Valle

CEE 244
Individual Project
3 November 2008

Dave and Busters (D&Bs) has captured a unique position in the entertainment industry.
The focus on a reasonably priced menu, excellent customer service and a fully customizable
entertainment experience has allowed them to become the leader in this niche industry. The
company is poised to expand its operations into different markets with an increase in national
advertising and strong management experience. To see if the company can achieve its goals of
growth and expansion the key factors of marketplace position and financial capacity must be
evaluated in determining whether an initial public offering is in the best interest of the company.
Over the past 25 years, Dave and Busters has refined the layout of their locations to
facilitate the seamless integration of eating, drinking and playing games. Currently the company
focuses on 12-44 year old patrons in urban markets. Over the past few years, the company has
implemented bundled products such as the Power Card, which has increased revenues in stores.
While traditional restaurants seek to maximize table turnover, D&Bs encourages customers to
stay by increasing the denominations of the Power Cards, thus increasing revenue through
additional games, food, and drinks. The Winners Circle helps to retain guests longer by
creating an exciting environment where patrons compete for prizes based on the amount of
points scored. The company has also recently introduced high margin menu items with a
broadened customer appeal to help increase revenue. The blending of food and entertainment
helps to diversify the stream of revenue, and minimize some of the risks associated with the
individual components. While the company maintains a unique position among the restaurant
industry, they are also competing with live music venues, sporting events, and movie theaters.
The company has aggressive goals of expanding from 49 units to potentially around 200
units over the coming years. There are some potential risks inherent in this expansion that need
to be considered when evaluating the financial strength of the company. Currently, the company
operates in many of the urban centers of the United States. The new markets will create
challenges with name recognition, and competition with existing market players that have been
well established and have loyal customer bases. The advent of high technology in the home can
also have a serious impact on the revenues of the company. Plasma TVs, On-Demand cable,
TiVo and Multiplayer online gaming can erode the market share for the company. The most
pressing issue that faces the IPO of Dave and Busters is the current financial crisis. D&Bs
heavily relies on the discretionary spending of its guests. The company also performs the best
around the holiday season when corporations host events at the various locations. Currently,
consumers are looking for ways to cut back so they can afford groceries and gas to get to work.
Discretionary income is limited, so competition for these scarce dollars is going to be tough.

Valle
CEE 244
Individual Project
3 November 2008

On page 1, the prospectus shows that the compounded annual growth for the past 5 years
is 10.7%. However, the rate of increase in revenue each year has fallen. In order to see how
well positioned D&Bs is for an IPO, it is necessary to look at the companys short term ability
to pay debts, its ability to survive over a long period, and its current operating success. This can
be accomplished by looking at liquidity, solvency and profitability. The amount of working
capital D&Bs has to work with is negative, which will make it very hard for them to pay off
current debts. The current ratio from the balance sheet for FY07 is .62, this is an improvement
from the previous year of .55, but the company could have problems obtaining short term credit
to finance growth with such a low current ratio. The ability of the company to use debt as
leverage can be seen with the total debt to total asset ratio. There has been an increase in this
ratio: FY06 (80.9%) to FY07 (81.7%). This shows that the risks of the company to meet
financial requirements in the future are increasing. Lenders will be less likely to loan money to
D&Bs for expansion purposes, since the companys assets are already heavily financed by debt.
The companys current financial position can be clearly seen through the profitability measures
of gross profit margin and return on equity. The company maintains a healthy gross profit
margin of 80.1% (FY07) which increased from the previous year. This measure allows us to
gauge how competitive the market is. As market competition increases, D&Bs gross profit
margin will begin to shrink as it becomes harder to maintain a high selling price above the cost
of the goods. Since the company maintained net losses for the past two fiscal years, the profit
margin of the company was negative, which brings into question the financial strength of the
company.

On a similar note, the return on equity of the company was -9.4% for FY07.

Unfortunately, income was not earned on the assets the company held. With this down position,
investors would need to have a great deal of faith in managements expertise to help the
company turn a profit in the future.
Dave and Busters has been a leader in the restaurant/entertainment industry for a quarter
of a century, and has adapted to the times by carving a unique spot in a very competitive
marketplace. The performance of the company over the past few years leaves many questions as
to the ability of the company to grow, given the financial data analyzed. With heavy reliance on
consumer discretionary spending, and the general downturn of the economy, people will
increasingly save money for necessities rather than going out. The financial data analyzed and
current economic situation does not put Dave & Busters in a strong position to put forth an
initial public offering.

Dave&BustersHoldings,Inc.
Consolidatedbalancesheets
(inthousands,exceptshareandpershareamounts)

Increase
February3,2008 February4,2007 Amount

(Decrease)
Percent

Assets
Currentassets:
Cashandcashequivalents
Inventories
Prepaidexpenses
Deferredincometaxes(Note7)
Othercurrentassets

$19,046
15,002
8,083
5,733
2,676

$10,372
13,148
6,806
5,478
2,906

Totalcurrentassets
Propertyandequipment,net(Note4)
Tradename
Goodwill
Otherassetsanddeferredcharges

50,540
296,974
63,000
65,857
19,832

38,710
316,840
63,000
65,857
22,406

Totalassets

$496,203 $506,813

$8,674
1,854
1,277
255
(230)

11,830
(19,866)

(2,574)

$(10,610)

Liabilitiesandstockholdersequity
Currentliabilities:
Currentinstallmentsoflongtermdebt(Note6)
Accountspayable
Accruedliabilities(Note5)
Incometaxespayable

$1,000
22,019
54,029
4,158

$1,000
19,196
45,893
4,051

$
2,823
8,136
107

14.7
17.7
2.6

Totalcurrentliabilities
Deferredincometaxes(Note7)
Deferredoccupancycosts
Otherliabilities
Longtermdebt,lesscurrentinstallments(Note6)
Commitmentandcontingencies(Note11)
Stockholdersequity(Notes1,2and9):
Commonstock,$0.01parvalue,125,000authorized:108,100issuedandoutstandingasof
February3,2008andFebruary4,2007
Paidincapital
Accumulatedcomprehensiveincome(loss)
Retainedearnings(deficit)

81,206
21,688
50,524
9,654
242,375

70,140
27,429
50,022
9,142
253,375

11,066
(5,741)
502
512
(11,000)

15.8
(20.9)
1.0
5.6
(4.3)

1
110,465
1,194
(20,904)

1
108,951
(184)
(12,063)

1,514
1,378
(8,841)

1.4
(748.9)
73.3

Totalstockholdersequity

90,756 96,705 (5,949) (6.2)

Totalliabilitiesandstockholdersequity

$496,203 $506,813 $(10,610) (2.1)

83.6
14.1
18.8
4.7
(7.9)
30.6
(6.3)

(11.5)
(2.1)

Dave&BustersHoldings,Inc.
Consolidatedstatementsofoperations

(inthousands,exceptshareandpershareamounts)
Foodandbeveragerevenues
Amusementandotherrevenues
Totalrevenues
Costoffoodandbeverage
Costofamusementandother
Totalcostofproducts(excludingdepreciationand
amortization)
Operatingpayrollandbenefits
Otherstoreoperatingexpenses
Generalandadministrativeexpenses
Depreciationandamortizationexpense
Preopeningcosts
Totaloperatingcosts
Operatingincome
Interestexpense,net
Income(loss)beforeprovisionforincometaxes
Provision(benefit)forincometaxes
Netincome(loss)
Netincome(loss)pershare:
Basic
Diluted
Weightedaveragesharesusedinpershare
calculations:
Basic
Diluted

Fiscalyear07
ended
February3,
2008
(Successor)
$293,097.00
243,175
536,272
72,493
34,252

334day
periodfrom
March8,
2006to
February4,
2007
(Successor)
$256,616.00
203,176
459,792
64,549
28,999

37day
periodfrom
January30,
2006to
March7,2006
(Predecessor)
$27,562.00
22,847
50,409
7,111
3,268

Fiscalyear06
ended
February4,
2007
(Combined)
$284,178.00
226,023
510,201
71,660
32,267

Increase
Amount
$8,919.00
17,152
26,071
833
1,985

106,745
144,920
171,627
38,999
51,898
1,002
515,191
21,081
31,183
(10,102)
(1,261)
(8,841)

93,548
130,123
147,295
35,055
43,892
3,470
453,383
6,409
27,064
(20,655)
(8,592)
(12,063)

10,379
14,113
15,323
3,829
4,328
880
48,852
1,557
649
908
422
486

103,927
144,236
162,618
38,884
48,220
4,350
502,235
7,966
27,713
(19,747)
(8,170)
(11,577)

2,818
684
9,009
115
3,678
(3,348)
12,956
13,115
3,470
9,645
6,909
2,736

(Decrease)
Percent
3.14
7.59
5.11
1.16
6.15
2.71
0.47
5.54
0.30
7.63
(76.97)
2.58
164.64
12.52
(48.84)
(84.57)
(23.63)

$(81.79) $(111.59) $0.04 $(111.55) $29.76 (26.68)

$(81.79) $(111.59) $0.03 $(111.56) $29.77 (26.69)

108,100 108,100 13,738,000 13,846,100 (13,738,000) (99.22)

108,100 108,100 14,991,000 15,099,100 (14,991,000) (99.28)

Dave&BustersHoldings,Inc.
Consolidatedstatementsofcashflows

(inthousands)
Cashflowsfromoperatingactivities:
Netincome(loss)
Adjustmentstoreconcilenetincome(loss)
tonetcashprovidedbyoperating
activities:
Depreciationandamortizationexpense
Deferredincometax
Stockbasedcompensationcharges
Other,net
Changesinassetsandliabilities:
Inventories
Prepaidexpenses
Othercurrentassets
Otherassetsanddeferredcharges
Accountspayable
Accruedliabilities
Incometaxespayable
Deferredoccupancycosts
Otherliabilities
Netcashprovidedbyoperatingactivities
Cashflowsfrominvestingactivities:
Capitalexpenditures
Businessacquisitions,netofcashacquired
Proceedsfromsalesofpropertyand
equipment
Cashpaidinmerger
Proceedsfromsaleleaseback
Netcashusedininvestingactivities
Cashflowsfromfinancingactivities:
Borrowingsofpredecessordebt
Repaymentsofpredecessordebt
Borrowingsunderseniorcreditfacility
Repaymentsunderseniorcreditfacility
Borrowingsunderseniornotes
InitialinvestmentbyWSMidwayAcquisition
Sub,Inc.andaffiliates
Debtissuancecosts
Proceedsfromexercisesofstockoptions
Netcashprovidedby(usedin)financing
activities
Increase(decrease)incashandcash
equivalents
Beginningcashandcashequivalents
Endingcashandcashequivalents
Supplementaldisclosuresofcashflow
information:
Cashpaidforincometaxesnetofrefunds
Cashpaidforinterest,netofamounts
capitalized

Fiscalyear
07
ended
February3,
2008
(Successor)

334day
periodfrom
March8,
2006to
February4,
2007
(Successor)

37day
periodfrom
January30,
2006to
March7,2006
(Predecessor)

Fiscalyear06
ended
February4,
2007
Increase
(Combined) Amount

(Decrease)
Percent

(8,841) (12,063) 486 (11,577) 2,736 (23.6)

51,898
(5,996)
1,514
1,847

43,892
(10,342)
438
(34)

4,328
(767)
25
99

48,220
(11,109)
463
65

3,678
5,113
1,051
1,782

7.6
(46.0)
227.0
2,741.5

(1,854)
(1,277)
230
974
2,823
8,136
107
502
510
50,573

(607)
(3,652)
889
3,230
1,055
15,668
(5)
797
4,412
43,678

(72)
(169)
(1)
(66)
(3,916)
6,918
1,183
2,502
191
10,741

(679)
(3,821)
888
3,164
(2,861)
22,586
1,178
3,299
4,603
54,419

(1,175)
2,544
(658)
(2,190)
5,684
(14,450)
(1,071)
(2,797)
(4,093)
(3,846)

173.0
(66.6)
(74.1)
(69.2)
(198.7)
(64.0)
(90.9)
(84.8)
(88.9)
(7.1)

(31,355) (31,943) (10,600) (42,543) 11,188 (26.3)

456

(30,899)

721
(338,239)
28,357
(341,104)

(10,600)

721
(338,239)
28,357
(351,704)

(265)
338,239
(28,357)
320,805

(36.8)
(100.0)
(100.0)
(91.2)

13,000
(24,000)

(51,137)
143,500
(64,125)
175,000

6,000
(6,439)

6,000
(57,576)
143,500
(64,125)
175,000

(6,000)
57,576
(130,500)
40,125
(175,000)

(100.0)
(100.0)
(90.9)
(62.6)
(100.0)

108,100 108,100 (108,100) (100.0)

(11,352) (11,352) 11,352 (100.0)
528 528 (528) (100.0)
(11,000) 299,986 89 300,075 (311,075) (103.7)
8,674 2,560 230 2,790 5,884 210.9
10,372 7,812 7,582 15,394 (5,022) (32.6)
19,046 10,372 7,812 18,184 862 4.7

4,388 1,219 1,219 3,169 260.0

26,399 16,227 878 17,105 9,294 54.3

Dave&BustersHoldings,Inc.
FinancialAnalysis:Ratios
WorkingCapital(CurrentAssetsCurrentLiabilities)
TotalCurrentAssets(F3)
TotalCurrentLiabilities(F3)
CurrentRatio(CurrentTotalAssets/CurrentTotalLiabilities)
TotalCurrentAssets(F3)
TotalCurrentLiabilities(F3)

FY2007
FY2006
30666
31430
50540
38710
81206
70140
0.62
50540
81206

0.55
38710
70140

TotalDebt/TotalAssetRatio
Totalstockholders'equity(F3)
Totalliabilitiesandstockholders'equity(F3)
TotalDebt(Totalliabilitiesandstockholders'equityTotalstockholders'equity)
TotalAssets(F3)

81.7%
90756
496203
405447
496203

80.9%
96705
506813
410108
506813

GrossProfitMargin(GrossProfit/Sales(TotalRevenue))
Totalrevenue(F4)
Totalcostofrevenue(F4)
GrossProfit(TotalRevenueTotalCostofRevenue)

80.1%
536272
106745
429527

79.6%
510201
103927
406274

ReturnonEquity(NetIncome/AverageOwnersEquity)
NetIncome(F4)
Owners'Equity(F3)
BookValuePerShare(Owners'Equity/CommonStockSharesOutstanding)
Owners'Equity(F3)
CommonStockSharesOutstanding(F3)

9.4% N/A
8841 N/A
90756
96705
$0.84 $0.89
90756
96705
108100
108100