1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT FOR THE QUARTER ENDED MAY 2, 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
-------------------
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, 1999 was 13,100,750 shares.
2
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
--------------
May 2, May 3,
1999 1998
---------- ----------
Food and beverage revenues $ 28,701 $ 19,192
Amusement and other revenues 30,999 19,725
---------- ----------
Total revenues 59,700 38,917
Cost of revenues 11,038 7,630
Operating payroll and benefits 17,767 10,893
Other restaurant operating expenses 15,055 10,246
General and administrative expenses 3,441 2,407
Depreciation and amortization expense 4,158 2,448
Preopening costs 1,696 975
---------- ----------
Total costs and expenses 53,155 34,599
---------- ----------
Operating income 6,545 4,318
Interest (income) expense, net 493 (291)
---------- ----------
Income before provision for income taxes and
cumulative effect of a change in an accounting principle 6,052 4,609
Provision for income taxes 2,239 1,743
---------- ----------
Income before cumulative effect of a change in an accounting principle 3,813 2,866
Cumulative effect of a change in an accounting
principle, net of income tax benefit of $2,928 4,687 --
---------- ----------
Net income (loss) $ (874) $ 2,866
========== ==========
Net income (loss) per share - basic
Before cumulative effect of a change in an accounting principle $ 0.29 $ 0.22
Cumulative effect of a change in an accounting principle (0.36) --
---------- ----------
$ (0.07) $ 0.22
========== ==========
Net income (loss) per share - dilutive
Before cumulative effect of a change in an accounting principle $ 0.29 $ 0.22
Cumulative effect of a change in an accounting principle (0.36) --
---------- ----------
$ (0.07) $ 0.22
========== ==========
Weighted average shares outstanding:
Basic 13,072 13,031
Diluted 13,276 13,274
See accompanying notes to consolidated financial statements.
3
DAVE & BUSTER'S, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
May 2,
1999 January 31,
(unaudited) 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 5,426 $ 4,509
Inventories 12,175 10,811
Prepaid expenses 2,211 1,743
Preopening costs -- 7,369
Other current assets 2,601 5,286
------------ ------------
Total current assets 22,413 29,718
Property and equipment, net 190,766 177,910
Goodwill, net of accumulated amortization of $1,597 and $1,502 8,111 8,206
Other assets 1,174 758
------------ ------------
Total assets $ 222,464 $ 216,592
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,465 $ 13,695
Accrued liabilities 4,557 3,785
Deferred income taxes 4,165 4,018
------------ ------------
Total current liabilities 22,187 21,498
Deferred income taxes 2,751 5,638
Other liabilities 1,761 1,454
Long-term debt 51,000 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;
13,077,450 and 13,069,050 shares issued and outstanding
as of May 2, 1999 and January 31, 1999, respectively 131 131
Paid in capital 114,758 114,621
Retained earnings 29,876 30,750
------------ ------------
Total stockholders' equity 144,765 145,502
------------ ------------
$ 222,464 $ 216,592
See accompanying notes to consolidated financial statements.
4
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
Proceeds from exercising
stock options 8 0 113 0 113
Tax benefit related to
stock option exercises 0 0 24 0 24
Net loss 0 0 0 (874) (874)
------ ------ --------- -------- ---------
Balance, May 2, 1999 13,077 $ 131 $ 114,758 $ 29,876 $ 144,765
See accompanying notes to consolidated financial statements.
5
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
13 Weeks Ended
--------------
May 2, May 3,
1999 1998
------------ ------------
Cash flows from operating activities
Net income (loss) $ (874) $ 2,866
Adjustments to reconcile net income to cash
provided by operating activities:
Cumulative effect of a change in an accounting principle 4,687 --
Depreciation and amortization 4,158 3,423
Provision for deferred income taxes 188 (1,223)
Changes in assets and liabilities
Inventories (1,364) (445)
Prepaid expenses (468) (418)
Preopening costs (264) (1,941)
Other costs 2,266 724
Accounts payable (230) 530
Accrued liabilities 772 1,032
Income taxes payable -- 2,102
Other liabilities 307 59
------------ ------------
Net cash provided by operating activities 9,196 6,682
Cash flows from investing activities:
Capital expenditures (16,916) (15,573)
Sale of short-term investments -- 4,000
------------ ------------
Net cash used in investing activities (16,916) (11,573)
------------ ------------
Cash flows from financing activities:
Proceeds from options exercised 137 445
Borrowings under long-term debt 8,500 500
------------ ------------
Net cash provided by financing activities 8,637 945
------------ ------------
Increase (decrease) in cash and cash equivalents 917 (3,946)
Beginning cash and cash equivalents 4,509 14,309
------------ ------------
Ending cash and cash equivalents $ 5,426 $ 10,363
See accompanying notes to consolidated financial statements.
6
DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 2, 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 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. 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, Colorado, Michigan, and
New York.
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, which is
effective for fiscal years beginning 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 all actions will not materially affect
7
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 2 1999 Compared to 13 Weeks Ended May
3, 1998
Total revenues increased to $59,700 for the 13 weeks ended May 2, 1999 from
$38,917 for the 13 weeks ended May 3, 1998, an increase of $20,783 or 53%. The
increase in revenues was primarily attributable to incremental revenues from
seven complexes opened after February 1, 1998. Revenues at comparable Stores
increased 2% for the 13 weeks ended May 2, 1999. Increases in revenues were also
attributable to a higher average guest check. Total revenues for the 13 weeks
ended May 2, 1999 from the Bass licensing agreement were $116.
Cost of revenues increased to $11,038 for the 13 weeks ended May 2, 1999 from
$7,630 for the 13 weeks ended May 3, 1998, an increase of $3,408 or 45%. The
increase was principally attributable to the 53% increase in revenues. As a
percentage of revenues, cost of revenues decreased to 18.5% in the 13 weeks
ended May 2, 1999 from 19.6% in the 13 weeks ended May 3, 1998 due to lower
food, beverage and amusement costs.
Operating payroll and benefits increased to $17,767 for the 13 weeks ended May
2, 1999 from $10,893 for the 13 weeks ended May 3, 1998, an increase of $6,874
or 63%. As a percentage of revenue, operating payroll and benefits increased to
29.8% in the 13 weeks ended May 2, 1999 from 28.0% in the 13 weeks ended May 3,
1998 due to higher variable and fixed labor costs.
Other restaurant operating expenses increased to $15,055 for the 13 weeks ended
May 2, 1999 from $10,246 for the 13 weeks ended May 3, 1998, an increase of
$4,809 or 47%. As a percentage of revenues, other restaurant operating expenses
were 25.2% of revenues in the 13 weeks ended May 2, 1999 as compared to 26.3% of
revenues in the 13 weeks ended May 3, 1998. Other restaurant operating expenses
were lower due to reduced repair and maintenance, facility and marketing costs
at the Stores offset by higher occupancy costs.
General and administrative expenses increased to $3,441 for the 13 weeks ended
May 2, 1999 from $2,407 for the 13 weeks ended May 3, 1998, an increase of
$1,034 or 43%. 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 5.8% in
the 13 weeks ended May 2, 1999 from 6.2% in the 13 weeks ended May 3, 1998.
Deprecation and amortization expense increased to $4,158 for the 13 weeks ended
May 2, 1999 from $2,448 for the 13 weeks ended May 3, 1998, an increase of
$1,710 or 70%. As a percentage of revenues, depreciation and amortization
increased to 7.0% from 6.3% 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 13 weeks ended May 2, 1999 were $1,696. 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 May 3, 1998 was $975. The timing of Complex openings affects
the amount of such costs.
8
Interest expense for the 13 weeks ended May 2, 1999 was $493 versus an interest
income of $291 for the 13 weeks ended May 3, 1998. The increase was primarily
due to higher average debt in 1999 versus 1998.
The effective tax rate for the 13 weeks ended May 2, 1999 was 37.0% as compared
to 37.8% for the 13 weeks ended May 3, 1998, and the result of a lower effective
state tax rate.
Liquidity and Capital Resources
Cash flows from operations increased to $9,196 for the 13 weeks ended May 2,
1999 from $6,682 for the 13 weeks ended May 3, 1998. The increase was
attributable to new Stores opened since February 1, 1998.
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 (7.5 % at May 2, 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 May 2, 1999, $48,600,000 was available under this facility.
The Company has entered into an agreement that expires in 1999, to fix its
variable-rate debt to fixed-rate debt (6.8 % at May 2, 1999) on notional amounts
aggregating $45,000. 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 May 2, 1999.
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 and the
senior revolving credit facility. Through May 2, 1999, new complexes have opened
in San Antonio, Texas and Atlanta, Georgia.
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.
9
"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
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.
10
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 2, 1999.
11
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 15, 1999 by: /s/ David O. Corriveau
------------- ----------------------------
David O. Corriveau
Co-Chairman of the Board,
Co-Chief Executive Officer
and President
Dated: June 15, 1999 by: /s/ Charles Michel
------------- ----------------------------
Charles Michel
Vice President,
Chief Financial Officer
12
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
-------- -----------
27 Financial Data Schedule
5
3-MOS
JAN-30-2000
MAY-02-1999
5,426
0
0
0
12,175
22,413
229,062
38,296
222,464
22,187
51,000
0
0
131
144,634
222,464
59,700
59,700
11,038
53,155
0
0
493
6,052
2,239
3,813
0
0
4,687
(874)
(.07)
(.07)
