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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 3, 1997.
- ----
- ---- 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.)
2751 ELECTRONIC LANE
DALLAS, TEXAS 75220
(Address of Principal 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 16, 1997 was 10,917,534 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)
13 Weeks Ended 26 Weeks Ended
------------------- ------------------
August 3, August 4, August 3, August 4,
1997 1996 1997 1996
---- ---- ---- ----
Food and beverage revenues $ 14,655 $ 11,464 $ 29,433 $ 22,549
Amusement and other revenues 15,016 9,681 28,870 18,813
-------- -------- -------- --------
Total revenues 29,671 21,145 58,303 41,362
Cost of revenues 5,760 4,315 11,293 8,491
Operating payroll and benefits 8,416 6,284 16,388 12,093
Other restaurant operating expenses 7,594 4,728 14,737 9,476
General and administrative expenses 1,947 1,337 3,833 2,672
Depreciation and amortization expense 2,021 1,381 3,865 2,611
Preopening cost amortization 717 730 1,495 1,216
-------- -------- -------- --------
Total costs and expenses 26,455 18,775 51,611 36,559
-------- -------- -------- --------
Operating income 3,216 2,370 6,692 4,803
Interest (income) expense, net 283 (26) 480 (41)
-------- -------- -------- --------
Income before provision for income taxes 2,933 2,396 6,212 4,844
Provision for income taxes 1,144 978 2,422 2,007
-------- -------- -------- --------
Net income $ 1,789 $ 1,418 $ 3,790 $ 2,837
======== ======== ======== ========
Earnings per common share $ 0.16 $ 0.13 $ 0.35 $ 0.26
======== ======== ======== ========
Weighted average number of common shares outstanding 10,907 10,901 10,905 10,901
See accompanying notes to consolidated financial statements.
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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)
13 Weeks Ended 26 Weeks Ended
---------------------- ----------------------
August 3, August 4, August 3, August 4,
1997 1996 1997 1996
--------- --------- --------- ---------
Food and beverage revenues $14,655 $11,464 $29,433 $22,549
Amusement and other revenues 15,016 9,681 28,870 18,813
------- ------- ------- -------
Total revenues 29,671 21,145 58,303 41,362
Cost of revenues 5,760 4,315 11,293 8,491
Operating payroll and benefits 8,416 6,284 16,388 12,093
Other restaurant operating expenses 7,594 4,728 14,737 9,476
General and administrative expenses 1,947 1,337 3,833 2,672
Depreciation and amortization expense 2,021 1,381 3,865 2,611
Preopening cost amortization 717 730 1,495 1,216
------- ------- ------- -------
Total costs and expenses 26,455 18,775 51,611 36,559
------- ------- ------- -------
Operating income 3,216 2,370 6,692 4,803
Interest (income) expense, net 283 (26) 480 (41)
------- ------- ------- -------
Income before provision for income taxes 2,933 2,396 6,212 4,844
Provision for income taxes 1,144 978 2,422 2,007
------- ------- ------- -------
Net income $ 1,789 $ 1,418 $ 3,790 $ 2,837
======= ======= ======= =======
Earnings per common share $ 0.16 $ 0.13 $ 0.35 $ 0.26
======= ======= ======= =======
Weighted average number of common shares outstanding 10,907 10,901 10,905 10,901
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
August 3,
1997 February 2,
(unaudited) 1997
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Current assets:
Cash and cash equivalents $ 1,359 $ 358
Inventories 4,870 3,890
Prepaid expenses 1,670 881
Preopening costs 2,142 1,947
Other current assets 1,284 1,019
--------- --------
Total current assets 11,325 8,095
Property and equipment, net 92,593 82,037
Goodwill, net of accumulated amortization of $931 and $741 8,777 8,920
Other assets 791 384
--------- --------
Total assets $ 113,486 $ 99,436
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,814 $ 3,174
Accrued liabilities 2,791 1,747
Income taxes payable 394 924
Deferred income taxes 1,507 1,173
--------- --------
Total current liabilities 7,506 7,018
Deferred income taxes 2,235 2,075
Other liabilities 885 727
Long-term debt 23,500 14,250
Commitments and contingencies
Stockholders' equity:
Preferred stock, 10,000,000 authorized; none issued 0 0
Common stock, $0.01 par value, 50,000,000 authorized;
10,916,034 and 10,902,084 shares issued and outstanding
as of August 3, 1997 and February 2, 1997, respectively 109 109
Paid in capital 67,203 66,999
Retained earnings 12,048 8,258
--------- --------
Total stockholders' equity 79,360 75,366
--------- --------
$ 113,486 $ 99,436
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See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
Common Stock
--------------- Paid in Retained
Shares Amount Capital Earnings Total
------ ------ ------- --------- -----
Balance, February 2, 1997 10,902 $ 109 $ 66,999 $ 8,258 $ 75,366
Stock options exercised 14 0 167 0 167
Tax benefit related to
options exercised 0 0 37 0 37
Net income 0 0 0 3,790 3,790
------ ----- -------- -------- --------
Balance, August 3, 1997 10,916 $ 109 $ 67,203 $ 12,048 $ 79,360
====== ===== ======== ======== ========
See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
26 Weeks Ended
---------------------------
August 3, August 4,
1997 1996
--------- ---------
Cash flows from operating activities
Net income $ 3,790 $ 2,837
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 5,360 2,111
Provision for deferred income taxes 494 (41)
Changes in assets and liabilities
Inventories (980) (430)
Prepaid expenses (789) (286)
Preopening costs (1,690) (666)
Other assets (725) 203
Accounts payable (360) (104)
Accrued liabilities 1,044 (320)
Other liabilities (335) (123)
-------- -------
Net cash provided by operating activities 5,809 3,181
Cash flows from investing activities
Capital expenditures (14,225) (11,121)
Cash flows from financing activities
Proceeds from issuance of common stock 167 18
Borrowings under long-term debt 31,911 4,000
Repayments of long-term debt (22,661) 0
-------- -------
Net cash provided by financing activities 9,417 4,018
-------- -------
Cash provided (used) 1,001 (3,922)
Beginning cash and cash equivalents 358 4,325
-------- -------
Ending cash and cash equivalents $ 1,359 $ 403
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See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1997
(UNAUDITED)
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 present a
fair statement of the results for the interim periods.
NOTE 2: BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dave &
Buster's, Inc. (the "Company") and all wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
The primary business of the Company is the ownership and operation of
restaurant/entertainment complexes (a "Complex") under the name "Dave &
Buster's" which are located in Texas, Georgia, Pennsylvania, Illinois, Florida,
Maryland and California.
NOTE 3: EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock and dilutive options
outstanding during the period. Primary and fully diluted earnings per share are
not materially different for the interim periods presented.
On August 14, 1997, the Company declared a three-for-two split in the form
of a stock dividend to stockholders of record as of August 25, 1997. The stock
dividend is expected to be distributed September 15, 1997. All share and per
share information has been adjusted to give effect to the three-for-two split
in the form of a stock dividend.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". The
Company does not believe that the adoption of this statement in the fourth
quarter of fiscal 1997 will have a significant impact on the Company.
NOTE 4: 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 condition of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations - 13 Weeks Ended August 3, 1997 Compared to 13 Weeks
Ended August 4, 1996
Total revenues for the 13 weeks ended August 3, 1997 increased by 40% over
the 13 weeks ended August 4, 1996. The increase in revenues was primarily
attributable to the North Bethesda, Maryland and Ontario, California locations,
which opened in the fourth quarter of fiscal 1996 and the first quarter of
fiscal 1997, respectively. Increased revenues at comparable Complexes and the
addition of the Power Card also contributed to the increase in total revenues.
Total revenues also increased due to the opening of the first Complex under the
Bass licensing agreement. Total revenues for the fiscal 1997 period from the
Bass agreement were $145,000.
Cost of revenues, as a percentage of revenues, decreased to 19.4% from
20.4% in the prior comparable period. The decrease in cost of revenues was a
result of lower costs associated with beverage revenues and a shift in the
revenue mix towards more amusement revenues. Operating payroll and benefits
decreased to 28.4% from 29.7% in the prior comparable period. Operating payroll
and benefits was lower due to cost reductions in variable and fixed labor and
leverage from increased revenues. Other operating expenses increased to 25.6%
compared to 22.4% in the prior comparable period. Other operating expenses were
higher due to increased occupancy costs associated with the addition of the
North Bethesda, Maryland and Ontario, California locations as well as higher
fixed costs at the Complexes.
General and administrative costs increased $610,000 over the prior
comparable period as a result of 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 6.6% compared to 6.3% for the comparable prior period.
Depreciation and amortization expense increased $640,000 over the prior
comparable period as a result of the opening of the North Bethesda, Maryland
and Ontario, California locations subsequent to the fiscal 1996 period. As a
percentage of revenues, depreciation and amortization increased to 6.8% from
6.5% for the comparable prior period. Preopening cost amortization decreased to
2.4% compared to 3.5% in the prior comparable period. The percentage decrease
is attributable to the leverage from increased revenues.
The effective tax rate for the second quarter of 1997 was 39.0% as
compared to 40.8% for the comparable period last year and was the result of a
lower effective state tax rate.
Results of Operations - 26 Weeks Ended August 3, 1997 Compared to 26 Weeks
Ended August 4, 1996
Total revenues for the 26 weeks ended August 3, 1997 increased by 41% over
the 26 weeks ended August 4, 1996. The increase in revenues was primarily
attributable to the Hollywood, Florida location being open the full 26 weeks in
fiscal 1997 and the inclusion in the fiscal 1997 period of the North Bethesda,
Maryland and Ontario, California locations, which opened in the fourth quarter
of fiscal 1996 and first quarter of fiscal 1997, respectively. Increased
revenues at comparable Complexes and the addition of the Power Card also
contributed to the increase in total revenues. Total revenues also increased
due to the opening of the first Complex under the Bass licensing agreement.
Total revenues for the fiscal 1997 period from the Bass agreement were
$145,000.
Cost of revenues, as a percentage of revenues, decreased to 19.4% from
20.5% in the prior comparable period. The decrease in cost of revenues was a
result of lower costs associated with food and beverage revenues and a shift in
revenue mix toward more amusement revenues. Operating payroll and benefits
decreased to 28.1% from 29.2% in the prior comparable period. Operating payroll
and
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benefits was lower due to cost reductions in variable and fixed labor and
leverage from increased revenues. Other operating expenses increased to 25.3%
compared to 22.9% in the prior comparable period. Other operating expenses were
higher due to increased occupancy costs associated with a full 26 weeks of
revenues in the fiscal 1997 period for the Hollywood, Florida location, the
addition of the North Bethesda, Maryland and Ontario, California locations and
higher fixed costs at the Complexes.
General and administrative costs increased $1.2 million over the prior
comparable period as a result of 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 slightly to 6.6% compared to 6.5% for the comparable prior
period.
Depreciation and amortization expense, as a percentage of revenues,
increased to 6.6% from 6.3% for the comparable prior period. This was due to
the inclusion of the Hollywood, Florida location for the full 26 weeks in
fiscal 1997 and the opening of the North Bethesda, Maryland and Ontario,
California locations subsequent to the fiscal 1996 period. As a percentage of
revenues, preopening cost amortization decreased to 2.6% compared to 2.9% in
the prior comparable period. The percentage decrease is attributable to the
leverage from increased revenues.
The effective tax rate for the 26 weeks ended August 3, 1997 was 39.0%
compared to 41.4% for the comparable period of fiscal 1996 and was the result
of a lower effective state tax rate.
Liquidity and Capital Resources
Cash flows from operations increased from $3.2 million in the first 26
weeks of fiscal 1996 to $5.8 million in the first 26 weeks of fiscal 1997. The
increase was a result of the Hollywood, Florida location being open for the
full 26 week period, the North Bethesda, Maryland location opening in the fourth
quarter of fiscal 1996 and the Ontario, California location opening in the first
quarter of fiscal 1997. The increase in cash flows from operations was reduced
by an increase in inventories, prepaid costs, preopening costs and other assets
related to the new openings.
On May 29, 1997, the Company secured a $50,000,000 senior revolving line
of credit and closed its previous $23,500,000 revolving line of credit. At
August 3, 1997, $22.8 million was available under this facility. Borrowings
under this facility bear interest at a floating rate based on the London
Interbank Offered Rate ("LIBOR") or, at the Company's option, the bank's prime
rate plus in each case a margin based upon financial performance (8.0% at
August 3, 1997). The facility, which matures in May 2000, has certain financial
covenants including minimum consolidated tangible net worth, maximum leverage
ratio, minimum fixed charge coverage and maximum level of capital expenditures
on new Complexes.
The Company's plan is to open three new Complexes in fiscal 1997. The
first Complex opened in Ontario, California during the first quarter on March
13, 1997. The next two Complexes will open in Cincinnati, Ohio and Denver,
Colorado in the third and fourth quarters, respectively. In fiscal 1998, the
Company's goal is to open four new Complexes. The Company estimates that its
capital expenditures will be approximately $41 million and $42 million for 1997
and 1998, respectively. These amounts are inclusive of approximately $250,000
to $375,00 of capitalized maintenance and improvements for each existing
Complex in each year and costs associated with the construction of the
Company's new corporate headquarters. The Company intends to finance this
development with cash flow from operations, the new credit facility described
above and equipment leases.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors with may cause the actual results, performance
or achievements of Dave & Buster's, Inc. to be materially different from any
future
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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; development and
operating costs; adverse publicity; consumer trial and frequency; availability,
locations and terms of sites for complex development; quality of management;
business abilities and judgment of personnel; availability of qualified
personnel; food, labor and employee benefit costs; changes in, or the failure
to comply with, government regulations; and other risks indicated in this
filing.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Credit Agreement, dated May 21, 1997, among the Company,
Texas Commerce Bank National Association (as agent) and the
banks named therein.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the 26 weeks ended
August 3, 1997.
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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 16, 1997 by /s/ David O. Corriveau
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David O. Corriveau
Co-Chairman of the Board, Co-
Chief Executive Officer and
President
Dated: September 16, 1997 by: /s/ Charles Michel
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Charles Michel
Vice President,
Chief Financial Officer and
Treasurer
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EXHIBIT INDEX
10.1 Credit Agreement, dated May 21, 1997, among the Company, Texas Commerce
Bank National Association (as agent) and the banks named therein.
27 Financial Data Schedule