<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------
FORM 10-Q
X QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR
- ---- THE QUARTER ENDED OCTOBER 31, 1999.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
- ---- 1934 FOR THE TRANSACTION PERIOD FROM _______ TO _______.
COMMISSION FILE NUMBER: 0-25858
-------------------
DAVE & BUSTER'S, INC.
(Exact Name of Registrant as Specified in Its Charter)
MISSOURI 43-1532756
(State of Incorporation) (I.R.S. Employer Identification No.)
2481 MANANA DRIVE
DALLAS, TEXAS 75220
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(214) 357-9588
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of December 9, 1999 was 12,953,375 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------- --------------
October 31, November 1, October 31, November 1,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Food and beverage revenues $ 29,068 $ 22,183 $ 85,213 $ 60,814
Amusement and other revenues 29,920 23,226 91,092 64,203
--------- --------- --------- ---------
Total revenues 58,988 45,409 176,305 125,017
Cost of revenues 11,600 9,071 33,295 24,666
Operating payroll and benefits 19,145 13,711 54,814 36,360
Other restaurant operating expenses 16,427 11,315 47,051 31,864
General and administrative expenses 3,681 2,690 10,776 7,597
Depreciation and amortization expense 5,246 3,134 14,109 8,377
Preopening costs 1,540 1,100 4,697 3,067
--------- --------- --------- ---------
Total costs and expenses 57,639 41,021 164,742 111,931
--------- --------- --------- ---------
Operating income 1,349 4,388 11,563 13,086
Interest (income) expense, net 988 (7) 2,026 (419)
--------- --------- --------- ---------
Income before provision for income taxes and
cumulative effect of a change in an accounting principle 361 4,395 9,537 13,505
Provision for income taxes 132 1,661 3,505 5,104
--------- --------- --------- ---------
Income before cumulative effect of a
change in an accounting principle 229 2,734 6,032 8,401
Cumulative effect of a change in an accounting
principle, net of income tax benefit of $2,928 -- -- 4,687 --
--------- --------- --------- ---------
Net income $ 229 $ 2,734 $ 1,345 $ 8,401
Net income per share - basic
Before cumulative effect of a change in an accounting principle $ 0.02 $ 0.21 $ 0.46 $ 0.64
Cumulative effect of a change in an accounting principle -- -- (0.36) --
--------- --------- --------- ---------
$ 0.02 $ 0.21 $ 0.10 $ 0.64
Net income per share - dilutive
Before cumulative effect of a change in an accounting principle $ 0.02 $ 0.21 $ 0.45 $ 0.64
Cumulative effect of a change in an accounting principle -- -- (0.35) --
--------- --------- --------- ---------
$ 0.02 $ 0.21 $ 0.10 $ 0.64
Weighted average shares outstanding:
Basic 13,076 13,062 13,086 13,048
Diluted 13,163 13,183 13,300 13,195
</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
October 31,
1999 January 31,
(unaudited) 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,429 $ 4,509
Inventories 15,497 10,811
Prepaid expenses 2,039 1,743
Preopening costs -- 7,369
Other current assets 3,131 5,286
----------- -----------
Total current assets 22,096 29,718
Property and equipment, net 220,106 177,910
Goodwill, net of accumulated amortization of $1,787 and $1,502 7,921 8,206
Other assets 1,745 758
----------- -----------
Total assets $ 251,868 $ 216,592
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,632 $ 13,695
Accrued liabilities 5,366 3,785
Deferred income taxes 4,335 4,018
----------- -----------
Total current liabilities 20,333 21,498
Deferred income taxes 2,798 5,638
Other liabilities 2,272 1,454
Long-term debt 80,000 42,500
Commitments and contingencies
Stockholders' equity:
Preferred stock, 10,000,000 authorized; none issued 0 0
Common stock, $0.01 par value, 50,000,000 authorized;
13,003,375 and 13,069,050 shares issued and outstanding
as of October 31, 1999 and January 31, 1999, respectively 131 131
Paid in capital 115,654 114,621
Retained earnings 32,095 30,750
----------- -----------
147,880 145,502
Less: treasury stock, at cost (125,000 shares at October 31, 1999) 1,415 --
----------- -----------
Total stockholders' equity 146,465 145,502
----------- -----------
$ 251,868 $ 216,592
</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 Treasury
Shares Amount Capital Earnings Stock Total
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1999 13,069 $ 131 $ 114,621 $ 30,750 $ 0 $ 145,502
Stock options exercised 59 0 757 0 0 757
Tax benefit related to
options exercised 0 0 276 0 0 276
Purchase of treasury stock (125) 0 0 0 (1,415) (1,415)
Net income 0 0 0 1,345 0 1,345
-------- --------- --------- --------- --------- ---------
Balance, October 31, 1999 13,003 $ 131 $ 115,654 $ 32,095 $ (1,415) $ 146,465
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
DAVE & BUSTER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
39 Weeks Ended
-------------------------
October 31, November 1,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,345 $ 8,401
Adjustments to reconcile net income to net cash
provided by operating activities
Cumulative effect of change in an accounting principle 4,687 --
Depreciation and amortization 14,109 11,444
Provision for deferred income taxes 405 617
Changes in assets and liabilities
Inventories (4,686) (2,666)
Prepaid expenses (296) (539)
Preopening costs 0 (6,468)
Other assets 1,189 (530)
Accounts payable (3,063) 7,785
Accrued liabilities 1,581 1,755
Other liabilities 818 465
-------- --------
Net cash provided by operating activities 16,089 20,264
Cash flows from investing activities
Capital expenditures (56,011) (59,446)
Sale of short-term investments -- 8,507
-------- --------
Net cash used by investing activities (56,011) (50,939)
Cash flows from financing activities
Spin-off and related transactions -- (2,244)
Purchase of treasury stock 1,415 --
Proceeds from issuance of common stock 757 716
Borrowings under long-term debt 37,500 19,000
Repayments of long-term debt -- (1,000)
-------- --------
Net cash provided by financing activities 36,842 16,472
-------- --------
Cash (used) (3,080) (14,203)
Beginning cash and cash equivalents 4,509 14,309
-------- --------
Ending cash and cash equivalents $ 1,429 $ 106
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
DAVE & BUSTER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1: RESULTS OF OPERATIONS
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year. The information furnished
herein reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary to fairly
present the results of operations and financial position for the interim
periods.
NOTE 2: BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dave & Buster's,
Inc. and all wholly-owned subsidiaries (the "Company"). All material
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated balance sheet data presented herein for January 31, 1999 was
derived from the Company's audited consolidated financial statements for the
fiscal year then ended. The preparation of financial statements in accordance
with generally accepted accounting principles requires the Company's management
to make certain estimates and assumptions for the reporting periods covered by
the financial statements. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses. Actual amounts could
differ from these estimates. The Company's one industry segment is the ownership
and operation of restaurant/entertainment Complexes (a "Complex" or "Store")
under the name "Dave & Buster's" which are located in Texas, Georgia,
Pennsylvania, Illinois, Florida, Maryland, California, Ohio, Colorado, Michigan,
New York, and Missouri.
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position ("SOP")
98-5 entitled "Reporting on the Costs of Start-Up Activities". The SOP, was
effective for fiscal years beginning after December 15, 1998, requires entities
to expense as incurred all start-up and preopening costs that are not otherwise
capitalizable as long-lived assets. Restatement of previously issued annual
financial statements was not permitted by the SOP, and entities were not
permitted to report the pro forma effects of the retroactive application of the
new accounting standard. The Company adopted the SOP in the first quarter of
fiscal 1999 and recorded a charge for the cumulative effect of a change in an
accounting principle of approximately $4,687 net of income tax benefits of
approximately $2,928.
NOTE 4: CONTINGENCIES
The Company is subject to certain legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, based on
discussions with and advice of legal counsel, the
<PAGE> 7
amount of ultimate liability with respect to these actions will not materially
affect the consolidated results of operations or financial condition of the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)
Results of Operations - 13 Weeks Ended October 31, 1999 Compared to 13 Weeks
Ended November 1, 1998
Total revenues increased to $58,988 for the 13 weeks ended October 31, 1999 from
$45,409 for the 13 weeks ended November 1, 1998, an increase of $13,579 or 30%.
The increase in revenues was attributable to incremental revenues from eight
complexes opened after August 2, 1998. Revenues at comparable Stores decreased
6.2% for the 13 weeks ended October 31, 1999. The decrease in comparable stores
revenues was primarily attributable to reduced traffic at the Stores. Total
revenues for the 13 weeks ended August 1, 1999 from the Bass licensing agreement
were $91.
Cost of revenues increased to $11,600 for the 13 weeks ended October 31, 1999
from $9,071 for the 13 weeks ended November 1, 1998, an increase of $2,529 or
28%. The increase was principally attributable to the 30% increase in revenues.
As a percentage of revenues, cost of revenues decreased to 19.7% in the 13 weeks
ended October 31, 1999 from 20.0% in the 13 weeks ended November 1, 1998 due to
lower food and beverage costs offset by higher amusement costs.
Operating payroll and benefits increased to $19,145 for the 13 weeks ended
October 31, 1999 from $13,711 for the 13 weeks ended November 1, 1998, an
increase of $5,434 or 40%. As a percentage of revenue, operating payroll and
benefits increased to 32.5% in the 13 weeks ended October 31, 1999 from 30.2% in
the 13 weeks ended November 1, 1998 due to higher variable and fixed labor
costs.
Other restaurant operating expenses increased to $16,427 for the 13 weeks ended
October 31, 1999 from $11,315 for the 13 weeks ended November 1, 1998, an
increase of $5,112 or 45%. As a percentage of revenues, other restaurant
operating expenses were 27.8% of revenues in the 13 weeks ended October 31, 1999
as compared to 24.9% of revenues in the 13 weeks ended November 1, 1998. Other
restaurant operating expenses were higher due to increased fixed and occupancy
costs at the Stores.
General and administrative increased to $3,681 for the 13 weeks ended October
31, 1999 from $2,690 for the 13 weeks ended November 1, 1998, an increase of
$991 or 37%. The increase over the prior comparable period resulted from
increased administrative payroll and related costs for new personnel, and
additional costs associated with the Company's growth plans. As a percentage of
revenues, general and administrative expenses increased to 6.2% in the 13 weeks
ended October 31, 1999 from 5.9% in the 13 weeks ended November 1, 1998.
Depreciation and amortization increased to $5,246 for the 13 weeks ended October
31, 1999 from $3,134 for the 13 weeks ended November 1, 1998, an increase of
$2,112 or 67%. As a percentage of revenues, depreciation and amortization
increased to 8.9% from 6.9% for the comparable prior period. The increase was
attributable to the eight new Stores opened after August 2, 1998.
Beginning in fiscal 1999, in accordance with the adoption of SOP 98-5 (see note
3), the Company expenses all costs incurred during start-up activities,
including preopening costs, as incurred. Preopening costs incurred and recorded
as expense for the 13 weeks ended October 31, 1999 were $1,540. The amount of
preopening costs recorded for fiscal 1998 represents preopening costs which were
amortized over the 12 months following opening. This amortization expense for
the 13 weeks
<PAGE> 8
ended November 1, 1998 was $1,100. The timing of Complex openings affects the
amount of such costs in any given period.
Interest expense for the 13 weeks ended October 31, 1999 was $988 versus an
interest income of $7 for the 13 weeks ended November 1, 1998. The increase was
primarily due to higher average debt in 1999 versus 1998.
The effective tax rate for the 13 weeks ended October 31, 1999 was 36.6% as
compared to 37.8% for the 13 weeks ended November 1, 1998, as the result of a
lower effective state tax rate.
Results of Operations - 39 Weeks Ended October 31, 1999 Compared to 39 Weeks
Ended November 1, 1998
Total revenues increased to $176,305 for the 39 weeks ended October 31, 1999
from $125,017 for the 39 weeks ended November 1, 1998, an increase of $51,288 or
41%. The increase in revenues was attributable to incremental revenues from ten
complexes opened after February 1, 1998. Revenues at comparable Stores decreased
1.2% for the 39 weeks ended October 31, 1999. Total revenues for the 39 weeks
ended October 31, 1999 from the Bass licensing agreement were $268.
Cost of revenues increased to $33,295 for the 39 weeks ended October 31, 1999
from $24,666 for the 39 weeks ended November 1, 1998, an increase of $8,629 or
35%. The increase was principally attributable to the 41% increase in revenues.
As a percentage of revenues, cost of revenues decreased to 18.9% in the 39 weeks
ended October 31, 1999 from 19.7% in the 39 weeks ended November 1, 1998 due to
lower food, beverage and amusement costs.
Operating payroll and benefits increased to $54,814 for the 39 weeks ended
October 31, 1999 from $36,360 for the 39 weeks ended November 1, 1998, an
increase of $18,454 or 51%. As a percentage of revenue, operating payroll and
benefits increased to 31.1% in the 39 weeks ended October 31, 1999 from 29.1% in
the 39 weeks ended November 1, 1998 due to higher variable and fixed labor
costs.
Other restaurant operating expenses increased to $47,051 for the 39 weeks ended
October 31, 1999 from $31,864 for the 39 weeks ended November 1, 1998, an
increase of $15,187 or 48%. As a percentage of revenues, other restaurant
operating expenses were 26.7% of revenues in the 39 weeks ended October 31, 1999
as compared to 25.5% of revenues in the 39 weeks ended November 1, 1998. Other
restaurant operating expenses were higher due to increased occupancy costs at
the Stores offset by lower utilities costs.
General and administrative increased to $10,776 for the 39 weeks ended October
31, 1999 from $7,597 for the 39 weeks ended November 1, 1998, an increase of
$3,179 or 42%. The increase over the prior comparable period resulted from
increased administrative payroll and related costs for new personnel, and
additional costs associated with the Company's growth plans. As a percentage of
revenues, general and administrative expenses were flat at 6.1% for both the 39
weeks ended October 31, 1999 and the 39 weeks ended November 1, 1998.
Depreciation and amortization increased to $14,109 for the 39 weeks ended
October 31, 1999 from $8,377 for the 39 weeks ended November 1, 1998, an
increase of $5,732 or 68%. As a percentage of revenues, depreciation and
amortization increased to 8.0% from 6.7% for the comparable prior period. The
increase was attributable to new Stores opened after February 1, 1998.
Beginning in fiscal 1999, in accordance with the adoption of SOP 98-5 (see note
3), the Company expenses all costs incurred during start-up activities,
including preopening costs, as incurred.
<PAGE> 9
Preopening costs incurred and recorded as expense for the 39 weeks ended October
31, 1999 were $4,697. The amount of preopening costs recorded for fiscal 1998
represents preopening costs which were amortized over the 12 months following
opening. This amortization expense for the 39 weeks ended November 1, 1998 was
$3,067. The timing of Complex openings affects the amount of such costs in any
given period.
Interest expense for the 39 weeks ended October 31, 1999 was $2,026 versus an
interest income of $419 for the 39 weeks ended November 1, 1998. The increase
was primarily due to higher average debt in 1999 versus 1998.
The effective tax rate for the 39 weeks ended October 31, 1999 was 36.8% as
compared to 37.8% for the 39 weeks ended November 1, 1998, and the result of a
lower effective state tax rate.
Liquidity and Capital Resources
Cash flows from operations decreased to $16,089 for the 39 weeks ended October
31, 1999 from $20,264 for the 39 weeks ended November 1, 1998. The decrease was
attributable to a decrease in net income.
The Company has a secured revolving line of credit, which permits borrowing up
to a maximum of $100,000. Borrowings under this facility bear interest at a
floating rate based on the London Interbank Offered Rate ("LIBOR") or, at the
Company's option, the bank's prime rate plus, in each case, a margin based upon
financial performance (7.3% at October 31, 1999) and is secured by all capital
stock or equity interest in the stock of the Company and its subsidiaries. The
facility, which matures in May 2001, has certain financial covenants including a
minimum consolidated tangible net worth level, a maximum leverage ratio, minimum
fixed charge coverage, and maximum level of capital expenditures on new Stores.
At October 31, 1999, $13,620 was available under this facility.
On July 29, 1999 the Company terminated its interest rate swap agreement that
fixed its variable-rate debt to fixed-rate debt on notional amounts aggregating
$45,000. The terminated agreement resulted in a $40 gain being recognized during
the period.
The Company's plan is to open six and four complexes in fiscal 1999 and 2000,
respectively. The Company estimates that its capital expenditures will be
approximately $68,000 and $56,000 for 1999 and 2000, respectively. The Company
intends to finance this development with cash flow from operations, the senior
revolving credit facility, and other additional capital resources which
management is currently pursuing. However, there is no assurance that the
Company can secure these additional resources. During 1999, the Company has
opened new complexes in San Antonio, Texas, Atlanta, Georgia, St. Louis,
Missouri, Austin, Texas and Jacksonville, Florida.
Impact of the Year 2000 Issues
The Company's comprehensive Year 2000 initiative is designed to ensure that
there is no adverse effect on the Company's core business operations and that
transactions with customers, suppliers and financial institutions are fully
supported. The Company is substantially complete with these efforts as of
October 31, 1999. The Company spent approximately $3.5 million on new software,
which replaced existing software that might not have been year 2000 compliant.
Such costs were capitalized. While the Company believes its planning efforts are
adequate to address its Year 2000 concerns, there can be no guarantee that the
systems of other companies on which the Company's systems and operations rely
will be converted on a timely basis and will not have a material effect on the
Company.
<PAGE> 10
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Certain statements in this Report on Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; competition; availability, locations and terms of sites
for Complex development; quality of management; changes in, or the failure to
comply with, government regulations; and other risks indicated in this filing
and discussed under "Risks" in the Company's Form 10-K filed with the Securities
and Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the 39 weeks ended
October 31, 1999.
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAVE & BUSTER'S,
INC.
Dated: December 15, 1999 by /s/ David O. Corriveau
----------------- ------------------------------
David O. Corriveau
Co-Chairman of the Board,
Co-Chief Executive Officer
and President
Dated: December 15, 1999 by /s/ Charles Michel
----------------- ----------------------
Charles Michel
Vice President,
Chief Financial Officer
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 1,429
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,497
<CURRENT-ASSETS> 22,096
<PP&E> 267,510
<DEPRECIATION> 47,404
<TOTAL-ASSETS> 251,868
<CURRENT-LIABILITIES> 20,333
<BONDS> 80,000
0
0
<COMMON> 131
<OTHER-SE> 146,334
<TOTAL-LIABILITY-AND-EQUITY> 146,465
<SALES> 176,305
<TOTAL-REVENUES> 176,305
<CGS> 33,295
<TOTAL-COSTS> 164,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,026
<INCOME-PRETAX> 9,537
<INCOME-TAX> 3,505
<INCOME-CONTINUING> 6,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 4,687
<NET-INCOME> 1,345
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
