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 6, 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 ------------------------- 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 June 8, 2001 was 12,953,375 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 6, April 30, 2001 2000 ---------- ---------- Food and beverage revenues $ 43,612 $ 38,980 Amusement and other revenues 44,598 38,869 ---------- ---------- Total revenues 88,210 77,849 Cost of revenues 16,495 14,015 Operating payroll and benefits 27,224 23,265 Other store operating expenses 24,209 21,838 General and administrative expenses 5,296 4,850 Depreciation and amortization expense 6,751 5,734 Preopening costs 1,079 2,055 ---------- ---------- Total costs and expenses 81,054 71,757 ---------- ---------- Operating income 7,156 6,092 Interest expense, net 2,322 1,527 ---------- ---------- Income before provision for income taxes 4,834 4,565 Provision for income taxes 1,750 1,675 ---------- ---------- Net income $ 3,084 $ 2,890 Basic net income per share $ 0.24 $ 0.22 Basic weighted average shares outstanding 12,953 12,953 Diluted net income per share $ 0.24 $ 0.22 Diluted weighted average shares outstanding 13,068 12,960 See accompanying notes to consolidated financial statements.
3 DAVE & BUSTER'S, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) May 6, 2001 February 4, (unaudited) 2001 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 1,672 $ 3,179 Inventories 22,960 21,758 Prepaid expenses 5,190 3,663 Other current assets 1,996 1,787 ------------ ------------ Total current assets 31,818 30,387 Property and equipment, net 262,666 260,467 Goodwill, net of accumulated amortization of $2,327 and $2,263 7,381 7,445 Other assets 5,745 5,576 ------------ ------------ Total assets $ 307,610 $ 303,875 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 4,125 $ 4,124 Accounts payable 10,884 9,291 Accrued liabilities 6,130 7,050 Income taxes payable 3,811 3,567 Deferred income taxes 1,225 1,229 ------------ ------------ Total current liabilities 26,175 25,261 Deferred income taxes 7,683 7,667 Other liabilities 4,859 4,700 Long-term debt, less current installments 103,422 103,860 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 May 6, 2001 and February 4, 2001, respectively 131 131 Paid in capital 115,659 115,659 Restricted stock awards 243 243 Retained earnings 51,284 48,200 ------------ ------------ 167,317 164,233 Less: treasury stock, at cost (175,000 shares) 1,846 1,846 ------------ ------------ Total stockholders' equity 165,471 162,387 ------------ ------------ Total liabilities and stockholders' equity $ 307,610 $ 303,875 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 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 Net income -- -- -- 3,084 -- -- 3,084 ---------- ---------- ---------- ---------- ------------ ---------- ---------- Balance, May 6, 2001 12,953 $ 131 $ 115,659 $ 51,284 $ 243 $ (1,846) $ 165,471 See accompanying notes to consolidated financial statements.
5 DAVE & BUSTER'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) 13 Weeks Ended ------------------------ May 6, April 30, 2001 2000 ---------- ---------- Cash flows from operating activities Net income $ 3,084 $ 2,890 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,751 5,734 Provision for deferred income taxes 12 (578) Changes in assets and liabilities Inventories (1,202) (589) Prepaid expenses (1,527) (1,160) Other assets (379) (278) Accounts payable 1,593 193 Accrued liabilities (920) 1,966 Income taxes payable 244 1,872 Other liabilities 159 466 ---------- ---------- Net cash provided by operating activities 7,815 10,516 ---------- ---------- Cash flows from investing activities: Capital expenditures (8,885) (15,239) ---------- ---------- Net cash used by investing activities (8,885) (15,239) ---------- ---------- Cash flows from financing activities: Borrowings under long-term debt 8,000 4,420 Repayments of long-term debt (8,437) (1,000) ---------- ---------- Net cash provided (used) by financing activities (437) 3,420 ---------- ---------- Decrease in cash and cash equivalents (1,507) (1,303) Beginning cash and cash equivalents 3,179 3,091 ---------- ---------- Ending cash and cash equivalents $ 1,672 $ 1,788 See accompanying notes to consolidated financial statements.
6 DAVE & BUSTER'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 6, 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. 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 May 6, 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 May 6, 2001. 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.
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS) Results of Operations - 13 Weeks Ended May 6, 2001 Compared to 13 Weeks Ended April 30, 2000 Total revenues increased to $88,210 for the 13 weeks ended May 6, 2001 from $77,849 for the 13 weeks ended April 30, 2000, an increase of $10,361 or 13%. New stores opened in fiscal 1999 and 2000 and the first quarter of 2001 increased revenues during the period by $12,253. Revenues at comparable stores decreased 1.9% for the 13 weeks ended May 6, 2001. The decrease in comparable stores revenues was primarily attributable to a decline in company sponsored private parties offset by a higher average check. Total revenues for the 13 weeks ended May 6, 2001 from licensing agreements were $170. Cost of revenues increased to $16,495 for the 13 weeks ended May 6, 2001 from $14,015 for the 13 weeks ended April 30, 2000, an increase of $2,480 or 18%. The increase was principally attributable to the 13% increase in revenues. As a percentage of revenues, cost of revenues increased to 18.7% in the 13 weeks ended May 6, 2001 from 18% in the 13 weeks ended April 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 $27,224 for the 13 weeks ended May 6, 2001 from $23,265 for the 13 weeks ended April 30, 2000, an increase of $3,959 or 17%. As a percentage of revenue, operating payroll and benefits increased to 30.9% in the 13 weeks ended May 6, 2001 from 29.9% in the 13 weeks ended April 30, 2000 due to slightly higher variable labor costs and higher incentive and fringe benefit costs. Other store operating expenses increased to $24,209 for the 13 weeks ended May 6, 2001 from $21,838 for the 13 weeks ended April 30, 2000, an increase of $2,371 or 11%. As a percentage of revenues, other store operating expenses were 27.4% of revenues in the 13 weeks ended May 6, 2001 as compared to 28.1% of revenues in the 13 weeks ended April 30, 2000. Other store operating expenses as a percentage of revenue declined due to lower facility, marketing and occupancy costs offset by higher utility costs. General and administrative increased to $5,296 for the 13 weeks ended May 6, 2001 from $4,850 for the 13 weeks ended April 30, 2000, an increase of $446 or 9%. As a percentage of revenues, general and administrative expenses decreased to 6.0% in the 13 weeks ended May 6, 2001 from 6.2% in the 13 weeks ended April 30, 2000. Depreciation and amortization increased to $6,751 for the 13 weeks ended May 6, 2001 from $5,734 for the 13 weeks ended April 30, 2000, an increase of $1,017 or 18%. As a percentage of revenues, depreciation and amortization increased to 7.7% from 7.4% for the comparable period. Preopening costs decreased to $1,079 for the 13 weeks ended May 6, 2001 from $2,055 for the 13 weeks ended April 30, 2000. The timing of complex openings affects the amount of such costs in any given period. Interest expense increased to $2,322 for the 13 weeks ended May 6, 2001 from $1,527 for the 13 weeks ended April 30, 2000. The increase was primarily due to higher debt and interest rates in fiscal year 2001. The effective tax rate for the 13 weeks ended May 6, 2001 was 36.2% as compared to 36.7% for the 13 weeks ended April 30, 2000.
8 Liquidity and Capital Resources Cash flows from operations decreased to $7,815 for the 13 weeks ended May 6, 2001 from $10,516 for the 13 weeks ended April 30, 2000. The decrease was attributable to increases in expenditures for inventory, prepaid items and previously accrued items. 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 (9.2% at May 6, 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 May 6, 2001, $1,078 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 May 6, 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 May 6, 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. During the first quarter of 2001, the Company opened a new store in Miami, Florida. "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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K No reports on Form 8-K were filed during the 13 weeks ended May 6, 2001.
9 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 11, 2001 by /s/ David O. Corriveau ------------ ------------------------ David O. Corriveau Co-Chairman of the Board, Co-Chief Executive Officer and President Dated: June 11, 2001 by /s/ Charles Michel ------------- -------------------- Charles Michel Vice President, Chief Financial Officer