UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED May 4, 2008
Or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-15007
Dave & Busters, Inc.
(Exact Name of Registrant as Specified in Its Charter)
MISSOURI | 43-1532756 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
2481 Mañana Drive
Dallas, Texas 75220
(Address of principal executive offices)
(Zip Code)
(214) 357-9588
(Registrants telephone number, including area code)
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 ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨. No x.
Indicate the number of shares outstanding of each of the issuers classes of Common Stock, as of the latest practicable date.
The number of shares of the Issuers common stock, $0.01 par value, outstanding as of June 10, 2008 was 100 shares.
FORM 10-Q FOR PERIOD ENDING MAY 4, 2008
TABLE OF CONTENTS
PAGE | ||||
3 | ||||
ITEM 1. |
3 | |||
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
11 | ||
ITEM 3. |
16 | |||
ITEM 4. |
16 | |||
17 | ||||
ITEM 1. |
17 | |||
ITEM 1A. |
17 | |||
ITEM 6. |
18 | |||
19 |
2
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS |
DAVE & BUSTERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
May 4, 2008 |
February 3, 2008 |
|||||||
(unaudited) | (audited) | |||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 17,911 | $ | 19,046 | ||||
Inventories |
15,640 | 15,002 | ||||||
Prepaid expenses |
8,479 | 8,083 | ||||||
Deferred income taxes |
5,933 | 5,733 | ||||||
Other current assets |
2,165 | 2,676 | ||||||
Total current assets |
50,128 | 50,540 | ||||||
Property and equipment, net |
292,590 | 296,974 | ||||||
Tradename |
63,000 | 63,000 | ||||||
Goodwill |
65,857 | 65,857 | ||||||
Other assets and deferred charges |
19,198 | 19,832 | ||||||
Total assets |
$ | 490,773 | $ | 496,203 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Current installments of long-term debt (Note 3) |
$ | 1,000 | $ | 1,000 | ||||
Accounts payable |
17,802 | 22,019 | ||||||
Accrued liabilities |
44,218 | 54,029 | ||||||
Income taxes payable |
7,767 | 4,158 | ||||||
Total current liabilities |
70,787 | 81,206 | ||||||
Deferred income taxes |
20,026 | 21,688 | ||||||
Deferred occupancy costs |
51,943 | 50,524 | ||||||
Other liabilities |
10,094 | 9,654 | ||||||
Long-term debt, less current installments (Note 3) |
242,125 | 242,375 | ||||||
Commitment and contingencies (Note 4) |
||||||||
Stockholders equity (Note 1): |
||||||||
Common stock, $0.01 par value, 1,000 authorized; 100 issued and Outstanding as of May 4, 2008 and February 3, 2008 |
| | ||||||
Preferred stock, 10,000,000 authorized; none issued |
| | ||||||
Paid-in capital |
110,761 | 110,466 | ||||||
Accumulated comprehensive income |
931 | 1,194 | ||||||
Retained deficit |
(15,894 | ) | (20,904 | ) | ||||
Total stockholders equity |
95,798 | 90,756 | ||||||
Total liabilities and stockholders equity |
$ | 490,773 | $ | 496,203 | ||||
See accompanying notes to consolidated financial statements
3
DAVE & BUSTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Thirteen Weeks Ended May 4, 2008 |
Thirteen Weeks Ended May 6, 2007 |
||||||
Food and beverage revenues |
$ | 74,665 | $ | 73,824 | |||
Amusement and other revenues |
67,798 | 61,638 | |||||
Total revenues |
142,463 | 135,462 | |||||
Cost of food and beverage |
18,471 | 18,314 | |||||
Cost of amusement and other |
8,624 | 8,323 | |||||
Total cost of products |
27,095 | 26,637 | |||||
Operating payroll and benefits |
36,872 | 36,380 | |||||
Other store operating expenses |
43,179 | 41,504 | |||||
General and administrative expenses |
8,482 | 12,719 | |||||
Depreciation and amortization expense |
12,439 | 12,603 | |||||
Startup costs |
282 | 59 | |||||
Total operating costs |
128,349 | 129,902 | |||||
Operating income |
14,114 | 5,560 | |||||
Interest expense, net |
6,146 | 7,574 | |||||
Income (loss) before provision for income taxes |
7,968 | (2,014 | ) | ||||
Provision (benefit) for income taxes |
2,958 | (1,177 | ) | ||||
Net income (loss) |
$ | 5,010 | $ | (837 | ) | ||
See accompanying notes to consolidated financial statements.
4
DAVE & BUSTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Thirteen Weeks Ended May 4, 2008 |
For the Thirteen Weeks Ended May 6, 2007 |
|||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 5,010 | $ | (837 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization expense |
12,439 | 12,603 | ||||||
Deferred income tax expense |
(1,862 | ) | (1,728 | ) | ||||
Stock-based compensation charges |
295 | 464 | ||||||
Other, net |
258 | 18 | ||||||
Changes in assets and liabilities: |
||||||||
Inventories |
(638 | ) | (176 | ) | ||||
Prepaid expenses |
(396 | ) | (292 | ) | ||||
Other current assets |
511 | (288 | ) | |||||
Other assets and deferred charges |
234 | 129 | ||||||
Accounts payable |
(4,217 | ) | (2,486 | ) | ||||
Accrued liabilities |
(9,811 | ) | (8,915 | ) | ||||
Income taxes payable |
3,609 | (1,940 | ) | |||||
Deferred occupancy costs |
1,419 | 814 | ||||||
Other liabilities |
440 | 212 | ||||||
Net cash provided by (used in) operating activities |
7,291 | (2,422 | ) | |||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(8,209 | ) | (2,912 | ) | ||||
Proceeds from sales of property and equipment |
33 | 118 | ||||||
Net cash used in investing activities |
(8,176 | ) | (2,794 | ) | ||||
Cash flows from financing activities: |
||||||||
Borrowings under senior secured credit facility |
| 4,000 | ||||||
Repayments under senior secured credit facility |
(250 | ) | (250 | ) | ||||
Net cash provided by (used in) financing activities |
(250 | ) | 3,750 | |||||
Decrease in cash and cash equivalents |
(1,135 | ) | (1,466 | ) | ||||
Beginning cash and cash equivalents |
19,046 | 10,372 | ||||||
Ending cash and cash equivalents |
$ | 17,911 | $ | 8,906 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for income taxes-net of refunds |
$ | 1,218 | $ | 2,495 | ||||
Cash paid for interest, net of amounts capitalized |
$ | 11,355 | $ | 11,539 |
See accompanying notes to consolidated financial statements.
5
DAVE & BUSTERS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1: Summary of Significant Accounting Policies
Basis of presentationDave & Busters, Inc., a Missouri corporation, is a wholly-owned subsidiary of WS Midway Holdings, Inc. (WS Midway). Affiliates of Wellspring Capital Management LLC (Wellspring) and HBK Investments L.P. (HBK) control approximately 82 percent and 18 percent, respectively, of the outstanding capital stock of WS Midway. The accompanying consolidated statements of operations and cash flows present the results of operations and cash flows of Dave & Busters, Inc. and all wholly-owned subsidiaries. References to Dave & Busters, the Company, we, us, and our are references to Dave & Busters, Inc. and its subsidiaries and any predecessor companies. All material intercompany accounts and transactions have been eliminated in consolidation.
As of May 4, 2008, we operate 49 large format, high-volume regional entertainment complexes. Our one industry segment is the ownership and operation of restaurant/entertainment complexes (a Complex or Store) under the names Dave & Busters, Dave & Busters Grand Sports Café and Jillians, which are located in the United States and Canada and the franchise of one complex under the name Dave & Busters located in Mexico.
Our fiscal year ends on the Sunday after the Saturday closest to January 31. All references to the first quarter of 2008 and 2007 relate to the thirteen week periods ending on May 4, 2008 and May 6, 2007, respectively. All references to 2008 and 2007 relate to the 52 week periods ending on February 1, 2009 and February 3, 2008, respectively. In the opinion of management, these financial statements contain all adjustments (consisting of normal recurring entries) necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. We expect significant fluctuations in quarterly results due to the timing of new complex openings and seasonality associated with the year-end holidays. All dollar amounts, except share amounts, are presented in thousands, unless otherwise noted.
Our quarterly financial data should be read in conjunction with our consolidated financial statements for the year ended February 3, 2008 (including the notes thereto), set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on April 24, 2008.
Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Accounting for income taxesWe use the liability method for recording income taxes, which recognizes the amount of current and deferred taxes payable or refundable at the date of the financial statements as a result of events that are recognized in the financial statements and as measured by the provisions of enacted tax laws. The calculation of tax liabilities involves significant judgment and evaluation of uncertainties in the interpretation of complex tax regulations. As a result, we have established reserves for taxes that may become payable in future years as a result of audits by tax authorities. Tax reserves are reviewed regularly pursuant to FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48). Tax reserves are adjusted as events occur that affect the potential liability for additional taxes, such as the expiration of statutes of limitations, conclusion of tax audits, identification of additional exposure based on current calculations, identification of new issues, or the issuance of statutory or administrative guidance or rendering of a court decision affecting a particular issue. Accordingly, we may experience significant changes in tax reserves in the future, if or when, such events occur. Our effective tax rate also differs from the statutory rate due to the deduction for FICA tip credits, state income taxes, the change in our FIN 48 reserve, and the change in our valuation allowance.
On February 5, 2007, we adopted the provisions of FIN 48 which limit the recognition of income tax benefits to those items that meet the more likely than not threshold on the effective date. During the first quarter of fiscal 2008, we increased our unrecognized tax benefit by $47.
In the first quarter of 2008, we recorded a $571 increase to our valuation allowance against our deferred tax assets. The valuation allowance was established in accordance with Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). As a result of experiencing cumulative losses before income taxes for the three-year period prior to May 4, 2008, we could not conclude that it is more likely that not that our deferred tax assets would be fully realized. The ultimate realization of our deferred tax assets is dependent on the generation of future taxable income during periods in which temporary differences become deductible.
6
Comprehensive incomeComprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. In addition to net income, unrealized foreign currency translation gain is included in comprehensive income. Unrealized translation gains (losses) for the thirteen week periods ended May 4, 2008 and May 6, 2007 were $(263), and $218, respectively.
Recent accounting pronouncementsOn December 4, 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 141(R), Business Combinations (SFAS 141(R)), and Statement of Financial Accounting Standards 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). These new standards will significantly change the accounting for and reporting for business combination transactions and non-controlling (minority) interests in consolidated financial statements. SFAS 141(R) and SFAS 160 are required to be adopted simultaneously and are effective for the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. The impact of adopting SFAS 141(R) and SFAS 160 on our consolidated financial statements will only apply to the extent we have business combinations in the future.
In September 2006, the FASB issued Statement of Financial Accounting Standards 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy, as defined. SFAS 157 may require companies to provide additional disclosures based on that hierarchy. SFAS 157 was to be effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which delayed for one year the applicability of SFAS 157s fair-value measurements to certain nonfinancial assets and liabilities. We adopted SFAS 157 as of February 4, 2008, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay. The partial adoption of SFAS 157 did not have a material impact on the Companys consolidated financial position or results of operations. We are currently evaluating the potential impact of adopting the remaining provisions of SFAS 157 on our consolidated financial position and results of operations.
Effective February 4, 2008, we adopted Statement of Financial Accounting Standards 159, The Fair Value Option for Financial Assets and Liabilities (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the Companys financial condition or results of operations.
Note 2: Accrued liabilities
Accrued liabilities consist of the following (in thousands):
May 4, 2008 | February 3, 2008 | |||||
Compensation and benefits |
$ | 8,412 | $ | 12,547 | ||
Interest |
6,737 | 12,114 | ||||
Deferred amusement revenue |
5,362 | 4,517 | ||||
Amusement redemption liability |
3,663 | 3,806 | ||||
Deferred gift card revenue |
3,053 | 3,479 | ||||
Sales and use taxes |
2,673 | 2,694 | ||||
Accrued severance |
1,949 | 2,253 | ||||
Customer deposits |
2,991 | 2,116 | ||||
Other |
9,378 | 10,503 | ||||
Total accrued liabilities |
$ | 44,218 | $ | 54,029 | ||
7
Note 3: Long-Term Debt
Long-term debt consisted of the following (in thousands):
May 4, 2008 | February 3, 2008 | |||||
Senior credit facilityrevolving |
$ | | $ | | ||
Senior credit facilityterm |
68,125 | 68,375 | ||||
Senior notes |
175,000 | 175,000 | ||||
243,125 | 243,375 | |||||
Less current installments |
1,000 | 1,000 | ||||
Long-term debt, less current installments |
$ | 242,125 | $ | 242,375 | ||
We are a party to a senior secured credit facility (senior credit facility) that (a) provides a $100,000 term loan facility with a maturity of March 8, 2013, and (b) provides a $60,000 revolving credit facility with a maturity of March 8, 2011. The $60,000 revolving credit facility includes (i) a $20,000 letter of credit sub-facility, (ii) a $5,000 swingline sub-facility and (iii) a $5,000 (in US Dollar equivalent) sub-facility available in Canadian dollars to our Canadian subsidiary. The revolving credit facility is available to provide financing for working capital and general corporate purposes. As of May 4, 2008, in addition to the borrowings indicated above, we had $11,683 in letters of credit outstanding.
The interest rates per annum applicable to loans, other than swingline loans, under the senior credit facility are, at our option, equal to, either a base rate (or, in the case of the Canadian revolving credit facility, a Canadian prime rate) or a Eurodollar rate (or, in the case of the Canadian revolving credit facility, a Canadian cost of funds rate) for one-, two-, three- or six-month (or, in the case of the Canadian revolving credit facility, 30, 60, 90 or 180-day) interest periods chosen by us, in each case, plus an applicable margin percentage. Swingline loans bear interest at the base rate plus the applicable margin. The weighted average rate of interest on the senior credit facility was 7.56 percent at May 4, 2008.
Effective June 30, 2006, we entered into two interest rate swap agreements that expire in 2011, to change a portion of the variable rate debt to fixed rate debt. Pursuant to the swap agreements and related amendments, the interest rate on notional amounts aggregating $75,500 at May 4, 2008 is fixed at 5.31 percent. The notional amounts decline ratably over the term of the agreements. The agreements have not been designated as hedges and adjustments to mark the instruments to their fair value are recorded as interest income/expense and as a result of the swap agreements, we recorded additional interest income of $423 for the thirteen weeks ended May 4, 2008 and additional interest expense of $598 for the thirteen weeks ended on May 6, 2007.
Our senior credit facility requires compliance with the following financial covenants: a minimum fixed charge coverage ratio test and a maximum leverage ratio test. We are required to maintain a minimum fixed charge coverage ratio of 1.10:1.00 and a maximum leverage ratio of 4.50:1.00 as of May 4, 2008. The financial covenants will become more restrictive over time. The required minimum fixed charge coverage ratio increases annually to a required ratio of 1.20:1.00 in the fourth quarter of fiscal year 2009 and thereafter. The maximum leverage ratio decreases annually to a required ratio of 3.50:1.00 in the fourth quarter of fiscal year 2010 and thereafter. In addition, the new senior credit facility includes negative covenants restricting or limiting the ability of WS Midway and its subsidiaries to, among other things, incur additional indebtedness, make capital expenditures and sell or acquire assets. Virtually all of our assets are pledged as collateral for the senior credit facility.
The senior credit facility also contains certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, actual or asserted failures of any guarantee or security document supporting the senior credit facility to be in full force and effect and a change of control. If an event of default occurs, the lenders under the senior credit facility would be entitled to take various actions, including acceleration of amounts due under the senior credit facility and all actions permitted to be taken by a secured creditor.
On March 8, 2006, of the Company issued $175,000 aggregate principal amount of senior notes (notes). The notes are registered under the Securities Act of 1933 and are general unsecured, unsubordinated obligations of ours and mature on March 15, 2014. Interest on the notes compounds semi-annually and accrues at the rate of 11.25 percent per annum. On or after March 15, 2010, we may redeem all, or from time-to-time, a part of the senior notes upon not less than 30 nor more than 60 days notice, at redemption prices (expressed as a percentage of principal amount) plus accrued and unpaid interest on the senior notes. Prior to March 15, 2009, we may on any one or more occasions redeem up to 35 percent of the original principal amount of the notes using the proceeds of certain equity offerings completed before March 15, 2009.
8
The senior notes restrict our ability to incur indebtedness, outside of the senior credit facility, unless the consolidated coverage ratio exceeds 2.00:1.00 or other financial and operational requirements are met. Additionally, the terms of the notes restrict our ability to make certain payments to affiliated entities.
The following table sets forth our future debt payment obligations as of May 4, 2008 (excluding repayment obligations under the revolving portion of our senior credit facility which expires on March 8, 2011) (in thousands):
May 4, 2008 | |||
1 year or less |
$ | 1,000 | |
2 years |
1,000 | ||
3 years |
1,000 | ||
4 years |
1,000 | ||
5 years |
64,125 | ||
Thereafter |
175,000 | ||
Total future payments |
$ | 243,125 | |
The following table sets forth our recorded interest expense (in thousands):
Thirteen Weeks Ended May 4, 2008 |
Thirteen Weeks Ended May 6, 2007 |
|||||||
Gross interest expense |
$ | 6,467 | $ | 7,703 | ||||
Capitalized interest |
(100 | ) | (10 | ) | ||||
Interest income |
(221 | ) | (119 | ) | ||||
Total interest expense |
$ | 6,146 | $ | 7,574 | ||||
Note 4: Commitments and Contingencies
We are subject to certain legal proceedings and claims that arise in the ordinary course of its business. Two class action cases have been filed against us and one of our subsidiaries in the State of California alleging violations of California regulations concerning mandatory meal breaks and rest periods. These two cases have been consolidated and coordinated because the potential class members are virtually identical. Various factors, including our internal policies and evidence of compliance with State of California regulations, make early resolution of these cases a possibility.
We have made the appropriate provision for settlement in the above matters in our financial statements. In the opinion of management, based upon consultation with legal counsel, the amount of ultimate liability with respect to all other actions will not materially affect the consolidated results of our operations or our financial condition.
We lease certain property and equipment under various non-cancelable capital and operating leases. Some of the leases include options for renewal or extension on various terms. Most of the leases require us to pay property taxes, insurance, and maintenance of the leased assets. Certain leases also have provisions for additional percentage rentals based on revenues.
The following table sets forth our lease commitments as of May 4, 2008 (in thousands):
May 4, 2008 | |||
1 year or less |
$ | 44,122 | |
2 years |
44,442 | ||
3 years |
43,668 | ||
4 years |
43,412 | ||
5 years |
43,847 | ||
Thereafter |
312,310 | ||
$ | 531,801 | ||
We have signed operating lease agreements for future sites located in Arlington, Texas, Richmond, Virginia and Tulsa, Oklahoma. Our commitments under these agreements are contingent upon, among other things, the landlords delivery of access to the premises for construction. Future obligations related to these three agreements are not included in the table above.
9
Note 5: Condensed Consolidating Financial Information
The $175,000 senior notes (described in Note 3) are guaranteed on a senior basis by all domestic subsidiaries of the Company. The subsidiaries guarantee of the senior notes are full and unconditional and joint and several.
The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 Financial statements of guarantors and issuers of guaranteed securities registered or being registered. No other condensed consolidating financial statements are presented herein. The results of operations and cash flows from operating activities from the non-guarantor subsidiary were $194 and $640, respectively, for the thirteen week period ended May 4, 2008. For the comparable thirteen week period ended May 6, 2007, the results of operations and cash flows from operating activities from the non-guarantor subsidiary were $181 and $1,049. There are no restrictions on cash distributions from the non-guarantor subsidiary.
May 4, 2008:
(in thousands) |
Issuer and Subsidiary Guarantors |
Subsidiary Non-Guarantors |
Consolidating Adjustments |
Dave & Busters Inc. | |||||||||
Assets: |
|||||||||||||
Current assets |
$ | 44,445 | $ | 5,683 | $ | | $ | 50,128 | |||||
Property and equipment, net |
286,961 | 5,629 | | 292,590 | |||||||||
Tradename |
63,000 | | | 63,000 | |||||||||
Goodwill |
65,857 | | | 65,857 | |||||||||
Investment in subsidiary |
3,542 | | (3,542 | ) | | ||||||||
Other assets and deferred charges |
19,106 | 92 | | 19,198 | |||||||||
Total assets |
$ | 482,911 | $ | 11,404 | $ | (3,542 | ) | $ | 490,773 | ||||
Liabilities and stockholders equity: |
|||||||||||||
Current liabilities |
$ | 63,322 | $ | 7,465 | $ | | $ | 70,787 | |||||
Deferred income taxes |
19,769 | 257 | | 20,026 | |||||||||
Deferred occupancy costs |
51,803 | 140 | | 51,943 | |||||||||
Other liabilities |
10,094 | | | 10,094 | |||||||||
Long-term debt, less current installments (Note 3) |
242,125 | | | 242,125 | |||||||||
Stockholders equity |
95,798 | 3,542 | (3,542 | ) | 95,798 | ||||||||
Total liabilities and stockholders equity |
$ | 482,911 | $ | 11,404 | $ | (3,542 | ) | $ | 490,773 | ||||
February 3, 2008:
(in thousands) |
Issuer and Subsidiary Guarantors |
Subsidiary Non-Guarantors |
Consolidating Adjustments |
Dave & Busters Inc. | |||||||||
Assets: |
|||||||||||||
Current assets |
$ | 45,597 | $ | 4,943 | $ | | $ | 50,540 | |||||
Property and equipment, net |
291,011 | 5,963 | | 296,974 | |||||||||
Tradename |
63,000 | | | 63,000 | |||||||||
Goodwill |
65,857 | | | 65,857 | |||||||||
Investment in subsidiary |
3,279 | | (3,279 | ) | | ||||||||
Other assets and deferred charges |
19,734 | 98 | | 19,832 | |||||||||
Total assets |
$ | 488,478 | $ | 11,004 | $ | (3,279 | ) | $ | 496,203 | ||||
Liabilities and stockholders equity: |
|||||||||||||
Current liabilities |
$ | 73,876 | $ | 7,330 | $ | | $ | 81,206 | |||||
Deferred income taxes |
21,423 | 265 | | 21,688 | |||||||||
Deferred occupancy costs |
50,394 | 130 | | 50,524 | |||||||||
Other liabilities |
9,654 | | | 9,654 | |||||||||
Long-term debt, less current installments (Note 3) |
242,375 | | | 242,375 | |||||||||
Stockholders equity |
90,756 | 3,279 | (3,279 | ) | 90,756 | ||||||||
Total liabilities and stockholders equity |
$ | 488,478 | $ | 11,004 | $ | (3,279 | ) | $ | 496,203 | ||||
10
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands). |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 3, 2008. Unless otherwise specified, the meanings of all defined terms in Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are consistent with the meanings of such terms as defined in the Notes to Consolidated Financial Statements. This discussion contains forward-looking statements. Please see Forward-Looking Statements for a discussion of the risks, uncertainties and assumptions relating to our forward-looking statements.
General
Our fiscal year ends on the Sunday after the Saturday closest to January 31. All references to the first quarter of 2008 and 2007 relate to the thirteen week periods ended May 4, 2008 and May 6, 2007. All references to 2008 and 2007 relate to the 52-week periods ending on February 1, 2009 and February 3, 2008. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
Merger with WS Midway Acquisition Sub, Inc.
Dave & Busters was acquired on March 8, 2006, by WS Midway through the Merger. Affiliates of Wellspring and HBK control approximately 82 percent and 18 percent, respectively, of the outstanding capital stock of WS Midway. We continue as the same legal entity after the Merger, the accompanying condensed consolidated statements of operations, stockholders equity, and cash flows present the results of operations and cash flows for us and our wholly-owned subsidiaries.
Expense Reimbursement Agreement
We have entered into an expense reimbursement agreement with an affiliate of Wellspring, pursuant to which the Wellspring affiliate provides general advice to us in connection with long-term strategic plans, financial management, strategic transactions and other business matters. The expense reimbursement agreement provides for an annual expense reimbursement of up to $750 to the Wellspring affiliate. The initial term of the expense reimbursement agreement will expire in March 2011, and after that date, such agreement will renew automatically on a year-to-year basis unless one party gives at least 30 days prior notice of its intention not to renew.
Overview
We monitor and analyze a number of key performance measures and indicators in order to manage our business and evaluate financial and operating performance. Those indicators include:
Revenues. We derive revenues primarily from food, beverage, and amusement sales. For the thirteen weeks ended May 4, 2008, we derived 34.6 percent of our total revenue from food sales, 17.8 percent from beverage sales, 46.4 percent from amusement sales, and 1.2 percent from other sources. We continually monitor the success of current food and beverage items, the availability of new menu offerings, the menu price structure, and our ability to adjust prices where competitively appropriate. In the beverage component, we operate fully licensed facilities, which means we offer full beverage service, including alcoholic beverages, throughout the complex. Our complexes also offer an extensive array of amusements, including state-of-the-art simulators, high-tech video games, traditional pocket billiards and shuffleboard, as well as a variety of redemption games, which dispense coupons that can be redeemed for prizes in the Winners Circle. Our redemption games include basic games of skill, such as skee-ball and basketball as well as competitive racing, simulation games, and individual electronic games of skill. The prizes in the Winners Circle range from small-ticket novelty items to high-end electronics, such as flatscreen televisions, MP3 players, and game systems. We review the game play on existing amusements in an effort to match amusements availability with guest preferences. We will continue to invest in new games as they become available and prove to be attractive to guests. Exclusive of new store openings, we currently anticipate spending approximately $8,000 on new games during fiscal 2008.
We believe that special events business is a very important component of our revenue, because a significant percentage of our guests attending a special event are in a Dave & Busters for the first time. This is a very advantageous way to introduce the concept to new guests. Accordingly, a considerable emphasis is placed on this area through the in-store sales teams.
Cost of products. Cost of products includes the cost of food, beverages, and Winners Circle amusement items. During the first quarter of 2008, the cost of food products averaged 25.1 percent of food revenue and the cost of beverage products averaged 24.1 percent of beverage revenue. The amusement cost of products averaged 11.3 percent of amusement revenues. The cost of products is driven by product mix and pricing movements from third party suppliers. We continually strive to gain efficiencies in both the acquisition and use of products while maintaining high standards of product quality.
11
Operating payroll and benefits. Operating payroll and benefits consist of wages, employer taxes, and benefits for store personnel. We continually review the opportunity for efficiencies principally through scheduling refinements.
Other store operating expenses. Other store operating expenses consist of store-related occupancy, restaurant expenses, utilities, repair and maintenance and marketing costs.
General and administrative expenses. General and administrative expenses consist primarily of personnel, facilities and professional expenses for the various departments of our corporate headquarters.
Startup costs. Startup costs include costs associated with the opening and organizing of new complexes or conversion of existing complexes, including the cost of feasibility studies, staff-training and recruiting, and travel costs for employees engaged in such startup activities. All startup costs are expensed as incurred.
Liquidity and cash flows. The primary source of cash flow is from our operating activities and availability under the revolving credit facility.
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 also expect seasonality to be a factor in the operation or results of the business in the future with anticipated lower third quarter revenues and higher fourth quarter revenues associated with the year-end holidays. The historically higher revenues during the fourth quarter will continue to be susceptible to the impact of severe weather on customer traffic and sales during that period. Additionally, we expect that volatile energy costs will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives. Although, there is no assurance that our cost of products will remain stable or that the federal or state minimum wage rate will not increase beyond amounts currently legislated, the effects of any supplier price increases or minimum wage rate increases are expected to be partially offset by selected menu price increases where competitively appropriate.
Results of Operations
The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of operations.
(dollars in thousands) |
Thirteen Weeks Ended May 4, 2008 |
Thirteen Weeks Ended May 6, 2007 |
||||||||||||
Food and beverage revenues |
$ | 74,665 | 52.4 | % | $ | 73,824 | 54.5 | % | ||||||
Amusement and other revenues |
67,798 | 47.6 | 61,638 | 45.5 | ||||||||||
Total revenues |
142,463 | 100.0 | 135,462 | 100.0 | ||||||||||
Cost of food and beverage (as a percentage of food and beverage revenues) |
18,471 | 24.7 | 18,314 | 24.8 | ||||||||||
Cost of amusements and other (as a percentage of amusement and other revenues) |
8,624 | 12.7 | 8,323 | 13.5 | ||||||||||
Total cost of products |
27,095 | 19.0 | 26,637 | 19.7 | ||||||||||
Operating payroll and benefits |
36,872 | 25.9 | 36,380 | 26.9 | ||||||||||
Other store operating expenses |
43,179 | 30.3 | 41,504 | 30.6 | ||||||||||
General and administrative expenses |
8,482 | 6.0 | 12,719 | 9.4 | ||||||||||
Depreciation and amortization expense |
12,439 | 8.7 | 12,603 | 9.3 | ||||||||||
Startup costs |
282 | 0.2 | 59 | 0.0 | ||||||||||
Total operating costs |
128,349 | 90.1 | 129,902 | 95.9 | ||||||||||
Operating income |
14,114 | 9.9 | 5,560 | 4.1 | ||||||||||
Interest expense, net |
6,146 | 4.3 | 7,574 | 5.6 | ||||||||||
Income (loss) before provisions for income taxes |
7,968 | 5.6 | (2,014 | ) | (1.5 | ) | ||||||||
Provision (benefit) for income taxes |
2,958 | 2.1 | (1,177 | ) | (0.9 | ) | ||||||||
Net income (loss) |
5,010 | 3.5 | % | $ | (837 | ) | (0.6 | )% | ||||||
Cash provided by (used in): |
||||||||||||||
Operating activities |
$ | 7,291 | $ | (2,422 | ) | |||||||||
Investing activities |
(8,176 | ) | (2,794 | ) | ||||||||||
Financing activities |
(250 | ) | 3,750 | |||||||||||
Change in comparable store sales(1)(2) |
3.8 | % | 4.3 | % | ||||||||||
Stores open at end of period(3) |
49 | 48 | ||||||||||||
Comparable stores open at end of period |
47 | 43 |
12
(1) |
Comparable store sales (year-over-year comparison of complexes open at least 18 months as of the beginning of each of the fiscal years) is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends. |
(2) |
Our 2007 comparable store revenue growth was impacted by a shift in the calendar weeks that comprise the first fiscal quarter of 2007 compared to the calendar weeks that made up the first quarter of fiscal 2006. The shift in our fiscal calendar is due to the fact that fiscal 2006 included a 53rd week in the fourth quarter. |
(3) |
The number of stores open at May 4, 2008 includes our store in Tempe, Arizona, which opened on September 17, 2007. |
Thirteen Weeks Ended May 4, 2008 Compared to Thirteen Weeks Ended May 6, 2007
Revenues
Total revenues increased 5.2 percent, or $7,001 for first quarter of 2008 compared to the first quarter of 2007. Comparable stores revenue increased 3.8 percent, or $4,993 for first quarter 2008 compared to first quarter 2007.
The increased revenues were derived from the following sources:
Comparable stores |
$ | 4,993 | ||
Non comparable stores |
2,828 | |||
Other |
(820 | ) | ||
Total |
$ | 7,001 | ||
Our revenues during the first quarter of 2008 were favorably impacted by increased advertising on cable television in all of our markets and spot radio support in selected markets. Food sales at the comparable stores increased by 0.2 percent over sales levels achieved in the same period of 2007. Beverage sales at comparable stores decreased by 3.2 percent over first quarter 2007. Comparable store amusements revenue in the first quarter of 2008 increased by 9.8 percent versus the same period of 2007. Amusement revenue continued to reflect the positive impact of increased points of sale available through the installation of sales kiosks throughout the system and an expansion of available predenominated Power Card alternatives.
Comparable special events revenues accounted for 12.3 percent of consolidated comparable stores revenue for the first quarter of 2008 and 12.9 percent in the first quarter of 2007.
Our revenue mix was 52.4 percent for food and beverage and 47.6 percent for amusements and other. This compares to 54.5 percent and 45.5 percent, respectively, for the first quarter of 2007.
Cost of products
Cost of food and beverage products declined 10 basis points to 24.7 percent of revenue for the first quarter of 2008 compared to 24.8 percent for the first quarter of 2007. This decrease was achieved through improved menu modifications to emphasize items with lower costs and by focusing on operational controls and other efficiency measures.
The costs of amusements and other, as a percentage of amusements and other revenues decreased 80 basis points to 12.7 percent of amusement and other revenue for the first quarter of 2008 compared to 13.5 percent for the first quarter of 2007. This decrease was achieved through reduced redemption costs.
Operating payroll and benefits
Operating payroll and benefits declined 100 basis points to 25.9 percent of revenue for the first quarter of 2008 compared to 26.9 percent for the first quarter of 2007. This decrease was primarily driven by improved sales performance and initiatives designed to reduce labor costs as well as lower management and hourly employee turnover at our stores.
Other store operating expenses
Other store operating expenses declined 30 basis points to 30.3 percent for the first quarter of 2008 compared to 30.6 percent for the same period of 2007. This decrease was primarily driven by improved sales performance.
13
General and administrative expenses
General and administrative expenses decreased 340 basis points for the first quarter of 2008 compared to the first quarter of 2007, primarily due to the absence of severance costs associated with the departure of certain executives during the first quarter of 2007.
Depreciation and amortization expense
Depreciation and amortization expense slightly decreased in the first quarter of 2008 compared to the same period of 2007 primarily related to the reduction in depreciation expense due to certain fixed assets reaching the end of their depreciable life offset by depreciation expense on new assets added subsequent to the first quarter of 2007.
Startup costs
The increase in startup costs of $223 is primarily attributable to new store openings expected later in 2008.
Interest expense
The decrease in interest expense is primarily attributed to adjustments recorded to mark the interest rate swap agreements to their fair value.
Provision for income taxes
Our effective tax rate differs from statutory rates due to the deduction of FICA tip credits, state income taxes and changes in our tax reserves.
In the first quarter of 2008, we recorded a $571 increase to our valuation allowance against our deferred tax assets. The valuation allowance was established in accordance with Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). As a result of experiencing cumulative losses before income taxes for the three-year period prior to May 4, 2008, we could not conclude that it is more likely that not that our deferred tax assets would be fully realized. The ultimate realization of our deferred tax assets is dependent on the generation of future taxable income during periods in which temporary differences become deductible.
On February 5, 2007, we adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 limits the recognition of income tax benefits to those items that meet the more likely than not threshold on the effective date. As of May 4, 2008, we have approximately $2,774 of unrecognized tax benefits, including approximate $718 of penalties and interest. During the period ended May 4, 2008, we increased our unrecognized tax benefit by $47. This increase resulted primarily from an increase in interest from uncertain tax positions taken in prior years. We do not currently anticipate any additional material changes in fiscal year 2008. Future recognition of potential interest or penalties, if any, will be recorded as a component of income tax expense. The entire balance of unrecognized tax benefits, if recognized, would affect the effective tax rate.
We file income tax returns which are periodically audited by various federal, state and foreign jurisdictions. We are generally no longer subject to federal, state or foreign income tax examinations for years prior to 2003.
Liquidity and Capital Resources
We are a party to a senior secured credit facility (senior credit facility) that (a) provides a $100,000 term loan facility with a maturity of March 8, 2013, and (b) provides a $60,000 revolving credit facility with a maturity of March 8, 2011. The $60,000 revolving credit facility includes (i) a $20,000 letter of credit sub-facility, (ii) a $5,000 swingline sub-facility and (iii) a $5,000 (in US Dollar equivalent) sub-facility available in Canadian dollars to the Canadian subsidiary. The revolving credit facility is available to provide financing for working capital and general corporate purposes. As of May 4, 2008, borrowings under the revolving credit facility and term loan facility were $0 and $68,125, respectively, and we had $11,683 in letters of credit outstanding.
14
The senior credit facility is secured by all of our assets. Borrowings on the senior credit facility bear interest, at our option, based upon either a base rate (or, in the case of the Canadian revolving credit facility, a Canadian prime rate) or a Eurodollar rate (or, in the case of the Canadian revolving credit facility, a Canadian cost of funds rate) for one-, two-, three- or six-month (or, in the case of the Canadian revolving credit facility, 30, 60, 90 or 180-day) interest periods chosen by us, in each case, plus an applicable margin percentage. Swingline loans bear interest at the base rate plus the applicable margin. Effective June 30, 2006, we entered into two interest rate swap agreements that expire in 2011, to change a substantial portion of the variable rate debt to fixed rate debt. Pursuant to the swap agreements, the interest rate on notional amounts is fixed at 5.31 percent. The weighted average rate of interest on the senior credit facility was 7.56 percent at May 4, 2008.
Interest rates on borrowings under the senior credit facility vary based on the movement of prescribed indexes and applicable margin percentages. On the last day of each calendar quarter, we are required to pay a commitment fee of 0.5 percent on any unused commitments under the revolving credit facilities or the term loan facility. The senior credit facility requires scheduled quarterly payments of principal on the term loans at the end of each of the fiscal quarters beginning June 2006 in aggregate annual amounts equal to 1.0 percent of the original aggregate principal amount of the term loan with the balance payable ratably over the final four quarters.
The senior credit facility and the indenture governing the senior notes contain restrictive covenants that, among other things, limit our ability and the ability of our subsidiaries to, among other things: incur additional indebtedness, make loans or advances to subsidiaries and other entities, make capital expenditures, declare dividends, acquire other businesses or sell assets. In addition, under the senior credit facility, we are required to meet certain financial covenants, ratios, and tests, including a minimum fixed charge coverage ratio and a maximum leverage ratio. The indenture under which the senior notes are to be issued also contains customary covenants and events of defaults.
We believe that cash flow from operations, together with borrowings under the senior credit facility, will be sufficient to cover 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, the indebtedness, or to fund planned capital expenditures, will depend on future performance, which is subject to general economic conditions, competitive environment and other factors as described in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended February 3, 2008.
Historical Cash Flows
Thirteen Weeks Ended May 4, 2008 Compared to Thirteen Weeks Ended May 6, 2007
As of May 4, 2008, we had cash and cash equivalents of $17,911 and available borrowing capacity of $48,317 under the senior credit facility.
Cash provided in operating activities was $7,291 for the thirteen weeks of 2008 compared to cash used in operating activities of $2,422 for the thirteen weeks of 2007. The increase in cash flow from operations is primarily due to a net income increase of $5,847 from the first quarter of 2007. Cash flow from operations in the first quarter of 2007 was also negatively impacted by the payment of employment agreement costs triggered by the Merger transaction.
Cash used in investing activities was $8,176 for the thirteen weeks of 2008 compared to $2,794 for the thirteen weeks of 2007. The investing activities for the first quarter of 2008 primarily include $8,209 in capital expenditures. The investing activities for the first quarter of 2007 primarily include $2,912 in capital expenditures.
We plan on financing future growth through operating cash flows, debt facilities, and tenant improvement allowances from landlords. We expect to spend approximately $56,000 ($48,000 net of cash contributions from landlords) in capital expenditures during fiscal year 2008. The 2008 expenditures will include approximately $36,000 ($28,000 net of cash contributions from landlords) for new store construction and operating improvement initiatives, and $20,000 in maintenance capital and new games.
Cash used in financing activities was $250 for the thirteen weeks of 2008 compared to cash provided from financing activities of $3,750 in the thirteen weeks of 2007. The financing activities for the first quarter of 2008 include required paydowns under our term loan facility of $250. The financing activities for the first quarter of 2007 include borrowings under our revolving credit facility of $4,000 offset by required paydowns under our term loan facility of $250.
Contractual Obligations and Commercial Commitments
There have been no material changes during the period covered by this report, outside of the ordinary course of our business, to the contractual obligations specified in the table of contractual obligations included in the section Managements Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K.
15
Accounting Policies
The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions about future events. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the Condensed Consolidated Financial Statements. Our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying Condensed Consolidated Financial Statements. A complete description of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2008.
Recent Accounting Pronouncements
On December 4, 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 141(R), Business Combinations (SFAS 141(R)), and Statement of Financial Accounting Standards 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). These new standards will significantly change the accounting for and reporting for business combination transactions and non-controlling (minority) interests in consolidated financial statements. SFAS 141(R) and SFAS 160 are required to be adopted simultaneously and are effective for the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. The impact of adopting SFAS 141(R) and SFAS 160 on our consolidated financial statements will only apply to the extent we have business combinations in the future.
In September 2006, the FASB issued Statement of Financial Accounting Standards 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy, as defined. SFAS 157 may require companies to provide additional disclosures based on that hierarchy. SFAS 157 was to be effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which delayed for one year the applicability of SFAS 157s fair-value measurements to certain nonfinancial assets and liabilities. We adopted SFAS 157 as of February 4, 2008, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay. The partial adoption of SFAS 157 did not have a material impact on the Companys consolidated financial position or results of operations. We are currently evaluating the potential impact of adopting the remaining provisions of SFAS 157 on our consolidated financial position and results of operations.
Effective February 4, 2008, we adopted Statement of Financial Accounting Standards 159, The Fair Value Option for Financial Assets and Liabilities (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the Companys financial condition or results of operations.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no material changes in the Companys market risk exposures from those reported in our Annual Report on Form 10-K for the year ended February 3, 2008.
ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.
16
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our first quarter ended May 4, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes statements that are, or may deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Form 10-Q and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. An expanded discussion of these risk factors is contained in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended February 3, 2008.
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Information regarding legal proceedings is incorporated by reference from Note 4 to our Unaudited Consolidated Financial Statements set forth in Part I of this report.
ITEM 1A. | RISK FACTORS |
There has been no material change in the risk factors set forth in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended February 3, 2008.
17
ITEM 6. | EXHIBITS |
Exhibit Number |
Description | |
12.1 | Statement Regarding Computation of Ratio of Earnings to Fixed Charges. | |
31.1 | Certification of Stephen M. King, Chief Executive Officer and Director of the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a). | |
31.2 | Certification of Brian A. Jenkins, Senior Vice President and Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a). | |
32.1 | Certification of Stephen M. King, Chief Executive Officer and Director of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Brian A. Jenkins, Senior Vice President and Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
18
Pursuant to the requirements of Section 13 or 15(d) 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 & BUSTERS, INC., | ||||
a Missouri corporation | ||||
Date: June 11, 2008 |
By: |
/s/ Stephen M. King | ||
Stephen M. King | ||||
Chief Executive Officer | ||||
Date: June 11, 2008 |
By: |
/s/ Brian A. Jenkins | ||
Brian A. Jenkins | ||||
Senior Vice President and Chief Financial Officer |
19
Exhibit 12.1
DAVE & BUSTERS, INC.
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(dollars in thousands, except ratios)
Thirteen Weeks Ended May 4, 2008 |
Thirteen Weeks Ended May 6, 2007 |
|||||||
Income (loss) before provision for income taxes |
$ | 7,968 | $ | (2,014 | ) | |||
Add: Total fixed charges (per below) |
9,755 | 10,945 | ||||||
Less: Capitalized interest |
100 | 10 | ||||||
Total income before provision for income taxes, plus fixed charges, less capitalized interest |
17,623 | 8,921 | ||||||
Fixed charges: |
||||||||
Interest expense (1) |
6,367 | 7,697 | ||||||
Capitalized interest |
100 | 10 | ||||||
Estimate of interest included in rental expense (2) |
3,288 | 3,238 | ||||||
Total fixed charges |
$ | 9,755 | $ | 10,945 | ||||
Ratio of earnings to fixed charges (3) |
1.81 | x | .82 | x |
(1) |
Interest expense includes interest in association with debt and amortization of debt issuance costs. |
(2) |
Fixed charges include our estimate of interest included in rental payments (one-third of rent expense under operating leases). |
(3) |
Earnings for the thirteen weeks ended May 6, 2007 were insufficient to cover the fixed charges by $2,024. |
Exhibit 31.1
CERTIFICATION
I, Stephen M. King, Chief Executive Officer of Dave & Busters, Inc., certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Dave & Busters, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: June 11, 2008 |
/s/ Stephen M. King | |
Stephen M. King | ||
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Brian A. Jenkins, Senior Vice President and Chief Financial Officer of Dave & Busters, Inc., certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Dave & Busters, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: June 11, 2008 |
/s/ Brian A. Jenkins | |
Brian A. Jenkins | ||
Senior Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
In connection with the Quarterly Report of Dave & Busters, Inc. (the Company) on Form 10-Q for the period ended May 4, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Stephen M. King, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that:
(1) | The Report fully complies with the applicable requirements of Section 13(a) or 15(d), as applicable, 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 results of operations of the Company. |
Date: June 11, 2008
/s/ Stephen M. King |
Stephen M. King |
Chief Executive Officer |
Exhibit 32.2
CERTIFICATION
In connection with the Quarterly Report of Dave & Busters, Inc. (the Company) on Form 10-Q for the period ended May 4, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Brian A. Jenkins, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that:
(1) | The Report fully complies with the applicable requirements of Section 13(a) or 15(d), as applicable, 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 results of operations of the Company. |
Date: June 11, 2008
/s/ Brian A. Jenkins |
Brian A. Jenkins |
Senior Vice President and Chief Financial Officer |