| Description of Business and Summary of Significant Accounting Policies | Note 1: Description of Business and Basis of
Presentation
Description of business and basis of
presentation
D&B Entertainment owns no significant assets or operations
other than the ownership of all the common stock of Dave &
Buster’s Holdings, Inc. (“D&B Holdings”).
D&B Holdings owns no significant assets or operations other
than the ownership of all the common stock of Dave &
Buster’s, Inc. (“D&B Inc”). References to the
“Company”, “we”, “us”, and
“our” refer to D&B Entertainment and its
subsidiaries and any predecessor companies. All material
intercompany accounts and transactions have been eliminated in
consolidation. The Company’s operating activities are
conducted through D&B Inc. All dollar amounts are presented in
thousands, unless otherwise noted, except share and per share
amounts.
We operate our business as one operating and one reportable
segment. Our one industry segment is the operation of high-volume
entertainment and dining venues under the names
“Dave & Buster’s” and
“Dave & Buster’s Grand Sports
Café”. We operate on a 52 or 53 week fiscal year that
ends on the Sunday after the Saturday closest to January 31.
Each quarterly period has 13 weeks, except for a 53 week year when
the fourth quarter has 14 weeks. Our fiscal years ending
January 31, 2016 (“fiscal 2015”) and
February 1, 2015 (“fiscal 2014”), both consist of
52 weeks.
As of August 2, 2015, there were 76 stores in the United
States and Canada. During the first twenty-six weeks of fiscal 2015
we opened four new stores and permanently closed our location in
Farmingdale (Long Island), New York (“Farmingdale”) on
February 8, 2015. Revenues for our Farmingdale store were $110
and $4,328 in the twenty-six weeks ended August 2, 2015 and
August 3, 2014, respectively. Operating loss for this store
was $380 for the twenty-six weeks ended August 2, 2015 and
operating income was $698 for the same period of fiscal 2014. On
August 12, 2014, we permanently closed our location in
Kensington/Bethesda, Maryland (“Bethesda”). Revenues
for our Bethesda store were $5,231 and operating income was $865
for the twenty-six weeks ended August 3, 2014. Subsequent to
the end of our second quarter, we opened a new store in Edina
(Minneapolis), Minnesota on August 3, 2015.
In October 2014, we amended and restated our certificate of
incorporation to increase our authorized share count to 450,000,000
shares of stock, including 400,000,000 shares of common stock and
50,000,000 shares of preferred stock, each with a par value $0.01
per share and to split our common stock 224.9835679 for 1.
Additionally, we completed our initial public offering (the
“IPO”) of 6,764,705 shares of common stock at a price
of $16.00 per share. Unless otherwise noted herein, historic share
data has been adjusted to give effect to the stock split.
In February 2015, we completed another follow-on offering of
7,590,000 shares of our common stock (including the underwriters
overallotment option of 990,000 shares) at a price of $29.50 per
share. All of these shares were offered by the selling
stockholders. In connection with the offering, 300,151 options were
exercised at a weighted average price of $4.49. We issued new
shares in satisfaction of this exercise. We received $1,346 upon
the exercise of options which were sold as part of this
offering.
On May 27, 2015, we completed a follow-on offering of
9,775,000 shares of our common stock (including the underwriters
overallotment option of 1,275,000 shares) at a price of $31.50 per
share. All of these shares were offered by the selling
stockholders. In connection with the offering, 853,155 options were
exercised at a weighted average price of $4.46. We issued 604,743
new shares and utilized 248,412 treasury shares in satisfaction of
this exercise. We received $3,809 upon the exercise of options
which were sold as part of this offering.
Related party transactions—
Interim financial statements
Concentration of credit risk
Use of estimates
Recent accounting pronouncements
In April 2015, the FASB issued ASU No. 2015-05,
Intangibles-Goodwill and Other-Internal Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud
Computing Arrangement. The amendments in this update provide
guidance to customers as to whether a cloud computing arrangement
includes a software license. If a cloud computing arrangement does
not include a software license, the customer should account for the
arrangement as a service contract. If a cloud computing arrangement
includes a software license, the customer should account for the
software license element of the arrangement consistent with the
acquisition of other software licenses. ASU 2015-05 is effective
for annual and interim periods beginning after December 15,
2015 with early adoption permitted. We do not expect the adoption
of this guidance to have a material impact on our consolidated
financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
Interest—Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs. The amendments
in ASU 2015-03 require the debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a
direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. ASU 2015-03 is effective for annual
and interim periods beginning on or after December 15, 2015.
As of August 2, 2015, if we were to adopt ASU 2015-03, $3,138
of net deferred financing costs would be reclassified from
“Other assets and deferred charges” to a reduction in
the carrying amount of our debt. | Note 1: Description of Business and Summary of Significant
Accounting Policies
Description of business and basis of
presentation
D&B Entertainment owns no significant assets or operations
other than the ownership of all the common stock of Dave &
Buster’s Holdings, Inc. (“D&B Holdings”).
D&B Holdings owns no significant assets or operations other
than the ownership of all the common stock of Dave &
Buster’s, Inc. (“D&B Inc”) References to the
“Company”, “we”, “us”, and
“our” refers to D&B Entertainment and its
subsidiaries and any predecessor companies. All material
intercompany accounts and transactions have been eliminated in
consolidation. The Company’s activities are conducted through
D&B Inc. D&B Inc owns and operates high-volume venues in
North America that combine dining and entertainment for both adults
and families.
On October 9, 2014, we amended our certificate of
incorporation to increase our authorized share count to 450,000,000
shares of stock, including 400,000,000 shares of common stock and
50,000,000 shares of preferred stock, each with a par value $0.01
per share and to split our common stock 224.9835679 for 1. On
October 16, 2014, we amended and restated our certificate of
incorporation in its entirety.
On October 9, 2014, we completed our initial public offering
of 5,882,353 shares of common stock at a price to the public of
$16.00 per share. On October 10, 2014, the Company’s
common stock began trading on the NASDAQ Global Market
(“NASDAQ”) under the ticker symbol “PLAY”.
We had granted the underwriters an option for a period of 30 days
to purchase an additional 882,352 shares of our common stock which
was exercised in full on October 21, 2014. After underwriting
discounts and commissions and offering expenses, we received net
proceeds from the initial public offering (the “IPO”)
of approximately $98,573. We used these proceeds to prepay a
portion of the principal amount of term loan debt outstanding under
the new senior secured credit facility.
On February 5, 2015, subsequent to our fiscal 2014 year end,
we completed a follow-on offering of 6,600,000 shares of our common
stock at a price of $29.50 per share. We granted the underwriters
an option to purchase an additional 990,000 shares of our common
stock which was exercised in full on February 20, 2015. All of
these shares were offered by the selling stockholders. In
connection with the offering, 300,151 options were exercised at a
weighted average price of $4.49. We issued new shares in
satisfaction of this exercise. We received $1,346 upon the exercise
of options which were sold as part of this offering.
We operate our business as one operating and one reportable
segment. Our one industry segment is the operation and licensing of
high-volume entertainment and dining venues under the names
“Dave & Buster’s” and
“Dave & Buster’s Grand Sports
Café”. We operate on a 52 or 53 week fiscal year that
ends on the Sunday after the Saturday closest to January 31.
Each quarterly period has 13 weeks, except for a 53 week year when
the fourth quarter has 14 weeks. Our fiscal years ended
February 1, 2015 and February 2, 2014, both consist of 52
weeks. Our fiscal year ended February 3, 2013 consists of 53
weeks.
The accompanying audited financial statements have been prepared in
accordance with generally accepted accounting principles
(“GAAP”) in the United States as prescribed by the
Securities and Exchange Commission. All dollar amounts are
presented in thousands, unless otherwise noted, except share and
per share amounts.
During fiscal 2014, we opened eight new stores. As of
February 1, 2015, there were 73 stores in the United States
and Canada. On August 12, 2014, we permanently closed our
location in Kensington/Bethesda, Maryland (“Bethesda”).
Revenues for our Bethesda store were $5,416 and $12,036 in fiscal
2014 and fiscal 2013, respectively. Operating income for the store
was $823 for fiscal 2014 and $2,896 for fiscal 2013. Included in
our fiscal 2014 store count is our location in Farmingdale (Long
Island), New York (“Farmingdale”) which closed on
February 8, 2015 due to the expiration of our lease. All our
fixed assets from the Farmingdale store were either fully
depreciated as of the end of the lease term or were transferred to
other locations. With past store closures, we have experienced
customer migration to stores within the same market. We currently
have two other stores in the Long Island market.
Reclassifications
Related party transaction
As of February 1, 2015, Oak Hill Funds beneficially owned
approximately 79.2% of our outstanding stock and certain members of
our Board of Directors and our management beneficially owned
approximately 3.7% of our outstanding stock. The remaining 17.1%
was owned by the public. Subsequent to the follow-on offering
transactions, the Oak Hill Funds beneficially own approximately
62.1% of our outstanding stock and certain members of our Board of
Directors and our management beneficially own approximately 2.2% of
our outstanding stock. The remaining 35.7% is owned by the public.
The Oak Hill Funds continue to own a majority of the voting power
of our outstanding common stock. As a result, we are a
“controlled company” within the meaning of the
corporate governance standards of NASDAQ.
We have an expense reimbursement agreement with Oak Hill Capital
Management, LLC (“Oak Hill Capital”), which provides
for the reimbursement of certain costs and expenses. We made
payments to Oak Hill Capital of $41, $115 and $76 during fiscal
2014, 2013 and 2012, respectively. We paid compensation of $155,
$235 and $235 in fiscal 2014, 2013 and 2012, respectively, to David
Jones who serves as a senior advisor to the Oak Hill Funds, and
Alan Lacy, who served as a senior advisor to the Oak Hill Funds
until December 2014.
Seasonality
Use of estimates
Cash and cash equivalents
Concentration of credit risk
Inventories
Deferred tax assets
Property and equipment
ESTIMATED DEPRECIABLE
Buildings and building improvements
Shorter of 40 or expected
Leasehold improvements Shorter of 20 or
Furniture, fixtures and equipment 3-10
Games 5-20
Expenditures that substantially increase the useful lives of the
property and equipment are capitalized, whereas costs incurred to
maintain the appearance and functionality of such assets are
charged to repair and maintenance expense. Interest costs and other
site specific costs incurred during construction are capitalized
and depreciated based on the estimated useful life of the
underlying asset.
We review our property and equipment annually, on a store-by-store
basis to determine whether facts or circumstances exist that may
indicate the carrying values of these long-lived assets are
impaired. We compare store-level undiscounted operating cash flows
(which exclude interest, general and administrative and other
allocated expenses) to the carrying amount of property and
equipment allocated to each store. If the expected future cash
flows are less than the asset carrying amount (an indication that
the carrying amount may not be recoverable), we may recognize an
impairment loss. Any impairment loss recognized equals the amount
by which the asset carrying amount exceeds its fair value. No
impairment charges were recognized in fiscal years 2014, 2013 or
2012.
Goodwill and other intangible assets
The evaluation of the carrying amount of other intangible assets
with indefinite lives is made at least annually by comparing the
carrying amount of these assets to their estimated fair value. The
estimated fair value is generally determined on the basis of
discounted future cash flows. If the estimated fair value is less
than the carrying amount of the other intangible assets with
indefinite lives, then an impairment charge is recorded to reduce
the asset to its estimated fair value.
Based on our analysis, we determined that our intangible assets
with an indefinite life, our tradename, was not impaired.
We have developed and acquired certain trademarks that are utilized
in our business and have been determined to have finite lives. We
also have intangible assets related to our non-compete agreements
and customer relationships. These intangible assets are included in
“Other assets and deferred charges” on the Consolidated
Balance Sheets and are amortized over their useful lives.
Deferred debt issuance costs
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
Balance at beginning of period $ 7,954 $ 10,076 $ 12,735
New debt issuance payments 8,212 — —
Write off of unamortized debt issuance cost—refinancing (6,559 ) — —
Additional deferred financing costs — 726 —
Write off of unamortized debt issuance cost—early
prepayment (1,347 ) — —
Amortization during period (2,074 ) (2,848 ) (2,659 )
Balance at end of period $ 6,186 $ 7,954 $ 10,076
Self-insurance accruals
Fair value disclosures
n Level 1 inputs are quoted prices
available for identical assets and liabilities in active
markets.
n Level 2 inputs are observable for the
asset or liability, either directly or indirectly, including quoted
prices for similar assets and liabilities in active markets or
other inputs that are observable or can be corroborated by
observable market data.
n Level 3 inputs are less observable
and reflect our own assumptions.
Our financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, and our senior secured
credit facility. The carrying amount of cash and cash equivalents,
accounts receivable and accounts payable approximates fair value
because of their short maturities. We believe that the carrying
amount of our term credit facility approximates its fair value
because the interest rates are adjusted regularly based on current
market conditions.
We may adjust the carrying amount of certain nonfinancial assets to
fair value on a non-recurring basis when they are impaired. No such
adjustments were made in fiscal year 2014, 2013 or 2012.
Comprehensive income (loss)
Foreign currency translation
Share-based expense Valuation of privately-Held-Company Equity Securities Issued as
Compensation
2014 STOCK 2010 STOCK INCENTIVE PLAN
FISCAL 2014 FISCAL 2013 FISCAL 2012
SERVICE BASED SERVICE PERFORMANCE SERVICE PERFORMANCE
Volatility 51.3 % 48.2 % 47.0 % 44.7 % 50.0 %
Risk free interest rate 1.96 % 1.15 % 1.06 % 0.78 % 0.33 %
Expected dividend yield 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
Expected term—in years 6.8 6.5 6.5 4.9 3.0
Weighted average calculated value $ 8.45 $ 4.72 $ 4.16 $ 2.43 $ 2.25
The options granted in fiscal 2014 were issued pursuant to the
terms of the 2014 Omnibus Incentive Plan (“2014 Stock
Incentive Plan”). The options granted in fiscal years 2013
and 2012 have been issued pursuant to the terms of the
Dave & Buster’s Entertainment, Inc. 2010 Management
Incentive Plan (“2010 Stock Incentive Plan “). See
future discussion of these plans in Note 9: Equity-based
Compensation.
Revenue recognition
Amusements costs of products
Advertising costs
Lease accounting
Additionally, certain of our operating leases contain clauses that
provide additional contingent rent based on a percentage of sales
greater than certain specified target amounts. We recognize
contingent rent expense provided the achievement of that target is
considered probable.
We had construction allowance receivables of $6,839 and $5,677 as
of February 1, 2015 and February 2, 2014, respectively,
related to our new store openings. Such balances are included in
“Other current assets” in the Company’s
Consolidated Balance Sheets. All receivable amounts are expected to
be collected.
Pre-opening costs
Income taxes
The calculation of tax liabilities involves significant judgment
and evaluation of uncertainties in the interpretation of federal
and state tax regulations. As a result, we have established
accruals for taxes that may become payable in future years as a
result of audits by tax authorities. Tax accruals are reviewed
regularly pursuant to accounting guidance for uncertainty in income
taxes. Tax accruals are adjusted as events occur that affect the
potential liability for 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 accruals
in the future, if or when such events occur.
As of February 1, 2015, we have accrued approximately $905 of
unrecognized tax benefits, including approximately $338 of
penalties and interest. During fiscal 2014, we recognized
approximately $90 of tax benefits and an additional $48 of benefits
related to penalties and interest based upon lapsing of time and
settlement with taxing jurisdictions. Future recognition of
potential interest or penalties, if any, will be recorded as a
component of income tax expense. Because of the impact of deferred
income tax accounting, $439 of unrecognized tax benefits, if
recognized, would impact the effective tax rate.
Recent accounting pronouncements
In August 2014, the FASB issued ASU No. 2014-15,
“Presentation of Financial Statements — Going Concern:
Disclosures of Uncertainties about an Entity’s Ability to
Continue as a Going Concern”, which requires the
Company’s management to evaluate whether there is substantial
doubt about the Company’s ability to continue as a going
concern. This update is effective for the annual period after
December 15, 2016, and for annual and interim periods
thereafter. We do not expect the adoption of ASU 2014-15 to have a
material impact on our consolidated financial position or results
of operations.
In May 2014, the FASB issued guidance in ASU No. 2014-09,
outlining a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers. This
guidance requires an entity to recognize revenue when it transfers
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. Additionally, this guidance
expands related disclosure requirements. This guidance is effective
for reporting periods beginning after December 15, 2016. We
are currently evaluating the impact this guidance will have on our
consolidated financial position and results of operations. |
