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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 1997 Commission File No. 0-25858
DAVE & BUSTER'S, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1532756
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2751 Electronic Lane, Dallas, Texas 75220
(Address of principal executive offices) (zip code)
Registrant's telephone number,
including area code (214) 357-9588
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Title of Each Class
Common Stock, $0.01 par value
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of the voting stock held by persons other than
directors and officers of registrant (who might be deemed to be affiliates of
registrant) at April 30, 1997 was $131,978,754.
The number of shares of common stock outstanding at April 30, 1997 was
7,268,056 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated May 12, 1997, for its annual
meeting of Stockholders on June 11, 1997, are incorporated by reference into
Part III hereof, to the extent indicated herein.
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PART I
Item 1. BUSINESS.
General
Dave & Buster's, Inc. (the "Company") is principally engaged in the
operation and development of high-volume Restaurant/Entertainment
Complexes under the Dave & Buster's name. The Company was organized
under the laws of Missouri in November 1989, to succeed to the
business founded by the Company's management in 1982.
The Dave & Buster's Concept
The Company seeks to differentiate itself by providing high quality
dining, bar service and entertainment attractions in a comfortable,
adult atmosphere. The key factors of the Company's market positioning
and operating strategy are:
Distinctive Concept. Each Dave & Buster's offers a distinctive
combination of dining, bar service and entertainment. A full menu and
complete bar service are available from early lunch until late at
night in each restaurant and throughout almost all of the
entertainment areas. The broad array of attractions, ranging from
table and carnival games to state-of-the-art virtual reality games, is
continuously reviewed and updated to maintain a fresh entertainment
environment. The Company has actively sought to enhance the popularity
of its traditional games, such as play-for-fun casino style blackjack,
pocket billiards and shuffleboard, by providing high quality tables, a
clean and comfortable environment and a high standard of service.
A Large, Multiple Attraction Destination. The Complexes range in
approximate total area from 30,000 square feet to 70,000 square feet,
with a current prototype of approximately 50,000 to 60,000 square
feet. The large scale of each operation, together with the numerous
food, beverage and entertainment options offered, is designed to
attract a diverse customer base and consolidate multiple-destination
customer spending into one location. Each Dave & Buster's attracts
local customers from a wide geographical area (estimated to be a
twenty mile radius) along with tourists, conventioneers and business
travelers.
Commitment to Quality. The Company strives to provide its customers
with good food and an inviting atmosphere. Accordingly, each Dave &
Buster's offers an extensive menu which features popular, moderately
priced food and beverage items that are individually prepared with a
commitment to value and quality. The Company makes a significant
investment in each Complex, and the Company's facilities are designed
with an attention to detail. In addition, the customer-participation
entertainment attractions are tastefully presented in an atmosphere
that the Company defines as "ideal playing conditions."
High Standard of Customer Service. Through intensive training,
constant monitoring and stringent operational controls, the Company
strives to maintain a consistently high standard of food, beverage and
amusement service throughout each Dave & Buster's. The Company's
commitment to customer service is evidenced by the availability of
full food and beverage service in entertainment areas as well as the
restaurant and bar areas.
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With respect to entertainment, the Company's commitment to customer
service is demonstrated by service staff in each of the entertainment
areas who offer assistance in playing and enjoying the games. The
Company believes its customer service is enhanced by a strong
commitment to employee motivation and appreciation programs. The
Company also believes that high service standards are critical to
promoting customer loyalty and to generating frequent-visiting
patterns and referrals by customers.
Comfortable Adult Atmosphere. Each Dave & Buster's is primarily adult
oriented and, while children are welcome, strict guidelines are
enforced. Customers under twenty-one years of age must be accompanied
by a parent at all times during their visit and are not allowed in a
Dave & Buster's after 10:00 p.m. (11:00 p.m. in the summer months).
The Company believes that these policies help maintain the type of
pleasant, relaxed atmosphere that appeals to adult customers. The
Company also believes that this atmosphere allows it to attract groups
of customers such as private parties and business organizations.
Integrated Systems. The Company utilizes centralized information and
accounting systems that are designed to allow its management to
efficiently monitor labor, food and other direct operating expenses
and provide timely access to financial and operating data. Management
believes that its integrated computer systems permit it, on both an
overall and per Complex basis, to efficiently operate the
Restaurant/Entertainment Complexes.
Restaurant/Entertainment Concept and Menu
Dave & Buster's offers a full menu of high quality food and beverage
items combined with an extensive array of entertainment attractions
such as pocket billiards, shuffleboard, state-of-the-art interactive
simulators and virtual reality systems, and traditional carnival-style
games of skill. The Company's facilities are designed to promote easy
access to, and maximize customer cross-over between, the multiple
dining and entertainment areas within each Complex. The Company
emphasizes high levels of customer service to create casual, yet
sophisticated, "ideal playing conditions" for adults.
The Dave & Busters' menu is offered from early lunch until late night
and features moderately priced food designed to appeal to a wide
variety of customers. This well-rounded fare includes gourmet pastas,
individual sized pizzas, burgers, steaks, seafood and chicken.
Specialties of the house include babyback ribs, blackened chicken
pasta, mesquite-peppered rib eye steak and a Philadelphia cheesesteak
sandwich. A wide variety of other appetizers, soups, salads and
sandwiches is also available. Entree prices range from $6.50 to
$18.95, with many entrees in the $7.50 to $10.95 range. In order to
promote customer flow and complement the entertainment areas, full,
sit down food service is offered not only in the restaurant areas but
throughout Dave & Buster's, with the exception of the "Play-for-Fun"
Casino. In addition, throughout the restaurant and entertainment areas
including the "Play-for-Fun" Casino, each Dave & Buster's offers full
bar service including over 50 different beers, an extensive wine
selection and a variety of non-alcoholic beverages such as its own
private label, "D&B Old Fashioned Philly Root Beer."
The entertainment attractions in each Dave & Buster's are geared
toward customer participation and offer both traditional entertainment
and "Million Dollar Midway" entertainment. Each Dave & Buster's offers
a number of traditional entertainment options.
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These traditional offerings include "world class" pocket billiards,
"championship-style" shuffleboard tables, "play-for-fun" casino
featuring blackjack played on authentic tables, the Show Room which is
designed for hosting private social parties and business gatherings as
well as Company sponsored events, and D&B Lanes which is bowling, Dave
& Buster's style. Other than the "play for fun" casino, traditional
entertainment games are rented by the hour.
The largest area in each Dave & Buster's is the Million Dollar Midway
which is designed to provide high-energy, escapism entertainment
through a broad selection of electronic, skill and sports-oriented
games. Million Dollar Midway games are operated by tokens and the Dave
& Buster's Power Card ("Power Card") which are purchased by the
customer. The Power Card activates all the midway games (with the
exception of the coin action games) and can be recharged again and
again for more play. The number of tokens or games credits needed to
operate the games range from one to 20 tokens/credits. Attractions
within the Million Dollar Midway can be divided into two components:
Fantasy/High-Technology and Classic Midway Entertainment.
Fantasy/High-Technology offerings include simulator games which
include formula race cars, off-road vehicles, fighter jets and
motorcycles, Galaxian Theater which is a multi-participant, enclosed
simulation theater where up to six players take part in mock battles
with alien invaders, Virtuality which is an interactive, electronic
game designed to simulate an actual battlefield environment, Virtual
World which is a fantasy environment attraction, Iwerks Turbo Ride
Theatre which is a 16 to 18 seat motion simulation theater,
large-screen interactive electronic games, and "The 19th Hole" which
is a large, enclosed, state-of-the-art golf simulator.
The Million Dollar Midway also typically includes classic midway
entertainment such as sports-oriented games of skill, carnival-style
games which are intended to replicate the atmosphere found in many
local county fairs, D&B Downs which is one of several multiple-player
race games offered in each Dave & Buster's and the Winner's Circle
where players take the coupons they have won from selected games of
skill to be redeemed for a wide variety of prizes, many of which
display the Dave & Buster's logo. The prizes include stuffed animals,
ballcaps, T-shirts, boxer shorts and small electronic items.
Locations
At February 2, 1997, the Company operated nine locations in six
states, which included two in Dallas, one each in Houston, Atlanta,
Philadelphia, Hollywood, Florida and North Bethesda, Maryland and two
in Chicago.
Business Development
The Company continually seeks to identify and evaluate new locations
for expansion. The Company's goal is to open three Complexes in fiscal
1997, four in fiscal 1998 and 1999 and at least five more each fiscal
year thereafter. The Company opened a Complex in Ontario, California
on March 13, 1997 and has commenced construction in Cincinnati, Ohio
for a Complex due to open in fiscal 1997. The Company has signed a
long term lease agreement with Palisades Power Mall in Rockland
County, New York. The Rockland County Complex will open in fiscal
1997. Potential locations for openings in fiscal 1998 have been
tentatively identified and site negotiations are currently in
progress.
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The Company believes that the location of its Complexes is critical to
the Company's long-term success and devotes significant time and
resources to analyzing each prospective site. In general, the Company
prefers to open a Dave & Buster's at a high-profile site within a
metropolitan area of at least one million people. In addition to
carefully analyzing demographic information (such as average income
levels) for each prospective site, the Company considers factors such
as visibility, accessibility to regional highway systems, zoning,
regulatory restrictions and proximity to shopping areas, office
complexes , tourist attractions and residential areas. The Company
also carefully studies the restaurant and entertainment competition in
prospective areas. In addition, the Company must select a site of
sufficient size to accommodate its prototype facility with ample,
convenient customer parking.
The typical cost of opening an owned location is approximately $10
million to $12 million depending upon the location and condition of
the premises. This typical cost includes land cost, site improvement,
building construction, furniture, fixtures, equipment, capitalized
interest and pre-opening costs. In appropriate circumstances, the
Company is willing to lease facilities. Opening a leased facility may
reduce initial costs to some extent because the Company would not
incur land and site improvement costs and might receive a construction
allowance from the landlord for improvements. The lower initial
outlays associated with a non-Company owned facility, however, may be
offset by lease costs. The decor and interior design of a Dave &
Buster's are flexible and can be readily adapted to different types of
buildings. The Company has opened Complexes in both new structures and
within existing buildings, and Complexes are located in both urban and
suburban areas.
International
In August 1995, the Company entered into a license agreement with a
subsidiary of Bass Plc ("Bass") to license the "Dave & Buster's" name
and concept in the United Kingdom. Under this Agreement, Bass expects
to open seven Complexes in the United Kingdom by the year 2000, the
first of which it anticipates opening in May, 1997.
The Company is considering entering into agreements to license the
"Dave & Buster's" name and concept in additional foreign countries.
The Company does not have any current plans to invest its own capital
in any foreign operations.
Operations and Management
The Company's ability to manage a complex operation including both
high volume restaurants and bars and diverse entertainment attractions
has been critical to its overall success. The Company strives to
maintain quality and consistency in each of its
Restaurant/Entertainment Complexes through the careful training and
supervision of personnel and the establishment of, and adherence to,
high standards relating to personnel performance, food and beverage
preparation, entertainment productions and equipment, and maintenance
of facilities. The Company believes that it has been able to attract
high quality, experienced restaurant and entertainment management and
personnel with its competitive compensation and bonus programs and
policy of promoting from within the Company. Staffing levels vary
according to the size of the location, but a prototype Dave & Buster's
is managed by one general manager, two assistant general managers, six
line managers and one business manager.
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In general, each prototype Dave & Buster's also employs one purchasing
manager, one amusement manager, one assistant amusement manager, one
Midway auditor, one kitchen manager, two assistant kitchen managers
and two special events sales managers. The Company has experienced
relatively little turnover of managerial employees. On average, the
Company's current general managers possess approximately four and a
half years of experience with the Company. The general manager of each
Dave & Buster's reports to a Regional Manager who reports to the Vice
President, Director of Operations.
All managers, many of whom are promoted from within, must complete an
eleven-week training program during which they are instructed in areas
such as food quality and preparation, customer service, alcoholic
beverage service, entertainment management and employee relations. The
Company has also prepared operations manuals relating to food and
beverage quality and service standards and proper operation and
playing conditions of the Company's entertainment attractions. New
sales staff and entertainment personnel participate in approximately
three weeks of training under the close supervision of Company
management. Management strives to instill enthusiasm and dedication in
its employees, regularly solicits employee suggestions concerning
Company operations and endeavors to be responsive to employees'
concerns. In addition, the Company has extensive and varied programs
designed to recognize and reward employees for superior performance.
Efficient, attentive and friendly service is integral to the Company's
overall concept. In addition to customer evaluations, the Company uses
a "secret shopper" quality control program to independently monitor
customer satisfaction. "Secret shoppers" are independent persons who
test the Company's food, beverage and service as customers without the
knowledge of restaurant management or personnel on a periodic basis
and report their findings to corporate management.
Marketing, Advertising and Promotion
The Company operates its marketing, advertising and promotional
programs through an in-house corporate marketing department which
employs a full-time corporate Marketing Director. The Company focuses
on three primary marketing target audiences in its advertising and
promotional programs: (1) local market-area customers; (2) out-of-town
visitors; and (3) corporate and group customers.
Local Market-Area Customers. Management believes that its strongest
marketing tool is customer referrals. In addition, the Company
continually updates its local (10 to 20 mile radius) customer database
which is utilized for specifically targeted marketing and advertising
programs. Through a mix of marketing techniques such as direct
mailings, point-of-sale materials, outdoor advertising and
local-market print and broadcast media, the Company promotes seasonal
events, in-house promotions, special offers and new entertainment
attractions.
Out-of-Town Visitors. The Company markets aggressively to attract
tourists and business travelers by placing advertisements in local
tourist and special event guides and by otherwise promoting each Dave
& Buster's as a local "must see" attraction. The Company monitors
local tourist and visitors bureaus for convention schedulings,
festivals and special sporting events. Additionally, through the use
of local trade arrangements such as "concierge referral programs," the
Company extends its marketing presence into local high-traffic tourist
and business traveler areas.
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Corporate and Group Marketing. The Complex-based special events sales
managers book group events such as business seminars, receptions and
private parties. The Company develops and maintains a database for
corporate and group bookings. Each Dave & Buster's has hosted events
for many large multinational, national and regional businesses. Many
of the Company's corporate and group customers have hosted repeat
events. In addition to the rapport developed with these clients, the
Company stages and promotes its own local group marketing
opportunities such as "Karaoke Sing-a-Longs," "Murder Mystery Dinner
Theater," televised sporting events and charity benefits. The
corporate marketing department is also responsible for budgeting and
controlling media and production costs. During fiscal 1996, the
Company's expenditures for advertising and promotions were
approximately 2.6% of its revenues.
Competition
The restaurant and entertainment industries are highly competitive.
There are a great number of restaurant, bar and entertainment
businesses that compete directly and indirectly with the Company. Many
of these entities are larger and have significantly greater financial
resources and a greater number of units than does the Company.
Although there are few other companies presently utilizing the concept
of combining entertainment and restaurant operations to the same
extent as the Company, the Company will encounter increased
competition in the future. Nevertheless, the Company believes that the
significant capital required to properly develop, furnish and open a
Restaurant/Entertainment Complex as sophisticated as a Dave & Buster's
creates a substantial barrier to entry for direct competition with
respect to many potential competitors. The Company competes on the
basis of its ability to offer a distinctive combination of dining and
entertainment in one building.
Employees
At February 2, 1997, the Company employed approximately 2,800 persons,
70 of whom served in administrative or executive capacities, 295 of
whom served as restaurant and entertainment management personnel, and
the remainder of whom were hourly restaurant and entertainment
personnel.
None of the Company's employees are covered by collective bargaining
agreements, and the Company has never experienced an organized work
stoppage, strike or labor dispute. The Company believes its working
conditions and compensation packages are competitive with those
offered by its competitors and considers relations with its employees
to be very good.
Seasonality
As a result of the substantial revenues associated with each new
Restaurant/Entertainment Complex, the timing of new
Restaurant/Entertainment Complex openings will result in significant
fluctuations in quarterly results. The Company expects seasonality to
be a factor in the operation or results of its business in the future
due to expected lower second and third quarter revenues due to the
summer season, and expects higher fourth quarter revenues associated
with the year-end holidays.
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Intellectual Property
The Company has registered the servicemark "Dave & Buster's" with the
United States Patent and Trademark Office and in Mexico, the United
Kingdom and Spain and registration is pending in various other foreign
countries. "The Best of Times" and "There's No Place Quite Like It"
have also been registered as servicemarks with the United States
Patent and Trademark Office and the United Kingdom.
Government Regulations
The Company is subject to various federal, state and local laws
affecting its business. Each Dave & Buster's is subject to licensing
and regulation by a number of governmental authorities, which may
include alcoholic beverage control, amusement, health and safety and
fire agencies in the state or municipality in which the
Restaurant/Entertainment Complex is located. Each Dave & Buster's is
required to obtain a license to sell alcoholic beverages on the
premises from a state authority and, in certain locations, county and
municipal authorities. Typically, licenses must be renewed annually
and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily
operations of each Dave & Buster's, including minimum age of patrons
and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, and storage and dispensing of
alcoholic beverages. The Company has not encountered any material
problems relating to alcoholic beverage licenses to date. The failure
to receive or retain a liquor license in a particular location could
adversely affect the Company's ability to obtain such a license
elsewhere.
The Company is subject to "dram-shop" statutes in the states in which
Complexes are located. These statutes generally provide a person
injured by an intoxicated person the right to recover damages from an
establishment which wrongfully served alcoholic beverages to the
intoxicated individual. The Company carries liquor liability coverage
as part of its existing comprehensive general liability insurance
which it believes is consistent with coverage carried by other
entities in the restaurant and entertainment industries. Although the
Company is covered by insurance, a judgment against the Company under
a dram-shop statute in excess of the Company's liability coverage
could have a material adverse effect on the Company.
As a result of operating certain entertainment games and attractions
including operations which offer redemption prizes, the Company is
subject to amusement licensing and regulation by the states and
municipalities in which it has opened Complexes. Certain entertainment
attractions are heavily regulated and such regulations vary
significantly between communities. From time to time, existing
Complexes may be required to modify certain games, alter the mix of
games or terminate the use of specific games as a result of the
interpretation of regulations by state or local officials. The Company
has, in the past, had to seek changes in state or local regulations to
enable it to open in a given location. To date, the Company has been
successful in seeking all such regulatory changes.
Various federal and state labor laws govern the Company's relationship
with its employees, including such matters as minimum wage
requirements, overtime and other working conditions.
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Significant additional government-imposed increases in paid leaves of
absence and mandated health benefits, or increased tax reporting and
tax payment requirements for employees who receive gratuities, could
be detrimental to the economic viability of the Company's operations.
In addition, the Company is subject to rules and regulations with
respect to discriminatory practices and accommodation of persons with
disabilities.
Management is not aware of any environmental regulations that have
had a material effect on the operations of the Company to date.
RISK FACTORS
The Company hereby cautions stockholders, prospective investors in the
Company and other readers of this report that the following important
factors, among others, could affect the Company's stock price or cause
the Company's actual results of operations to differ materially from
those expressed in any forward-looking statements, oral or written,
made by or behalf of the Company:
Expansion Plans; Capital Resource Requirements
The Company presently plans to open three new locations
during fiscal 1997, and four Complexes in 1998 and 1999 and
at least five Complexes each fiscal year thereafter.
Accomplishing these expansion goals will depend upon a number
of factors, including the Company's ability to raise
sufficient capital, locate and obtain appropriate sites, hire
and train additional management personnel and construct or
acquire, at reasonable cost, the necessary improvements and
equipment for such Restaurant/Entertainment Complexes. In
particular, the capital resources required to develop each
new Restaurant/Entertainment Complex are significant.
There can be no assurance that the Company will be able to
complete its planned expansion, that the Company will
continue to be successful in its development of new
Restaurant/Entertainment Complexes or that new
Restaurant/Entertainment Complexes, if completed, will
perform in a manner consistent with the Company's most
recently opened Restaurant/Entertainment Complexes or make a
positive contribution to the Company's operating performance.
Small Number of Restaurant/Entertainment Complexes
As of February 2, 1997 the Company operated only nine
Restaurant/Entertainment Complexes. The combination of the
relatively small number of locations and the significant
investment associated with each new Restaurant/Entertainment
Complex may cause the operating results of the Company to
fluctuate significantly and adversely affect the
profitability of the Company. Due to this relatively small
number of locations, poor results of operations at any one
Restaurant/Entertainment Complex could materially affect the
profitability of the entire Company. New
Restaurant/Entertainment Complexes have experienced a drop in
revenues after their first year of operation, and the Company
does not expect that in subsequent years, any increases in
comparable Complex revenues will be meaningful.
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Future growth in revenues and profits will depend to a
substantial extent on the Company's ability to increase the
number of its Restaurant/Entertainment Complexes. Because of
the substantial up-front financial requirements which are
described above, the investment risk related to any one
Restaurant/Entertainment Complex is much larger than that
associated with most other companies' restaurant or
entertainment venues.
Dependence Upon Senior Management
The Company's future success will depend largely on the
efforts and abilities of its existing senior management,
particularly David O. Corriveau and James W. Corley, the
Company's Co-Chief Executive Officers and the founders of the
Company's business. The loss of the services of certain of
the Company's management team could have a material adverse
effect on the Company's business. Messrs. Corriveau and
Corley are employed pursuant to employment agreements which
will expire in June 2000.
Geographic Concentration; Dependence on Discretionary
Spending
The Company's profits are dependent on discretionary spending
by consumers, particularly by consumers living in the
communities in which the Restaurant/Entertainment Complexes
are located. As of February 2, 1997, the Company had three
locations in Texas, two locations in the Chicago area and one
location each in Atlanta, Philadelphia, Hollywood, Florida
and North Bethesda, Maryland. A significant weakening in any
of the local economies in which the Company operates may
cause the residents of such communities to curtail
discretionary spending which, in turn, could materially
affect the profitability of the entire Company.
International Expansion; License Agreements
In August 1995, the Company entered into an agreement with
Bass to license the "Dave & Buster's" name and concept in the
United Kingdom. In addition, the Company is considering
entering into agreements to license the "Dave & Buster's"
name and concept in other foreign countries. The Company does
not have any current plans to invest its own capital in any
foreign operations. The Company's concept is untested outside
the United States, and no assurance can be given that any
international location will be successful. In addition, the
Company's continued success is dependent to a substantial
extent on its reputation, and its reputation may be affected
by the performance of licensee-owned Restaurant/Entertainment
Complexes over which the Company will have limited control.
Any international operations of the Company will also be
subject to certain external business risks such as exchange
rate fluctuations, political instability and a significant
weakening of a local economy in which a foreign
Restaurant/Entertainment Complex is located. Certain
provisions in a license agreement for the benefit of the
Company may be subject to restrictions in foreign laws that
limit the Company's ability to enforce such contractual
provisions. In addition, it may be more difficult to register
and protect the Company's intellectual property rights in
certain foreign countries.
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Limited Trading History of Common Stock; Stock Price
Volatility
The Company's Common Stock has been trading in the public
market only since June 26, 1995. The price at which the
Company's Common Stock trades is determined in the
marketplace and may be influenced by many factors, including
the performance of the Company, investor expectations for the
Company, the trading volume in the Company's Common Stock,
general economic and market conditions and competition.
The market price of the Common Stock could fluctuate
substantially due to a variety of factors, including
quarterly operating results of the Company or other
restaurant or entertainment companies, changes in general
conditions in the economy, the financial markets or the
restaurant or entertainment industries, natural disasters or
other developments affecting the Company or its competitors.
In addition, in recent years the stock market has experienced
extreme price and volume fluctuations. This volatility has
had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to the
operating performance of these companies.
Quarterly Fluctuations and Seasonality
As a result of the substantial revenues associated with
each new Restaurant/Entertainment Complex, the timing of
new Restaurant/Entertainment Complex openings will result
in significant fluctuations in quarterly results. The
Company expects seasonality to be a factor in the operation
or results of its business in the future due to expected
lower second and third quarter revenues due to the summer
season, and expects higher fourth quarter revenues
associated with the year-end holidays.
Item 2. PROPERTIES.
As of February 2, 1997 the Company operated a total of nine Complexes
located in Texas, Georgia, Pennsylvania, Illinois, Florida and
Maryland. The Company owns the buildings and the underlying real
estate for four Dave & Buster's (Dallas I, Houston, suburban Atlanta
and Addison, Illinois). The Company leases the real estate and owns
the related facilities for the Hollywood, Florida location. The
Company leases the real estate and related facilities for the Dallas
II, Philadelphia, downtown Chicago and the North Bethesda, Maryland
Dave & Buster's from unrelated third parties. The Company is currently
utilizing all available land at its owned locations. The Company is a
party to two leases for the Dallas II Complex for 23,000 square feet
and 7,000 square feet; such leases expire in October 1997 and
September 1998, respectively. Pursuant to a renegotiated lease, the
Dallas II leases have been combined into one lease commencing January
1998 and expiring January 2003. This lease may be extended to January
2008. The Philadelphia lease expires in January 2015 and, with a
renewal option, may be extended to January 2024. The Company also
leases additional parking facilities for the Philadelphia Complex
under an agreement which expires in January 2014. The downtown Chicago
lease expires in January, 2016 and, with renewal options, may be
extended to January 2026. The Hollywood lease expires April 2016 and
with renewal options, may be extended to April 2031. The North
Bethesda lease expires January 2017 and with renewal options, may be
extended to January 2032.
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The Company has also signed 20 year leases for Complexes in each of
Rockland County, New, York, Ontario, California and Cincinnati, Ohio
due to open in fiscal 1997 or 1998. Third party leases typically
provide for a minimum base rent, additional rent based on a percentage
of revenues and payment of certain operating expenses.
Item 3. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock has been traded on the Nasdaq National
Market under the symbol DANB since June 26, 1995. The following table
summarizes the high and low sale prices per share of Common Stock for
the periods indicated, as reported on the Nasdaq National Market:
Fiscal Year 1995
Second Quarter (since June 26, 1995) $22.25 $11.50
Third Quarter 19.00 14.25
Fourth Quarter 16.125 11.625
Fiscal Year 1996
First Quarter 24.625 14.00
Second Quarter 28.875 19.00
Third Quarter 25.375 18.50
Fourth Quarter 21.75 16.75
At April 30, 1997, the Company there were 3,159 holders of record.
The Company has never paid cash dividends on its Common Stock and does
not currently intend to do so as profits are reinvested into the
Company to fund future expansion of its restaurant business. Payment
of dividends in the future will depend upon the Company's growth,
profitability, financial condition and other factors which the Board
of Directors may deem relevant.
12
<PAGE> 13
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data
for the Company. This data should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included in Item 8
hereof and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Item 7 hereof.
<TABLE>
<CAPTION>
Fiscal Year 1996 1995 1994 1993 1992
(in thousands except per share and store data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Food and beverage revenues $ 48,568 $ 28,554 $ 27,426 $ 18,445 $ 14,891
Amusement and other revenues 40,207 23,990 21,997 14,453 10,603
-------- -------- -------- -------- --------
Total revenues 88,775 52,544 49,423 32,898 25,494
Cost of revenues 18,003 10,945 10,075 6,800 5,315
Operating payroll and benefits 25,483 15,999 14,746 9,716 7,659
Other restaurant operating expenses 20,582 11,481 11,760 7,109 6,204
General and administrative expenses 5,734 3,905 2,724 2,271 1,854
Depreciation and amortization expense 5,647 3,538 2,827 1,927 1,626
Preopening cost amortization 2,605 161 1,128 480 696
Earn-out and special compensation -- 1,607 2,125 2,655 1,279
-------- -------- -------- -------- --------
Total costs and expenses 78,054 47,636 45,385 30,958 24,633
Operating income 10,721 4,908 4,038 1,940 861
Interest income (expense), net (38) 101 59 36 46
-------- -------- -------- -------- --------
Income before provision for income taxes 10,683 5,009 4,097 1,976 907
Provision for income taxes 4,343 2,087 1,733 806 336
-------- -------- -------- -------- --------
Net income $ 6,340 $ 2,922 $ 2,364 $ 1,170 $ 571
Earnings per common share $ .87 $ .50 $ .45 $ .23 $ .10
Weighted average number of
common shares outstanding (1) 7,268 5,787 5,197 5,197 5,197
Balance Sheet Data:
Working capital (deficit) $ 1,077 $ 5,634 $ (2,637) $ (112) $ 639
Total assets 99,436 76,201 49,030 43,403 32,140
Long-term obligations 14,250 500 9,986 8,252 8,950
Investment by Edison Brothers -- -- 27,655 25,026 18,098
Stockholders' equity 75,366 69,008 -- -- --
Number of Complexes Open at End of Period:
Company operated 9 7 5 4 4
</TABLE>
13
<PAGE> 14
(1) For all periods prior to June 29, 1995, the weighted average number of
shares outstanding is based on the assumption that 5,197 shares of common
stock were outstanding.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Fiscal 1996 Compared to Fiscal 1995
Total revenues for fiscal 1996 increased by 69% over fiscal 1995. The
increase was attributable to the Chicago locations which were opened at the end
of fiscal 1995, the fiscal 1996 openings in Hollywood, Florida and North
Bethesda, Maryland and increased revenues at comparable Complexes. The mix of
revenues moved away from alcoholic beverages which captured 20.4% of the total
in fiscal 1996 compared with 21.0% in fiscal 1995.
Cost of revenues, as a percentage of revenues, decreased to 20.3% in
fiscal 1996 from 20.8% in fiscal 1995 due to lower food and amusement costs.
Operating payroll and benefits, as a percentage of revenues, decreased to 28.7%
in fiscal 1996 as compared to 30.5% in fiscal 1995 due primarily to lower store
management costs. Other restaurant operating expenses were 23.2% of revenues in
fiscal 1996 as compared to 21.9% of revenues in fiscal 1995. This increase in
other restaurant operating expense as a percentage of revenues was attributable
to increased marketing costs, equipment rental and higher occupancy costs for
the Company.
General and administrative expenses decreased as a percentage of revenues
to 6.4% in fiscal 1996 from 7.4% in fiscal 1995 as a result of increased
revenue leverage. In total dollars, general and administrative costs increased
approximately $1.8 million due to the Company operating as an independent
public company for the entire year and the Company's continued expansion.
Preopening cost amortization increased approximately $2.4 million due to
amortization of preopening costs associated with four in fiscal 1996. The
effective tax rate decline for fiscal 1996 to 40.7% of pretax income from
41.7% for fiscal 1995, was due to the utilization of federal tax credits.
Fiscal 1995 Compared to Fiscal 1994
Total revenues for fiscal 1995 increased by 6.3% over fiscal 1994. The
increase was attributable to two new openings in Chicago in the fourth fiscal
quarter and increased revenues at comparable Complexes, offset by a normal
reduction in revenues in the Company's Philadelphia location following its
first year of operation. The mix of revenues moved away from alcoholic
beverages which captured 21.0% of the total in fiscal 1995 compared with 22.9%
for fiscal 1994.
Cost of revenues, as a percentage of revenues, increased to 20.8% in
fiscal 1995 as compared to 20.4% in fiscal 1994 due to a higher cost of
amusement and other revenues. The increase in operating payroll and benefits in
fiscal 1995 to 30.5% of revenues from 29.8% in fiscal 1994 was due primarily to
increased management costs offset by modest decreases in other payroll
categories. Other restaurant operating expenses were 21.9% of revenues in
fiscal 1995 as compared to 23.8% in fiscal 1994. This decrease in other
restaurant operating expenses as a percentage of revenue was attributable to
decreased marketing costs for the Company and decreased occupancy costs related
to the Philadelphia Complex .
General and administrative expenses increased as a percentage of revenues
to 7.4% in fiscal 1995 from 5.5% in fiscal 1994 as a result of increased
administrative payroll and related costs for new personnel and additional costs
resulting from the Company operating as an independent public company .
14
<PAGE> 15
The effective tax rate in fiscal 1995 was 41.7% of pretax income compared
to 42.3% for fiscal 1994, and was the result of a lower effective state tax
rate for the Company.
Liquidity and Capital Resources
Cash flows from operations increased from $5.0 million in fiscal 1995 to
$13.1 million in fiscal 1996. This increase was due to the Chicago locations
which were opened at the end of fiscal 1995 and the Hollywood, Florida and
North Bethesda, Maryland Complexes which were opened in fiscal 1996.
The Company has a secured revolving line of credit which permits borrowing
up to a maximum of $23,500,000. At February 2, 1997, $9,250,000 was available.
See Note 4 to the Consolidated Financial Statements. The Company has executed a
commitment letter dated April 2, 1997 with Texas Commerce Bank National
Association ("TCB") and Chase Securities, Inc. ("Chase") pursuant to which TCB
has (a) committed to provide up to $15,000,000 of a proposed $45,000,000 credit
facility ("the Facility") and (b) has agreed to use commercially reasonable
efforts to assemble a syndicate of financial institutions identified by Chase
to provide the balance of the necessary commitments for the Facility. TCB's
commitment to provide $15,000,000 of the Facility is subject to certain terms
and conditions identified in the commitment letter.
The Company's plan is to open a total of three new Complexes in fiscal
1997. One Complex opened in Ontario, California on March 13, 1997. In fiscal
1998, the Company's goal is to open four new Complexes. The Company estimates
that its capital expenditures will be approximately $33.5 million and $38.3
million for 1997 and 1998, respectively. The Company intends to finance its
capital expenditures with income from operations, the new facility described
above and equipment leases.
Quarterly Fluctuations, Seasonality and Inflation
As a result of the substantial revenues associated with each new
Restaurant/Entertainment Complex, the timing of new Restaurant/Entertainment
Complex openings will result in significant fluctuations in quarterly results.
The Company expects seasonality to be a factor in the operation or results of
its business in the future due to expected lower second and third quarter
revenues due to the summer season, and expects higher fourth quarter revenues
associated with the year-end holidays. The effects of supplier price increases
have not been material. The Company believes low inflation rates in its market
areas have contributed to stable food and labor costs in recent years. However,
the second increment of the Federal minimum wage increase will cause future
labor costs to increase and there is no assurance that low inflation rates will
continue.
New Accounting Pronouncements
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 fiscal 1997
will have a significant impact on the Company.
15
<PAGE> 16
"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;
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 judgement 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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 (a) (1).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set under the caption "Directors and Executive
Officers" in the Company's Proxy Statement dated May 12, 1997, for the
annual meeting of stockholders on June 11, 1997 is incorporated herein
by reference.
Item 11. COMPENSATION INFORMATION.
The information set under the caption "Directors and Executive
Officers" in the Company's Proxy Statement dated May 12, 1997, for the
annual meeting of stockholders on June 11, 1997 is incorporated herein
by reference.
Item. 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set under the caption "Beneficial Ownership of Common
Stock" in the Company's Proxy Statement dated May 12, 1997, for the
annual meeting of stockholders on June 11, 1997 is incorporated herein
by reference.
Item. 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set under the caption "Certain Transactions" in the
Company's Proxy Statement dated May 12, 1997, for the annual meeting
of stockholders on June 11, 1997 is incorporated herein by reference.
16
<PAGE> 17
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS OF FORM 8-K.
(a) (1) Financial Statements.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets -
February 2, 1997 and February 4, 1996 F-1
Consolidated Statements of Income -
Fiscal years ended February 2, 1997, February 4, 1996
and January 29, 1995 F-2
Consolidated Statements of Stockholders' Equity Fiscal years
ended February 2, 1997, February 4, 1996
and January 29, 1995 F-3
Consolidated Statements of Cash Flows
Fiscal years ended February 2 1997, February 4, 1996
and January 29, 1995 F-4
Notes to Consolidated Financial Statements F-5 - F-12
Report of Independent Auditors F-13
</TABLE>
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
(a) (3) Exhibits.
Reference is made to the Exhibit Index preceding the exhibits attached hereto
on page 20 for a list of all exhibits filed as a part of this Report.
(b) Reports of Form 8-K.
The Company was not required to file a current report on Form 8-K during the
thirteen weeks ended February 2, 1997.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.,
a Missouri corporation
By: /s/ Charles Michel
-------------------------------------
Charles Michel, Vice President and
Chief Financial Officer
Dated: May 1, 1997
18
<PAGE> 19
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of the registrant and in
the capacities indicated on May 1, 1997.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ David O. Corriveau Co-Chairman of the Board,
- --------------------------- Co-Chief Executive Officer,
David O. Corriveau President, and Director
(Principal Executive Officer)
/s/ James W. Corley Co-Chairman of the Board,
- -------------------------- Co-Chief Executive Officer, Chief
James W. Corley Operating Officer and Director
/s/ Charles Michel Vice President and Chief Financial
- -------------------------- Officer
Charles Michel (Principal Financial and Accounting
Officer)
Director
- ---------------------------
Allen J. Bernstein
/s/ Peter A. Edison Director
- ---------------------------
Peter A. Edison
/s/ Walter S. Henrion Director
- ---------------------------
Walter S. Henrion
Director
- ----------------------------
Mark A. Levy
/s/ Andrew E. Newman Director
- ----------------------------
Andrew E. Newman
- ----------------------------- Director
Christopher C. Maguire
- ----------------------------- Director
Mark B. Vittert
</TABLE>
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Company. (2)
3.2 Bylaws of the Company. (2)
10.2 Tax Sharing Agreement, dated June 16, 1995 (2)
10.3 Merger Agreement, dated June 20, 1995 (2)
10.6 Lease Guarantee Agreement, dated June 16, 1995 (2)
10.7 Rights Agreement between the Company and Rights Agent,
dated June 16, 1995 (2)
10.8 1995 Stock Option Plan. (3)
10.9 Stock Option Plan for Outside Directors (4)
10.10 Special Distribution Employee Bonus Plan, dated June 20, 1995. (2)
10.11 Employment Agreement for Co-Chief Executive Officers, dated
June 16, 1995 (2)
10.12 Form of Indemnity Agreements with Executive Officers and Directors (3)
10.13 Transaction Agreement, dated July 11, 1994, among the Company, Edison
Brothers, D&B Holding and certain other parties and first amendment
thereto (2)
10.14 Standstill/Registration Rights Agreement between the Company and the
Minority Owners, dated June 20, 1995 (2)
10.15 International Area Development Agreement between the Company and
Milton Keynes Entertainment Company Limited (1)
21.1 Subsidiaries of the Company. (4)
23 Independent Auditors' Consent. (4)
27 Financial Data Schedule. (4)
99 Proxy Statement, dated May 12, 1997. (5)
</TABLE>
20
<PAGE> 21
- --------------------------
(1) Filed as Exhibit to Form S-1 (file no. 33-96406) and incorporated herein
by reference.
(2) Filed as an Exhibit to the registrant's Form 10-Q for the 13-week period
ended April 30, 1995 and incorporated herein by reference.
(3) Filed as an Exhibit to the registrant's Form 10 filed April 11, 1995 and
incorporated herein by reference.
(4) Filed herewith.
(5) To be filed with the Commission on or before May 12, 1997.
21
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
DAVE & BUSTER'S, INC.
<TABLE>
<CAPTION>
February 2, February 4,
in thousands, except share and per share amounts 1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 358 $ 4,325
Inventories 3,890 2,621
Prepaid expenses 881 360
Preopening costs 1,947 1,946
Other current assets 1,019 831
---------- ----------
Total current assets 8,095 10,083
Property and equipment, net (notes 2 and 4) 82,037 56,384
Goodwill, net of accumulated amortization of $741 and $361 8,920 9,300
Other assets 384 434
---------- ----------
$ 99,436 $ 76,201
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,174 $ 2,456
Accrued liabilities (note 3) 1,747 1,354
Income taxes payable (note 5) 924 --
Deferred income taxes (note 5) 1,173 639
---------- ----------
Total current liabilities 7,018 4,449
Deferred income taxes (note 5) 2,075 1,368
Other liabilities 727 876
Long-term debt (note 4) 14,250 500
Commitments and contingencies (notes 4, 6 and 10)
Stockholders' equity (note 7):
Preferred stock, 10,000,000 authorized; none issued -- --
Common stock, $0.01 par value, 50,000,000 authorized;
7,268,056 and 7,267,056 shares issued and outstanding
as of February 2, 1997 and February 4, 1996, respectively 73 73
Paid in capital 66,999 66,981
Retained earnings 8,294 1,954
---------- ----------
Total stockholders' equity 75,366 69,008
---------- ----------
$ 99,436 $ 76,201
</TABLE>
See accompanying notes to consolidated financial statements
F-1
<PAGE> 23
CONSOLIDATED STATEMENTS OF INCOME
DAVE & BUSTER'S, INC.
<TABLE>
<CAPTION>
in thousands, except per share amounts Fiscal Year 1996 1995 1994
<S> <C> <C> <C>
Food and beverage revenues $ 48,568 $ 28,554 $ 27,426
Amusement and other revenues 40,207 23,990 21,997
---------- ---------- ----------
Total revenues 88,775 52,544 49,423
Cost of revenues 18,003 10,945 10,075
Operating payroll and benefits 25,483 15,999 14,746
Other restaurant operating expenses 20,582 11,481 11,760
General and administrative expenses 5,734 3,905 2,724
Depreciation and amortization expense 5,647 3,538 2,827
Preopening cost amortization 2,605 161 1,128
Earn-out and special compensation -- 1,607 2,125
---------- ---------- ----------
Total costs and expenses 78,054 47,636 45,385
Operating income 10,721 4,908 4,038
Interest income (expense), net (38) 101 59
---------- ---------- ----------
Income before provision for income taxes 10,683 5,009 4,097
Provision for income taxes (note 5) 4,343 2,087 1,733
---------- ---------- ----------
Net income $ 6,340 $ 2,922 $ 2,364
Earnings per common share (note 1) $ .87 $ .50 $ .45
Weighted average number of common shares outstanding 7,268 5,787 5,197
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DAVE & BUSTER'S, INC.
<TABLE>
<CAPTION>
Common Stock Paid in Retained
in thousands Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, January 29, 1995 -- $ -- $ -- $ -- $ --
Spin-off and related transactions 5,197 52 38,349 -- 38,401
Issuance of common stock,
net of offering costs 2,070 21 28,632 -- 28,653
Net income since June 29, 1995 -- -- -- 1,954 1,954
----- ---------- ---------- ---------- ----------
Balance, February 4, 1996 7,267 73 66,981 1,954 69,008
Proceeds from exercising stock option 1 -- 18 -- 18
Net income -- -- -- 6,340 6,340
----- ---------- ---------- ---------- ----------
Balance, February 2, 1997 7,268 $ 73 $ 66,999 $ 8,294 $ 75,366
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
DAVE & BUSTER'S, INC.
<TABLE>
<CAPTION>
in thousands Fiscal Year 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 6,340 $ 2,922 $ 2,364
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 8,252 3,699 3,955
Provision (benefit) for deferred income taxes 1,241 839 (980)
Advance payments of earn-out and special compensation -- -- (2,000)
Changes in assets and liabilities
Inventories (1,269) (934) (324)
Prepaid expenses (521) (112) 45
Preopening costs (2,606) (2,038) (579)
Other assets (198) (135) (472)
Accounts payable 718 838 (386)
Accrued liabilities 393 (513) 590
Income taxes payable 924 -- --
Other liabilities (149) 385 2,138
Other -- -- 55
------- ------- ------
Net cash provided by operating activities 13,125 4,951 4,406
Cash flows from investing activities
Capital expenditures (30,860) (19,364) (6,073)
Cash flows from financing activities
Net transactions with Edison Brothers -- (11,648) 1,999
Borrowings under long-term debt 16,450 16,000 --
Repayments of long-term debt (2,700) (15,500) --
Proceeds from issuance of common stock 18 28,653 --
------- ------- ------
Net cash provided by financing activities 13,768 17,505 1,999
------- ------- ------
Increase (decrease) in cash and cash equivalents (3,967) 3,092 332
Beginning cash and cash equivalents 4,325 1,233 901
------- ------- ------
Ending cash and cash equivalents $ 358 $ 4,325 $ 1,233
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 1,815 $ 1,128 $ --
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAVE & BUSTER'S, INC.
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 and Maryland.
SPIN-OFF TRANSACTION -- Prior to June 29, 1995, the Company was a
subsidiary of Edison Brothers Stores, Inc. ("Edison Brothers"). On June 29,
1995, Edison Brothers distributed all of the outstanding shares of common stock
of the Company owned by Edison Brothers to the holders of common stock of
Edison Brothers (the "Distribution"). The consolidated financial statements for
periods prior to the Distribution have been prepared as if the Company had
operated as a free-standing entity for all periods presented.
The financial information prior to the Distribution included herein does
not necessarily reflect what the financial position and results of operations
of the Company would have been had it operated as a stand-alone entity during
the periods covered and may not be indicative of future operations or financial
position.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
FISCAL YEAR -- The Company's fiscal year ends on the Sunday after the
Saturday closest to January 31. References to 1996, 1995, and 1994 are to the
52 weeks ended February 2, 1997, the 53 weeks ended February 4, 1996 and the 52
weeks ended January 29, 1995, respectively.
CASH AND CASH EQUIVALENTS -- Cash equivalents for 1995 consist of
investments which are readily convertible to cash with maturities of three
months or less.
INVENTORIES -- Inventories, which consist of food, beverage, merchandise
and supplies, are reported at the lower of cost or market determined on the
first-in first-out method.
PREOPENING COSTS -- Capitalized preopening costs, consisting of
promotional costs, direct costs related to hiring and training the initial
workforce, and other direct costs associated with opening a Complex, are
amortized over the one year period following the opening of the Complex.
F-5
<PAGE> 27
PROPERTY AND EQUIPMENT -- Expenditures for new facilities and those which
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Interest capitalized in 1996, 1995, and
1994 was $377, $442, and $38, respectively. Equipment purchases are capitalized
at cost. Property and equipment lives are estimated as follows: buildings, 40
years; leasehold and building improvements, shorter of 20 years or lease life;
furniture, fixtures and equipment, 5 to 10 years; games, 5 years.
The FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets, and for Long-Lived Assets to be Disposed of." This statement did not
have an impact on the Company.
DEPRECIATION AND AMORTIZATION -- Property and equipment, excluding most
games, are depreciated on the straight-line method over the estimated useful
lives of the assets. Games are generally depreciated on the
150%-double-declining-balance method over the estimated useful lives of the
assets. Intangible assets are amortized on the straight-line method over
estimated useful lives as follows: goodwill over 30 years; trademarks over
statutory lives; lease rights over remaining lease terms.
INCOME TAXES -- The Company uses the liability method which recognizes the
amount of current and deferred taxes payable or refundable at the date of the
financial statements as a result of all events that have been recognized in the
financial statements and as measured by the provisions of enacted tax laws.
Prior to June 29, 1995, the Company was included in the consolidated federal
income tax return of Edison Brothers.
STOCK OPTION PLAN -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations in accounting for its employee stock
options because the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
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 year. For all periods prior to June
29, 1995, the weighted average number of shares outstanding is based on the
assumption that 5,197,000 shares of common stock were outstanding.
F-6
<PAGE> 28
NOTE 2: PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land ........................................ $ 8,192 $ 7,642
Buildings ................................... 20,503 19,003
Leasehold and building improvements ......... 29,784 19,478
Games ....................................... 14,831 7,155
Furniture, fixtures and equipment ........... 17,276 11,045
Construction in progress .................... 6,448 1,939
-------- --------
Total cost ............................. 97,034 66,262
Accumulated depreciation .................... (14,997) (9,878)
-------- --------
$ 82,037 $ 56,384
</TABLE>
NOTE 3: ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Payroll ..................................... $ 735 $ 458
Sales tax ................................... 308 338
Other ....................................... 704 558
-------- --------
$ 1,747 $ 1,354
</TABLE>
NOTE 4: LONG-TERM DEBT
The Company has a secured revolving line of credit which permits borrowing
up to a maximum of $23,500 at the prime interest rate (8.25% at February 2,
1997). The line of credit is secured by various assets including land,
buildings and personal property with a net book value of $44,181 at February 2,
1997. At February 2, 1997, the unused portion of the revolving line of credit
was $9,250. The line matures in September 1998. The line of credit has certain
covenants including financial covenants requiring maintenance of a minimum debt
to equity ratio, maintenance of a minimum tangible net worth, and maximum
current debt maturity levels. The fair value of the line of credit approximates
carrying value.
NOTE 5: INCOME TAXES
The provision for income taxes for 1996 reflects the results of operations
of the Company as a stand-alone entity. The provision for income taxes for 1995
and 1994 is calculated on a separate return basis, as provided under the tax
sharing agreement with Edison Brothers. The provision for income taxes consists
of:
F-7
<PAGE> 29
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current Expense
Federal ..................................... $ 2,296 $ 2,800 $ 2,100
State and local ............................. 806 305 613
Deferred Tax (Benefit) ........................... 1,241 (1,018) (980)
-------- -------- --------
Total provision for income taxes ............ $ 4,343 $ 2,087 $ 1,733
Significant components of the deferred tax liabilities and assets in the
consolidated balance sheets are as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Accelerated depreciation ......................... $ 2,464 $ 1,832 $ 1,452
Preopening costs ................................. 813 769 30
Prepaid expenses ................................. 185 -- --
Capitalized interest costs ....................... 200 -- --
-------- --------- ---------
Total deferred tax liabilities .............. 3,662 2,601 1,482
Earn-out compensation ............................ -- -- 3,614
Workers compensation ............................. 235 295 154
Net asset basis difference at acquisition ........ 84 110 151
Other ............................................ 95 189 188
-------- --------- ---------
Total deferred tax assets ................... 414 594 4,107
-------- --------- ---------
Net deferred tax asset (liability) ............... $ (3,248) $ (2,007) $ 2,625
</TABLE>
Reconciliation of federal statutory rates to effective income tax rates:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal corporate statutory rate ................. 34.0% 34.0% 35.0%
State and local income taxes, net
of federal income tax benefit ............... 5.0% 4.0% 9.0%
Goodwill amortization and other
nondeductible expenses ...................... 1.5% 4.9% 1.2%
Tax credits ...................................... (2.0)% (1.2)% (2.9)%
Effect of change in deferred tax rate ............ .9% -- --
Other ............................................ 1.3 -- --
-------- -------- --------
Effective tax rate ............................... 40.7% 41.7% 42.3%
</TABLE>
F-8
<PAGE> 30
NOTE 6: LEASES
The Company leases certain properties and equipment under operating leases.
Some of the leases include options for renewal or extension on various terms.
All leases require the Company to pay property taxes, insurance and maintenance
of the leased assets. Some leases have provisions for additional percentage
rentals based on revenues; however, payments of percentage rent were minimal
during the three-year period ended February 2, 1997. For 1996, 1995, and 1994,
rent expense for operating leases was $2,751, $790, and $785, respectively. At
February 2, 1997, future minimum lease payments required under operating leases
are $3,428, 1997; $3,120, 1998; $2,529, 1999; $2,200, 2000; $2,200, 2001; and
$28,845, total.
NOTE 7: COMMON STOCK
Prior to the Distribution, the Company increased its authorized capital
stock to 50,000,000 shares of common stock, declared a stock dividend and
issued 4,403,560 additional shares of its common stock to Edison Brothers. Also
prior to the Distribution, the Company issued a total of approximately 777,275
shares of its common stock to the Co-Chief Executive Officers of the Company,
and three other non-management minority shareholders, including the principals
of Sandell Investments (collectively, the "Minority Owners") in exchange for
the Minority Owner's 20% interest in the Company's predecessor-in-interests.
The transaction which was accounted for as an acquisition of a minority
interest which resulted in goodwill of approximately $8,952. Edison Brothers
then distributed all of its shares of the Company to the holders of Edison
Brothers common stock.
In 1995 the Company completed a public offering of common stock for the
sale of 2,070,000 shares at $15.00 per share for net proceeds of approximately
$28,653, after deducting related offering costs.
In 1995 the Company adopted the Dave & Buster's, Inc. 1995 Stock Option
Plan (the "Plan") covering 450,000 shares of common stock. The Plan provides
that incentive stock options may be granted at option prices not less than fair
market value at date of grant (110% in the case of an incentive stock option
granted to any person who owns more than 10% of the total combined voting power
of all classes of stock of the Company). Non-qualified stock options may not be
granted for less than 85% of the fair market value of the common stock at the
time of grant and are excercisable 20% per year after one year from the date of
grant.
In connection with the Distribution, the Company granted, on the date of
the Distribution, non-qualified stock options to certain minority shareholders
entitling them to purchase Company common stock equal to 2% of the total
Company common stock outstanding immediately prior to the Distribution
(approximately 104,000 shares). The per share exercise price for each such
option is $15.00. Twenty percent of such options shall be exercisable seven
months after the public offering by the Company of its common stock which was
completed in October 1995. Thereafter, 20% of such options shall become
exercisable on the second, third, fourth and fifth anniversary of the
Distribution.
F-9
<PAGE> 31
In 1996 the Company adopted a stock option plan for outside directors (the
"Directors Plan"). A total of 100,000 shares of common stock are subject to the
Directors Plan. The options granted under the Directors Plan vest ratably over
a three year period.
Pro forma information regarding net income and earnings per common share
is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.75%
and 5.89%; dividend yields of 0.0%; volatility factors of the expected market
price of the Company's common stock of .344; and a weighted-average life of the
option of 4.75 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models requre the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different form those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. Because SFAS
123 requires compensation expense to be recognized over the vesting period the
impact on pro forma net income and pro forma earning per common share as
reported below may not be representative of pro forma compensation expense in
future years. The Company's pro forma information follows :
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net income, as reported $ 6,340 $ 2,922
Pro forma net income $ 6,057 $ 2,782
Earnings per common share, as reported $ .87 $ .50
Pro forma earnings per common share $ .83 $ .48
</TABLE>
A summary of the Company's stock option activity, and related information
is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Options Weighted-Average Options Weighted-Average
Exercise Price Exercise Price
-------------- --------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 255 $ 16.93 -- --
Granted 110 $ 16.11 255 $ 16.93
Exercised (1) $ 18.25 -- --
Forfeited (8) $ 17.38 -- --
Outstanding end of year 356 $ 16.66 255 $ 16.93
Exercisable at end of year 50 $ 16.90 -- --
Weighted-average fair value of options
granted during the year $5.85 $6.83
</TABLE>
F-10
<PAGE> 32
Exercise prices for options outstanding as of February 2, 1997 ranged from
$15.00 to $18.25. The weighted-average remaining contractual life of those
options is 8.6 years.
Under a Shareholder Protection Rights Plan adopted by the Company, each
share of outstanding common stock includes a right which entitles the holder to
purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock for seventy five dollars. Rights attach to all new shares of
common stock whether newly issued or issued from treasury stock and become
exercisable only under certain conditions involving actual or potential
acquisitions of the Company's common stock. Depending on the circumstances, all
holders except the acquiring person may be entitled to 1) acquire such number
of shares of Company common stock as have a market value at the time of twice
the exercise price of each right, or 2) exchange a right for one share of
Company common stock or one-hundredth of a share of the Series A Junior
Participating Preferred Stock, or 3) receive shares of the acquiring company's
common stock having a market value equal to twice the exercise price of each
right. The rights remain in existence until ten years after the Distribution,
unless they are redeemed (at one cent per right).
NOTE 8: RELATED PARTY ACTIVITY
Edison Brothers provided certain general and administrative services to
the Company prior to the Distribution, including legal, accounting, benefit
plan administration, data processing, personnel and payroll, tax filing and
investment services. The expenses of providing these services were allocated to
the Company based on utilization or other methods which management believes to
be reasonable. These allocations were $373 and $675, in 1995 and 1994,
respectively. Subsequent to the Distribution, Edison Brothers agreed to
continue to provide the same services to the Company under a Transaction
Services Agreement at Edison Brothers' cost plus a 10% profit. The expenses
charged for these services subsequent to the spin-off transaction were $75 and
$368 in 1996 and 1995, respectively. The Transaction Services Agreement expired
on June 29, 1996.
Edison Brothers charged rent on certain of the Company's facilities. Rent
expense for 1995 and 1994 amounted to $1,444 and $3,533, respectively.
The Company is party to a consulting agreement with Sandell Investments
("Sandell"), a partnership the principals of which are non-management
stockholders of the Company. Sandell advises the Company with respect to
expansion and site selection, market analysis, improvement and enhancement of
the Dave & Buster's concept and other similar and related activities. Annual
fees of $125 were paid to Sandell in 1996, 1995 and 1994, the maximum fee
provided for under the agreement.
Pursuant to employment agreements executed in connection with its initial
acquisition of the Dave & Buster's operations, the Company was obligated to
make payments (the "Earn-out Compensation") to the Co-Chief Executive Officers
of the Company and, under the consulting agreement discussed in the preceding
paragraph, to Sandell. The Earn-out Compensation was based on a multiple of the
Company's after-tax earnings from the first five Complexes during the one-year
period ending August 1, 1995.
F-11
<PAGE> 33
Pursuant to an agreement dated July 11, 1994 (the "Transaction Agreement"), the
Company paid an aggregate of $10,000 (less prior advances and loans by the
Company to the Co-Chief Executive Officers of the Company) as a non-refundable
advance against the obligation to pay the Earn-out Compensation.
NOTE 9: EMPLOYEE BENEFIT PLAN
The Company sponsors a plan to provide retirement benefits under the
provision of Section 401(k) of the Internal Revenue Code (the 401(k) Plan) for
all employees who have completed a specified term of service. Company
contributions may range from 0% to 100% of employee contributions, up to a
maximum 6% of eligible employee compensation, as defined. Employees may elect
to contribute up to 20% of their eligible compensation on a pretax basis.
Benefits under the 401(k) Plan are limited to the assets of the 401(k) Plan.
NOTE 10: 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.
In March 1997 Edison Brothers filed its disclosure statement in connection
with Edison's bankruptcy proceedings. The disclosure statement identifies a
possible claim on behalf of Edison creditors to recover the value of certain
real property owned by the Company. No such claim has been asserted against the
Company. The Company believes that such a claim would be without merit.
NOTE 11: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
Fiscal 1996
Total revenues ................................... $ 20,217 $ 21,145 $ 20,096 $ 27,317
Operating income ................................. 2,433 2,370 2,354 3,564
Net income ....................................... 1,419 1,418 1,419 2,084
Earnings per common share ........................ $ .20 $ .20 $ .20 $ .29
Weighted average number
of common shares outstanding ................ 7,267 7,267 7,268 7,268
Fiscal 1995
Total revenues ................................... $ 12,267 $ 11,855 $ 11,720 $ 16,702
Operating income ................................. 1,521 268 1,044 2,075
Net income ....................................... 863 148 569 1,342
Earnings per common share ........................ $ .17 $ .03 $ .10 $ .19
Weighted average number
of common shares outstanding ................ 5,197 5,197 5,514 7,242
</TABLE>
F-12
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
DAVE & BUSTER'S, INC.
STOCKHOLDERS AND BOARD OF DIRECTORS
DAVE & BUSTER'S, INC.
We have audited the accompanying consolidated balance sheets of Dave &
Buster's, Inc. as of February 2, 1997 and February 4, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended February 2, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dave &
Buster's, Inc. at February 2, 1997 and February 4, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended February 2, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
March 21, 1997
F-13
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Company. (2)
3.2 Bylaws of the Company. (2)
10.2 Tax Sharing Agreement, dated June 16, 1995 (2)
10.3 Merger Agreement, dated June 20, 1995 (2)
10.6 Lease Guarantee Agreement, dated June 16, 1995 (2)
10.7 Rights Agreement between the Company and Rights Agent,
dated June 16, 1995 (2)
10.8 1995 Stock Option Plan. (3)
10.9 Stock Option Plan for Outside Directors (4)
10.10 Special Distribution Employee Bonus Plan, dated June 20, 1995. (2)
10.11 Employment Agreement for Co-Chief Executive Officers, dated
June 16, 1995 (2)
10.12 Form of Indemnity Agreements with Executive Officers and Directors (3)
10.13 Transaction Agreement, dated July 11, 1994, among the Company, Edison
Brothers, D&B Holding and certain other parties and first amendment
thereto (2)
10.14 Standstill/Registration Rights Agreement between the Company and the
Minority Owners, dated June 20, 1995 (2)
10.15 International Area Development Agreement between the Company and
Milton Keynes Entertainment Company Limited (1)
21.1 Subsidiaries of the Company. (4)
23 Independent Auditors' Consent. (4)
27 Financial Data Schedule. (4)
99 Proxy Statement, dated May 12, 1997. (5)
</TABLE>
<PAGE> 36
- --------------------------
(1) Filed as Exhibit to Form S-1 (file no. 33-96406) and incorporated herein
by reference.
(2) Filed as an Exhibit to the registrant's Form 10-Q for the 13-week period
ended April 30, 1995 and incorporated herein by reference.
(3) Filed as an Exhibit to the registrant's Form 10 filed April 11, 1995 and
incorporated herein by reference.
(4) Filed herewith.
(5) To be filed with the Commission on or before May 12, 1997.
<PAGE> 1
EXHIBIT 10.9
DAVE & BUSTER'S, INC.
STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS
Effective February 19, 1996, the Board of Directors of Dave &
Buster's, Inc. (the "Company") adopted the following Stock Option Plan for
Outside Directors (the "Plan"):
1. PURPOSE. The purpose of the Plan is to provide
independent, outside directors with an incentive for serving as a
director by providing a proprietary interest in the Company through
the granting of options.
2. ADMINISTRATION. The Plan will be administered by the
Board.
3. PARTICIPANTS. The directors of the Company who are
not employees of the Company or its Subsidiaries are eligible to be
granted options under the Plan upon their initial election to the
Board; provided, however, that persons who were both directors and
shareholders of the Company prior to February 19, 1996 shall not be
eligible to receive options under the Plan.
4. SHARES SUBJECT TO PLAN. The Board may not grant
options under the Plan for more than 100,000 shares of Common Stock of
the Company, but this number may be adjusted to reflect, if deemed
appropriate by the Board, any stock dividend, stock split, share
combination, recapitalization or the like, of or by the Company.
Shares to be optioned and sold may be made available from either
authorized but unissued Common Stock or Common Stock held by the
Company in its treasury. Shares that by reason of the expiration of
an option or otherwise are no longer subject to purchase pursuant to
an option granted under the Plan may be reoffered under the Plan.
5. ALLOTMENT OF SHARES. Subject to such changes in the
formula as the Board may determine, options to purchase 15,000 shares
of Common Stock shall be granted on the date hereof to each of Messrs.
Vittert and Levy, and options to purchase 15,000 shares of Common
Stock shall be granted to each new member of the Board on the date of
such new member's election to the Board.
6. GRANT OF OPTIONS. All director options under the
Plan shall be granted as provided in Section 5. The grant of options
shall be evidenced by stock option agreements containing such terms
and provisions as are approved by the Board, but not inconsistent with
the Plan, including provisions that may
-1-
<PAGE> 2
be necessary to assure that the grant of the option complies with
Section 16. The Company shall execute stock option agreements upon
instruments from the Board.
7. OPTION PRICE. The option price shall not be less
than 100% of the fair market value per share of the Common Stock on
the date the option is granted. The option price shall be determined
according to such terms and provisions as the Board may provide in the
amendment referred to in Section 5 hereof.
8. OPTION PERIOD. The Option Period will begin on the
date the option is granted, which will be the date the Board
authorizes the option unless the Board specifies a later date. No
option may terminate later than 10 years from the date the option is
granted. The Board may provide for the exercise of options in
installments and upon such terms, conditions and restrictions as it
may determine. The Board may provide for termination of the option in
the case of termination of the director's directorship or any other
reason.
9. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a
participant dies or becomes disabled (within the meaning of Section
22(e)(3) of the Internal Revenue Code) prior to the termination of his
right to exercise an option in accordance with the provisions of his
stock option agreement without having totally exercised the option,
the option agreement may provide that it may be exercised, to the
extent of the shares with respect to which the option could have been
exercised by the participant on the date of the participant's death or
disability, by (i) the participant's estate or by the person who
acquired the right to exercise the option by bequest or inheritance or
by reason of the death of the participant in the event of the
participant's death, or (ii) the participant or his personal
representative in the event of the participant's disability, provided
the option is exercised prior to the date of its expiration or not
more than one year from the date of the participant's death or
disability, whichever occurs first. The date of disability of a
participant shall be determined by the Company.
10. PAYMENT. Full payment for shares purchased upon
exercising an option shall be made in cash or by check at the time of
exercise, or on such other terms as are set forth in the applicable
option agreement. No shares may be issued until full payment of the
purchase price therefor has been made, and a participant will have
none of the rights of a stockholder until shares are issued to him.
-2-
<PAGE> 3
11. EXERCISE OF OPTION. Options granted under the Plan
may be exercised during the Option Period, at such times, in such
amounts, in accordance with such terms and subject to such
restrictions as are set forth in the applicable stock option
agreements. In no event may an option be exercised or shares be issued
pursuant to an option if any requisite action, approval or consent of
any governmental authority of any kind having jurisdiction over the
exercise of options shall not have been taken or secured.
12. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number
of shares of Common Stock covered by each outstanding option granted
under the Plan and the option price may be adjusted to reflect, as
deemed appropriate by the Board, any stock dividend, stock split,
share combination, exchange of shares, recapitalization, merger,
consolidation, separation, reorganization, liquidation or the like, of
or by the Company.
13. NON-ASSIGNABILITY. Options may not be transferred
other than by will or by the laws of descent and distribution. During
a participant's lifetime, options granted to a participant may be
exercised only by the participant.
14. INTERPRETATION. The Board shall interpret the Plan
and shall prescribe such rules and regulations in connection with the
operation of the Plan as it determines to be advisable for the
administration of the Plan. The Board may rescind and amend its rules
and regulations.
15. AMENDMENT OR DISCONTINUANCE. The Plan may be amended
or discontinued by the Board without the approval of the stockholders
of the Company, except that any amendment that would (a) materially
increase the benefits accruing to participants under the Plan, (b)
materially increase the number of securities that may be issued under
the Plan, or (c) materially modify the requirements of eligibility for
participation in the Plan must be approved by the stockholders of the
Company.
16. EFFECT OF PLAN. Neither the adoption of the Plan nor
any action of the Board shall be deemed to give any director any right
to be granted an option to purchase Common Stock of the Company or any
other rights except as may be evidenced by the stock option agreement,
or any amendment thereto, duly authorized by the Board and executed on
behalf of the Company and then only to the extent and on the terms and
conditions expressly set forth therein.
-3-
<PAGE> 4
17. TERM. Unless sooner terminated by action of the
Board, the Plan will terminate on January 31, 2006. The Board may not
grant options under the Plan after that date, but options granted
before that date will continue to be effective in accordance with
their terms.
18. DEFINITIONS. For the purpose of this Plan, unless
the context requires otherwise, the following terms shall have the
meanings indicated:
(a) "Plan" means this Stock Option Plan for Outside
Directors as amended from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Common Stock" means the Common Stock which the
Company is currently authorized to issue or may in the future be
authorized to issue (as long as the common stock varies from that
currently authorized, if at all, only in amount of par value).
(d) "Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Company if, at the time of
the granting of the option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one
of the other corporations in the chain, and "Subsidiaries" means more
than one of any such corporations.
(e) "Parent" means any corporation in an unbroken chain
of corporations ending with the Company if, at the time of granting of
the option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(f) "Option Period" means the period during which an
option may be exercised.
-4-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
1. Dave & Buster's of Illinois, Inc., a Illinois corporation
2. Dave & Buster's of Georgia, Inc., a Georgia corporation
3. Dave & Buster's of Pennsylvania, Inc., a Pennsylvania corporation
4. DANB Texas, Inc., a Texas corporation
5. Dave & Buster's of Maryland, Inc., a Maryland corporation
6. Dave & Buster's of California, Inc., a California corporation
7. Dave & Buster's of Colorado, Inc., a Colorado corporation
8. Dave & Buster's of New York, Inc., a New York corporation
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-80537) pertaining to the Dave & Buster's, Inc. 1995 Stock
Option Plan of our report dated March 21, 1997 with respect to the consolidated
financial statements of Dave & Buster's, Inc. incorporated by reference in the
Annual Report (Form 10-K) for the year ended February 2, 1997.
ERNST & YOUNG LLP
Dallas, Texas
May 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-END> FEB-02-1997
<CASH> 358
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,890
<CURRENT-ASSETS> 8,095
<PP&E> 97,034
<DEPRECIATION> 14,997
<TOTAL-ASSETS> 82,037
<CURRENT-LIABILITIES> 7,018
<BONDS> 14,250
0
0
<COMMON> 73
<OTHER-SE> 75,366
<TOTAL-LIABILITY-AND-EQUITY> 99,436
<SALES> 88,775
<TOTAL-REVENUES> 88,775
<CGS> 18,003
<TOTAL-COSTS> 78,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 10,683
<INCOME-TAX> 4,343
<INCOME-CONTINUING> 6,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,340
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
