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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ---- FOR THE QUARTER ENDED AUGUST 5, 2001.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
- ---- OF 1934 FOR THE TRANSACTION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 0-25858
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DAVE & BUSTER'S, INC.
(Exact Name of Registrant as Specified in Its Charter)
MISSOURI 43-1532756
(State of Incorporation) (I.R.S. Employer Identification No.)
2481 MANANA DRIVE
DALLAS, TEXAS 75220
(Address of Principle Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(214) 357-9588
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of September 14, 2001 was 12,955,542 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
13 Weeks Ended 26 Weeks Ended
--------------------------- ---------------------------
August 5, July 30, August 5, July 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Food and beverage revenues $ 41,542 $ 38,490 $ 85,154 $ 77,470
Amusement and other revenues 42,080 39,076 86,678 77,945
------------ ------------ ------------ ------------
Total revenues 83,622 77,566 171,832 155,415
Cost of revenues 15,761 14,539 32,256 28,554
Operating payroll and benefits 25,410 23,291 52,634 46,556
Other store operating expenses 24,782 21,773 48,991 43,611
General and administrative expenses 4,958 4,804 10,254 9,654
Depreciation and amortization expense 7,157 6,248 13,908 11,982
Preopening costs 821 1,502 1,900 3,557
------------ ------------ ------------ ------------
Total costs and expenses 78,889 72,157 159,943 143,914
------------ ------------ ------------ ------------
Operating income 4,733 5,409 11,889 11,501
Interest expense, net 2,058 2,012 4,380 3,539
------------ ------------ ------------ ------------
Income before provision for income taxes 2,675 3,397 7,509 7,962
Provision for income taxes 968 1,247 2,718 2,922
------------ ------------ ------------ ------------
Net income $ 1,707 $ 2,150 $ 4,791 $ 5,040
Basic net income per share $ 0.13 $ 0.17 $ 0.37 $ 0.39
Basic weighted average shares outstanding 12,954 12,953 12,954 12,953
Diluted net income per share $ 0.13 $ 0.17 $ 0.37 $ 0.39
Diluted weighted average shares outstanding 13,028 12,954 13,049 12,957
</Table>
See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<Table>
<Caption>
August 5,
2001 February 4,
(unaudited) 2001
------------ ------------
Current assets:
Cash and cash equivalents $ 2,718 $ 3,179
Inventories 22,481 21,758
Prepaid expenses 4,394 3,663
Other current assets 2,416 1,787
------------ ------------
Total current assets 32,009 30,387
Property and equipment, net 269,047 260,467
Goodwill, net of accumulated amortization of $2,422 and $2,263 7,286 7,445
Other assets 5,570 5,576
------------ ------------
Total assets $ 313,912 $ 303,875
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 4,125 $ 4,124
Accounts payable 12,315 9,291
Accrued liabilities 8,533 7,050
Income taxes payable 3,237 3,567
Deferred income taxes 1,221 1,229
------------ ------------
Total current liabilities 29,431 25,261
Deferred income taxes 8,710 7,667
Other liabilities 5,483 4,700
Long-term debt, less current installments 103,063 103,860
Commitments and contingencies
Stockholders' equity:
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
August 5, 2001 and February 4, 2001, respectively 131 131
Paid in capital 115,659 115,659
Restricted stock awards 290 243
Retained earnings 52,991 48,200
------------ ------------
169,071 164,233
Less: treasury stock, at cost (175,000 shares) 1,846 1,846
------------ ------------
Total stockholders' equity 167,225 162,387
------------ ------------
Total liabilities and stockholders' equity $ 313,912 $ 303,875
</Table>
See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Common Stock
------------ Paid in Retained Restricted Treasury
Shares Amount Capital Earnings Stock Awards Stock Total
----------- ----------- ----------- ----------- ------------ ----------- -----------
Balance, February 4, 2001 12,953 $ 131 $ 115,659 $ 48,200 $ 243 $ (1,846) $ 162,387
Amortization of
restricted stock awards -- -- -- -- 47 -- 47
Net income -- -- -- 4,791 -- -- 4,791
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, August 5, 2001 12,953 $ 131 $ 115,659 $ 52,991 $ 290 $ (1,846) $ 167,225
</Table>
See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
26 Weeks Ended
------------------------------
August 5, July 30,
2001 2000
------------- -------------
Cash flows from operating activities
Net income $ 4,791 $ 5,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,908 11,982
Provision for deferred income taxes 1,035 (476)
Restricted stock awards 47 --
Changes in assets and liabilities
Inventories (723) (1,244)
Prepaid expenses (731) (1,970)
Other assets (626) (3,833)
Accounts payable 3,024 1,554
Accrued liabilities 1,483 2,010
Income taxes payable (330) 1,448
Other liabilities 783 1,204
------------- -------------
Net cash provided by operating activities 22,661 15,715
------------- -------------
Cash flows from investing activities:
Capital expenditures (22,326) (27,360)
------------- -------------
Net cash used by investing activities (22,326) (27,360)
------------- -------------
Cash flows from financing activities:
Borrowings under long-term debt 13,250 113,420
Repayments of long-term debt (14,046) (102,920)
------------- -------------
Net cash provided (used) by financing activities (796) 10,500
------------- -------------
Decrease in cash and cash equivalents (461) (1,145)
Beginning cash and cash equivalents 3,179 3,091
------------- -------------
Ending cash and cash equivalents $ 2,718 $ 1,946
</Table>
See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 5, 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: RESULTS OF OPERATIONS
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year. The information furnished
herein reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary to fairly
present the results of operations and financial position for the interim
periods.
NOTE 2: BASIS OF PRESENTATION
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Dave & Buster's, Inc. and wholly-owned subsidiaries (the "Company").
All material intercompany accounts and transactions have been eliminated in
consolidation. The consolidated balance sheet data presented herein for February
4, 2001 was derived from the Company's audited consolidated financial statements
for the fiscal year then ended. The preparation of financial statements in
accordance with generally accepted accounting principles requires the Company's
management to make certain estimates and assumptions for the reporting periods
covered by the financial statements. These estimates and assumptions affect the
reported amounts of assets, liabilities, revenues and expenses. Actual amounts
could differ from these estimates. 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.
CHANGE IN METHOD OF ACCOUNTING. The Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FAS 133") effective February 5, 2001. FAS 133 requires the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of hedge, changes in fair value
of derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. During the current quarter, the Company has
entered into an agreement that expires in 2007, to fix its variable-rate debt to
fixed-rate debt (5.44% at August 5, 2001) on notional amounts aggregating
$55,000. The market risks associated with the agreements are mitigated because
increased interest payments under the agreement resulting from a decrease in
LIBOR are effectively offset by decreased payments under the debt obligation.
The Company is exposed to credit losses for periodic settlements of amounts due
under the agreements. Such amounts were not material at August 5, 2001.
NEW PRONOUNCEMENTS. In June 2001, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets ("Statements"),
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives.
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The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statements is expected to result in an
increase in net income of $243 ($.02 per diluted share) in 2002 as a result of
nonamortization of existing goodwill. During 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of February 4, 2002 and has not yet determined what the
effect of these tests will be on the earnings and financial position of the
Company.
NOTE 3: 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, based on
discussions with and advice of legal counsel, the amount of ultimate liability
with respect to these actions will not materially affect the consolidated
results of operations or financial conditions of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)
Results of Operations - 13 Weeks Ended August 5, 2001 Compared to 13 Weeks Ended
July 30, 2000
Total revenues increased to $83,622 for the 13 weeks ended August 5, 2001 from
$77,566 for the 13 weeks ended July 30, 2000, an increase of $6,056 or 8%. New
stores opened in fiscal 1999 and 2000 and the first quarter of 2001 increased
revenues during the period by $11,598. Revenues at comparable stores decreased
1.9% for the 13 weeks ended August 5, 2001. The decrease in comparable stores
revenues was primarily attributable to a decline in company sponsored private
parties. Total revenues for the 13 weeks ended August 5, 2001 from licensing
agreements were $125.
Cost of revenues increased to $15,761 for the 13 weeks ended August 5, 2001 from
$14,539 for the 13 weeks ended July 30, 2000, an increase of $1,222 or 8%. The
increase was principally attributable to the 8% increase in revenues. As a
percentage of revenues, cost of revenues increased to 18.8% in the 13 weeks
ended August 5, 2001 from 18.7% in the 13 weeks ended July 30, 2000 due to lower
food and beverage costs offset by higher amusement costs associated with
redemption and freight costs.
Operating payroll and benefits increased to $25,410 for the 13 weeks ended
August 5, 2001 from $23,291 for the 13 weeks ended July 30, 2000, an increase of
$2,119 or 9%. As a percentage of revenue, operating payroll and benefits
increased to 30.4% in the 13 weeks ended August 5, 2001 from 30.0% in the 13
weeks ended July 30, 2000 due to higher fixed labor and fringe benefit costs due
to increased headcounts offset by lower variable labor costs.
Other store operating expenses increased to $24,782 for the 13 weeks ended
August 5, 2001 from $21,773 for the 13 weeks ended July 30, 2000, an increase of
$3,009 or 14%. As a percentage of revenues, other store operating expenses were
29.6% of revenues in the 13 weeks ended August 5, 2001 as compared to 28.1% of
revenues in the 13 weeks ended July 30, 2000. Other store operating expenses as
a percentage of revenue increased due to higher utility, marketing and occupancy
costs.
General and administrative increased to $4,958 for the 13 weeks ended August 5,
2001 from $4,804 for the 13 weeks ended July 30, 2000, an increase of $154 or
3%. As a percentage of revenues, general and administrative expenses decreased
to 5.9% in the 13 weeks ended August 5, 2001 from 6.2% in the 13 weeks ended
July 30, 2000.
Depreciation and amortization increased to $7,157 for the 13 weeks ended August
5, 2001 from $6,248 for the 13 weeks ended July 30, 2000, an increase of $909 or
15%. As a percentage of revenues, depreciation and amortization increased to
8.6% from 8.1% for the comparable period due to new store openings.
Preopening costs decreased to $821 for the 13 weeks ended August 5, 2001 from
$1,502 for the 13 weeks ended July 30, 2000. The timing of complex openings
affects the amount of such costs in any given period.
Interest expense increased to $2,058 for the 13 weeks ended August 5, 2001 from
$2,012 for the 13 weeks ended July 30, 2000. The increase was primarily due to
higher average debt offset by lower interest rates in fiscal year 2001.
The effective tax rate for the 13 weeks ended August 5, 2001 was 36.2% as
compared to 36.7% for the 13 weeks ended July 30, 2000.
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Results of Operations - 26 Weeks Ended August 5, 2001 Compared to 26 Weeks Ended
July 30, 2000
Total revenues increased to $171,832 for the 26 weeks ended August 5, 2001 from
$155,415 for the 26 weeks ended July 30, 2000, an increase of $16,417 or 11%.
New stores opened in fiscal 1999 and 2000 and the first of 2001 increased
revenues during the period by $18,134. Revenues at comparable stores decreased
1.9% for the 26 weeks ended August 5, 2001. The decrease in comparable stores
revenues was primarily attributable to a decline in company sponsored private
parties. Total revenues for the 26 weeks ended August 5, 2001 from licensing
agreements were $295.
Cost of revenues increased to $32,256 for the 26 weeks ended August 5, 2001 from
$28,554 for the 26 weeks ended July 30, 2000, an increase of $3,702 or 13%. The
increase was principally attributable to the 11% increase in revenues. As a
percentage of revenues, cost of revenues decreased to 18.8% in the 26 weeks
ended August 5, 2001 from 18.4% in the 26 weeks ended July 30, 2000 due to lower
food and beverage costs offset by higher amusement costs.
Operating payroll and benefits increased to $52,634 for the 26 weeks ended
August 5, 2001 from $46,556 for the 26 weeks ended July 30, 2000, an increase of
$6,078 or 13%. As a percentage of revenue, operating payroll and benefits
increased to 30.6% in the 26 weeks ended August 5, 2001 from 30.0% in the 26
weeks ended July 30, 2000 due to higher fixed labor and fringe benefit costs due
to higher headcounts offset by slightly lower variable labor costs.
Other store operating expenses increased to $48,991 for the 26 weeks ended
August 5, 2001 from $43,611 for the 26 weeks ended July 30, 2000, an increase of
$5,380 or 12%. As a percentage of revenues, other store operating expenses were
28.5% of revenues in the 26 weeks ended August 5, 2001 as compared to 28.1% of
revenues in the 26 weeks ended July 30, 2000. Other store operating expenses
were higher due to increased utility and marketing costs at the stores.
General and administrative increased to $10,254 for the 26 weeks ended August 5,
2001 from $9,654 for the 26 weeks ended July 30, 2000, an increase of $600 or
6%. As a percentage of revenues, general and administrative expenses decreased
to 6.0% in the 26 weeks ended August 5, 2001 from 6.2% in the 26 weeks ended
July 30, 2000.
Depreciation and amortization increased to $13,908 for the 26 weeks ended August
5, 2001 from $11,982 for the 26 weeks ended July 30, 2000, an increase of $1,926
or 16%. As a percentage of revenues, depreciation and amortization increased to
8.1% from 7.7% for the comparable period.
Preopening costs decreased to $1,900 for the 26 weeks ended August 5, 2001 from
$3,557 for the 26 weeks ended July 30, 2000. The timing of complex openings
affects the amount of such costs in any given period.
Interest expense increased to $4,380 for the 26 weeks ended August 5, 2001 from
$3,539 for the 26 weeks ended July 30, 2000. The increase was primarily due to
higher average debt offset by lower interest rates in fiscal year 2000.
The effective tax rate for the 26 weeks ended August 5, 2001 was 36.2% as
compared to 36.7% for the 26 weeks ended July 30, 2000.
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Liquidity and Capital Resources
Cash flows from operations increased to $22,661 for the 26 weeks ended August 5,
2001 from $15,715 for the 26 weeks ended July 30, 2000. The increase was
attributable to a decrease in net income offset by an increase in depreciation
and amortization and an increase in operational receipts.
The Company has a $110,000 senior secured revolving credit and term loan
facility. The facility includes a five-year revolver and five and seven-year
term debt. 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 (7.8% at August 5, 2001) and is
secured by all assets of the Company. The facility has certain financial
covenants including a minimum consolidated tangible net worth level, a maximum
leverage ratio, minimum fixed charge coverage and maximum level of capital
expenditures. At August 5, 2001, $3,250 was available under this facility.
The Company has entered into an agreement that expires in 2007, to fix its
variable-rate debt to fixed-rate debt (5.44% at August 5, 2001) on notional
amounts aggregating $55,000. The market risks associated with the agreements are
mitigated because increased interest payments under the agreement resulting from
a decrease in LIBOR are effectively offset by decreased payments under the debt
obligation. The Company is exposed to credit losses for periodic settlements of
amounts due under the agreements. Such amounts were not material at August 5,
2001.
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, the senior
secured revolving credit and term loan facility, and other additional resources
which management is currently pursuing. Through August 14, 2001, the Company
opened a new store in Miami, Florida and in Frisco, Texas.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements in this Report on Form 10-Q are not based on historical facts
but are "forward-looking statements" that are based on numerous assumptions made
as of the date of this report. Forward looking statements are generally
identified by the words "believes", "expects", "intends", "anticipates",
"scheduled", and certain similar expressions. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance, or achievements of Dave & Buster's, Inc.
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; availability; locations and terms of sites for Complex development;
quality of management; changes in, or the failure to comply with, government
regulations; and other risks indicated in this filing and discussed under
"Risks" in the Company's Form 10-K filed with the Securities and Exchange
Commission.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) - (b) At the Company's Annual Meeting of Shareholders on June 14,
2001, the following were elected for a term of three years:
Class III
Allen J. Bernstein
Bruce H. Hallett
The following directors continued their terms of office as directors of the
Company after the Annual Meeting:
Class I Class II
David O. Corriveau James W. Corley
Mark A. Levy Peter A. Edison
Christopher C. Maguire Walter S. Henrion
(c) The following matters were voted upon at the Annual Meeting:
1. Directors:
<Table>
<Caption>
For Against Withheld/Abstain
--- ------- ----------------
Bruce H. Hallett 10,409,689 912,907
Allen J. Bernstein 10,409,689 912,907
</Table>
2. Amendment of Stock Plan to increase number of shares
issuable upon awards from 2,350,000 to 2,950,000 shares:
<Table>
<Caption>
For Against Withheld/Abstain
--- ------- ----------------
9,770,175 1,527,509 24,912
</Table>
3. Stock Option Plan for Outside Directors to increase the
number of shares issuable upon grants of stock options from 150,000 to 190,000:
<Table>
<Caption>
For Against Withheld/Abstain
--- ------- ----------------
10,050,536 1,244,556 27,504
</Table>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1.1 Amendment No. 1 to Revolving Credit and Term Loan Agreement
dated as of May 31, 2001 by and among the Company and its
subsidiaries, Fleet National Bank (as agent) and the financial
institutions named therein.
10.13 Executive Retention Agreement for Charles Michel dated June
11, 2001
10.14 Executive Retention Agreement for Sterling R. Smith dated June
11, 2001
10.15 Executive Retention Agreement for Bryan L. Spain dated June 8,
2001
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the 13 weeks ended August 5,
2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAVE & BUSTER'S, INC.
Dated: September 14, 2001 by /s/ David O. Corriveau
------------------ -----------------------------
David O. Corriveau
Co-Chairman of the Board,
Co-Chief Executive Officer
and President
Dated: September 14, 2001 by /s/ Charles Michel
------------------ -----------------------------
Charles Michel
Vice President,
Chief Financial Officer
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EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1.1 Amendment No. 1 to Revolving Credit and Term Loan Agreement
dated as of May 31, 2001 by and among the Company and its
subsidiaries, Fleet National Bank (as agent) and the financial
institutions named therein.
10.13 Executive Retention Agreement for Charles Michel dated June
11, 2001
10.14 Executive Retention Agreement for Sterling R. Smith dated June
11, 2001
10.15 Executive Retention Agreement for Bryan L. Spain dated June 8,
2001
</Table>