-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PsrnDrfaupmvRK7p0kvTUG9/0+VZG5WkNpb+L7ptsAu9XYCdIMdxmx2SmtjZ5YXc 8GSM6KXTKASdg0i2ekrr2Q== 0000950134-98-007590.txt : 19980916 0000950134-98-007590.hdr.sgml : 19980916 ACCESSION NUMBER: 0000950134-98-007590 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980802 FILED AS OF DATE: 19980915 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVE & BUSTERS INC CENTRAL INDEX KEY: 0000943823 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 431532756 STATE OF INCORPORATION: MO FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-96406 FILM NUMBER: 98709646 BUSINESS ADDRESS: STREET 1: 2481 MANANA DRIVE CITY: DALLAS STATE: TX ZIP: 75220 BUSINESS PHONE: 2143579588 MAIL ADDRESS: STREET 1: 2481 MANANA DR CITY: DALLAS STATE: TX ZIP: 75220 10-Q 1 FORM 10-Q FOR QUARTER ENDED AUGUST 2, 1998 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 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 ------------------- 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. 2 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS DAVE & BUSTER'S, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
13 Weeks Ended 26 Weeks Ended -------------- -------------- August 2, August 3, August 2, August 3, 1998 1997 1998 1997 ---- ---- ---- ---- 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
See accompanying notes to consolidated financial statements. 3 DAVE & BUSTER'S, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS August 2, 1998 February 1, (unaudited) 1998 --------- ---- 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
See accompanying notes to consolidated financial statements. 4 DAVE & BUSTER'S, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS) (UNAUDITED)
Common Stock ------------ Paid in Retained Shares Amount Capital Earnings Total ------ ------ ------- -------- ----- Balance, 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
See accompanying notes to consolidated financial statements. 5 DAVE & BUSTER'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
26 Weeks Ended -------------- August 2, August 3, 1998 1997 ---- ---- 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
See accompanying notes to consolidated financial statements. 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 7 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. 8 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 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. 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the 26 weeks ended August 2, 1998. 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: 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 12 EXHIBIT INDEX 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS JAN-31-1999 AUG-02-1998 399 0 0 0 7,678 16,880 173,082 27,783 171,763 14,888 12,500 0 0 130 139,564 171,763 79,608 79,608 15,595 70,910 0 0 (412) 9,110 3,443 5,667 0 0 0 5,667 .43 .43
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