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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 1, 1999.
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 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 9, 1999 was 13,128,375 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 1, August 2, August 1, August 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Food and beverage revenues $ 27,444 $ 19,439 $ 56,145 $ 38,631
Amusement and other revenues 30,173 21,252 61,172 40,977
---------- ---------- ---------- ----------
Total revenues 57,617 40,691 117,317 79,608
Cost of revenues 10,657 7,965 21,695 15,595
Operating payroll and benefits 17,902 11,756 35,669 22,649
Other restaurant operating expenses 15,569 10,303 30,624 20,549
General and administrative expenses 3,654 2,500 7,095 4,907
Depreciation and amortization expense 4,705 2,795 8,863 5,243
Preopening costs 1,461 992 3,157 1,967
---------- ---------- ---------- ----------
Total costs and expenses 53,948 36,311 107,103 70,910
---------- ---------- ---------- ----------
Operating income 3,669 4,380 10,214 8,698
Interest (income) expense, net 545 (121) 1,038 (412)
---------- ---------- ---------- ----------
Income before provision for income taxes and
cumulative effect of a change in an accounting principle 3,124 4,501 9,176 9,110
Provision for income taxes 1,134 1,700 3,373 3,443
---------- ---------- ---------- ----------
Income before cumulative effect of a
change in an accounting principle 1,990 2,801 5,803 5,667
Cumulative effect of a change in an accounting
principle, net of income tax benefit of $2,928 -- -- 4,687 --
---------- ---------- ---------- ----------
Net income $ 1,990 $ 2,801 $ 1,116 $ 5,667
Net income per share - basic
Before cumulative effect of a change in an accounting principle $ 0.15 $ 0.21 $ 0.44 $ 0.43
Cumulative effect of a change in an accounting principle -- -- (0.35) --
---------- ---------- ---------- ----------
$ 0.15 $ 0.21 $ 0.09 $ 0.43
Net income per share - dilutive
Before cumulative effect of a change in an accounting principle $ 0.15 $ 0.21 $ 0.43 $ 0.43
Cumulative effect of a change in an accounting principle -- -- (0.35) --
---------- ---------- ---------- ----------
$ 0.15 $ 0.21 $ 0.08 $ 0.43
Weighted average shares outstanding:
Basic 13,111 13,052 13,091 13,041
Diluted 13,461 13,272 13,369 13,157
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 1,
1999 January 31,
(unaudited) 1999
---------- ----------
Current assets:
Cash and cash equivalents $ 3,911 $ 4,509
Inventories 13,286 10,811
Prepaid expenses 1,998 1,743
Preopening costs -- 7,369
Other current assets 3,150 5,286
---------- ----------
Total current assets 22,345 29,718
Property and equipment, net 206,326 177,910
Goodwill, net of accumulated amortization of $1,692 and $1,502 8,016 8,206
Other assets 979 758
---------- ----------
Total assets $ 237,666 $ 216,592
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,475 $ 13,695
Accrued liabilities 3,551 3,785
Deferred income taxes 4,226 4,018
---------- ----------
Total current liabilities 15,252 21,498
Deferred income taxes 2,768 5,638
Other liabilities 1,995 1,454
Long-term debt 70,000 42,500
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;
13,128,375 and 13,069,050 shares issued and outstanding
as of August 1, 1999 and January 31, 1999, respectively 131 131
Paid in capital 115,654 114,621
Retained earnings 31,866 30,750
---------- ----------
Total stockholders' equity 147,651 145,502
---------- ----------
$ 237,666 $ 216,592
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, January 31, 1999 13,069 $ 131 $114,621 $ 30,750 $145,502
Stock options exercised 59 0 757 0 757
Tax benefit related to
options exercised 0 0 276 0 276
Net income 0 0 0 1,116 1,116
-------- -------- -------- -------- --------
Balance, August 1, 1999 13,128 $ 131 $115,654 $ 31,866 $147,651
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 1, August 2,
1999 1998
---------- ----------
Cash flows from operating activities
Net income $ 1,116 $ 5,667
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 8,863 7,210
Provision for deferred income taxes 266 (1,834)
Changes in assets and liabilities
Inventories (2,475) (1,456)
Prepaid expenses (255) (439)
Preopening costs 0 (3,967)
Other assets 1,942 (255)
Accounts payable (6,220) 3,606
Accrued liabilities (234) 1,719
Income taxes payable 0 2,233
Other liabilities 541 212
---------- ----------
Net cash provided by operating activities 8,231 12,696
Cash flows from investing activities
Capital expenditures (37,086) (36,284)
Sale of short-term investments -- 8,507
---------- ----------
Net cash used by investing activities (37,086) (27,777)
Cash flows from financing activities
Proceeds from issuance of common stock 757 671
Borrowings under long-term debt 27,500 3,500
Repayments of long-term debt -- (3,000)
---------- ----------
Net cash provided by financing activities 28,257 1,171
---------- ----------
Cash (used) (598) (13,910)
Beginning cash and cash equivalents 4,509 14,309
---------- ----------
Ending cash and cash equivalents $ 3,911 $ 399
See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 1, 1999
(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. and all wholly-owned subsidiaries (the "Company"). All material
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated balance sheet data presented herein for January 31, 1999 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 located in Texas, Georgia,
Pennsylvania, Illinois, Florida, Maryland, California, Ohio, Colorado,
Michigan, New York, and Missouri.
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position
("SOP") 98-5 entitled "Reporting on the Costs of Start-Up Activities". The SOP,
was effective for fiscal years beginning after December 15, 1998, requires
entities to expense as incurred all start-up and preopening costs that are not
otherwise capitalizable as long-lived assets. Restatement of previously issued
annual financial statements is not permitted by the SOP, and entities are not
permitted to report the pro forma effects of the retroactive application of the
new accounting standard. The Company adopted the SOP in the first quarter of
fiscal 1999 and recorded a charge for the cumulative effect of a change in an
accounting principle of approximately $4,687,000, net of income tax benefits of
approximately $2,928,000.
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 (DOLLARS IN THOUSANDS)
Results of Operations - 13 Weeks Ended August 1, 1999 Compared to 13 Weeks
Ended August 2, 1998
Total revenues increased to $57,617 for the 13 weeks ended August 1, 1999 from
$40,691 for the 13 weeks ended August 2, 1998, an increase of $16,926 or 42%.
The increase in revenues was attributable to incremental revenues
from eight complexes opened after May 3, 1998. Revenues at comparable Stores
decreased 2.2% for the 13 weeks ended August 1, 1999. Total revenues for the 13
weeks ended August 1, 1999 from the Bass licensing agreement were $62.
Cost of revenues increased to $10,657 for the 13 weeks ended August 1, 1999
from $7,965 for the 13 weeks ended August 2, 1998, an increase of $2,692 or
34%. The increase was principally attributable to the 42% increase in revenues.
As a percentage of revenues, cost of revenues decreased to 18.5% in the 13
weeks ended August 1, 1999 from 19.6% in the 13 weeks ended August 2, 1998 due
to lower food, beverage and amusement costs.
Operating payroll and benefits increased to $17,902 for the 13 weeks ended
August 1, 1999 from $11,756 for the 13 weeks ended August 2, 1998, an increase
of $6,146 or 52%. As a percentage of revenue, operating payroll and benefits
increased to 31.1% in the 13 weeks ended August 1, 1999 from 28.9% in the 13
weeks ended August 2, 1998 due to higher variable and fixed labor costs.
Other restaurant operating expenses increased to $15,569 for the 13 weeks ended
August 1, 1999 from $10,303 for the 13 weeks ended August 2, 1998, an increase
of $5,266 or 51%. As a percentage of revenues, other restaurant operating
expenses were 27.0% of revenues in the 13 weeks ended August 1, 1999 as
compared to 25.3% of revenues in the 13 weeks ended August 2, 1998. Other
restaurant operating expenses were higher due to increased restaurant,
marketing and occupancy costs at the Stores.
General and administrative increased to $3,654 for the 13 weeks ended August 1,
1999 from $2,500 for the 13 weeks ended August 2, 1998, an increase of $1,154
or 46%. 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 growth plans. As a percentage of
revenues, general and administrative expenses increased to 6.3% in the 13 weeks
ended August 1, 1999 from 6.1% in the 13 weeks ended August 2, 1998.
Depreciation and amortization increased to $4,705 for the 13 weeks ended August
1, 1999 from $2,795 for the 13 weeks ended August 2, 1998, an increase of
$1,910 or 68%. As a percentage of revenues, depreciation and amortization
increased to 8.2% from 6.9% for the comparable prior period. The increase was
attributable to new Stores opened after May 3, 1998.
Beginning in fiscal 1999, in accordance with the adoption of SOP 98-5 (see note
3), the Company expenses all costs incurred during start-up activities,
including preopening costs, as incurred. Preopening costs incurred and recorded
as expense for the 13 weeks ended August 1, 1999 were $1,461. The amount of
preopening costs recorded for fiscal 1998 represents preopening costs which
were amortized over the 12 months following opening. This amortization expense
for the 13 weeks ended August 2, 1998 was $992. The timing of Complex openings
affects the amount of such costs in any given quarter.
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Interest expense for the 13 weeks ended August 1, 1999 was $545 versus an
interest income of $121 for the 13 weeks ended August 2, 1998. The increase was
primarily due to higher average debt in 1999 versus 1998.
The effective tax rate for the 13 weeks ended August 1, 1999 was 36.3% as
compared to 37.8% for the 13 weeks ended August 2, 1998, and the result of a
lower effective state tax rate.
Results of Operations - 26 Weeks Ended August 1, 1999 Compared to 26 Weeks
Ended August 2, 1998
Total revenues increased to $117,317 for the 26 weeks ended August 1, 1999 from
$79,608 for the 26 weeks ended August 2, 1998, an increase of $37,709 or 47%.
The increase in revenues was attributable to incremental revenues from eight
complexes opened after February 1, 1998. Revenues at comparable Stores increased
0.5% for the 26 weeks ended August 1, 1999. Total revenues for the 26 weeks
ended August 1, 1999 from the Bass licensing agreement were $177.
Cost of revenues increased to $21,695 for the 26 weeks ended August 1, 1999
from $15,595 for the 26 weeks ended August 2, 1998, an increase of $6,100 or
39%. The increase was principally attributable to the 47% increase in revenues.
As a percentage of revenues, cost of revenues decreased to 18.5% in the 26
weeks ended August 1, 1999 from 19.6% in the 26 weeks ended August 2, 1998 due
to lower food, beverage and amusement costs.
Operating payroll and benefits increased to $35,669 for the 26 weeks ended
August 1, 1999 from $22,649 for the 26 weeks ended August 2, 1998, an increase
of $13,020 or 58%. As a percentage of revenue, operating payroll and benefits
increased to 30.4% in the 26 weeks ended August 1, 1999 from 28.4% in the 26
weeks ended August 2, 1998 due to higher variable and fixed labor costs.
Other restaurant operating expenses increased to $30,624 for the 26 weeks ended
August 1, 1999 from $20,549 for the 26 weeks ended August 2, 1998, an increase
of $10,075 or 49%. As a percentage of revenues, other restaurant operating
expenses were 26.1% of revenues in the 26 weeks ended August 1, 1999 as
compared to 25.8% of revenues in the 26 weeks ended August 2, 1998. Other
restaurant operating expenses were higher due to increased restaurant and
occupancy costs at the Stores offset by lower utilities and repairs and
maintenance costs.
General and administrative increased to $7,095 for the 26 weeks ended August 1,
1999 from $4,907 for the 26 weeks ended August 2, 1998, an increase of $2,188 or
45%. 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 growth plans. As a percentage of revenues, general
and administrative expenses decreased to 6.0% in the 26 weeks ended August 1,
1999 from 6.2% in the 26 weeks ended August 2, 1998.
Depreciation and amortization increased to $8,863 for the 26 weeks ended August
1, 1999 from $5,243 for the 26 weeks ended August 2, 1998, an increase of
$3,620 or 69%. As a percentage of revenues, depreciation and amortization
increased to 7.6% from 6.6% for the comparable prior period. The increase was
attributable to new Stores opened after February 1, 1998.
Beginning in fiscal 1999, in accordance with the adoption of SOP 98-5 (see note
3), the Company expenses all costs incurred during start-up activities,
including preopening costs, as incurred. Preopening costs incurred and recorded
as expense for the 26 weeks ended August 1, 1999 were $3,157. The amount of
preopening costs recorded for fiscal 1998 represents preopening costs which
were amortized over the 12 months following opening. This amortization expense
for the 26
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weeks ended August 2, 1998 was $1,967. The timing of Complex openings affects
the amount of such costs in any given quarter.
Interest expense for the 26 weeks ended August 1, 1999 was $1,038 versus an
interest income of $412 for the 26 weeks ended August 2, 1998. The increase was
primarily due to higher average debt in 1999 versus 1998.
The effective tax rate for the 26 weeks ended August 1, 1999 was 36.8% as
compared to 37.8% for the 26 weeks ended August 2, 1998, and the result of a
lower effective state tax rate.
Liquidity and Capital Resources
Cash flows from operations decreased to $7,955 for the 26 weeks ended August 1,
1999 from $12,696 for the 26 weeks ended August 2, 1998. The decrease was
attributable to a decrease in accounts payable associated with new Store
development costs.
The Company has a secured revolving line of credit, which permits borrowing up
to a maximum of $100,000. 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 (7.1% at August 1, 1999) and is secured by all capital
stock or equity interest in the stock of the Company and its subsidiaries. The
facility, which matures in May 2001, 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 on new Stores.
At August 1, 1999, $29,620 was available under this facility.
On July 29, 1999 the Company terminated its interest rate swap agreement that
fixed its variable-rate debt to fixed-rate debt on notional amounts aggregating
$45,000. The terminated agreement resulted in a $40 gain being recognized
during the period.
The Company's plan is to open six and seven complexes in fiscal 1999 and 2000,
respectively. The Company estimates that its capital expenditures will be
approximately $68,000 and $69,000 for 1999 and 2000, respectively. The Company
intends to finance this development with cash flow from operations, the senior
revolving credit facility and other additional capital resources which,
management is currently pursuing. However, there is no assurance that the
company can secure these resources. Through August 1, 1999, new complexes have
opened in San Antonio, Texas, Atlanta, Georgia and St. Louis, Missouri.
Impact of the Year 2000 Issues
The Company's comprehensive Year 2000 initiative is designed to ensure that
there is no adverse effect on the Company's core business operations and that
transactions with customers, suppliers and financial institutions are fully
supported. The Company is well under way with these efforts, which are
scheduled to be completed by August 31, 1999. The Company currently estimates
that it will spend approximately $3.5 million on new software, which will
replace existing software that may not be year 2000 compliant. Such costs are
being capitalized. While the Company believes its planning efforts are adequate
to address its Year 2000' concerns, there can be no guarantee that the systems
of other companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material effect on the Company.
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"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements in this Annual Report 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 which may cause the actual 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 risk indicated in
this filing.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 15, 1999, the Company held its annual meeting of stockholders (i) to
elect one class of directors and (ii) to consider and vote upon a proposed
amendment to the Dave & Buster's, Inc. 1995 Stock Option Plan. The Company's
Board of Directors is separated into three classes, and the directors in each
class are elected to serve three-year terms. Each of the directors nominated by
the Company was elected with voting results as follows:
For Abstain or Withheld
David O. Corriveau 11,451,819 508,232
Mark A. Levy 11,452,634 507,417
Christopher C. Maguire 11,088,434 871,617
The proposal to amend the Stock Option Plan was also approved with voting
results as follows:
For Against Abstaining
8,701,136 3,219,791 39,124
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the 26 weeks ended
August 1, 1999.
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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 15, 1999 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 15, 1999 by /s/ Charles Michel
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Charles Michel
Vice President,
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule