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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 4, 2001 Commission File No. 0-25858
DAVE & BUSTER'S, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1532756
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2481 Manana Drive, Dallas, Texas 75220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
Including area code (214) 357-9588
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
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Common Stock, $0.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
The aggregate market value of the voting stock held by persons other than
directors and officers of registrant (who might be deemed to be affiliates of
registrant) at April 16, 2001 was $92,254,351.
The number of shares of common stock outstanding at April 16, 2001 was
12,953,375 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated May 4, 2001, for its annual
meeting of Stockholders on June 14, 2001, are incorporated by reference into
Part III hereof, to the extent indicated herein.
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PART I
Item 1. BUSINESS
General
Dave & Buster's, Inc. (the "Company") operates large format, high-volume
Restaurant/Entertainment Complexes ("Complexes" or "Stores") under the
Dave & Buster's name. Each Dave & Buster's Complex offers a full menu of
high quality food and beverage items combined with an extensive array of
entertainment attractions such as pocket billiards, shuffleboard,
state-of-the-art interactive simulators and virtual reality systems, and
traditional carnival-style games of skill. The Company's large format is
designed to promote easy access to, and maximize customer crossover
between, the multiple dining and entertainment areas within each Complex.
The Company emphasizes high levels of customer service to create casual,
yet sophisticated, "ideal playing conditions" for adults. As of February
4, 2001, the Company had 27 stores across the continental United States.
Additionally, the Company licenses the Dave & Buster's concept
internationally through area licensing agreements and as of February 4,
2001, there were two Dave & Buster's operating overseas.
The Dave & Buster's Concept
The Company seeks to differentiate itself by providing high quality
dining, bar service, and entertainment attractions in a comfortable, adult
atmosphere. The key factors of the Company's market positioning and
operating strategy are:
Distinctive Concept. Each Dave & Buster's offers a distinctive combination
of dining, bar service and entertainment. A full menu and complete bar
service are available from early lunch until late night in each restaurant
and throughout almost all of the entertainment areas. The broad array of
attractions, ranging from table and carnival games to state-of-the-art
virtual reality games, is continuously reviewed and updated to maintain a
fresh entertainment environment. The Company also actively seeks to
enhance the popularity of its traditional games, such as pocket billiards
and shuffleboard, by providing high quality tables, a clean and
comfortable environment and a high standard of service.
A Large, Multiple Attraction Destination. The Complexes range in
approximate total area from 30,000 square feet to 70,000 square feet. The
large scale of each operation, together with the numerous food, beverage
and entertainment options offered, is designed to attract a diverse
customer base and consolidate multiple-destination customer spending into
one location. Each Dave & Buster's attracts local customers from a wide
geographical area (estimated to be a twenty-mile radius) along with
tourists, conventioneers and business travelers.
Commitment to Quality. The Company strives to provide its customers with
good food and an inviting atmosphere. Accordingly, each Dave & Buster's
offers an extensive menu which features popular, moderately priced food
and beverage items that are individually prepared with a commitment to
value and quality. The Company makes a significant investment in each
Complex, and the Company's facilities are designed with an attention to
detail. In addition, the customer-participation entertainment attractions
are tastefully presented in an atmosphere that the Company defines as
"ideal playing conditions".
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High Standard of Customer Service. Through intensive personnel training,
constant monitoring of operations and stringent operational controls, the
Company strives to maintain a consistently high standard of food,
beverage, and amusement service throughout each Complex. The Company's
commitment to customer service is evidenced by the availability of full
food and beverage service in entertainment areas as well as the restaurant
and bar areas.
With respect to entertainment, the Company's commitment to customer
service is demonstrated by service staff in each of the entertainment
areas who offer assistance in playing and enjoying the games. The Company
believes its customer service is enhanced by a strong commitment to
employee motivation and appreciation programs. The Company also believes
that high service standards are critical to promoting customer loyalty and
to generating frequent-visiting patterns and referrals by customers.
Comfortable Adult Atmosphere. Each Dave & Buster's is primarily adult
oriented and, while children are welcome, strict guidelines are enforced.
Customers under twenty-one years of age must be accompanied by a parent or
guardian (a person 25 years of age or older who agrees to be responsible
for the conduct and safety of the underage guest) at all times during
their visit and are not allowed in a Dave & Buster's after 10:00 p.m.
(11:00 p.m. in the summer months). The Company believes that these
policies help maintain the type of pleasant, relaxed atmosphere that
appeals to adult customers. The Company also believes that this atmosphere
attracts groups of customers such as private parties and business
organizations.
Integrated Systems. The Company utilizes centralized information and
accounting systems that are designed to allow its management to
efficiently monitor labor, food, and other direct operating expenses, and
to provide timely access to financial and operating data. Management
believes that its integrated computer systems permit it, on both an
overall and per Complex basis, to efficiently operate the
Restaurant/Entertainment Complexes.
Attractive Venue for Special Events. Each Dave & Buster's offers Special
Events Planning for companies and private individuals. The varied menu and
many amusement opportunities make Dave & Buster's attractive locations for
groups of between 10 and 2,000. In addition, most Dave & Buster's include
a Show Room with a stage, audio visual capability and private refreshment
area. Dave & Buster's has developed innovative packages that combine food,
beverage and entertainment components and markets these to groups and
individuals.
Restaurant/Entertainment Concept and Menu
Dave & Buster's offers a full menu of high quality food and beverage items
combined with an extensive array of entertainment attractions such as
pocket billiards, shuffleboard, state-of-the-art interactive simulators
and virtual reality systems, and traditional carnival-style games of
skill. The Company's facilities are designed to promote easy access to,
and maximize customer crossover between, the multiple dining and
entertainment areas within each Complex. The Company emphasizes high
levels of customer service to create casual, yet sophisticated, "ideal
playing conditions" for adults.
The Dave & Buster's menu is offered from early lunch until late night and
features moderately priced food designed to appeal to a wide variety of
customers. This well-rounded fare includes gourmet pastas, individual
sized pizzas, burgers, steaks, seafood and chicken. The menu is regularly
updated to reflect current dining trends and incorporates "house specials"
such as barbequed ribs, blackened chicken pasta, mesquite-peppered rib eye
steak, and a Philadelphia cheesesteak sandwich. A wide variety of other
appetizers, soups, salads, sandwiches and desserts is also available.
Entree and sandwich prices range from $5.95 to $16.95, with many main menu
items in the $6.95 to $12.95 price range. In order to promote customer
flow and complement the
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entertainment areas, full, sit-down food service is offered not only in
the restaurant areas, but throughout the entire Complex. In addition,
throughout the restaurant and entertainment areas each Dave & Buster's
offers full bar service including over 50 different beers, an extensive
wine selection, and a variety of non-alcoholic beverages such as its own
private label, "D&B Old Fashioned Philly Root Beer".
The entertainment attractions in each Dave & Buster's are geared toward
customer participation and offer both traditional entertainment and
"Million Dollar Midway" entertainment.
Traditional Entertainment. Each Dave & Buster's offers a number of
traditional entertainment options. These traditional offerings include
"world class" pocket billiards, "championship-style" shuffleboard tables,
and the Show Room which is designed for hosting private social parties and
business gatherings as well as Company sponsored events. Traditional
entertainment games are rented by the hour.
Million Dollar Midway Games. The largest area in each Dave & Buster's is
the Million Dollar Midway which is designed to provide high-energy,
escapism entertainment through a broad selection of electronic, skill and
sports-oriented games. The Dave & Buster's Power Card activates all the
midway games (with the exception of coin action games) and can be
recharged for additional play. The Power Card enables customers to
activate games more easily and encourages extended play of games. By
replacing coin activation, the Power Card has eliminated the technical
difficulties and maintenance issues associated with coin activated
equipment. Furthermore, the Power Card feature has increased the Company's
flexibility in pricing and promoting of games.
Attractions within the Million Dollar Midway include fantasy/high
technology and classic midway entertainment. Fantasy/high-technology
offerings include simulator games such as formula race cars, off-road
vehicles, fighter jets and motorcycles; Galaxian Theater, a
multi-participant, enclosed simulation theater where up to six players
take part in mock battles with alien invaders; Virtuality, an interactive,
electronic game designed to simulate an actual battlefield environment;
Virtual World, a fantasy environment attraction; Iwerks Turbo Ride
Theater, a 16 to 18 seat motion simulation theater; large-screen
interactive electronic games; and "The 19th Hole", a state-of-the-art golf
simulator. The Company also contracts for exclusive games designed to
build customer loyalty and repeat customer visits.
Classic midway entertainment includes sports-oriented games of skill;
carnival-style games, which are intended to replicate the atmosphere found
in many local county fairs; and D&B Downs which is one of several
multiple-player race games offered in each Dave & Buster's. At the
Winner's Circle, players can redeem coupons won from selected games of
skill for a wide variety of prizes, many of which display the Dave &
Buster's logo. The prizes include stuffed animals, clothing, and small
electronic and novelty items.
The Company continually evaluates ways to expand its customer base. As an
example, in early 2001, the Company will begin offering certain of its
redemption games via the internet on its website www.daveandbusters.com.
Customers will be able to play certain redemption games on-line and win
coupons that are redeemable for prizes either on the internet or a Dave &
Buster's location.
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Locations
At February 4, 2001, the Company operated a total of 27 locations in 13
states, which included:
Approximate
Location State Square Footage
-------- ----- --------------
Dallas (I) TX 40,000
Dallas (II) TX 31,000
Houston TX 53,000
Atlanta (I) GA 53,000
Philadelphia PA 70,000
Chicago (I) IL 50,000
Chicago (II) IL 55,000
Hollywood FL 58,000
North Bethesda MD 58,000
Ontario CA 59,000
Cincinnati OH 64,000
Denver CO 48,000
Utica (suburban Detroit) MI 56,000
Irvine CA 55,000
Rockland County NY 48,000
Orange CA 58,000
Columbus OH 37,500
San Antonio TX 52,000
Atlanta (II) GA 58,000
St. Louis MO 57,000
Austin TX 40,000
Jacksonville FL 40,500
Providence RI 40,500
Milpitas (San Jose) CA 60,000
Westminster (Denver) CO 40,000
Pittsburgh PA 60,000
San Diego CA 48,000
Business Development
The Company continually seeks to identify and evaluate new locations for
expansion. The Company's goal is to open four Complexes in fiscal years
2001 and 2002, respectively. The Company will open Complexes in 2001 as
follows:
Approximate Development
Location State Square Footage Status
-------- ----- -------------- ------
Miami FL 60,000 Opened March 2001
Frisco TX 50,000 Under construction
Honolulu HI 40,000 Under construction
Clevelend OH 50,000 Under construction
Potential locations for openings in fiscal 2002 have been tentatively
identified and site negotiations are currently in progress.
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The Company believes that the location of its Complexes is critical to the
Company's long-term success and devotes significant time and resources to
analyzing each prospective site. In general, the Company targets
high-profile sites within metropolitan areas of less than one million
people for intermediate-size models and at least one million people for
mega-size models. The Company carefully analyzes demographic information
(such as average income levels) for each prospective site, the Company
considers factors such as visibility; accessibility to regional highway
systems; zoning; regulatory restrictions; and proximity to shopping areas,
office complexes, tourist attractions and residential areas. The Company
also carefully studies the restaurant and entertainment competition in
prospective areas. In addition, the Company must select a site of
sufficient size to accommodate its prototype facility with ample,
convenient customer parking.
The typical cost of opening a mega-size Dave & Buster's ranges from
approximately $7.5 million to $13.0 million (excluding preopening expenses
and developer allowances), depending upon the location and condition of
the premises. For intermediate-size models, the typical cost ranges from
approximately $6.5 million and $12.5 million (excluding pre-opening
expenses and developer allowances), depending upon the location and
condition of the premises. The Company will base the decision of owning or
leasing a site on the projected unit economics and availability of the
site for purchase. The Complexes opened in 2000 were all leased
facilities. Opening a leased facility reduces the Company's capital
investment in a Complex because the Company does not incur land and site
improvement costs and may also receive a construction allowance from the
landlord for improvements. The exterior and interior layout of a Dave &
Buster's is flexible and can be readily adapted to different types of
buildings. The Company has opened Complexes in both new and existing
structures, in both urban and suburban areas.
International
In August 1995, the Company entered into a license agreement with a
subsidiary of Bass Plc ("Bass") to license the "Dave & Buster's" name and
concept in the United Kingdom. Under this agreement, Bass opened a Complex
in Birmingham, England in May 1997, a Complex in Bristol, England in July
1998, and agreed to open a total of seven Complexes in the United Kingdom
by 2005. Under the license agreement, Bass was required to pay the Company
a royalty based upon gross revenues, net of value added taxes. In October
2000, Bass terminated this agreement for internal operating reasons and
closed the two United Kingdom Dave & Buster's locations.
In February 1998, the Company entered into a license agreement with the
TaiMall Development Company ("TaiMall") to license the "Dave & Buster's"
name and concept in the Pacific Rim. Under this agreement, TaiMall opened
a Complex in Taipei, Taiwan in December 1999, and has agreed to open seven
Complexes in the Pacific Rim by the year 2006. Under the license
agreement, TaiMall is required to pay the Company a 5% royalty based upon
gross revenues. The license agreement contains strict operating covenants
to ensure consistency of the menu and entertainment offerings with those
in the Company-operated Complexes.
In September 1998, the Company entered into a license agreement with the
SVAG Development Corporation ("SVAG") to license the "Dave & Buster's"
name and concept in Germany, Switzerland and Austria. In March 2001, SVAG
terminated this agreement due to lack of financing.
In March 1999, the Company entered into a license agreement with Funtime
Hospitality Corp. ("Funtime") to license the "Dave & Buster's" name and
concept in Canada. Under this agreement, Funtime opened a Complex in
Toronto, Ontario in June 2000, and has agreed to open five Complexes by
the year 2005. The license agreement contains strict operating covenants
to
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ensure consistency of the menu and entertainment offerings with those in
the Company operated Complexes.
In July 2000, the Company entered into a license agreement with Al-Mal
Entertainment Enterprises, K.C.S. ("Al-Mal") to license the "Dave &
Buster's" name and concept in the Middle East. Under this agreement,
Al-Mal has agreed to open six Complexes by the year 2009. The license
agreement contains strict operating covenants to ensure consistency of the
menu and entertainment offerings with those in the Company operated
Complexes.
In September 2000, the Company entered into a license agreement with Grupo
Ildomani S. de R.L. de C.V., limited liability company ("Grupo Ildomani")
to license the "Dave & Buster's" name and concept in Mexico. Under this
agreement, Grupo Ildomani has agreed to open five Complexes by the year
2006. The license agreement contains strict operating covenants to ensure
consistency of the menu and entertainment offerings with those in the
Company operated Complexes.
The Company is considering entering into agreements to license the "Dave &
Buster's" name and concept in additional foreign countries. The Company
does not have any current plans to invest its own capital in any foreign
operations.
Operations and Management
The Company's ability to manage a complex operation, that includes both
high volume restaurants, bars and diverse entertainment attractions, has
been critical to its overall success. The Company strives to maintain
quality and consistency in each of its Complexes through careful training
and supervision of personnel and the establishing and adhering to high
standards relating to personnel performance, food and beverage
preparation, entertainment productions and equipment, and facilities
maintenance. The Company believes that it has been able to attract and
retain high quality, experienced restaurant and entertainment management
and personnel through its competitive compensation and bonus programs and
its policy of promoting from within the Company. Staffing levels vary
according to the size of the location, but a mega-size Dave & Buster's is
managed by one general manager, two assistant general managers, seven line
managers, and one business manager.
In general, each mega-size Dave & Buster's also employs one purchasing
agent, one amusement manager, one assistant amusement manager, one kitchen
manager, two assistant kitchen managers, and one special events sales
manager. On average, the Company's current general managers possess
approximately four years of experience with the Company. The general
manager of each Dave & Buster's reports to a Regional Operations Director
who reports to the Vice President, Director of Operations.
All managers, many of whom are promoted from within, must complete an
eleven-week training program during which they are instructed in areas
such as food quality and preparation, customer service, alcoholic beverage
service, entertainment management, and employee relations. The Company has
also prepared operations manuals relating to food and beverage quality and
service standards as well as proper operation and playing conditions of
the Company's entertainment attractions. New sales staff and entertainment
personnel participate in approximately two weeks of training under the
close supervision of Company management. Management strives to instill
enthusiasm and dedication in its employees, regularly solicits employee
suggestions concerning Company operations and endeavors to be responsive
to employees' concerns. In addition, the Company has extensive and varied
programs designed to recognize and reward employees for superior
performance.
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Efficient, attentive and friendly service is integral to the Company's
overall concept. In addition to customer evaluations, the Company uses a
"secret shopper" quality control program to independently monitor customer
satisfaction. "Secret shoppers" are independent persons who, on a periodic
basis, test the Company's food, beverage, and service as customers without
the knowledge of restaurant management or personnel, and report their
findings to corporate management.
Each Complex uses a variety of integrated management information systems.
These systems include a computerized point-of-sale system which
facilitates the movement of customer food and beverage orders between the
customer areas and kitchen operations, controls cash, handles credit card
authorizations, keeps track of revenues on a per-employee basis for
incentive awards, and provides management with revenue and inventory data.
Marketing, Advertising and Promotion
The Company operates its marketing, advertising, and promotional programs
through the corporate marketing department with the assistance of an
external advertising agency, media planning/buying service and a national
public relations firm.
The corporate marketing department is also responsible for controlling
media and production costs. During fiscal 2000, the Company's expenditures
for advertising and promotions were approximately 3.3% of its revenues.
In order to expand its customer base, the Company focuses marketing
efforts in three key areas: (1) advertising and system-wide promotions;
(2) field marketing and local promotions and (3) corporate and group
customers (special events).
Advertising and System-wide Promotions. In fiscal 2000, the Company
launched its first ever national advertising campaign introducing the
brand tag-line "Big Time Fun". This campaign included television, radio,
outdoor, print and direct mail to attract new guests. In addition,
in-store promotions and point-of-sale materials designed to increase visit
frequency and guest check average were also implemented.
Field Marketing and Local Promotions. To capitalize on business building
opportunities at the local market level, the Company has employed a Field
Marketing team to work in conjunction with store level management, local
supplier-partners and local media to develop third party promotions
designed to meet the specific business objectives of the individual
locations.
Corporate and Group Marketing (Special Events). The Company employs a
dedicated corporate-level Special Events staff to provide support and
direction for the Complex-based Special Events Managers. The Company
develops and maintains a database for corporate and group bookings. Each
Dave & Buster's location has hosted events for many large and
multi-national, national, and regional businesses. Many of the Company's
corporate and group customers have hosted repeat events.
Competition
The restaurant and entertainment industries are highly competitive. There
are a great number of food and beverage service operations and
entertainment businesses that compete directly and indirectly with the
Company. Many of these entities are larger and have significantly greater
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financial resources and a greater number of units than does the Company.
Although there are a few other companies presently utilizing the concept
of combining entertainment and restaurant operations to the same extent as
the Company, the Company may encounter increased competition in the
future, which may have an adverse effect on the profitability of the
Company. In addition, the legalization of casino gambling in geographic
areas near any restaurant/entertainment company would create the
possibility for entertainment alternatives, which could have a material
adverse effect on the Company's business.
Employees
At February 4, 2001, the Company employed approximately 6,600 persons,
approximately 180 of whom served in administrative or executive
capacities, approximately 550 of whom served as restaurant and
entertainment management personnel, and the remainder of whom were hourly
restaurant and entertainment personnel.
None of the Company's employees are covered by collective bargaining
agreements, and the Company has never experienced an organized work
stoppage, strike or labor dispute. The Company believes its working
conditions and compensation packages are competitive with those offered by
its competitors and considers relations with its employees to be very
good.
Intellectual Property
The Company has registered the trademark "Dave & Buster's" with the United
States Patent and Trademark Office and in various foreign countries. The
Company has registered and/or applied for certain additional trademarks
with the United States Patent and Trademark Office and in various foreign
countries.
Government Regulations
The Company is subject to various federal, state and local laws affecting
its business. Each Dave & Buster's is subject to licensing and regulation
by a number of governmental authorities, which may include alcoholic
beverage control, amusement, health and safety and fire agencies in the
state or municipality in which the Complex is located. Each Dave &
Buster's is required to obtain a license to sell alcoholic beverages on
the premises from a state authority and, in certain locations, county and
municipal authorities. Typically, licenses must be renewed annually and
may be revoked or suspended for cause at any time. Alcoholic beverage
control regulations relate to numerous aspects of the daily operations of
each Dave & Buster's, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory control
and handling, and storage and dispensing of alcoholic beverages. The
Company has not encountered any material problems relating to alcoholic
beverage licenses to date. The failure to receive or retain a liquor
license in a particular location could adversely affect the Company's
ability to obtain such a license elsewhere.
The Company is subject to "dram-shop" statutes in the states in which
Complexes are located. These statutes generally provide a person injured
by an intoxicated person the right to recover damages from an
establishment which wrongfully served alcoholic beverages to the
intoxicated individual. The Company carries liquor liability coverage as
part of its existing comprehensive general liability insurance which it
believes is consistent with coverage carried by other entities in the
restaurant and entertainment industries. Although the Company is covered
by insurance, a judgment against the Company under a dram-shop statute in
excess of the Company's liability coverage could have a material adverse
effect on the Company.
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As a result of operating certain entertainment games and attractions
including operations which offer redemption prizes, the Company is subject
to amusement licensing and regulation by the states and municipalities in
which it has opened Complexes. Certain entertainment attractions are
heavily regulated and such regulations vary significantly between
communities. From time to time, existing Complexes may be required to
modify certain games, alter the mix of games or terminate the use of
specific games as a result of the interpretation of regulations by state
or local officials. The Company has, in the past, had to seek changes in
state or local regulations to enable it to open a given location. To date,
the Company has been successful in seeking all such regulatory changes.
The Company is subject to federal and state environmental regulations, but
these have not had a material negative effect on the Company's operations.
More stringent and varied requirements of local and state governmental
bodies with respect to zoning, land use and environmental factors could
delay or prevent development of new restaurants in particular locations.
The Company is subject to the Fair Labor Standards Act which governs such
matters as minimum wages, overtime and other working conditions, along
with the American With Disabilities Act and various family leave mandates.
Although the Company expects increases in payroll expenses as a result of
federal and state mandated increases in the minimum wage, such increases
are not expected to be material. However, the Company is uncertain of the
repercussion, if any, on other expenses as vendors are impacted by higher
minimum wage standards.
RISK FACTORS
The Company hereby cautions stockholders, prospective investors in the
Company and other readers of this report that the following important
factors, among others, could affect the Company's stock price or cause the
Company's actual results of operations to differ materially from those
expressed in any forward-looking statements, oral or written, made by or
behalf of the Company:
Our growth depends upon our ability to open new Complexes
We currently plan to open four Complexes during each of fiscal years 2001
and 2002, and four Complexes each fiscal year thereafter. Our ability to
achieve this expansion goal depends upon our raising sufficient capital,
locating and obtaining appropriate sites, hiring and training additional
management personnel, and constructing or acquiring, at reasonable cost,
the necessary improvements and equipment for these Complexes. In
particular, the capital resources required to develop each new Complex are
significant. There is no assurance that we can complete our planned
expansion or that new Complexes will perform in a manner consistent with
our most recently opened Restaurant/Entertainment Complexes or make a
positive contribution to our operating performance.
We operate a relatively small number of Complexes
As of February 4, 2001, we operated 27 Restaurant/Entertainment Complexes.
The combination of the relatively small number of locations and the
significant investment associated with each new Restaurant/Entertainment
Complex may cause our operating results to fluctuate significantly. Due to
this relatively small number of locations, poor results of operations at
any one Restaurant/Entertainment Complex could materially affect our
profitability. Historically, new Restaurant/Entertainment Complexes have
experienced a drop in revenues after their first year of operation, and we
do not expect that in subsequent years, any increases in comparable
Complex revenues will be meaningful. Additionally, because of the
substantial up-front financial requirements to open new Complexes, the
investment risk related to any one
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Restaurant/Entertainment Complex is much larger than that associated with
most other companies' restaurant or entertainment venues.
Our results of operations are dependent upon consumer discretionary
spending
Our results of operations are dependent on discretionary spending by
consumers, particularly by consumers living in communities in which the
Restaurant/Entertainment Complexes are located. A significant weakening in
any of the local economies in which we operate may cause our customers to
curtail discretionary spending which in turn could materially affect our
profitability.
We compete against many larger entities
The restaurant and entertainment industries are highly competitive. We
compete against many food and beverage service operations and
entertainment businesses that are larger and have significantly greater
financial resources and a greater number of units than us. In addition,
the legislation of casino gambling in geographic areas near any of our
Complexes creates the likelihood of an additional entertainment
alternative, which could have a material adverse effect on our business.
Our operations are subject to many government regulations
Various federal, state and local laws and permit and license requirements
affect our business. Significant numbers of our hourly personnel are paid
at rates related to the federal minimum wage and, accordingly, legislated
increases in the minimum wage will increase labor costs at our Complexes.
Other governmental initiatives such as mandated health insurance, if
implemented, could adversely affect us and the restaurant industry in
general.
Our results of operations fluctuate in accordance with Complex
openings and seasonality
As a result of the substantial revenues associated with each new
Restaurant/Entertainment Complex, the timing of new Complex openings will
result in significant fluctuations in quarterly results. We also expect
seasonality to be a factor in our results of operations due to lower third
quarter revenues in the fall season, and higher fourth quarter revenues
associated with the year-end holidays.
Our results of operations are dependent upon the efforts of our
senior management
Our future success will depend largely on the efforts and abilities of our
existing senior management, particularly David O. "Dave" Corriveau and
James W. "Buster" Corley, the Co-Chief Executive Officers and founders of
our business.
Our common stock price may experience volatility
The market price of our Common Stock has fluctuated substantially due to a
variety of factors, including our quarterly operating results of the
Company or the results of other restaurant or entertainment companies,
changes in general economic conditions or the financial markets and other
factors. In addition, in recent years the stock market has experienced
extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many
companies for reasons unrelated to the operating performance of these
companies.
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Item 2. PROPERTIES
As of February 4, 2001 the Company operated a total of 27 Complexes
located in 13 states. The Company is currently utilizing all available
land at its owned locations. The Company's real estate leases are with
unrelated third parties except where noted.
Owned or Lease Expiration Lease Expiration
Location State Leased Property Date Date with Options
-------- ----- --------------- ---- -----------------
Dallas (I) TX Owned --- ---
Dallas (II) TX Leased December 2002 December 2007
Houston TX Owned --- ---
Atlanta (I) GA Owned --- ---
Philadelphia PA Leased January 2015* January 2024
Chicago (I) IL Owned --- ---
Chicago (II) IL Leased January 2016 January 2026
Hollywood FL Leased** April 2016 April 2031
North Bethesda MD Leased January 2018 January 2033
Ontario CA Leased January 2018 January 2028
Cincinnati OH Leased January 2018 January 2038
Denver CO Leased December 2017 December 2032
Utica MI Leased June 2018 June 2033
Irvine CA Leased July 2018 July 2028
Rockland County NY Leased January 2019 January 2034
Orange CA Leased January 2019 January 2029
Columbus OH Owned --- ---
San Antonio TX Leased September 2018 September 2028
Atlanta (II) GA Leased March 2019 March 2034
St. Louis MO Leased June 2019 June 2034
Austin TX Leased December 2019 December 2034
Jacksonville FL Owned --- ---
Providence RI Leased December 2019 December 2034
Milpitas CA Leased January 2001 January 2031
Westminster CO Leased January 2001 January 2031
Pittsburgh PA Leased June 2020 June 2055
San Diego CA Leased November 2020 April 2055
* The Company also leases additional parking facilities which expires
January 2014.
** The Company owns the building and leases the real property.
The Company has also signed 20-year leases for Complexes due to open in
fiscal 2001 in each of Miami, Florida; Frisco, Texas; Honolulu, Hawaii and
Cleveland, Ohio. A twenty-year lease has also been signed for Phoenix,
Arizona, which is scheduled to open in the year 2003. Third-party leases
typically provide for a minimum base rent, additional rent based on a
percentage of revenues and payment of certain operating expenses.
12
13
Item 3. LEGAL PROCEEDINGS.
The Company is a defendant in litigation arising in the ordinary course of
its business, including claims resulting from "slip and fall" accidents,
claims under federal and state laws governing access to public
accommodations, and employment-related claims. To date, none of such
litigation, some of which is covered by insurance, has had a material
effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock traded on the Nasdaq National Market under the
symbol DANB from June 26, 1995 until June 3, 1999. The following table
summarizes the high and low sale prices per share of Common Stock for the
applicable periods indicated, as reported on the Nasdaq National Market.
Since June 4, 1999, the Company's Common Stock is traded on the New York
Stock Exchange ("NYSE") under the symbol DAB. The following table
summarizes the high and low sales prices per share of Common Stock for the
applicable periods indicated, as reported by the NYSE.
Fiscal Year 1998
First Quarter $27.75 $21.13
Second Quarter 26.50 21.38
Third Quarter 22.63 10.50
Fourth Quarter 24.38 17.13
Fiscal Year 1999
First Quarter 23.25 18.06
Second Quarter 29.38 20.50
Third Quarter 26.88 8.75
Fourth Quarter 10.69 5.06
Fiscal Year 2000
First Quarter 10.50 6.25
Second Quarter 7.50 6.00
Third Quarter 8.88 6.06
Fourth Quarter 12.25 7.56
At April 16, 2001, there were 2,124 holders of record.
13
14
The Company has never paid cash dividends on its Common Stock and does not
currently intend to do so as profits are reinvested into the Company to
fund future expansion of its restaurant business. Payment of dividends in
the future will depend upon the Company's growth, profitability, financial
condition and other factors which the Board of Directors may deem
relevant.
14
15
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for the
Company. This data should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto included in Item 8 hereof and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 hereof.
Fiscal Year 2000 1999 1998 1997 1996
(in thousands, except per share amounts and store data)
Income Statement Data
Food and beverage revenues $ 168,085 $ 121,390 $ 89,378 $ 64,703 $ 48,568
Amusements and other revenues 164,218 125,744 92,906 63,801 40,207
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 332,303 247,134 182,284 128,504 88,775
Cost of revenues 61,547 45,720 35,582 24,795 18,003
Operating payroll and benefits 101,143 76,242 52,206 36,227 25,483
Other store operating expenses 90,581 65,292 45,862 32,787 20,582
General and administrative expenses 20,019 14,988 10,579 8,489 5,734
Depreciation and amortization expense 25,716 19,884 12,163 8,470 5,647
Preopening costs 5,331 6,053 4,539 3,246 2,605
- ---------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 304,337 228,179 160,931 114,014 78,054
Operating income 27,966 18,955 21,353 14,490 10,721
Interest income (expense), net (8,712) (3,339) 194 (179) (38)
- ---------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes
and cumulative effect of a change in an
accounting principle 19,254 15,616 21,547 14,311 10,683
Provision for income taxes 7,009 5,724 7,969 5,414 4,343
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a
change in an accounting principle 12,245 9,892 13,578 8,897 6,340
Cumulative effect of a change in an
accounting principle, net of income
tax benefit of $2,928 -- 4,687 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 12,245 $ 5,205 $ 13,578 $ 8,897 $ 6,340
Net income per share - basic
Before cumulative effect of a change in
an accounting principle $ .95 $ .76 $ 1.04 $ .77 $ .58
Cumulative effect of a change in an
accounting principle -- .36 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
$ .95 $ .40 $ 1.04 $ .77 $ .58
Net income per share - diluted
Before cumulative effect of a change in
an accounting principle $ .94 $ .75 $ 1.03 $ .76 $ .58
Cumulative effect of a change in an
accounting principle -- .36 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
$ .94 $ .39 $ 1.03 $ .76 $ .58
15
16
Fiscal Year 2000 1999 1998 1997 1996
(in thousands, except per share amounts and store data)
Weighted average shares outstanding
Basic 12,953 13,054 13,053 11,532 10,901
Diluted 12,986 13,214 13,246 11,711 10,969
Balance Sheet Data
Working capital $ 5,126 $ 8,957 $ 8,220 $ 26,408 $ 1,077
Total assets 303,875 268,184 216,592 158,989 99,436
Long-term obligations 103,860 91,000 42,500 12,000 14,250
Stockholders' equity 162,387 149,899 145,502 133,356 75,366
Number of Complexes Open at End of Period
Company operated 27 23 17 12 9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FISCAL 2000 COMPARED TO FISCAL 1999
Total revenues increased to $332,303 for fiscal 2000 from $247,134 for
fiscal 1999, an increase of $85,169 or 34%. New stores opened in fiscal
2000 and in fiscal 1999 accounted for 91% of the increase. Revenues at
comparable stores increased 3.6% for fiscal 2000. Increases in revenues
were also attributable to a 2% overall price increase and a higher average
guest check. Total revenues for fiscal 2000 from licensing agreements were
$966.
Cost of revenues increased to $61,547 for fiscal 2000 from $45,720 for
fiscal 1999, an increase of $15,827 or 35%. The increase was principally
attributable to the 34% increase in revenues. As a percentage of revenues,
cost of revenues were the same for fiscal 2000 and fiscal 1999 at 18.5%.
Operating payroll and benefits increased to $101,143 for fiscal 2000 from
$76,242 for fiscal 1999, an increase of $24,901 or 33%. As a percentage of
revenue, operating payroll and benefits decreased to 30.4% in fiscal 2000
from 30.9% in fiscal 1999 due to higher variable labor costs offset by
lower fixed labor costs and taxes and benefits.
Other store operating expenses increased to $90,581 for fiscal 2000 from
$65,292 for fiscal 1999, an increase of $25,289 or 39%. As a percentage of
revenues, other store operating expenses were 27.3% of revenues in fiscal
2000 as compared to 26.4% of revenues in fiscal 1999. Other store
operating expenses were higher due to higher marketing costs associated
with the Company's 2000 marketing campaign.
General and administrative expenses increased to $20,019 for fiscal 2000
from $14,988 for fiscal 1999, an increase of $5,031 or 34%. The increase
over the prior comparable period resulted from increased administrative
payroll and related costs for new personnel, and additional costs
associated with the Company's future growth plans. As a percentage of
revenues, general and administrative expenses decreased to 6.0% in fiscal
year 2000 from 6.1% in fiscal year 1999.
16
17
Depreciation and amortization expense increased to $25,716 for fiscal 2000
from $19,884 for fiscal 1999, an increase of $5,832 or 29%. As a
percentage of revenues, depreciation and amortization decreased to 7.7%
from 8.0% for the comparable prior period. The increase was attributable
to new stores opened in fiscal 2000 and in fiscal 1999.
Preopening costs decreased to $5,331 for fiscal 2000 from $6,053 for
fiscal 1999, a decrease of $722 or 12%. As a percentage of revenues,
preopening costs were 1.6% for fiscal 2000 as compared to 2.4% for fiscal
1999. This decrease was due to the fewer number of new stores opened in
2000 compared to 1999.
Interest expense - net increased to $8,712 for fiscal 2000 from $3,339 for
fiscal 1999. The increase was due to a higher average debt balance and
higher interest rates in 2000 versus 1999.
The effective tax rate for fiscal year 2000 was 36.4% as compared to 36.7%
for fiscal year 1999, and was the result of a lower effective state tax
rate.
FISCAL 1999 COMPARED TO FISCAL 1998
Total revenues increased to $247,134 for fiscal 1999 from $182,284 for
fiscal 1998, an increase of $64,850 or 36%. New stores opened in fiscal
1999 and in fiscal 1998 accounted for 109% of the increase. Revenues at
comparable stores decreased 2.5% for fiscal 1999. Increases in revenues
were also attributable to a higher average guest check. Total revenues for
fiscal 1999 from licensing agreements were $573.
Cost of revenues increased to $45,720 for fiscal 1999 from $35,582 for
fiscal 1998, an increase of $10,138 or 29%. The increase was principally
attributable to the 36% increase in revenues. As a percentage of revenues,
cost of revenues decreased to 18.5% in fiscal 1999 from 19.5% in fiscal
1998 due to lower food, beverage and amusement costs.
Operating payroll and benefits increased to $76,242 for fiscal 1999 from
$52,206 for fiscal 1998, an increase of $24,036 or 46%. As a percentage of
revenue, operating payroll and benefits increased to 30.9% in fiscal 1999
from 28.6% in fiscal 1998 due to higher variable and fixed labor costs and
higher taxes and benefits.
Other store operating expenses increased to $65,292 for fiscal 1999 from
$45,862 for fiscal 1998, an increase of $19,430 or 42%. As a percentage of
revenues, other store operating expenses were 26.4% of revenues in fiscal
1999 as compared to 25.2% of revenues in fiscal 1998. Other store
operating expenses were higher due to reduced utilities and fixed costs at
the stores offset by higher occupancy costs associated with new stores
opened in fiscal 1999 and in fiscal 1998.
General and administrative expenses increased to $14,988 for fiscal 1999
from $10,579 for fiscal 1998, an increase of $4,409 or 42%. The increase
over the prior comparable period resulted from increased administrative
payroll and related costs for new personnel, and additional costs
associated with the Company's future growth plans. As a percentage of
revenues, general and administrative expenses increased to 6.1% in fiscal
year 1999 from 5.8% in fiscal year 1998.
Depreciation and amortization expense increased to $19,884 for fiscal 1999
from $12,163 for fiscal 1998, an increase of $7,721 or 64%. As a
percentage of revenues, depreciation and amortization increased to 8.0%
from 6.7% for the comparable prior period. The increase was attributable
to new stores opened in fiscal 1999 and in fiscal 1998.
17
18
Preopening costs increased to $6,053 for fiscal 1999 from $4,539 for
fiscal 1998, an increase of $1,514 or 33%. As a percentage of revenues,
preopening costs were 2.4% for fiscal 1999 as compared to 2.5% for fiscal
1998.
The Company adopted Statement of Position 98-5 ("SOP 98-5"), "Reporting on
the Costs of Start-Up Activities", in the first quarter of 1999. This new
accounting standard requires the Company to expense all start-up and
preopening costs as they are incurred. The Company previously deferred
such costs and amortized them over the twelve-month period following the
opening of each store. The cumulative effect of this accounting change,
net of income tax benefit of $2,928, was $4,687.
Interest expense - net for fiscal 1999 was $3,339 versus an interest
income - net of $194 for fiscal 1998. The increase was primarily due to
higher average debt in 1999 versus 1998.
The effective tax rate for fiscal year 1999 was 36.7% as compared to 37.0%
for fiscal year 1998, and was the result of a lower effective state tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations increased to $36,678 for fiscal 2000 from
$24,940 for fiscal 1999. The increase was attributable to an increase in
profitability and the timing of operational receipts and payments.
The Company secured a new $110,000 senior secured revolving credit and
term loan facility. This facility replaced the existing $100,000 secured
revolving line of credit. The facility includes a five-year revolver and
five-year and seven-year term debt. Borrowing under the facility bears
interest at a floating rate based on LIBOR or, at the Company's option,
the bank's prime rate plus, in each case, a margin based upon financial
performance (9.7% at February 4, 2001) and is secured by all assets of the
Company. The new facility has certain financial covenants including a
minimum consolidated tangible net worth level, a maximum leverage ratio,
minimum fixed charge coverage and maximum level of capital expenditures.
At February 4, 2001, $1,300 was available under this facility.
The Company entered into an agreement that expired in 1999, to fix its
variable-rate debt to fixed-rate debt on notional amounts aggregating
$45,000. In 1999, the Company terminated the agreement resulting in a $40
gain.
The Company's plan is to open four Complexes in fiscal 2001 and 2002,
respectively. The Company estimates that its capital expenditures will be
approximately $44,000 and $48,000 for 2001 and 2002, respectively. The
Company intends to finance this development with cash flow from
operations.
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
As a result of the substantial revenues associated with each new Complex,
the timing of new Complex openings will result in significant fluctuations
in quarterly results. The Company expects seasonality to be a factor in
the operation or results of its business in the future due to expected
lower third quarter revenues due to the fall season, and expects higher
fourth quarter revenues associated with the year-end holidays. The effects
of supplier price increases have not been material. The Company believes
low inflation rates in its market areas have contributed to stable food
and labor costs in recent years. However, there is no assurance that low
inflation rates will continue or that the Federal minimum wage rate will
not increase.
18
19
MARKET RISK
The Company's market risk exposure relates to changes in the general level
of interest rates. The Company's earnings are affected by changes in
interest rates due to the impact those changes have on its interest
expense from variable-rate debt. If interest rates increased 10% from the
floating rates as of February 4, 2001, interest expense for the year ended
February 3, 2002 would increase by approximately $1,004. This amount is
determined by considering the impact of hypothetical rates on the
Company's variable-rate debt as of February 4, 2001, adjusted for known
cash commitments during 2001.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain statements in this Annual Report are not based on historical facts
but are "forward-looking statements" that are based on numerous
assumptions made as of the date of this report. Forward looking statements
are generally identified by the words "believes", "expects", "intends",
"anticipates", "scheduled", and similar expressions. Such forward-looking
statements involve known and unknown risks, uncertainties, and other
factors which may cause the actual results, performance, or achievements
of Dave & Buster's, Inc. to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: general economic and business conditions; competition;
availability; locations and terms of sites for Complex development;
quality of management; changes in, or the failure to comply with,
government regulations; and other risks indicated in this filing.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure relates to changes in the general level
of interest rates. The Company's earnings are affected by changes in
interest rates due to the impact those changes have on its interest
expense from variable-rate debt. If interest rates increased 10% from the
floating rates as of February 4, 2001, interest expense for the year
ended February 3, 2002 would increase by approximately $1,004. This amount
is determined by considering the impact of hypothetical rates on the
Company's variable-rate debt as of February 4, 2001, adjusted for known
cash commitments during 2001.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) (1).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
20
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A brief description of each executive officer of the Company is provided
below. All officers serve at the discretion of the Board of Directors,
except as provided below. The information set under the caption "Directors
and Executive Officers" in the Company's Proxy statement dated April 21,
2000, for the annual meeting of stockholders on June 5, 2000 is
incorporated herein by reference.
Mr. David O. Corriveau, 49, a co-founder of the Dave & Buster's concept in
1982, has served as Co-Chief Executive Officer and President since June
1995, and as a director of the Company since May 1995 and as Co-Chairman
of the Board since February 1996. Mr. Corriveau served as President and
Chief Executive Officer of D&B Holding (a predecessor of the Company) from
1989 through June 1995. From 1982 to 1989, Messrs. Corriveau and Corley
operated the Company's business.
Mr. James W. Corley, 50, a co-founder of the Dave & Buster's concept in
1982, has served as Co-Chief Executive Officer and Chief Operating Officer
since June 1995, and as a director of the Company since May 1995 and as
Co-Chairman of the Board since February 1996. Mr. Corley served as
Executive Vice President and Chief Operating Officer of D&B Holding from
1989 through June 1995. From 1982 to 1989, Messrs. Corley and Corriveau
operated the Company's business.
Mr. Barry N. Carter, 53, has served as Vice President of Purchasing since
November 2000 and as Vice President of Store Support since June 1995. He
served as Vice President and Director of Store Support of D&B Holding from
November 1994 to June 1995. From 1982 to November 1994, he served in
operating positions of increasing responsibilities for the Company and its
predecessors.
Ms. Barbara G. Core, 42, has served as Vice President of Information
Technology since September 2000 and Assistant Vice President of
Information Technology since November 1999. She served as Senior Director
of I.T. from February 1999 to November 1999 and from April 1998 to
February 1999 as PeopleSoft Implementation Team Director. From November
1997 to February 1999 she served as Director of I.T. From January 1990 to
November 1997 she served in operations positions of increasing
responsibilities for the Company and its predecessors.
Ms. Nancy J. Duricic, 46, has served as Vice President of Human Resources
since December 1997. From June 1989 to June 1997, she served in human
resources positions of increasing responsibilities in other companies,
most recently as Vice President of Human Resources for Eljer Industries,
Inc.
Mr. Cory J. Haynes, 40, has served as Vice President of International
Operations since March, 2000 and Vice President of Beverage Operations
since May 1998. He served as Vice President, Assistant Director of
Operations from September 1996 to May 1998, and from January 1996 to
September 1996, as Corporate Director of Management and Development. From
1982 to January 1996, he served in operating positions of increasing
responsibilities for the Company and its predecessors.
Mr. Jeffrey A. Jahnke, 46, has served as Controller, Vice President
of Accounting for the Company since January 2000. From May 1998 to
December 1999 he was a consultant primarily in the hospitality
business. Mr. Jahnke was with ClubCorp International, Inc. from
1983 to 1998 in various financial positions of increasing
responsibilities, his most recent position being Vice President of
Accounting.
20
21
Mr. Charles Michel, 47, has served as Secretary since January 2001 and as
Vice President and Chief Financial Officer since February 1996. He served
as Chief Financial Officer of the Company since June 1995 and as Chief
Financial Officer of D&B Holding from November 1994 to June 1995.
Mr. Reginald M. Moultrie, 45, has served as Vice President of
Amusements since January 1999, as Vice President of Games and
Merchandising from April 1998 to January 1999, and as Director of
Amusements from February 1997 to April 1998. Mr. Moultrie served as
Vice President of Sales for Skeeball, Inc. from 1993 to 1997.
Mr. Stuart A. Myers, 40, has served as Vice President of Marketing
since January 2000. From September 1996 to December 1999 he served
as Vice President of Marketing for Whataburger, Inc. Mr. Myers
served as Senior Vice President/Restaurant Group Account Director at
Levenson & Hill Advertising from July 1993 to September 1996.
Mr. R. Lee Pitts, 36, has served as Vice President of Training and
New Store Openings since September 2000 and as Assistant Vice
President and Director of Training from March 1998. From 1991 to
March 1998 Mr. Pitts served in operating positions of increasing
responsibility for the Company and its predecessors.
Mr. J. Michael Plunkett, 50, has served as Vice President of Kitchen
Operations since November 2000, as Vice President of Information Systems
from November 1996 to November 2000, as Vice President, Director of
Training from June 1995 until November 1996 and as Vice President and
Director of Training of D&B Holding from November 1994 to June 1995. From
1982 to November 1994, he served in operating positions of increasing
responsibilities for the Company and its predecessors.
Mr. Craig C. Rawls, 32, has served as Treasurer since September
1998. From 1995 to September 1998 he served in finance positions of
increasing responsibilities for the Company and its predecessors.
Mr. Sterling R. Smith, 48, has served as Vice President of Operations
since June 1995 and as Vice President and Director of Operations of D&B
Holding from November 1994 to June 1995. From 1983 to November 1994, Mr.
Smith served in operating positions of increasing responsibility for the
Company and its predecessors.
Mr. Bryan L. Spain, 53, has served as Vice President of Real Estate
since March 1997. From 1993 until joining Dave & Buster's, Mr.
Spain managed the Real Estate Acquisition and Development Program
for Incredible Universe and Computer City Divisions of Tandy
Corporation. In addition, from 1991 to 1993, Mr. Spain served as
Director, Real Estate Financing for Tandy Corporation.
21
22
Item 11. COMPENSATION INFORMATION
The information set under the caption "Election of Directors" in the
Company's Proxy Statement dated May 4, 2001, for the annual meeting of
stockholders on June 14, 2001 is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set under the caption "Beneficial Ownership of Common
Stock" in the Company's Proxy Statement dated May 4, 2001, for the annual
meeting of stockholders on June 14, 2001 is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set under caption "Election of Directors - Certain
Transactions" in the Company's Proxy Statement dated May 4, 2001, for the
annual meeting of stockholders on June 14, 2001 is incorporated herein by
reference.
22
23
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS OF FORM 8-K.
(a) (1) Financial Statements
Page
----
Consolidated Balance Sheets -
February 4, 2001 and January 30, 2000 F-1
Consolidated Statements of Income -
Fiscal years ended February 4, 2001, January 30, 2000,
and January 31, 1999 F-2
Consolidated Statements of Stockholders' Equity - Fiscal years ended
February 4, 2001, January 30, 2000, and January 31, 1999 F-3
Consolidated Statements of Cash Flows - Fiscal years ended February 4,
2001, January 30, 2000, and January 31, 1999 F-4
Notes to Consolidated Financial Statements F-5 - F-11
Report of Independent Auditors F-12
All schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related
notes.
(a) (3) Exhibits.
Reference is made to the Exhibit Index preceding the exhibits
attached hereto on page 26 for a list of all exhibits filed as a
part of this Report.
(b) Reports of Form 8-K.
The Company was not required to file a current report on Form 8-K
during the fourteen weeks ended February 4, 2001.
23
24
SIGNATURES
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 & Buster's, Inc.
a Missouri corporation
By: /s/ Charles Michel
------------------------------
Charles Michel,
Vice President, Chief
Financial Officer and
Secretary
Dated: April 23, 2001
24
25
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons of the registrant and in the
capacities indicated on April 23, 2001.
Name Title
---- -----
/s/David O. Corriveau Co-Chairman of the Board,
- ----------------------- Co-Chief Executive Officer, President,
David O. Corriveau and Director
(Principal Executive Officer)
/s/James W. Corley Co-Chairman of the Board,
- ----------------------- Co-Chief Executive Officer, Chief
James W. Corley Operating Officer and Director
/s/Charles Michel Vice President,Chief Financial
- ----------------------- Officer and Secretary
Charles Michel (Principal Financial and Accounting
Officer)
- ------------------------ Director
Allen J. Bernstein
/s/Peter A. Edison Director
- -----------------------
Peter A. Edison
/s/Bruce H. Hallett Director
- -----------------------
Bruce H. Hallett
/s/Walter S. Henrion Director
- -----------------------
Walter S. Henrion
- ----------------------- Director
Mark A. Levy
- ----------------------- Director
Christopher C. Maguire
25
26
CONSOLIDATED BALANCE SHEETS
DAVE & BUSTER'S, INC.
February 4, January 30,
in thousands, except share and per share amounts 2001 2000
Assets
Current assets:
Cash and cash equivalents $ 3,179 $ 3,091
Inventories 21,758 16,243
Prepaid expenses 3,663 2,104
Other current assets 1,787 5,582
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 30,387 27,020
Property and equipment, net (note 2) 260,467 232,216
Goodwill, net of accumulated amortization of $2,263 and $1,883 7,445 7,826
Other assets 5,576 1,122
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $303,875 $268,184
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt (note 4) $ 4,124 $ --
Accounts payable 9,291 11,868
Accrued liabilities (note 3) 7,050 4,858
Income taxes payable (note 5) 3,567 --
Deferred income taxes (note 5) 1,229 1,337
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 25,261 18,063
Deferred income taxes (note 5) 7,667 6,377
Other liabilities 4,700 2,845
Long-term debt, less current installments (note 4) 103,860 91,000
Commitments and contingencies (notes 4, 6 and 11)
Stockholders' equity (note 7):
Preferred stock, 10,000,000 authorized; none issued -- --
Common stock, $0.01 par value, 50,000,000 authorized;
12,953,375 shares issued and outstanding as of
February 4, 2001 and January 30, 2000, respectively 131 131
Paid in capital (note 9) 115,659 115,659
Restricted stock awards 243 --
Retained earnings 48,200 35,955
- -----------------------------------------------------------------------------------------------------------------------------
164,233 151,745
Less: treasury stock, at cost (175,000 shares) 1,846 1,846
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 162,387 149,899
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $303,875 $268,184
See accompanying notes to consolidated financial statements.
F-1
27
CONSOLIDATED STATEMENTS OF INCOME
DAVE & BUSTER'S, INC.
in thousands, except per share amounts Fiscal Year 2000 1999 1998
Food and beverage revenues $ 168,085 $ 121,390 $ 89,378
Amusement and other revenues 164,218 125,744 92,906
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 332,303 247,134 182,284
Cost of revenues 61,547 45,720 35,582
Operating payroll and benefits 101,143 76,242 52,206
Other store operating expenses 90,581 65,292 45,862
General and administrative expenses 20,019 14,988 10,579
Depreciation and amortization expense 25,716 19,884 12,163
Preopening costs 5,331 6,053 4,539
- ---------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 304,337 228,179 160,931
Operating income 27,966 18,955 21,353
Interest income (expense), net (8,712) (3,339) 194
- ---------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes
and cumulative effect of a change in an
accounting principle 19,254 15,616 21,547
Provision for income taxes (note 5) 7,009 5,724 7,969
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a
change in an accounting principle 12,245 9,892 13,578
Cumulative effect of a change in an accounting
principle, net of income tax benefit of $2,928 -- 4,687 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 12,245 $ 5,205 $ 13,578
Net income per share - basic
Before cumulative effect of a change in an accounting principle $ .95 $ .76 $ 1.04
Cumulative effect of a change in an accounting principle -- .36 --
- ---------------------------------------------------------------------------------------------------------------------------------
$ .95 $ .40 $ 1.04
Net income per share - diluted
Before cumulative effect of a change in an accounting principle $ .94 $ .75 $ 1.03
Cumulative effect of a change in an accounting principle -- .36 --
- ---------------------------------------------------------------------------------------------------------------------------------
$ .94 $ .39 $ 1.03
Weighted average shares outstanding
Basic 12,953 13,054 13,053
Diluted 12,986 13,214 13,246
See accompanying notes to consolidated financial statements.
F-2
28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DAVE & BUSTER'S, INC.
Common Stock
------------ Paid in Restricted Retained Treasury
in thousands Shares Amount Capital Stock Awards Earnings Stock Total
- ------------ ------ ------ ------- ------------ -------- ----- -----
Balance, February 1, 1998 13,019 $130 $ 116,054 $ -- $17,172 $ -- $ 133,356
Proceeds from exercising
stock options 50 1 603 -- -- -- 604
Tax benefit related to stock
option exercises -- -- 208 -- -- -- 208
Spin-off and related
transactions (note 9) -- -- (2,244) -- -- -- (2,244)
Net income -- -- -- -- 13,578 -- 13,578
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1999 13,069 $131 $ 114,621 $ -- $30,750 -- $ 145,502
Proceeds from exercising
stock options 59 -- 786 -- -- -- 786
Tax benefit related to stock
option exercises -- -- 252 -- -- -- 252
Purchase of treasury stock (175) -- -- -- -- (1,846) (1,846)
Net income -- -- -- -- 5,205 -- 5,205
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 2000 12,953 $131 $ 115,659 $ -- $35,955 $(1,846) $ 149,899
Amortization of restricted
stock awards -- -- -- 243 -- -- 243
Net income -- -- -- -- 12,245 -- 12,245
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, February 4, 2001 12,953 $131 $ 115,659 $243 $48,200 $(1,846) $ 162,387
See accompanying notes to consolidated financial statements.
F-3
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
DAVE & BUSTER'S, INC.
in thousands Fiscal Year 2000 1999 1998
Cash flows from operating activities
Net income $ 12,245 $ 5,205 $ 13,578
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in an accounting principle -- 4,687 --
Depreciation and amortization 25,716 19,884 16,702
Provision for deferred income taxes 1,182 986 4,159
Restricted stock awards 243 -- --
Changes in assets and liabilities
Inventories (5,515) (5,432) (4,589)
Prepaid expenses (1,559) (361) (509)
Preopening costs -- -- (8,493)
Other assets (671) (666) (3,401)
Accounts payable (2,577) (1,827) 9,620
Accrued liabilities 2,192 1,073 530
Income taxes payable 3,567 -- --
Other liabilities 1,855 1,391 649
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 36,678 24,940 28,246
Cash flows from investing activities:
Capital expenditures (53,574) (73,798) (75,621)
Proceeds from sale of short-term investments -- -- 8,507
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (53,574) (73,798) (67,114)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock -- (1,846) --
Spin-off and related transactions -- -- (2,244)
Borrowings under long-term debt 131,292 50,000 33,500
Repayments of long-term debt (114,308) (1,500) (3,000)
Proceeds from issuance of common stock, net -- 786 812
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,984 47,440 29,068
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 88 (1,418) (9,800)
Beginning cash and cash equivalents 3,091 4,509 14,309
- ----------------------------------------------------------------------------------------------------------------------------------
Ending cash and cash equivalents $ 3,179 $ 3,091 $ 4,509
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 1,941 $ 4,188 $ 5,674
Cash paid for interest, net of amounts capitalized $ 8,363 $ 3,455 $ 263
See accompanying notes to consolidated financial statements.
F-4
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAVE & BUSTER'S, INC.
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Dave & Buster's, Inc. and all wholly-owned subsidiaries (the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation. The Company's one industry segment is the ownership
and operation of restaurant/entertainment complexes (a "Complex" or "Store")
under the name "Dave & Buster's," which are principally located in the United
States.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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.
FISCAL YEAR - The Company's fiscal year ends on the Sunday after the Saturday
closest to January 31. References to 2000, 1999, and 1998 are to the 53 weeks
ended February 4, 2001 and to the 52 weeks ended January 30, 2000 and January
31, 1999.
INVENTORIES - Inventories, which consist of food, beverage and merchandise are
reported at the lower of cost or market determined on a first-in, first-out
method. Static supplies inventory is capitalized at each store opening date and
reviewed periodically for valuation.
PREOPENING COSTS - The Company adopted Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-Up Activities," in the first quarter of fiscal
1999. This new accounting standard requires the Company to expense all start-up
and preopening costs as they are incurred. The Company previously deferred such
costs and amortized them over the twelve-month period following the opening of
each store. The cumulative effect of this accounting change, net of income tax
benefit of $2,928, was $4,687.
PROPERTY AND EQUIPMENT - Expenditures for new facilities and those which
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Interest capitalized in 2000, 1999, and
1998 was $1,555, $1,623, and $1,375, respectively. Equipment purchases are
capitalized at cost. Property and equipment lives are estimated as follows:
buildings, 40 years; leasehold and building improvements, shorter of 20 years or
lease life; furniture, fixtures and equipment, 5 to 10 years; games, 5 years.
GOODWILL - Goodwill of $9,708 is being amortized over 30 years. Whenever there
is an indication of impairment, the Company evaluates the recoverability of
goodwill using future undiscounted cash flows.
DEPRECIATION AND AMORTIZATION - Property and equipment, excluding most games,
are depreciated on the straight-line method over the estimated useful life of
the assets. Games are generally depreciated on the 150%-double-declining-balance
method over the estimated useful lives of the assets. Intangible assets are
amortized on the straight-line method over estimated useful lives as follows:
trademarks over statutory lives; lease rights over remaining lease terms.
INTEREST RATE SWAP AGREEMENTS - The Company enters into interest rate swap
agreements to effectively convert a portion of its variable-rate borrowings into
fixed-rate obligations. The interest rate differential to be received or paid is
recognized over the lives of the agreements as an adjustment to interest
expense.
INCOME TAXES - The Company uses the liability method which recognizes the amount
of current and deferred taxes payable or refundable at the date of the financial
statements as a result of all events that have been recognized in the financial
statements and as measured by the provisions of enacted tax laws.
F-5
31
STOCK OPTION PLAN - The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation", requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
REVENUE RECOGNITION - Foreign license revenues are deferred until the Company
fulfills its obligations under license agreements, which is upon the opening of
the Complex. The license agreements provide for continuing royalty fees based on
percentage of gross revenues and are recognized when assured. Food, beverage and
amusement revenues are recorded at point of sale.
TREASURY STOCK - During fiscal 1999, the Company's Board of Directors approved a
plan to repurchase up to 1,000 shares of the Company's common stock. Pursuant to
the plan, the Company repurchased 175 shares of its common stock for
approximately $1,846.
NOTE 2: PROPERTY AND EQUIPMENT
2000 1999
Land .............................. $ 11,308 $ 11,308
Buildings ......................... 56,023 55,067
Leasehold and building improvements 110,559 81,077
Games ............................. 69,970 54,472
Furniture, fixtures, and equipment 72,723 56,597
Construction in progress .......... 17,914 27,250
- ------------------------------------------------------------------------------
Total cost ................... 338,497 285,771
Accumulated depreciation .......... (78,030) (53,555)
- ------------------------------------------------------------------------------
$ 260,467 $ 232,216
NOTE 3: ACCRUED LIABILITIES
Accrued liabilities consist of the following:
2000 1999
Payroll ............................ $1,873 $ 436
Sales and use tax .................. 1,618 2,063
Real estate tax .................... 1,873 1,744
Other .............................. 1,686 615
- -------------------------------------------------------------------------------
$7,050 $4,858
F-6
32
NOTE 4: LONG-TERM DEBT
In 2000, the Company secured a new $110,000 senior secured revolving credit and
term loan facility. This facility replaced the existing $100,000 secured
revolving line of credit. The facility includes a five-year revolver and
five-year and seven-year term debt. Borrowing under the facility bears interest
at a floating rate based on LIBOR or, at the Company's option, the bank's prime
rate plus, in each case, a margin based upon financial performance (9.7% at
February 4, 2001) and is secured by all assets of the Company. The new facility
has certain financial covenants including a minimum consolidated tangible net
worth level, a maximum leverage ratio, minimum fixed charge coverage and maximum
level of capital expenditures. At February 4, 2001, $1,300 was available under
this facility. The fair value of the Company's long-term debt approximates its
carrying value.
The Company entered into an agreement that expired in 1999, to fix its
variable-rate debt to fixed-rate debt on notional amounts aggregating $45,000.
In 1999, the Company terminated the agreement resulting in a $40 gain.
NOTE 5: INCOME TAXES
2000 1999 1998
Current expense
Federal ........................ $5,077 $4,242 $3,188
State and local ................ 750 496 622
Deferred tax expense ................ 1,182 986 4,159
- ------------------------------------------------------------------------------------------
Total provision for income taxes $7,009 $5,724 $7,969
Significant components of the deferred tax liabilities and assets in the
consolidated balance sheets are as follows:
2000 1999 1998
Accelerated depreciation .......... $ 9,474 $ 7,475 $ 6,215
Preopening costs .................. -- -- 2,928
Prepaid expenses .................. 129 130 131
Capitalized interest costs ........ 1,281 1,346 1,022
- -----------------------------------------------------------------------------------------------
Total deferred tax liabilities 10,884 8,951 10,296
Worker's compensation ............. 304 330 183
Leasing transactions .............. 1,500 791 394
Other ............................. 184 116 63
- -----------------------------------------------------------------------------------------------
Total deferred tax assets .... 1,988 1,237 640
- -----------------------------------------------------------------------------------------------
Net deferred tax liability ........ $ (8,896) $(7,714) $ (9,656)
Reconciliation of federal statutory rates to effective income tax rates:
2000 1999 1998
Federal corporate statutory rate .... 35.0% 35.0% 35.0%
State and local income taxes, net
of federal income tax benefit .. 2.2% 2.1% 1.9%
Goodwill amortization and other
nondeductible expenses ......... 2.1% 2.2% 1.5%
Tax credits ......................... (2.0)% (1.9)% (1.4)%
Effect of change in deferred tax rate (1.9)% (2.4)% (1.5)%
Other ............................... 1.0% 1.7% 1.5%
- -----------------------------------------------------------------------------------------------
Effective tax rate .................. 36.4% 36.7% 37.0%
F-7
33
NOTE 6: LEASES
The Company leases certain properties and equipment under operating leases. Some
of the leases include options for renewal or extension on various terms. All
leases require the Company to pay property taxes, insurance and maintenance of
the leased assets. Some leases have provisions for additional percentage rentals
based on revenues; however, payments of percentage rent were minimal during the
three-year period ended February 4, 2001. For 2000, 1999, and 1998, rent expense
for operating leases was $14,295, $11,119, and $8,267, respectively. At February
4, 2001, future minimum lease payments required under operating leases are
$15,431, 2001; $15,328, 2002; $14,395, 2003; $14,155, 2004; $14,479, 2005; and
$206,722, thereafter.
NOTE 7: COMMON STOCK
In 1995, the Company adopted the Dave & Buster's, Inc. 1995 Stock Option Plan
(the "Plan") covering 675 shares of common stock. In 1997 and 1998, the Company
increased the shares of common stock covered by the Plan to 1,350 and 2,350,
respectively. The Plan provides that incentive stock options may be granted at
option prices not less than fair market value at date of grant (110% in the case
of an incentive stock option granted to any person who owns more than 10% of the
total combined voting power of all classes of stock of the Company).
Non-qualified stock options may not be granted for less than 85% of the fair
market value of the common stock at the time of grant and are primarily
exercisable 20% per year after one year from the date of the grant.
In 1996, the Company adopted a stock option plan for outside directors (the
"Directors Plan"). A total of 150 shares of common stock are subject to the
Directors Plan. The options granted under the Directors Plan vest ratably over a
three-year period.
In 2000, the Company amended and restated the Dave & Buster's, Inc. 1995 Stock
Incentive Plan to allow the Company to grant restricted stock awards. These
restricted stock awards will fully vest at the end of the vesting period or the
attainment of one or more performance targets established by the Company.
Recipients are not required to provide consideration to the Company other than
render service and have the right to vote the shares and to receive dividends.
The Company issued 267 shares of restricted stock at a market value of $6.75
which vest at the earlier of attaining certain performance targets or seven
years. The total market value of the restricted shares, as determined at the
date of issuance, is treated as unearned compensation and is charged to expense
over the vesting period. Year to date, the charge to expense for the unearned
compensation was $243.
Pro forma information regarding net income and earnings per common share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 2000, 1999,
and 1998, respectively: risk-free interest rates of 6.30%, 5.39%, and 5.36%;
dividend yields of 0.0%; volatility factors of the expected market price of the
Company's common stock of .740, .494, and .386; and a weighted-average life of
the option of 2.7, 4.4, and 4.8 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-8
34
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Because SFAS 123
requires, compensation expense to be recognized over the vesting period, the
impact on pro forma net income and pro forma earnings per common share as
reported below may not be representative of pro forma compensation expense in
future years. The Company's pro forma information follows:
2000 1999 1998
Net income, as reported ................. $ 12,245 $ 5,205 $ 13,578
Pro forma net income .................... $ 10,018 $ 3,627 $ 12,699
Basic net income per share, as reported . $ .95 $ .40 $ 1.04
Pro forma basic net income per share .... $ .77 $ .28 $ .97
Diluted net income per share, as reported $ .94 $ .39 $ 1.03
Pro forma diluted net income per share .. $ .77 $ .27 $ .96
A summary of the Company's stock option activity, and related information is as
follows:
2000 1999 1998
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
Outstanding - beginning of year 1,166 $17.24 1,145 $16.82 949 $14.88
Granted 674 $ 7.49 734 $18.10 395 $20.89
Exercised -- -- (59) $12.88 (50) $11.88
Forfeited (408) $12.77 (154) $20.09 (149) $16.92
Outstanding - end of year 1,932 $14.78 1,666 $17.24 1,145 $16.82
Exercisable - end of year 642 $17.37 516 $14.87 332 $13.59
Weighted-average fair value of options
granted during the year $ 3.96 $ 8.36 $ 8.56
As of February 4, 2001, exercise prices for 1,052 options and 880 options ranged
from $6.25 to $15.50 and $18.38 to $27.56, respectively. The weighted-average
remaining contractual life of the options is 7.7 years.
Under a Shareholder Protection Rights Plan adopted by the Company, each share of
outstanding common stock includes a right which entitles the holder to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock
for seventy five dollars. Rights attach to all new shares of commons stock
whether newly issued or issued from treasury stock and become exercisable only
under certain conditions involving actual or potential acquisitions of the
Company's common stock. Depending on the circumstances, all holders except the
acquiring person may be entitled to 1) acquire such number of share of Company
common stock as have a market value at the time of twice the exercise price of
each right, or 2) exchange a right for one share of Company common stock or one
one-hundredth of a share of the Series A Junior Participating Preferred Stock,
or 3) receive shares of the acquiring company's common stock having a market
value equal to twice the exercise price of each right. The rights remain in
existence until ten years after the Distribution, unless they are redeemed (at
one cent per right).
F-9
35
NOTE 8: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
2000 1999 1998
Numerator-Net Income $12,245 $ 5,205 $13,578
- ---------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic net income per share -
Weighted average shares 12,953 13,054 13,053
Effect of dilutive securities - employee stock options 33 160 193
- ---------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share - adjusted
weighted average shares 12,986 13,214 13,246
Basic net income per share $ .95 $ .40 $ 1.04
Diluted net income per share $ .94 $ .39 $ 1.03
Options to purchase 1,346, 925 and 404 shares of common stock for 2000, 1999,
and 1998, respectively, were not included in the computation of diluted net
income per share because the options would have been antidilutive.
NOTE 9: RELATED PARTY ACTIVITY
In April 1998, a limited liability litigation corporation owned by the creditors
of Edison Brothers filed a lawsuit against the Company and related parties,
seeking recovery in connection with the spin-off and certain related
transactions. In August 1998, the Company settled the litigation with the
limited liability corporation. In full and final settlement of all claims, the
Company paid $2,244 and charged such amount to paid in capital because all
alleged claims were associated with the spin-off transactions.
During 2000, the Company was party to a consulting agreement with Sandell
Investments ("Sandell"), a partnership whose controlling partner is a director
of the Company. Sandell advises the Company with respect to expansion and site
selection, market analysis, improvement and enhancement of the Dave & Buster's
concept and other similar and related activities. Annual fees of $125 were paid
to Sandell in 2000, 1999, and 1998, the maximum fee provided for under the
agreement.
The Company was a party to a sale/leaseback transaction with Cypress Equities,
Inc. for its San Diego, California location whereby the Company received $8,000
in exchange for committing to lease payments of approximately $6,300 over 20
years with options for renewal. A director of the Company is the managing member
of Cypress Equities, Inc. Payments to Cypress Equities, Inc. in 2000 were $167.
F-10
36
NOTE 10: EMPLOYEE BENEFIT PLAN
The Company sponsors a plan to provide retirement benefits under the provision
of Section 401(k) of the Internal Revenue Code (the 401(k) Plan) for all
employees who have completed a specified term of service. Company contributions
may range from 0% to 100% of employee contributions, up to a maximum of 6% of
eligible employee compensation, as defined. Employees may elect to contribute up
to 20% of their eligible compensation on a pretax basis. Benefits under the
401(k) Plan are limited to the assets of the 401(k) Plan.
NOTE 11: CONTINGENCIES
The Company is subject to certain legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to all actions will not materially affect the
consolidated results of operations or financial condition of the Company.
NOTE 12: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fiscal 2000 First Second Third Fourth
Total revenues................................. $77,849 $77,566 $79,244 $97,644
Income before provision for income taxes....... 4,565 3,397 2,368 8,924
Net income..................................... 2,890 2,150 1,499 5,706
Basic net income per share..................... $ .22 $ .17 $ .12 $ .44
Basic weighted average shares outstanding...... 12,953 12,953 12,953 12,953
Diluted net income per share................... $ .22 $ .17 $ .12 $ .44
Diluted weighted average shares outstanding.... 12,960 12,954 12,974 13,077
Fiscal 1999 First Second Third Fourth
Total revenues................................. $ 59,700 $57,617 $58,988 $70,829
Income before provision for income taxes
and cumulative effect of a change in an
accounting principle...................... 6,052 3,124 361 6,079
Income before cumulative effect of a
change in an accounting principle......... 3,813 1,990 229 3,860
Net income (loss).............................. (874) 1,990 229 3,860
Basic net income per share.....................
Income before accounting change........... $ .29 $ .15 $ .02 $ .30
Net income (loss)......................... (.07) .15 .02 .30
Basic weighted average shares outstanding...... 13,072 13,111 13,076 12,956
Diluted net income per share
Income before accounting change........... $ .29 $ .15 $ .02 $ .30
Net income (loss)......................... (.07) .15 .02 .30
Diluted weighted average shares outstanding.... 13,276 13,461 13,163 12,957
F-11
37
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
DAVE & BUSTER'S, INC.
We have audited the accompanying consolidated balance sheets of Dave & Buster's,
Inc. as of February 4, 2001 and January 30, 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended February 4, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dave & Buster's,
Inc. at February 4, 2001 and January 30, 2000 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended February 4, 2001, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 28, 2001
F-12
38
INDEX TO EXHIBITS
Exhibit
- -------
3.1 Restated Articles of Incorporation of the Company. (1)
3.2 Bylaws of the Company. (1)
10.1 Revolving Credit and Term Loan Agreement, dated June 30, 2000, among
the Company and its subsidiaries, Fleet National Bank (as agent) and
the financial institutions named therein. (2)
10.7 Rights Agreement between the Company and Rights Agent, dated June 16,
1995. (1)
10.8 1995 Stock Option Plan (As Amended and Restated April 26, 2000). (3)
10.9 Stock Option Plan for Outside Directors. (5)
10.11 Employment and Executive Retention Agreements for Co-Chief Executive
Officers, dated June 16, 1995. (4)
10.12 Form of Indemnity Agreements with Executive Officers and Directors.
(6)
21.1 Subsidiaries of the Company. (4)
23 Independent Auditors' Consent. (4)
99 Proxy Statement, dated May 4, 2001. (7)
26
39
- -----------------------
(1) Filed as an Exhibit to the registrant's Form 10-Q for the 13-week
period ended April 30, 1995 and incorporated herein by reference.
(2) Filed as an Exhibit to the registrant's Form 10-Q for the 13-week
period ended July 30, 2000 and incorporated herein by reference.
(3) Filed as an Exhibit to the registrant's Proxy Statement dated April
28, 2000 and incorporated herein by reference.
(4) Filed herewith.
(5) Filed as an Exhibit to the registrant's Form 10-K for the 52 week
period ended February 1, 1997 and incorporated herein by reference.
(6) Filed as an Exhibit to the registrant's Form 10 filed April 11, 1995
and incorporated herein by reference.
(7) To be filed with the Commission on or before June 4, 2001.
27