy costs. The Company anticipates cost savings as system enhancements are
completed over the next 18 to 24 months.
Depreciation and amortization increased to $15,116 for the 26 weeks ended August
4, 2002 from $13,908 for the 26 weeks ended August 5, 2001, an increase of
$1,208 or 8.7%. As a percentage of revenues,
depreciation and amortization expense decreased to 8.0% of revenues from 8.1% in
the 26 weeks ended August 5, 2001.
Preopening costs decreased to $401 for the 26 weeks ended August 4, 2002 from
$1,900 for the 26 weeks ended August 5, 2001. The decrease is due to the timing
of new store openings. There were no openings during the first half of fiscal
2002.
Interest expense decreased to $3,801 for the 26 weeks ended August 4, 2002 from
$4,380 for the 26 weeks ended August 5, 2001. The decrease is due to both lower
average debt and interest rates in fiscal year 2002.
The effective tax rate for the 26 weeks ended August 4, 2002 was 36.5% as
compared to 36.2% for the 26 weeks ended August 5, 2001, as a result of higher
estimated state income taxes.
Liquidity and Capital Resources
Cash flows from operations was $21,403 for the 26 weeks ended August 4, 2002
compared to $22,661 for the 26 weeks ended August 5, 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 $17,407 for the 26 weeks ended August 4,
2002 compared to $22,326 for the 26 weeks ended August 5, 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 $6,156 compared to $796 for
the 26 weeks ended August 5, 2001. This increased use of cash was directly
attributed to net repayment of long-term debt during the quarter.
We have a $110,000 senior secured revolving credit and term loan facility. The
facility includes a five-year revolver and 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 (1.825% at August 4, 2002) or, at our option, the bank's prime
rate (4.75% at August 4, 2002) plus, in each case, a margin based upon financial
performance. The facility is secured by all assets of Dave & Buster's. 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. At August 4, 2002, $6,360
was available under this facility.
We have entered into an agreement that expires in 2007, to change a portion of
its variable rate debt to fixed-rate debt. Notional amounts aggregating $50,008
at August 4, 2002 are fixed at 5.44. We are exposed to credit losses for
periodic settlements of amounts due under the agreements if LIBOR decreases. A
charge of $440 was incurred in the second quarter of 2002 under the agreement
and $906 for the year to date.
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.
Our 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 credit facility, as amended, restricts us 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 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. We expect 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. We believe that low inflation rates in our
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.
Other Matters
On May 30, 2002 we announced that we entered into a definitive merger agreement
under which a group led by our founders and certain members of our senior
executive management, together with Investcorp S.A., a global investment group,
and co-investors organized by Investcorp will acquire the company through a
newly-formed holding company, D&B Holdings I, Inc. The transaction was
originally 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 our
common stock 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. On July 10, 2002, we announced that the tender offer by D&B
Acquisition Sub. had expired without sufficient shares being tendered to
complete the transaction. On July 12, 2002, we entered into an amendment to the
merger agreement providing that the consideration proposed to be paid for our
common stock was increased to $13.50 in cash per share and that we would proceed
with a single-step, all-cash merger which would be submitted for a vote at a
special meeting of our shareholders. Shareholders representing at least 66 2/3
of our outstanding common stock must vote in favor of the merger for it to be
completed. We further announced that D&B Acquisition Sub had secured the written
agreement of three of our largest shareholders to vote in favor of the merger.
The total transaction value is approximately $275 million, including the
refinancing of Dave & Buster's debt. A special committee of three independent,
non-employee directors, with the advice of Houlihan Lokey Howard & Zukin,
recommended approval of the merger transaction as so amended, which was also
unanimously approved by our Board of Directors.
Contingencies
In March 2000, the former shareholders of Edison Brothers Stores, Inc. brought a
third party action against us and our directors in Federal district court in
Delaware. 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. The Third Circuit appellate court heard oral argument on such
appeal in July 2002, but has not yet ruled on the matter. 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 breaches of fiduciary duty 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 originally proposed tender offer and merger transaction and unspecified
damages. We have received four similar complaints filed in the State of
Missouri, one in the circuit court of Greene County and three in the circuit
court of Cole County, each filed in June 2002. We and each member of our Board
of Directors have been named as defendants in each of the complaints. We have
answered the complaint filed in Dallas County, denying all of the allegations of
the plaintiffs, which we believe to be without merit. We have filed a motion to
dismiss the complaint filed in Greene County for improper venue, which motion is
currently pending before the court. In July 2002, the plaintiffs in the Dallas
County and one of the Cole County complaints filed amended class action
complaints alleging that the cash consideration in the amended merger
transaction of $13.50 per share is inadequate and renewing the initial
allegations of their complaints. We have not yet filed an answer in any of the
Cole County cases.
"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 our Form 10-K filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure relates to changes in the general level of
interest rates. The Company's earnings are affected by changes in interest rates
due to the impact those changes have on its interest expense from variable-rate
debt. The Company's agreement to fix a portion of its variable-rate debt
mitigates this exposure.
ITEM 4. CONTROLS AND PROCEDURES
Each of our Co-Chief Executive Officers, David O. Corriveau and James W. Corley,
and our Chief Financial Officer, W.C. Hammett, Jr. have reviewed and evaluated
the disclosure controls and procedures that we have in place with respect to the
accumulation and communication of information to management and the recording,
processing, summarizing and recording thereof for the purpose of preparing and
filing this Quarterly Report on Form 10-Q. Such review was conducted during the
week ended September 6, 2002. Based upon their review, these executive officers
have concluded that we have an effective system of internal controls and an
effective means for timely communication of information required to be disclosed
in this Report.
Since September 6, 2002, there have been no significant changes in our internal
controls or in other factors that could significantly affect such controls.
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 in Federal district court in
Delaware. 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. The Third Circuit appellate court heard oral argument on such
appeal in July 2002, but has not yet ruled on the matter. 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 breaches of fiduciary duty 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 originally proposed tender offer and merger transaction and unspecified
damages. We have received four similar complaints filed in the State of
Missouri, one in the circuit court of Greene County and three in the circuit
court of Cole County, each filed in June 2002. We and each member of our Board
of Directors have been named as defendants in each of the complaints. We have
answered the complaint filed in Dallas County, denying all of the allegations of
the plaintiffs, which we believe to be without merit. We have filed a motion to
dismiss the complaint filed in Greene County for improper venue, which motion is
currently pending before the court. In July 2002, the plaintiffs in the Dallas
County and one of the Cole County complaints filed amended class action
complaints alleging that the cash consideration in the amended merger
transaction of $13.50 per share is inadequate and renewing the initial
allegations of their complaints. We have not yet filed an answer in any of the
Cole County cases.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a)-(b) At the Company's Annual Meeting of Shareholders on June 11,
2002, the following were elected for a term of three years:
Class I
David O. Corriveau
Mark A. Levy
Christopher C. Maguire
The following directors continued their terms of office as
directors of the Company after the Annual Meeting:
Class II Class III
James W. Corley Allen J. Bernstein
Peter A. Edison Bruce H. Hallett
(c) The following matters were voted upon at the Annual Meeting:
1. Directors:
For Against Withheld/Abstain
David O. Corriveau 10,554,624 408,998
Mark A. Levy 10,791,382 172,240
Christopher C. Maguire 10,787,831 175,791
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Co-CEO pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Co-CEO pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.3 Certification of CFO pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the 13
weeks ended August 4, 2002:
1. A Form 8-K was filed on May 31, 2002 to report the
execution of a definitive merger agreement dated May
30, 2002 providing for the acquisition of Dave &
Buster's, Inc. at a price of $12.00 per share by a
group formed by Investcorp and certain members of
senior executive management.
2. A Form 8-K was filed on July 16, 2002 to report an
amendment to the definitive merger agreement to
provide for an increase in merger consideration from
$12.00 to $13.50 per share.
SIGNATURES
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.
Date: September 16, 2002 by /s/ David O. Corriveau
--------------------------
David O. Corriveau
Co-Chairman of the Board,
Co-Chief Executive Officer
and President
Date: September 16, 2002 by /s/ W. C. Hammett, Jr.
--------------------------
W. C. Hammett, Jr.
Vice President,
Chief Financial Officer
CERTIFICATIONS
I, David O. Corriveau, Co-Chief Executive Officer of Dave & Buster's Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dave & Buster's Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 16, 2002
/s/ David O. Corriveau
- --------------------------
David O. Corriveau
Co-Chief Executive Officer
I, James W. Corley, Co-Chief Executive Officer of Dave & Buster's Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Dave & Buster's Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 16, 2002
/s/ James W. Corley
- ----------------------------
James W. Corley
Co-Chief Executive Officer
I, W. C. Hammett, Jr., Chief Financial Officer of Dave & Buster's Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Dave & Buster's Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 16, 2002
/s/ W. C. Hammett, Jr.
- --------------------------
W. C. Hammett, Jr.
Chief Financial Officer
INDEX OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.1 Certification of Co-CEO pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Co-CEO pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.3 Certification of CFO pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dave & Buster's, Inc. (the "Company")
on Form 10-Q for the period ended August 4, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report), I, David O. Corriveau,
Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ David O. Corriveau
David O. Corriveau
Co-Chief Executive Officer
September 16, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dave & Buster's, Inc. (the "Company")
on Form 10-Q for the period ended August 4, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report), I, James W. Corley,
Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ James W. Corley
James W. Corley
Co-Chief Executive Officer
September 16, 2002
EXHIBIT 99.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dave & Buster's, Inc. (the "Company")
on Form 10-Q for the period ended August 4, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report), I, W. C. Hammett, Jr.,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ W. C. Hammett, Jr.
W. C. Hammett, Jr.
Chief Financial Officer
September 16, 2002
