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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 MAY 3, 1998.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
- - ---- OF 1934 FOR THE TRANSACTION PERIOD FROM TO .
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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 June 9, 1998 was 13,047,850 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
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May 3, May 4,
1998 1997
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Food and beverage revenues $ 19,192 $ 14,778
Amusement and other revenues 19,725 13,854
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Total revenues 38,917 28,632
Cost of revenues 7,630 5,533
Operating payroll and benefits 10,893 7,972
Other restaurant operating expenses 10,246 7,143
General and administrative expenses 2,407 1,886
Depreciation and amortization expense 2,448 1,844
Preopening cost amortization 975 778
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Total costs and expenses 34,599 25,156
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Operating income 4,318 3,476
Interest (income) expense, net (291) 197
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Income before provision for income taxes 4,609 3,279
Provision for income taxes 1,743 1,278
-------- --------
Net income $ 2,866 $ 2,001
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Basic net income per share $ 0.22 $ 0.18
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Basic weighted average shares outstanding 13,031 10,902
Diluted net income per share $ 0.22 $ 0.18
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Diluted weighted averages shares outstanding 13,274 10,994
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
May 3,
1998 February 1,
(unaudited) 1998
---------- -----------
Current assets:
Cash and cash equivalents $ 10,363 $ 14,309
Short-term investments 4,507 8,507
Inventories 6,667 6,222
Prepaid expenses 1,652 1,234
Preopening costs 4,381 3,415
Other current assets 941 2,018
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Total current assets 28,511 35,705
Property and equipment, net 127,283 114,060
Goodwill, net of accumulated amortization of $1,217 and $1,121 8,491 8,587
Other assets 987 637
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Total assets $165,272 $158,989
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,578 $ 4,075
Accrued liabilities 4,287 3,255
Income taxes payable 676 0
Deferred income taxes 2,102 1,967
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Total current liabilities 11,643 9,297
Deferred income taxes 3,598 3,530
Other liabilities 864 806
Long-term debt 12,500 12,000
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;
13,047,850 and 13,019,050 shares issued and outstanding
as of May 3, 1998 and February 1, 1998, respectively 130 130
Paid in capital 116,499 116,054
Retained earnings 20,038 17,172
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Total stockholders' equity 136,667 133,356
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$165,272 $158,989
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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 1, 1998 13,019 $ 130 $ 116,054 $ 17,172 $ 133,356
Proceeds from exercising
stock options 29 0 291 0 291
Tax benefit related to
stock option exercises 0 0 154 0 154
Net income 0 0 0 2,866 2,866
------------ ------------ ------------ ------------ ------------
Balance, May 3, 1998 13,048 $ 130 $ 116,499 $ 20,038 $ 136,667
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
13 Weeks Ended
--------------------
May 3, May 4,
1998 1997
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Cash flows from operating activities
Net income $ 2,866 $ 2,001
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 3,423 2,622
Provision for deferred income taxes (1,223) 63
Changes in assets and liabilities
Inventories (445) (929)
Prepaid expenses (418) (579)
Preopening costs (1,941) (1,107)
Other assets 724 205
Accounts payable 503 (25)
Accrued liabilities 1,032 150
Income taxes payable 2,102 1,199
Other liabilities 59 96
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Net cash provided by operating activities 6,682 3,696
Cash flows from investing activities
Capital expenditures (15,573) (5,298)
Sale of short-term investments 4,000 0
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Net cash used by investing activities (11,573) (5,298)
Cash flows from financing activities
Proceeds from options exercised 445 0
Borrowings under long-term debt 500 5,669
Repayments of long-term debt 0 (4,300)
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Net cash provided by financing activities 945 1,369
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Cash (used) (3,946) (233)
Beginning cash and cash equivalents 14,309 358
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Ending cash and cash equivalents $ 10,363 $ 125
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See accompanying notes to consolidated financial statements.
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DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 3, 1998
(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 for a fair
presentation 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 consolidated balance sheet data presented herein for
February 1, 1998 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 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, California, Ohio and Colorado.
NOTE 3: EARNINGS PER COMMON SHARE
Effective December 15, 1997, the Company adopted the provisions of SFAS No.
128, "Accounting for Earnings Per Share." SFAS No. 128 requires companies to
present basic earnings per share (EPS) and diluted EPS, instead of the primary
and fully diluted EPS presentations that were formerly required by Accounting
Principles Board Opinion No. 15, "Earnings Per Share." Basic EPS is computed
by dividing net income available to common stockholders by the weighted average
number of common shares outstanding during the period. For the Company,
diluted EPS includes the dilutive effect of potential stock option exercises,
calculated using the treasury stock method. EPS amounts for all periods
presented reflect the provisions of SFAS No. 128, including amounts presented
for prior periods which have been restated to conform with SFAS No. 128.
NOTE 4: CONTINGENCIES
In April 1998, a litigation limited liability corporation owned by the
creditors of Edison Brothers filed a lawsuit against the Company and related
parties, seeking recovery in connection with the June 1995 spin-off and certain
related transactions. The plaintiff's aggregate recovery in this lawsuit would
be limited to the shortfall received by the creditors in the Edison Brothers
bankruptcy.
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The Company is unable to quantify any potential exposure from this lawsuit.
Although no assurance can be made with respect to the results of the
litigation, the Company believes that the claims asserted against the Company
are without merit, and the Company intends to vigorously defend itself.
The Company is subject to certain legal proceedings in addition to the
matter described above 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 all actions
will not materially affect the consolidated results of operations or financial
condition of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations - 13 Weeks Ended May 3, 1998 Compared to 13 Weeks Ended
May 4, 1997
Total revenues for the 13 weeks ended May 3, 1998 increased by 36% over the
13 weeks ended May 4, 1997. The increase in revenues was primarily
attributable to the Ontario, California, Cincinnati, Ohio, and Denver, Colorado
locations, which opened in the first, third and fourth quarters of fiscal 1997,
respectively, and a 9% increase in comparable Complex revenues. Total revenues
also increased due to the opening of the first store under the Bass licensing
agreement. Total revenues for the first quarter of fiscal 1998 from the Bass
agreement were $54,000.
Cost of revenues, as a percentage of revenues, increased to 19.6% from
19.3% in the prior comparable period. The increase in cost of revenues was a
result of higher costs associated with food and amusement revenues offset by
lower costs associated with beverage revenues. The increase in food costs were
a function of higher produce, dairy and grocery costs. The increase in
amusement costs was due to higher merchandise and freight costs, while the
decrease in beverage costs was primarily associated with lower draft beer and
wine costs.
Operating payroll and benefits increased to 28.0% from 27.9% in the prior
comparable period due to higher variable labor and benefits costs offset
partially by lower fixed labor costs. The increase in variable labor is
partially due to the second increment of the Federal minimum wage increase
implemented in September 1997.
Other operating expenses increased to 26.3% compared to 25.0% in the prior
comparable period. Other operating expenses were higher due to increased
occupancy costs associated with the addition of the Ontario, California,
Cincinnati, Ohio, and Denver, Colorado locations. The increase was also a
function of higher restaurant supplies and advertising costs at the Complexes.
General and administrative costs increased $521,000 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 decreased to 6.2% compared to 6.6% for the comparable prior period due
to increased leverage from revenues.
Depreciation and amortization expense increased $604,000 over the prior
comparable period as a result of the opening of the Ontario, California,
Cincinnati, Ohio and Denver, Colorado, locations. As a
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percentage of revenues, depreciation and amortization decreased to 6.3% from
6.4% for the comparable prior period.
Preopening cost amortization increased $197,000 over the prior comparable
period as a result of two additional Complex months of amortization. As a
percentage of revenue, preopening costs decreased to 2.5% compared to 2.7% in
the prior comparable period. The percentage decrease is attributable to the
leverage from increased revenues.
The Company defers its restaurant preopening costs and amortizes them over
the twelve-month period following the opening of each respective Complex. In
April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires entities to expense as incurred all start-up
and preopening costs that are not otherwise capitalizable as long-lived assets.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998,
although earlier adoption is encouraged. Restatement of previously issued
financial statements is not permitted by SOP 98-5, and entities are not
required to report the pro forma effects of the retroactive application of the
new accounting standard. The Company's adoption of the expense-as-incurred
accounting principle required by SOP 98-5 will involve the recognition of the
cumulative effect of the change in accounting principle required by SOP 98-5 as
a one-time charge against earnings, net of any related income tax effect,
retroactive to the beginning of the fiscal year of adoption. Total deferred
preopening costs were $4.4 million at May 3, 1998.
As has been the case with the Company's current deferred method for
accounting for preopening costs, preopening expense comparisons under the new
expense-as-incurred standard will continue to vary from period to period,
depending on the number and timing of Complex openings and the specific
preopening expenses incurred for each Complex during each period being
compared. Based on the Company's current expansion plans, the Company believes
total preopening expenses for fiscal 1998 and 1999 under either accounting
principle (deferred or expense-as-incurred) will likely exceed the respective
amount for each immediate prior year. However, the new expense-as-incurred
accounting principle required by SOP 98-5 will, by definition, cause an
accelerated recognition of preopening expenses. The impact of this accelerated
recognition on the Company's results of operations for any given period could
be significant, depending on the number of Complexes opened during that period.
The effective tax rate for the first quarter of 1998 was 37.8% as compared
to 39.0% for the comparable period last year and was the result of a lower
effective state tax rate.
Liquidity and Capital Resources
Cash flows from operations increased from $3.7 million in the first 13
weeks of fiscal 1997 to $6.7 million in the first 13 weeks of fiscal 1998. The
increase was a result of the Ontario, California, Cincinnati, Ohio and Denver,
Colorado locations opened in the first, third and fourth quarters of fiscal
1997, respectively.
The Company has a senior revolving credit facility which permits borrowing
up to a maximum of $50,000,000 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 (8.4% at May 3, 1998).
The facility, which matures in May 2000, 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 May 3, 1998, $37,140,000 was available under the senior
revolving credit facility.
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The Company's plan is to open four large format Complexes in fiscal 1998.
The first Complex opened in Utica (Suburban Detroit), Michigan during the
second quarter on May 7, 1998. The Company plans to open three additional
large format Complexes in Irvine, California, Rockland County, New York and
Orange, California, in the second, third and fourth quarters of fiscal 1998,
respectively. The Company also plans on opening a small format Complex in the
fourth quarter of fiscal 1998 in Columbus, Ohio. In fiscal 1999, the Company's
goal is to open four large format and two small format Complexes. The Company
estimates that its capital expenditures will be approximately $53.5 million and
$69.5 million for 1998 and 1999, respectively. The Company intends to finance
this development with cash flow from operations, the proceeds received from the
secondary offering completed in the third quarter of 1997 and the senior
revolving credit facility.
"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 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
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the 13
weeks ended May 3, 1998.
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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: June 17, 1998 by /s/ David O. Corriveau
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David O. Corriveau
Co-Chairman of the Board,
Co-Chief Executive
Officer and President
Dated: June 17, 1998 by: /s/ Charles Michel
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Charles Michel
Vice President,
Chief Financial Officer
and Treasurer
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EXHIBIT INDEX
27 Financial Data Schedule
5
3-MOS
FEB-01-1998
MAY-03-1998
10,363
4,507
0
0
6,667
28,511
152,369
25,086
165,272
11,643
12,500
0
0
130
136,537
165,272
38,917
38,917
7,630
34,599
0
0
(291)
4,609
1,743
2,866
0
0
0
2,866
.22
.22
