<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT FOR THE QUARTER ENDED AUGUST 2, 1998.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- ACT OF 1934 FOR THE TRANSACTION PERIOD FROM _______ TO _______.
COMMISSION FILE NUMBER: 0-25858
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DAVE & BUSTER'S, INC.
(Exact Name of Registrant as Specified in Its Charter)
MISSOURI 43-1532756
(State of Incorporation) (I.R.S. Employer Identification No.)
2481 MANANA DRIVE
DALLAS, TEXAS 75220
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(214) 357-9588
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of September 9, 1998 was 13,061,850 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------- --------------
August 2, August 3, August 2, August 3,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Food and beverage revenues $ 19,439 $ 14,655 $ 38,631 $ 29,433
Amusement and other revenues 21,252 15,016 40,977 28,870
- -------------------------------------------------------------------------------------------------
Total revenues 40,691 29,671 79,608 58,303
Cost of revenues 7,965 5,760 15,595 11,293
Operating payroll and benefits 11,756 8,416 22,649 16,388
Other restaurant operating expenses 10,303 7,594 20,549 14,737
General and administrative expenses 2,500 1,947 4,907 3,833
Depreciation and amortization expense 2,795 2,021 5,243 3,865
Preopening cost amortization 992 717 1,967 1,495
- -------------------------------------------------------------------------------------------------
Total costs and expenses 36,311 26,455 70,910 51,611
- -------------------------------------------------------------------------------------------------
Operating income 4,380 3,216 8,698 6,692
Interest (income) expense, net (121) 283 (412) 480
- -------------------------------------------------------------------------------------------------
Income before provision for income taxes 4,501 2,933 9,110 6,212
Provision for income taxes 1,700 1,144 3,443 2,422
- -------------------------------------------------------------------------------------------------
Net income $ 2,801 $ 1,789 $ 5,667 $ 3,790
Basic net income per share $ 0.22 $ 0.16 $ 0.43 $ 0.35
Basic weighted average shares outstanding 13,052 10,907 13,041 10,905
Diluted net income per share $ 0.21 $ 0.16 $ 0.43 $ 0.34
Diluted weighted average shares outstanding 13,272 11,061 13,157 11,028
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
DAVE & BUSTER'S, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
August 2,
1998 February 1,
(unaudited) 1998
--------- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 399 $ 14,309
Short-term investments 0 8,507
Inventories 7,678 6,222
Prepaid expenses 1,673 1,234
Preopening costs 5,414 3,415
Other current assets 1,716 2,018
- ------------------------------------------------------------------------------------------
Total current assets 16,880 35,705
Property and equipment, net 145,299 114,060
Goodwill, net of accumulated amortization of $1,312 and $1,121 8,396 8,587
Other assets 1,188 637
- ------------------------------------------------------------------------------------------
Total assets $171,763 $158,989
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,681 $ 4,075
Accrued liabilities 4,974 3,255
Deferred income taxes 2,233 1,967
- ------------------------------------------------------------------------------------------
Total current liabilities 14,888 9,297
Deferred income taxes 3,663 3,530
Other liabilities 1,018 806
Long-term debt 12,500 12,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, 10,000,000 authorized; none issued 0 0
Common stock, $0.01 par value, 50,000,000 authorized;
13,060,350 and 13,019,050 shares issued and outstanding
as of August 2, 1998 and February 1, 1998, respectively 130 130
Paid in capital 116,725 116,054
Retained earnings 22,839 17,172
- ------------------------------------------------------------------------------------------
Total stockholders' equity 139,694 133,356
- ------------------------------------------------------------------------------------------
$171,763 $158,989
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------ Paid in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, February 1, 1998 13,019 $ 130 $116,054 $ 17,172 $133,356
Stock options exercised 41 0 476 0 476
Tax benefit related to
options exercised 0 0 195 0 195
Net income 0 0 0 5,667 5,667
- ------------------------------------------------------------------------------------------
Balance, August 2, 1998 13,060 $ 130 $116,725 $ 22,839 $139,694
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
26 Weeks Ended
--------------
August 2, August 3,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,667 $ 3,790
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 7,210 5,360
Provision for deferred income taxes (1,834) 494
Changes in assets and liabilities
Inventories (1,456) (980)
Prepaid expenses (439) (789)
Preopening costs (3,967) (1,690)
Other assets (255) (725)
Accounts payable 3,606 (360)
Accrued liabilities 1,719 1,044
Income taxes payable 2,233 0
Other liabilities 212 (335)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 12,696 5,809
Cash flows from investing activities
Capital expenditures (36,284) (14,225)
Sale of short-term investments 8,507 0
- --------------------------------------------------------------------------------
Net cash used by investing activities (27,777) (14,225)
Cash flows from financing activities
Proceeds from issuance of common stock 671 167
Borrowings under long-term debt 3,500 31,911
Repayments of long-term debt (3,000) (22,661)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 1,171 9,417
- --------------------------------------------------------------------------------
Cash provided (used) (13,910) 1,001
Beginning cash and cash equivalents 14,309 358
- --------------------------------------------------------------------------------
Ending cash and cash equivalents $ 399 $ 1,359
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 2, 1998
(UNAUDITED)
NOTE 1: RESULTS OF OPERATIONS
The results of operations for the interim periods reported are not
necessarily indicative of results to be expected for the year. The information
furnished herein reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary to present a
fair statement of the results for the interim periods.
NOTE 2: BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dave &
Buster's, Inc. (the "Company") and all wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated balance sheet data presented herein for February 1, 1998 was
derived from the Company's audited consolidated financial statements for the
fiscal year then ended. The preparation of financial statements in accordance
with generally accepted accounting principles requires the Company's management
to make certain estimates and assumptions for the reporting periods covered by
the financial statements. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses. Actual amounts could
differ from these estimates. The primary business of the Company is the
ownership and operation of restaurant/entertainment Complexes (a "Complex")
under the name "Dave & Buster's".
NOTE 3: EARNINGS PER COMMON SHARE
Effective December 15, 1997, the Company adopted the provisions of SFAS No.
128, "Accounting for Earnings Per Share." SFAS No. 128 requires companies to
present basic earnings per share (EPS) and diluted EPS, instead of the primary
and fully diluted EPS presentations that were formerly required by Accounting
Principles Board Opinion No. 15, "Earnings Per Share." Basic EPS is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding during the period. For the Company, diluted
EPS includes the dilutive effect of potential stock option exercises, calculated
using the treasury stock method. EPS amounts for all periods presented reflect
the provisions of SFAS No. 128, including amounts presented for prior periods
which have been restated to conform with SFAS No. 128.
NOTE 4: CONTINGENCIES
In April 1998, a litigation limited liability corporation owned by the
creditors of Edison Brothers filed a lawsuit against the Company and related
parties, seeking recovery in connection with the June 1995 spin-off and certain
related transactions. In August 1998, the Company settled the litigation with
the limited liability litigation corporation. The Company paid $2,125,000 in
full and final settlement of all claims against the Company. Due to the nature
of this litigation, the settlement amount net of any tax
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benefit will be charged to equity.
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.
Management's Discussion and Analysis
Results of Operations - 13 Weeks Ended August 2, 1998 Compared to 13 Weeks Ended
August 3, 1997
Total revenues for the 13 weeks ended August 2, 1998 increased by 37% over
the 13 weeks ended August 3, 1997. The increase in revenues was primarily
attributable to the Cincinnati, Ohio, and Denver, Colorado locations, which
opened in the third and fourth quarters of fiscal 1997, respectively, the
Detroit, Michigan and Irvine, California locations which opened in the second
quarter, and a 6% increase in comparable Complex revenues. Total revenues also
increased due to the opening of the second store under the Bass licensing
agreement. Total revenues for the second quarter of fiscal 1998 from the Bass
agreement were $149,000.
Cost of revenues, as a percentage of revenues, increased to 19.6% from
19.4% in the prior comparable period. The increase in cost of revenues was
primarily a result of higher costs associated with food revenues offset by lower
costs associated with beverage revenues. The increase in food costs were a
function of higher produce, dairy and grocery costs, while the decrease in
beverage costs was primarily associated with lower beer and liquor costs.
Operating payroll and benefits increased to 28.9% from 28.4% in the prior
comparable period due to higher variable labor and benefits costs. The increase
in variable labor is partially due to the second increment of the Federal
minimum wage increase implemented in September 1997 while benefit costs
increased due to higher medical and dental insurance costs.
Other operating expenses decreased to 25.3% compared to 25.6% in the prior
comparable period. Other operating expenses as a percentage of revenue were
lower due to lower advertising and repair and maintenance costs.
General and administrative costs increased $553,000 over the prior
comparable period as a result of increased administrative payroll and related
costs for new personnel and additional costs associated with the Company's
future growth plans. As a percentage of revenues, general and administrative
expenses decreased to 6.1% compared to 6.6% for the comparable prior period due
to increased leverage from revenues.
Depreciation and amortization expense increased $774,000 over the prior
comparable period as a result of the opening of the Cincinatti, Ohio, Denver,
Colorado, Detroit, Michigan and Irvine, California locations. As a percentage of
revenues, depreciation and amortization increased to 6.9% from 6.8% for the
comparable prior period.
Preopening cost amortization increased $275,000 over the prior comparable
period as a result of two additional Complex months of amortization. As a
percentage of revenue, preopening costs remained flat at 2.4%.
The effective tax rate for the second quarter of 1998 was 37.8% as compared
to 39.0% for the comparable period last year and was the result of a lower
effective state tax rate.
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Results of Operations - 26 Weeks Ended August 2, 1998 Compared to 26 Weeks Ended
August 3, 1997
Total revenues for the 26 weeks ended August 2, 1998 increased by 37% over
the 26 weeks ended August 3, 1997. The increase in revenues was primarily
attributable to the Cincinnati, Ohio, and Denver, Colorado locations which
opened in the third and fourth quarters of fiscal 1997, respectively, the
Detroit, Michigan and Irvine, California locations which opened in the second
quarter, and an 8% increase in comparable Complex revenues. Total revenues also
increased due to the opening of the second store under the Bass licensing
agreement. Total revenues for the first 26 weeks of fiscal 1998 from the Bass
agreement were $203,000.
Cost of revenues, as a percentage of revenues, increased to 19.6% from
19.4% in the prior comparable period. The increase in cost of revenues was
primarily a result of higher costs associated with food and amusement revenues
offset by lower costs associated with beverage revenues. The increase in food
costs were a function of higher produce, dairy and grocery costs. The increase
in amusement costs was due to higher merchandise and freight costs, while the
decrease in beverage costs was primarily associated with lower draft beer and
wine costs.
Operating payroll and benefits increased to 28.5% from 28.1% in the prior
comparable period due to higher variable labor and benefits costs. The increase
in variable labor is partially due to the second increment of the Federal
minimum wage increase implemented in September 1997.
Other operating expenses increased to 25.8% compared to 25.3% in the prior
comparable period. Other operating expenses were higher due to increased
occupancy costs associated with the addition of the Ontario, California,
Cincinnati, Ohio, Denver, Colorado, Detroit, Michigan and Irvine, California
locations. The increase was also a function of higher restaurant supplies and
advertising costs at the Complexes.
General and administrative costs increased $1,074,000 over the prior
comparable period as a result of increased administrative payroll and related
costs for new personnel and additional costs associated with the Company's
future growth plans. As a percentage of revenues, general and administrative
expenses decreased to 6.2% compared to 6.6% for the comparable prior period due
to increased leverage from revenues.
Depreciation and amortization expense increased $1,378,000 over the prior
comparable period as a result of the opening of the Ontario, California,
Cincinnati, Ohio, Denver, Colorado, Detroit, Michigan and Irvine, California
locations. As a percentage of revenues, depreciation and amortization remained
flat at 6.6%.
Preopening cost amortization increased $472,000 over the prior comparable
period as a result of four additional Complex months of amortization. As a
percentage of revenue, preopening costs decreased to 2.5% compared to 2.6% in
the prior comparable period. The percentage decrease is attributable to the
leverage from increased revenues.
The Company defers its restaurant preopening costs and amortizes them over
the twelve-month period following the opening of each respective Complex. In
April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires entities to expense as incurred all start-up and
preopening costs that are not otherwise capitalizable as long-lived assets. SOP
98-5 is effective for fiscal years beginning after December 15, 1998, although
earlier adoption is encouraged. Restatement of previously issued financial
<PAGE> 9
statements is not permitted by SOP 98-5, and entities are not required to report
the pro forma effects of the retroactive application of the new accounting
standard. The Company's adoption of the expense-as-incurred accounting principle
required by SOP 98-5 will involve the recognition of the cumulative effect of
the change in accounting principle required by SOP 98-5 as a one-time charge
against earnings, net of any related income tax effect, retroactive to the
beginning of the fiscal year of adoption. Total deferred preopening costs were
$5.4 million at August 2, 1998 and 3.4 million at February 1, 1998.
As has been the case with the Company's current deferred method for
accounting for preopening costs, preopening expense comparisons under the new
expense-as-incurred standard will continue to vary from period to period,
depending on the number and timing of Complex openings and the specific
preopening expenses incurred for each Complex during each period being compared.
Based on the Company's current expansion plans, the Company believes total
preopening expenses for fiscal 1998 and 1999 under either accounting principle
(deferred or expense-as-incurred) will likely exceed the respective amount for
each immediate prior year. However, the new expense-as-incurred accounting
principle required by SOP 98-5 will, by definition, cause an accelerated
recognition of preopening expenses. The impact of this accelerated recognition
on the Company's results of operations for any given period could be
significant, depending on the number of Complexes opened during that period.
The effective tax rate for the first 26 weeks of 1998 was 37.8% as compared
to 39.0% for the comparable period last year and was the result of a lower
effective state tax rate.
Liquidity and Capital Resources
Cash flows from operations increased from $5.8 million in the first 26
weeks of fiscal 1997 to $12.7 million in the first 26 weeks of fiscal 1998. The
increase was a result of the Cincinnati, Ohio and Denver, Colorado locations
opened in the third and fourth quarters of fiscal 1997, respectively, and the
Detroit, Michigan and Irvine, California locations which opened in the second
quarter.
The Company has a senior revolving credit facility which permits
borrowing up to a maximum of $50,000,000 at a floating rate based on the London
Interbank Offered Rate ("LIBOR") or, at the Company's option, the bank's prime
rate plus in each case a margin based upon financial performance (8.4% at August
2, 1998). The facility, which matures in May 2000, has certain financial
covenants including a minimum consolidated tangible net worth level, a maximum
leverage ratio, minimum fixed charge coverage and maximum level of capital
expenditures on new stores. At August 2, 1998, $37,140,000 was available under
the senior revolving credit facility.
The Company's plan is to open four large format Complexes in fiscal 1998.
The first two Complexes opened in Utica (Suburban Detroit), Michigan and Irvine,
California during the second quarter on May 7, 1998 and July 16, 1998
respectively. The Company plans to open two additional large format Complexes in
Rockland County, New York and Orange, California in the third and fourth
quarters of fiscal 1998, respectively. The Company also plans on opening a small
format Complex in the fourth quarter of 1998 in Columbus, Ohio. In fiscal 1999,
the Company's goal is to open four large format and two small format Complexes.
The Company estimates that its capital expenditures will be approximately $53.5
million and $69.5 million for 1998 and 1999, respectively. The Company intends
to finance this development with cash flow from operations, the proceeds
received from the secondary offering completed in the third quarter of 1997 and
the senior revolving credit facility.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the 26 weeks ended
August 2, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAVE & BUSTER'S, INC.
Dated: September 11, 1998 by /s/ David O. Corriveau
------------------ ----------------------
David O. Corriveau
Co-Chairman of the Board, Co-
Chief Executive Officer and
President
Dated: September 11, 1998 by /s/ Charles Michel
------------------ ----------------------
Charles Michel
Vice President,
Chief Financial Officer and
Treasurer
<PAGE> 12
EXHIBIT INDEX
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> AUG-02-1998
<CASH> 399
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 7,678
<CURRENT-ASSETS> 16,880
<PP&E> 173,082
<DEPRECIATION> 27,783
<TOTAL-ASSETS> 171,763
<CURRENT-LIABILITIES> 14,888
<BONDS> 12,500
0
0
<COMMON> 130
<OTHER-SE> 139,564
<TOTAL-LIABILITY-AND-EQUITY> 171,763
<SALES> 79,608
<TOTAL-REVENUES> 79,608
<CGS> 15,595
<TOTAL-COSTS> 70,910
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (412)
<INCOME-PRETAX> 9,110
<INCOME-TAX> 3,443
<INCOME-CONTINUING> 5,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,667
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
