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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 January 30, 2000 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)
2481 Manana Drive, 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:
Title of Each Class
-------------------
Common Stock, $0.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
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 Regulations 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 20, 2000 was $88,685,125.
The number of shares of common stock outstanding at April 20, 2000 was
12,953,375 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated April 28, 2000, for its
annual meeting of Stockholders on June 5, 2000, 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") operates large format,
high-volume Restaurant/Entertainment Complexes ("Complexes" or
"Stores") under the Dave & Buster's name. Each Dave & Buster's Complex
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 large format is designed to promote easy access to, and
maximize customer crossover 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. As of January 30, 2000, the Company had
23 stores across the continental United States. Additionally, the
Company licenses the Dave & Buster's concept internationally through
area licensing agreements and as of January 30, 2000, there were three
Dave & Buster's operating overseas.
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 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 also
actively seeks to enhance the popularity of its traditional games, such
as 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.
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".
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High Standard of Customer Service. Through intensive personnel
training, constant monitoring of operations and stringent operational
controls, the Company strives to maintain a consistently high standard
of food, beverage, and amusement service throughout each Complex. 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.
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 or guardian (a person 25 years of age or older who agrees
to be responsible for the conduct and safety of the underage guest) 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 attracts 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 to 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 crossover 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 & Buster's 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. The menu
is regularly updated to reflect current dining trends and incorporates
"house specials" such as barbequed ribs, blackened chicken pasta,
mesquite-peppered rib eye steak, and a Philadelphia cheesesteak
sandwich. A wide variety of other appetizers, soups, salads, sandwiches
and desserts is also available. Entree and sandwich prices range from
$6.95 to $16.95, with many main menu items in the $6.95 to $12.95 price
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 the entire Complex. In addition,
throughout the restaurant and entertainment areas 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".
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The entertainment attractions in each Dave & Buster's are geared toward
customer participation and offer both traditional entertainment and
"Million Dollar Midway" entertainment.
Traditional Entertainment. Each Dave & Buster's offers a number of
traditional entertainment options. These traditional offerings include
"world class" pocket billiards, "championship-style" shuffleboard
tables, and the Show Room which is designed for hosting private social
parties and business gatherings as well as Company sponsored events.
Traditional entertainment games are rented by the hour.
Million Dollar Midway Games. 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. The Dave & Buster's Power Card activates all
the midway games (with the exception of coin action games) and can be
recharged for additional play. The Power Card enables customers to
activate games more easily and encourages extended play of games. By
replacing coin activation, the Power Card has eliminated the technical
difficulties and maintenance issues associated with coin activated
equipment. Furthermore, the Power Card feature has increased the
Company's flexibility in pricing and promoting of games.
Attractions within the Million Dollar Midway include fantasy/high
technology and classic midway entertainment. Fantasy/high-technology
offerings include simulator games such as formula race cars, off-road
vehicles, fighter jets and motorcycles; Galaxian Theater, a
multi-participant, enclosed simulation theater where up to six players
take part in mock battles with alien invaders; Virtuality, an
interactive, electronic game designed to simulate an actual battlefield
environment; Virtual World, a fantasy environment attraction; Iwerks
Turbo Ride Theater, a 16 to 18 seat motion simulation theater;
large-screen interactive electronic games; and "The 19th Hole", a
state-of-the-art golf simulator.
Classic midway entertainment includes sports-oriented games of skill;
carnival-style games, which are intended to replicate the atmosphere
found in many local county fairs; and D&B Downs which is one of several
multiple-player race games offered in each Dave & Buster's. At the
Winner's Circle, players can redeem coupons won from selected games of
skill for a wide variety of prizes, many of which display the Dave &
Buster's logo. The prizes include stuffed animals, clothing, and small
electronic and novelty items.
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Locations
At January 30, 2000, the Company operated a total of 23 locations in 13
states, which included:
Approximate
Location State Square Footage
-------- ----- --------------
Dallas (I) TX 40,000
Dallas (II) TX 31,000
Houston TX 53,000
Atlanta GA 53,000
Philadelphia PA 70,000
Chicago (I) IL 50,000
Chicago (II) IL 55,000
Hollywood FL 58,000
North Bethesda MD 58,000
Ontario CA 59,000
Cincinnati OH 64,000
Denver CO 48,000
Utica (suburban Detroit) MI 56,000
Irvine CA 55,000
Rockland County NY 48,000
Orange CA 58,000
Columbus OH 37,500
San Antonio TX 52,000
Atlanta (II) GA 58,000
St. Louis MO 57,000
Austin TX 40,000
Jacksonville FL 40,500
Providence RI 40,500
Business Development
The Company continually seeks to identify and evaluate new locations
for expansion. The Company's goal is to open four Complexes in fiscal
years 2000 and 2001, respectively. The Company will open Complexes in
2000 as follows:
Approximate Development
Location State Square Footage Status
-------- ----- -------------- ------------------
Milpitas (San Jose) CA 60,000 Opened March 2000
Westminster (Denver) CO 40,000 Under construction
Pittsburgh PA 60,000 Under construction
San Diego CA 44,000 Under development
Potential locations for openings in fiscal 2001 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
targets high-profile sites within metropolitan areas of less than one
million people for intermediate-size models and at least one million
people for mega-size models. The Company carefully analyzes 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 a mega-size Dave & Buster's ranges from
approximately $7.0 million to $12.0 million (excluding preopening
expenses and developer allowances), depending upon the location and
condition of the premises. For intermediate-size models, the typical
cost ranges from approximately $6.0 million and $8.0 million (excluding
pre-opening expenses and developer allowances), depending upon the
location and condition of the premises. The Company will base the
decision of owning or leasing a site on the projected unit economics
and availability of the site for purchase. The Complexes opened in 1999
included both owned and leased facilities. Opening a leased facility
reduces the Company's capital investment in a Complex because the
Company does not incur land and site improvement costs and may also
receive a construction allowance from the landlord for improvements.
The exterior and interior layout of a Dave & Buster's is flexible and
can be readily adapted to different types of buildings. The Company has
opened Complexes in both new and existing structures, 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 opened a
Complex in Birmingham, England in May 1997, a Complex in Bristol,
England in July 1998, and has agreed to open a total of seven Complexes
in the United Kingdom by 2005. Under the license agreement, Bass is
required to pay the Company a royalty based upon gross revenues, net of
value added taxes. The royalty rate paid by Bass is a sliding scale
which averages 5% of gross revenues. The license agreement contains
strict operating covenants to ensure consistency of the menu and
entertainment offerings with those in the Company-operated Complexes.
In February 1998, the Company entered into a license agreement with the
TaiMall Development Company ("TaiMall") to license the "Dave &
Buster's" name and concept in the Pacific Rim. Under this agreement,
TaiMall opened a Complex in Taipei, Taiwan in December 1999, and has
agreed to open seven Complexes in the Pacific Rim by the year 2006.
Under the license agreement, TaiMall is required to pay the Company a
5% royalty based upon gross revenues. The license agreement contains
strict operating covenants to ensure consistency of the menu and
entertainment offerings with those in the Company-operated Complexes.
In September 1998, the Company entered into a license agreement with
the SVAG Development Corporation ("SVAG") to license the "Dave &
Buster's" name and concept in Germany,
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Switzerland and Austria. Under this agreement, SVAG has a Complex under
construction in Herne, Germany, scheduled to open in December 2000, and
has agreed to open seven Complexes by the year 2007. Under the license
agreement, SVAG is required to pay the Company a 5% royalty based upon
gross revenues. The license agreement contains strict operating
covenants to ensure consistency of the menu and entertainment offerings
with those in the Company operated Complexes.
In March 1999, the Company entered into a license agreement with
Funtime Hospitality Corp. ("Funtime") to license the "Dave & Buster's"
name and concept in Canada. Under this agreement, Funtime has a Complex
under construction in Toronto, Ontario, scheduled to open in June 2000,
and has agreed to open five Complexes by the year 2005. The license
agreement contains strict operating covenants to ensure consistency of
the menu and entertainment offerings with those in the Company operated
Complexes.
In November 1999, the Company entered into a letter of intent to
license the "Dave & Buster's" name and concept in the Middle East with
Al-Mal Real Estate Company. There is no assurance that this letter of
intent will result in a definitive agreement.
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, that includes both
high volume restaurants, bars and diverse entertainment attractions,
has been critical to its overall success. The Company strives to
maintain quality and consistency in each of its Complexes through
careful training and supervision of personnel and the establishing and
adhering to high standards relating to personnel performance, food and
beverage preparation, entertainment productions and equipment, and
facilities maintenance. The Company believes that it has been able to
attract and retain high quality, experienced restaurant and
entertainment management and personnel through its competitive
compensation and bonus programs and its policy of promoting from within
the Company. Staffing levels vary according to the size of the
location, but a mega-size Dave & Buster's is managed by one general
manager, two assistant general managers, seven line managers, and one
business manager.
In general, each mega-size Dave & Buster's also employs one purchasing
agent, one amusement manager, two assistant amusement managers, one
kitchen manager, two assistant kitchen managers, and one special events
sales manager. On average, the Company's current general managers
possess approximately three-and-a-half years of experience with the
Company. The general manager of each Dave & Buster's reports to a
Regional Operations Director 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 as well as proper operation and
playing conditions of the Company's entertainment attractions. New
sales staff and entertainment personnel participate in approximately
two weeks of training under the close supervision of Company
management. Management strives to instill
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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,
on a periodic basis, test the Company's food, beverage, and service as
customers without the knowledge of restaurant management or personnel,
and report their findings to corporate management.
Each Complex uses a variety of integrated management information
systems. These systems include a computerized point-of-sale system
which facilitates the movement of customer food and beverage orders
between the customer areas and kitchen operations, controls cash,
handles credit card authorizations, keeps track of revenues on a
per-employee basis for incentive awards, and provides management with
revenue and inventory data.
Marketing, Advertising and Promotion
The Company operates its marketing, advertising, and promotional
programs through the corporate marketing department with the assistance
of an external advertising agency, media planning/buying service and
regional public relations firms. Subsequent to fiscal 1999, the
marketing department hired a Vice President of Marketing and is in the
process of further expanding staffing levels and programs.
The corporate marketing department is also responsible for controlling
media and production costs. During fiscal 1999, the Company's
expenditures for advertising and promotions were approximately 2.5% of
its revenues.
In order to expand its customer base, the Company focuses marketing
efforts in three key areas: (1) advertising and system-wide promotions;
(2) field marketing and local promotions and (3) corporate and group
customers (special events).
Advertising and System-wide Promotions. With an enhanced emphasis on
marketing and advertising, the Company will utilize a multi-media
advertising campaign consisting of television, radio, outdoor, print
and direct mail to attract new guests. In addition, in-store promotions
and point-of-sale materials designed to increase visit frequency and
guest check average are also being developed for implementation.
Field Marketing and Local Promotions. To capitalize on business
building opportunities at the local market level, the Company has
employed a Field Marketing Director to work in conjunction with store
level management, local supplier-partners and local media to develop
third party promotions designed to meet the specific business
objectives of the individual locations.
Corporate and Group Marketing (Special Events). The Company employs a
dedicated corporate-level Special Events staff to provide support and
direction for the Complex-based Special Events Managers. The Company
develops and maintains a database for corporate and group bookings.
Each Dave & Buster's location has hosted events for many large and
multi-national, national, and regional businesses. Many of the
Company's corporate and group customers have hosted repeat events.
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Competition
The restaurant and entertainment industries are highly competitive.
There are a great number of food and beverage service operations 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 a few other companies presently utilizing
the concept of combining entertainment and restaurant operations to the
same extent as the Company, the Company may encounter increased
competition in the future, which may have an adverse effect on the
profitability of the Company. In addition, the legalization of casino
gambling in geographic areas near any restaurant/entertainment company
would create the possibility for entertainment alternatives, which
could have a material adverse effect on the Company's business.
Employees
At January 30, 2000, the Company employed approximately 5,900 persons,
approximately 150 of whom served in administrative or executive
capacities, approximately 400 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.
Intellectual Property
The Company has registered the trademark "Dave & Buster's" with the
United States Patent and Trademark Office and in various foreign
countries. The Company has registered and/or applied for certain
additional trademarks with the United States Patent and Trademark
Office and in various foreign countries.
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 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
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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 a given location. To date, the Company has been
successful in seeking all such regulatory changes.
The Company is subject to federal and state environmental regulations,
but these have not had a material negative effect on the Company's
operations. More stringent and varied requirements of local and state
governmental bodies with respect to zoning, land use and environmental
factors could delay or prevent development of new restaurants in
particular locations. The Company is subject to the Fair Labor
Standards Act which governs such matters as minimum wages, overtime and
other working conditions, along with the American With Disabilities Act
and various family leave mandates. Although the Company expects
increases in payroll expenses as a result of federal and state mandated
increases in the minimum wage, such increases are not expected to be
material. However, the Company is uncertain of the repercussion, if
any, on other expenses as vendors are impacted by higher minimum wage
standards.
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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 four Complexes during each of
fiscal years 2000 and 2001, respectively, and four 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 January 30, 2000 the Company operated 23 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. Historically, 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.
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.
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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.
"Dave" Corriveau and James W. "Buster" 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.
Dependence on Discretionary Spending
The Company's profits are dependent on discretionary spending by
consumers, particularly by consumers living in communities in which the
Restaurant/Entertainment Complexes are located. A significant weakening
in any of the local economies in which the Company operates may cause
the Company's patrons to curtail discretionary spending which, in turn,
could materially affect the profitability of the entire Company.
International Expansion; License Agreements
In August 1995, February 1998, September 1998, and March 1999, the
Company entered into agreements with Bass, TaiMall, SVAG, and Funtime
to license the "Dave & Buster's" name and concept in the United
Kingdom, Pacific Rim, Europe, and Canada, respectively. 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
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 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 difficult to register
and protect the Company's intellectual property rights in certain
foreign countries.
Competition
The restaurant and entertainment industries are highly competitive.
There are a great number of food and beverage service operations 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 may encounter increased
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competition in the future, which may have an adverse effect on the
profitability of the Company. In addition, the legislation of casino
gambling in geographic areas near any restaurant/entertainment company
would create the possibility for entertainment alternatives, which
could have a material adverse effect on the Company's business.
Government Regulations
Various federal, state and local laws and permit and license
requirements affect the Company's business. Significant numbers of
hourly personnel at the Company's Complexes are paid at rates related
to the federal minimum wage and, accordingly, legislated increases in
the minimum wage will increase labor costs at the Company's Complexes.
Other governmental initiatives such as mandated health insurance, if
implemented, could adversely affect the Company as well as the
restaurant industry in general.
Stock Price Volatility
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 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 third quarter
revenues due to the fall season, and expects higher fourth quarter
revenues associated with the year-end holidays.
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14
Item 2. PROPERTIES
As of January 30, 2000 the Company operated a total of 23 Complexes
located in 13 states. The Company is currently utilizing all available
land at its owned locations. The Company's real estate leases are with
unrelated third parties except where noted.
Owned or Lease Expiration Lease Expiration
Location State Leased Property Date Date with Options
-------- ----- --------------- ---------------- -----------------
Dallas (I) TX Owned --- ---
Dallas (II) TX Leased December 2002 December 2007
Houston TX Owned --- ---
Atlanta GA Owned --- ---
Philadelphia PA Leased January 2015* January 2024
Chicago (I) IL Owned --- ---
Chicago (II) IL Leased January 2016 January 2026
Hollywood FL Leased** April 2016 April 2031
North Bethesda MD Leased January 2018 January 2033
Ontario CA Leased January 2018 January 2028
Cincinnati OH Leased January 2018 January 2038
Denver CO Leased December 2017 December 2032
Utica MI Leased June 2018 June 2033
Irvine CA Leased July 2018 July 2028
Rockland County NY Leased January 2019 January 2034
Orange CA Leased January 2019 January 2029
Columbus OH Owned --- ---
San Antonio TX Leased September 2018 September 2028
Atlanta (II) GA Leased March 2019 March 2034
St. Louis MO Leased June 2019 June 2034
Austin TX Leased December 2019 December 2034
Jacksonville FL Owned --- ---
Providence RI Leased December 2019 December 2034
* The Company also leases additional parking facilities which expires
January 2014.
** The Company owns the building and leases the real property.
The Company has also signed 20-year leases for Complexes due to open in
fiscal 2000 in each of Milpitas, California; Westminster, Colorado;
Pittsburgh, Pennsylvania; and San Diego, California. Twenty-year leases
have also been signed for Miami, Florida and Phoenix, Arizona, which
are scheduled to open in the year 2001 and 2002, respectively.
Third-party leases typically provide for a minimum base rent,
additional rent based on a percentage of revenues and payment of
certain operating expenses.
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15
Item 3. LEGAL PROCEEDINGS.
The Company is a defendant in litigation arising in the ordinary course
of its business, including claims resulting from "slip and fall"
accidents, claims under federal and state laws governing access to
public accommodations, and employment-related claims. To date, none of
such litigation, some of which is covered by insurance, has had a
material effect on the Company.
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 traded on the Nasdaq National Market under
the symbol DANB from June 26, 1995 until June 3, 1999. The following
table summarizes the high and low sale prices per share of Common Stock
for the applicable periods indicated, as reported on the Nasdaq
National Market. Since June 4, 1999, the Company's Common Stock is
traded on the New York Stock Exchange ("NYSE") under the symbol DAB.
The following table summarizes the high and low sales prices per share
of Common Stock for the applicable periods indicated, as reported by
the NYSE.
Fiscal Year 1997
First Quarter $16.92 $12.67
Second Quarter 21.83 13.58
Third Quarter 22.50 20.17
Fourth Quarter 27.63 18.38
Fiscal Year 1998
First Quarter 27.75 21.13
Second Quarter 26.50 21.38
Third Quarter 22.63 10.50
Fourth Quarter 24.38 17.13
Fiscal Year 1999
First Quarter 23.25 18.06
Second Quarter 29.38 20.50
Third Quarter 26.88 8.75
Fourth Quarter 10.69 5.06
At April 20, 2000, the Company there were 2,172 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.
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16
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.
Fiscal Year 1999 1998 1997 1996 1995
(in thousands, except per share amounts and store data)
Income Statement Data
Food and beverage revenues $121,390 $ 89,378 $ 64,703 $ 48,568 $ 28,554
Amusements and other revenues 125,744 92,906 63,801 40,207 23,990
-------- -------- -------- -------- --------
Total revenues 247,134 182,284 128,504 88,775 52,544
Cost of revenues 45,720 35,582 24,795 18,003 10,945
Operating payroll and benefits 76,242 52,206 36,227 25,483 15,999
Other store operating expenses 65,292 45,862 32,787 20,582 11,481
General and administrative expenses 14,988 10,579 8,489 5,734 3,905
Depreciation and amortization expense 19,884 12,163 8,470 5,647 3,538
Preopening costs 6,053 4,539 3,246 2,605 161
Earn-out and special compensation -- -- -- -- 1,607
-------- -------- -------- -------- --------
Total costs and expenses 228,179 160,931 114,014 78,054 47,636
Operating income 18,955 21,353 14,490 10,721 4,908
Interest income (expense), net (3,339) 194 (179) (38) 101
-------- -------- -------- -------- --------
Income before provision for income taxes
and cumulative effect of a change in an
accounting principle 15,616 21,547 14,311 10,683 5,009
Provision for income taxes 5,724 7,969 5,414 4,343 2,087
-------- -------- -------- -------- --------
Income before cumulative effect of a
change in an accounting principle 9,892 13,578 8,897 6,340 2,922
Cumulative effect of a change in an
accounting principle, net of income
tax benefit of $2,928 4,687 -- -- -- --
-------- -------- -------- -------- --------
Net income $ 5,205 $ 13,578 $ 8,897 $ 6,340 $ 2,922
Net income per share - basic
Before cumulative effect of a change in
an accounting principle $ .76 $ 1.04 $ .77 $ .58 $ .34
Cumulative effect of a change in an
accounting principle .36 -- -- -- --
-------- -------- -------- -------- --------
$ .40 $ 1.04 $ .77 $ .58 $ .34
Net income per share - diluted
Before cumulative effect of a change in
an accounting principle $ .75 $ 1.03 $ .76 $ .58 $ .34
Cumulative effect of a change in an
accounting principle .36 -- -- -- --
-------- -------- -------- -------- --------
$ .39 $ 1.03 $ .76 $ .58 $ .34
Weighted average shares outstanding
Basic 13,054 13,053 11,532 10,901 8,681
Diluted 13,214 13,246 11,711 10,969 8,681
Balance Sheet Data
Working capital $ 8,957 $ 8,220 $ 26,408 $ 1,077 $ 5,634
Total assets 268,184 216,592 158,989 99,436 76,201
Long-term obligations 91,000 42,500 12,000 14,250 500
Stockholders' equity (1) 149,899 145,502 133,356 75,366 69,008
Number of Complexes Open at End of Period
Company operated 23 17 12 9 7
(1) Prior to fiscal 1995, the Company was a subsidiary of Edison Brothers
Stores, Inc.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FISCAL 1999 COMPARED TO FISCAL 1998
Total revenues increased to $247,134 for fiscal 1999 from $182,284 for
fiscal 1998, an increase of $64,850 or 36%. New stores opened in fiscal
1999 (San Antonio, Texas; Atlanta, Georgia; St. Louis, Missouri;
Austin, Texas; Jacksonville, Florida; and Providence, Rhode Island) and
in fiscal 1998 (Utica, Michigan; Irvine, California; Rockland County,
New York; Orange, California; and Columbus, Ohio) accounted for 109% of
the increase. Revenues at comparable stores decreased 2.5% for fiscal
1999. Increases in revenues were also attributable to a higher average
guest check. Total revenues for fiscal 1999 from licensing agreements
were $573.
Cost of revenues increased to $45,720 for fiscal 1999 from $35,582 for
fiscal 1998, an increase of $10,138 or 29%. The increase was
principally attributable to the 36% increase in revenues. As a
percentage of revenues, cost of revenues decreased to 18.5% in fiscal
1999 from 19.5% in fiscal 1998 due to lower food, beverage and
amusement costs.
Operating payroll and benefits increased to $76,242 for fiscal 1999
from $52,206 for fiscal 1998, an increase of $24,036 or 46%. As a
percentage of revenue, operating payroll and benefits increased to
30.9% in fiscal 1999 from 28.6% in fiscal 1998 due to higher variable
and fixed labor costs and higher taxes and benefits.
Other store operating expenses increased to $65,292 for fiscal 1999
from $45,862 for fiscal 1998, an increase of $19,430 or 42%. As a
percentage of revenues, other store operating expenses were 26.4% of
revenues in fiscal 1999 as compared to 25.2% of revenues in fiscal
1998. Other store operating expenses were higher due to reduced
utilities and fixed costs at the stores offset by higher occupancy
costs associated with new stores opened in fiscal 1999 and in fiscal
1998.
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18
General and administrative expenses increased to $14,988 for fiscal
1999 from $10,579 for fiscal 1998, an increase of $4,409 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 future growth plans. As
a percentage of revenues, general and administrative expenses increased
to 6.1% in fiscal year 1999 from 5.8% in fiscal year 1998.
Depreciation and amortization expense increased to $19,884 for fiscal
1999 from $12,163 for fiscal 1998, an increase of $7,721 or 64%. 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 in fiscal 1999 and in fiscal 1998.
Preopening costs increased to $6,053 for fiscal 1999 from $4,539 for
fiscal 1998, an increase of $1,514 or 33%. As a percentage of revenues,
preopening costs were 2.4% for fiscal 1999 as compared to 2.5% for
fiscal 1998.
The Company adopted Statement of Position 98-5 ("SOP 98-5"), "Reporting
on the Costs of Start-Up Activities", in the first quarter of 1999.
This new accounting standard requires the Company to expense all
start-up and preopening costs as they are incurred. The Company
previously deferred such costs and amortized them over the twelve-month
period following the opening of each store. The cumulative effect of
this accounting change, net of income tax benefit of $2,928, was
$4,687.
Interest expense - net for fiscal 1999 was $3,339 versus an interest
income - net of $194 for fiscal 1998. The increase was primarily due to
higher average debt in 1999 versus 1998.
The effective tax rate for fiscal year 1999 was 36.7% as compared to
37.0% for fiscal year 1998, and the result of a lower effective state
tax rate.
FISCAL 1998 COMPARED TO FISCAL 1997
Total revenues increased to $182,284 for fiscal 1998 from $128,504 for
fiscal 1997, an increase of $53,780 or 42%. New stores opened in fiscal
1998 (Utica, Michigan; Irvine, California; Rockland County, New York;
Orange, California; and Columbus, Ohio) and in fiscal 1997 (Ontario,
California; Cincinnati, Ohio; and Denver, Colorado) accounted for 93%
of the increase. Revenues at comparable stores increased 6% for fiscal
1998. Increases in revenues were also attributable to a higher average
guest check. Total revenues for fiscal 1998 from the Bass licensing
agreement were $395. Food and beverage revenues, as a percentage of
total revenues, have decreased in comparison to prior year levels as a
result of higher percentage of floor space devoted to entertainment
activities within the Company's new stores; the national trend towards
lower alcoholic beverage consumption; and the continuing impact of the
Power Card.
Cost of revenues increased to $35,582 for fiscal 1998 from $24,795 for
fiscal 1997, an increase of $10,787 or 44%. The increase was
principally attributable to the 42% increase in revenues. As a
percentage of revenues, cost of revenues increased to 19.5% in fiscal
1998 from 19.3% in fiscal 1997 due to higher amusement redemption
costs.
Operating payroll and benefits increased to $52,206 for fiscal 1998
from $36,227 for fiscal 1997, an increase of $15,979 or 44%. As a
percentage of revenue, operating payroll and benefits increased to
28.6% in fiscal 1998 from 28.2% in fiscal 1997 due to higher variable
labor costs.
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19
Other store operating expenses increased to $45,862 for fiscal 1998
from $32,787 for fiscal 1997, an increase of $13,075 or 40%. As a
percentage of revenues, other store operating expenses were 25.2% of
revenues in fiscal 1998 as compared to 25.5% of revenues in fiscal
1997. Other store operating expenses were lower due to reduced repair
and maintenance and fixed costs at the stores offset by higher
occupancy costs associated with new stores opened in fiscal 1998 and in
fiscal 1997.
General and administrative expenses increased to $10,579 for fiscal
1998 from $8,489 for fiscal 1997, an increase of $2,090 or 25%. 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 future growth plans. As
a percentage of revenues, general and administrative expenses decreased
to 5.8% in fiscal year 1998 from 6.6% in fiscal year 1997.
Depreciation and amortization expense increased to $12,163 for fiscal
1998 from $8,470 for fiscal 1997, an increase of $3,693 or 44%. As a
percentage of revenues, depreciation and amortization increased to 6.7%
from 6.6% for the comparable prior period. The increase was
attributable to new stores opened in fiscal 1998 and in fiscal 1997.
Preopening cost amortization increased to $4,539 for fiscal 1998 from
$3,246 for fiscal 1997, an increase of $1,293 or 40%. As a percentage
of revenues, preopening cost amortization was 2.5% for both fiscal 1998
and 1997.
Interest income - net for fiscal 1998 was $194 versus an interest
expense - net of $179 for fiscal 1997. The increase was primarily due
to higher average debt in 1997 versus 1998.
The effective tax rate for fiscal year 1998 was 37.0% as compared to
37.8% for fiscal year 1997, and the result of a lower effective state
tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations decreased to $24,940 for fiscal 1999 from
$28,246 for fiscal 1998. The decrease was attributable to a decrease in
profitability and the timing of operational receipts and payments.
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 (8.3% at
January 30, 2000) 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 January 30, 2000, $8,600 was
available under this facility.
The Company entered into an agreement that expired in 1999, to fix its
variable-rate debt to fixed-rate debt on notional amounts aggregating
$45,000. In 1999, the Company terminated the agreement resulting in a
$40 gain.
The Company's plan is to open four Complexes in fiscal 2000 and 2001,
respectively. The Company estimates that its capital expenditures will
be approximately $42,000 and $47,000 for 2000 and 2001, respectively.
The Company intends to finance this development with cash flow from
operations and additional borrowings from credit facilities.
19
20
QUARTERLY FLUCTUATIONS, SEASONALITY, AND INFLATION
As a result of the substantial revenues associated with each new
Complex, the timing of new 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 third quarter revenues due to the fall 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, there is no assurance that low inflation rates will continue
or that the Federal minimum wage rate will not increase.
IMPACT OF THE YEAR 2000 ISSUE
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed
its remediation and testing of systems. As a result of those planning
and implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and
non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company
incurred approximately $4,300 in software costs, fees and expenses
during 1999 in connection with remediating its systems. The Company
will continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the year 2000 to ensure
that any latent Year 2000 matters that may arise are addressed
promptly.
MARKET RISK
The Company's market risk exposure relates to changes in the general
level of interest rates. The Company's earnings are affected by changes
in interest rates due to the impact those changes have on its interest
expense from variable-rate debt. If interest rates increased 10% from
the floating rates as of January 30, 2000, interest expense for the
year ended February 4, 2001 would increase by approximately $773. This
amount is determined by considering the impact of hypothetical rates on
the Company's variable-rate debt as of January 30, 2000, adjusted for
known cash commitments during 2000.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements in this Annual Report are not based on historical
facts but are "forward-looking statements" that are based on numerous
assumptions made as of the date of this report. Forward looking
statements are generally identified by the words "believes", "expects",
"intends", "anticipates", "scheduled", and similar expressions. Such
forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of Dave & Buster's, Inc. to be materially
different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions; competition; availability; locations and terms of sites for
Complex development; quality of management; changes in, or the failure
to comply with, government regulations; and other risks indicated in
this filing.
20
21
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure relates to changes in the general
level of interest rates. The Company's earnings are affected by changes
in interest rates due to the impact those changes have on its interest
expense from variable-rate debt. If interest rates increased 10% from
the floating rates as of January 30, 2000, interest expense for the
year ended February 4, 2001 would increase by approximately $773. This
amount is determined by considering the impact of hypothetical rates on
the Company's variable-rate debt as of January 30, 2000, adjusted for
known cash commitments during 2000.
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.
21
22
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A brief description of each executive officer of the Company is
provided below. All officers serve at the discretion of the Board of
Directors, except as provided below. The information set under the
caption "Directors and Executive Officers" in the Company's Proxy
statement dated April 21, 2000, for the annual meeting of stockholders
on June 5, 2000 is incorporated herein by reference.
Mr. David O. Corriveau, 48, a co-founder of the Dave & Buster's concept
in 1982, has served as Co-Chief Executive Officer and President since
June 1995, and as a director of the Company since May 1995 and as
Co-Chairman of the Board since February 1996. Mr. Corriveau served as
President and Chief Executive Officer of D&B Holding (a predecessor of
the Company) from 1989 through June 1995. From 1982 to 1989, Messrs.
Corriveau and Corley operated the Company's business.
Mr. James W. Corley, 48, a co-founder of the Dave & Buster's concept in
1982, has served as Co-Chief Executive Officer and Chief Operating
Officer since June 1995, and as a director of the Company since May
1995 and as Co-Chairman of the Board since February 1996. Mr. Corley
served as Executive Vice President and Chief Operating Officer of D&B
Holding from 1989 through June 1995. From 1982 to 1989, Messrs. Corley
and Corriveau operated the Company's business.
Mr. Barry N. Carter, 52, has served as Vice President of Store Support
since June 1995 and as Vice President and Director of Store Support of
D&B Holding from November 1994 to June 1995. From 1982 to November
1994, he served in operating positions of increasing responsibilities
for the Company and its predecessors.
Ms. Nancy J. Duricic, 45, has served as Vice President of Human
Resources since December 1997. From June 1989 to June 1997, she served
in human resources positions of increasing responsibilities in other
companies, most recently as Vice President of Human Resources for Eljer
Industries, Inc.
Mr. Carl Gentile, 42, has served as Vice President, Chief Information
Officer since December 1999. From January 1997 to December 1999, he
served as Chief Information Officer for Zurn Industries. Mr. Gentile
served as Vice President, Information Services of LeFebure Corporation
from October 1994 to December 1996.
Mr. Cory J. Haynes, 39, has served as Vice President of International
Operations since March, 2000 and Vice President of Beverage Operations
since May 1998. He served as Vice President, Assistant Director of
Operations from September 1996 to May 1998, and from January 1996 to
September 1996, as Corporate Director of Management and Development.
From 1982 to January 1996, he served in operating positions of
increasing responsibilities for the Company and its predecessors.
Mr. Jeffrey A. Jahnke, 45, has served as Controller, Vice President of
Accounting for the Company since January 2000. From May 1998 to
December 1999 he was a consultant primarily in the hospitality
business. Mr. Jahnke was with ClubCorp International, Inc. from 1983 to
1998 in various financial positions of increasing responsibilities, his
most recent position being Vice President of Accounting.
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23
Mr. Charles Michel, 46, has served as Vice President and Chief
Financial Officer since February 1996, as Chief Financial Officer of
the Company since June 1995 and as Chief Financial Officer of D&B
Holding from November 1994 to June 1995.
Mr. Reginald M. Moultrie, 44, has served as Vice President of
Amusements since January 1999, as Vice President of Games and
Merchandising from April 1998 to January 1999, and as Director of
Amusements from February 1997 to April 1998. Mr. Moultrie served as
Vice President of Sales for Skeeball, Inc. from 1993 to 1997.
Mr. Alan L. Murray, 54, has served as Vice President, General Counsel
and Secretary since February 1996 and as Secretary and Director of
Legal and Administration since June 1995. Mr. Murray served as Director
of Legal and Administration of D&B Holding from November 1994 until
June 1995.
Mr. Stuart A. Myers, 39, has served as Vice President of Marketing
since January 2000. From September 1996 to December 1999 he served as
Vice President of Marketing for Whataburger, Inc. Mr. Myers served as
Senior Vice President/Restaurant Group Account Director at Levenson &
Hill Advertising from July 1993 to September 1996.
Mr. J. Michael Plunkett, 49, has served as Vice President of
Information Systems since November 1996, as Vice President, Director of
Training from June 1995 until November 1996 and as Vice President and
Director of Training of D&B Holding from November 1994 to June 1995.
From 1982 to November 1994, he served in operating positions of
increasing responsibilities for the Company and its predecessors.
Mr. Sterling R. Smith, 47, has served as Vice President of Operations
since June 1995 and as Vice President and Director of Operations of D&B
Holding from November 1994 to June 1995. From 1983 to November 1994,
Mr. Smith served in operating positions of increasing responsibility
for the Company and its predecessors.
Mr. Bryan L. Spain, 52, has served as Vice President of Real Estate
since March 1997. From 1993 until joining Dave & Buster's, Mr. Spain
managed the Real Estate Acquisition and Development Program for
Incredible Universe and Computer City Divisions of Tandy Corporation.
In addition, from 1991 to 1993, Mr. Spain served as Director, Real
Estate Financing for Tandy Corporation.
Mr. Robert R. Thomson, 43, has served as Vice President of Purchasing
since March of 1999. From 1996 until joining Dave & Buster's, Mr.
Thomson managed the Purchasing function for the Italian Concepts of
Brinker International with ultimate responsibility for Romano's
Macaroni Grill. Prior to joining Brinker, Mr. Thomson spent 1994-1996
as Director of Purchasing for JMC Restaurant Distribution, the
distribution arm of CiCi's Pizza, at the time, a 160 unit Dallas based
chain.
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Item 11. COMPENSATION INFORMATION
The information set under the caption "Election of Directors" in the
Company's Proxy Statement dated April 28, 2000, for the annual meeting
of stockholders on June 5, 2000 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 April 28, 2000, for the
annual meeting of stockholders on June 5, 2000 is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set under caption "Election of Directors - Certain
Transactions" in the Company's Proxy Statement dated April 28, 2000,
for the annual meeting of stockholders on June 5, 2000 is incorporated
herein by reference.
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25
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS OF FORM 8-K.
(a) (1) Financial Statements
Page
----
Consolidated Balance Sheets -
January 30, 2000 and January 31, 1999 F-1
Consolidated Statements of Income -
Fiscal years ended January 30, 2000, January 31, 1999,
and February 1, 1998 F-2
Consolidated Statements of Stockholders' Equity -
Fiscal years ended January 30, 2000, January 31, 1999, and
February 1, 1998 F-3
Consolidated Statements of Cash Flows -
Fiscal years ended January 30, 2000, January 31, 1999, and
February 1,1998 F-4
Notes to Consolidated Financial Statements F-5 - F-11
Report of Independent Auditors F-12
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
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 January 30, 2000.
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26
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: April 28, 2000
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27
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 April 28, 2000.
Name Title
---- -----
/s/ David O. Corriveau Co-Chairman of the Board,
- --------------------- Co-Chief Executive Officer, President,
David O. Corriveau 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/ Bruce H. Hallett Director
- --------------------
Bruce H. Hallett
/s/ Walter S. Henrion Director
- ---------------------
Walter S. Henrion
- --------------- Director
Mark A. Levy
- ---------------------- Director
Christopher C. Maguire
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CONSOLIDATED BALANCE SHEETS
DAVE & BUSTER'S, INC.
January 30, January 31,
in thousands, except share and per share amounts 2000 1999
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 3,091 $ 4,509
Inventories 16,243 10,811
Prepaid expenses 2,104 1,743
Preopening costs -- 7,369
Other current assets 5,582 5,286
----------- -----------
Total current assets 27,020 29,718
Property and equipment, net (note 2) 232,216 177,910
Goodwill, net of accumulated amortization of $1,883 and $1,502 7,826 8,206
Other assets 1,122 758
----------- -----------
Total assets $ 268,184 $ 216,592
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 11,868 $ 13,695
Accrued liabilities (note 3) 4,858 3,785
Deferred income taxes (note 5) 1,337 4,018
----------- -----------
Total current liabilities 18,063 21,498
Deferred income taxes (note 5) 6,377 5,638
Other liabilities 2,845 1,454
Long-term debt (note 4) 91,000 42,500
Commitments and contingencies (notes 4,6 and 11) Stockholders' equity (note 7):
Preferred stock, 10,000,000 authorized; none issued -- --
Common stock, $0.01 par value, 50,000,000 authorized:
12,953,375 and 13,069,050 shares issued and outstanding
as of January 30, 2000 and January 31, 1999, respectively 131 131
Paid in capital (note 9) 115,659 114,621
Retained earnings 35,955 30,750
----------- -----------
151,745 145,502
Less: treasury stock, at cost (175,000 shares at January 30, 2000) 1,846 --
----------- -----------
Total stockholders' equity 149,899 145,502
----------- -----------
Total liabilities and stockholders' equity $ 268,184 $ 216,592
See accompanying notes to consolidated financial statements.
F-1
29
CONSOLIDATED STATEMENTS OF INCOME
DAVE & BUSTER'S, INC.
in thousands, except per share amounts Fiscal Year 1999 1998 1997
Food and beverage revenues $ 121,390 $ 89,378 $ 64,703
Amusement and other revenues 125,744 92,906 63,801
----------- ----------- -----------
Total revenues 247,134 182,284 128,504
Cost of revenues 45,720 35,582 24,795
Operating payroll and benefits 76,242 52,206 36,227
Other store operating expenses 65,292 45,862 32,787
General and administrative expenses 14,988 10,579 8,489
Depreciation and amortization expense 19,884 12,163 8,470
Preopening costs 6,053 4,539 3,246
----------- ----------- -----------
Total costs and expenses 228,179 160,931 114,014
Operating income 18,955 21,353 14,490
Interest income (expense), net (3,339) 194 (179)
----------- ----------- -----------
Income before provision for income taxes
and cumulative effect of a change in an
accounting principle 15,616 21,547 14,311
Provision for income taxes (note 5) 5,724 7,969 5,414
----------- ----------- -----------
Income before cumulative effect of a
change in an accounting principle 9,892 13,578 8,897
Cumulative effect of a change in an accounting
principle, net of income tax benefit of $2,928 4,687 -- --
----------- ----------- -----------
Net income $ 5,205 $ 13,578 $ 8,897
Net income per share - basic
Before cumulative effect of a change in an accounting principle $ .76 $ 1.04 $ .77
Cumulative effect of a change in an accounting principle .36 -- --
----------- ----------- -----------
$ .40 $ 1.04 $ .77
Net income per share - diluted
Before cumulative effect of a change in an accounting principle $ .75 $ 1.03 $ .76
Cumulative effect of a change in an accounting principle .36 -- --
----------- ----------- -----------
$ .39 $ 1.03 $ .76
Weighted average shares outstanding
Basic 13,054 13,053 11,532
Diluted 13,214 13,246 11,711
See accompanying notes to consolidated financial statements.
F-2
30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DAVE & BUSTER'S, INC.
Common Stock
------------------------- Paid in Retained Treasury
in thousands Shares Amount Capital Earnings Stock Total
Balance, February 2, 1997 10,902 109 $ 66,963 $ 8,294 $ -- $ 75,366
Proceeds from exercising stock options 17 -- 203 -- -- 203
Tax benefit related to stock
option exercises -- -- 54 -- -- 54
Purchase of fractional shares from
three-for-two stock split -- -- -- (19) -- (19)
Issuance of common stock,
net of offering costs 2,100 21 48,834 -- -- 48,855
Net income -- -- -- 8,897 -- 8,897
---------- ----------- ----------- ----------- ----------- -----------
Balance, February 1, 1998 13,019 130 116,054 17,172 -- 133,356
Proceeds from exercising stock
options 50 1 603 -- -- 604
Tax benefit related to stock
option exercises -- -- 208 -- -- 208
Spin-off and related transactions (note 9) -- -- (2,244) -- -- (2,244)
Net income -- -- -- 13,578 -- 13,578
---------- ----------- ----------- ----------- ----------- -----------
Balance, January 31, 1999 13,069 $ 131 $ 114,621 $ 30,750 -- $ 145,502
Proceeds from exercising stock options 59 -- 786 -- -- 786
Tax benefit related to stock option exercises -- -- 252 -- -- 252
Purchase of treasury stock (175) -- -- -- (1,846) (1,846)
Net income -- -- -- 5,205 -- 5,205
---------- ----------- ----------- ----------- ----------- -----------
Balance, January 30, 2000 12,953 $ 131 $ 115,659 $ 35,955 $ (1,846) $ 149,899
See accompanying notes to consolidated financial statements.
F-3
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
DAVE & BUSTER'S, INC.
in thousands Fiscal Year 1999 1998 1997
Cash flows from operating activities
Net income $ 5,205 $ 13,578 $ 8,897
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 19,884 16,702 11,716
Provision for deferred income taxes 986 4,159 2,249
Changes in assets and liabilities
Inventories (5,432) (4,589) (2,332)
Prepaid expenses (361) (509) (353)
Preopening costs -- (8,493) (4,714)
Other assets (666) (3,401) (1,311)
Accounts payable (1,827) 9,620 901
Accrued liabilities 1,073 530 1,508
Income taxes payable -- -- (924)
Other liabilities 1,391 649 79
---------- ---------- ----------
Net cash provided by operating activities 24,940 28,246 15,716
Cash flows from investing activities:
Capital expenditures (73,798) (75,621) (40,101)
Purchase of short-term investments -- -- (8,507)
Proceeds from sale of short-term investments -- 8,507 --
---------- ---------- ----------
Net cash used in investing activities (73,798) (67,114) (48,608)
---------- ---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (1,846) -- --
Spin-off and related transactions -- (2,244) --
Borrowings under long-term debt 50,000 33,500 18,519
Repayments of long-term debt (1,500) (3,000) (20,769)
Proceeds from issuance of common stock, net 786 812 49,093
---------- ---------- ----------
Net cash provided by financing activities 47,440 29,068 46,843
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents (1,418) (9,800) 13,951
Beginning cash and cash equivalents 4,509 14,309 358
---------- ---------- ----------
Ending cash and cash equivalents $ 3,091 $ 4,509 $ 14,309
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 4,188 $ 5,674 $ 4,693
Cash paid for interest, net of amounts capitalized $ 3,455 $ 263 $ 727
See accompanying notes to consolidated financial statements.
F-4
32
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. and all wholly-owned subsidiaries (the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation. The Company's one industry segment is the ownership
and operation of restaurant/entertainment complexes (a "Complex" or "Store")
under the name "Dave & Buster's," which are principally located in the United
States.
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 1999, 1998, and 1997 are to the 52 weeks
ended January 30, 2000, January 31, 1999, and February 1, 1998.
INVENTORIES - Inventories, which consist of food, beverage, merchandise, and
supplies, are reported at the lower of cost or market determined on a first-in,
first-out method.
PREOPENING COSTS - The Company adopted Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-Up Activities," in the first quarter of fiscal
1999. This new accounting standard requires the Company to expense all start-up
and preopening costs as they are incurred. The Company previously deferred such
costs and amortized them over the twelve-month period following the opening of
each store. The cumulative effect of this accounting change, net of income tax
benefit of $2,928, was $4,687.
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 1999, 1998, and
1997 was $1,623, $1,375, and $851, 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.
GOODWILL - Goodwill of $8,952 is being amortized over 30 years. Whenever there
is an indication of impairment, the Company evaluates the recoverability of
goodwill using future undiscounted cash flows.
DEPRECIATION AND AMORTIZATION - Property and equipment, excluding most games,
are depreciated on the straight-line method over the estimated useful life 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:
trademarks over statutory lives; lease rights over remaining lease terms.
INTEREST RATE SWAP AGREEMENTS - The Company enters into interest rate swap
agreements to effectively convert a portion of its variable-rate borrowings into
fixed-rate obligations. The interest rate differential to be received or paid is
recognized over the lives of the agreements as an adjustment to interest
expense.
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.
F-5
33
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.
REVENUE RECOGNITION - Foreign license revenues are deferred until the Company
fulfills its obligations under license agreements, which is upon the opening of
the Complex. The license agreements provide for continuing royalty fees based on
percentage of gross revenues and are recognized when assured. Food, beverage,
and amusement revenues are recorded at point of sale.
TREASURY STOCK - During fiscal 1999, the Company's Board of Directors approved a
plan to repurchase up to 1,000 share of the Company's common stock. Pursuant to
the plan, the Company repurchased 175 shares of its common stock for
approximately $1,846
RECLASSIFICATION - Certain amounts for 1998 have been reclassified to conform to
1999 presentations.
NOTE 2: PROPERTY AND EQUIPMENT
1999 1998
Land ................................... $ 11,308 $ 8,192
Buildings .............................. 55,067 40,865
Leasehold and building improvements .... 81,077 52,856
Games .................................. 54,472 36,283
Furniture, fixtures, and equipment ..... 56,597 38,179
Construction in progress ............... 27,250 36,028
---------- ----------
Total cost ........................ 285,771 212,403
Accumulated depreciation ............... (53,555) (34,493)
---------- ----------
$ 232,216 $ 177,910
NOTE 3: ACCRUED LIABILITIES
Accrued liabilities consist of the following:
1999 1998
Payroll................................. $ 436 $ 865
Sales and use tax....................... 2,063 1,046
Real estate tax......................... 1,744 674
Other................................... 615 1,200
---------- ----------
$ 4,858 $ 3,785
F-6
34
NOTE 4: LONG-TERM DEBT
The Company has a secured revolving line of credit which permits borrowing up to
a maximum of $100,000. At January 30, 2000, $8,600 was available under this
facility. Borrowings under this facility bear interest at a floating rate based
on LIBOR or, at the Company's option, the bank's prime rate plus, in each case,
a margin based upon financial performance (8.3% at January 30, 2000) and is
secured by all capital stock or equity interest in the stock of the Company's
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 covenant and maximum level of capital
expenditures on new stores. The fair value of the Company's long-term debt
approximates its carrying value.
The Company entered into an agreement that expired in 1999, to fix its
variable-rate debt to fixed-rate debt on notional amounts aggregating $45,000.
In 1999, the Company terminated the agreement resulting in a $40 gain.
NOTE 5: INCOME TAXES
1999 1998 1997
Current expense
Federal ............................. $4,242 $3,188 $2,802
State and local ..................... 496 622 363
Deferred tax expense ..................... 986 4,159 2,249
------ ------ ------
Total provision for income taxes .... $5,724 $7,969 $5,414
Significant components of the deferred tax liabilities and assets in the
consolidated balance sheets are as follows:
1999 1998 1997
Accelerated depreciation .................... $ 7,475 $ 6,215 $ 3,893
Preopening costs ............................ -- 2,928 1,411
Prepaid expenses ............................ 130 131 112
Capitalized interest costs .................. 1,346 1,022 463
-------- -------- --------
Total deferred tax liabilities ......... 8,951 10,296 5,879
Worker's compensation ....................... 330 183 168
Net asset basis difference at acquisition ... -- -- 25
Other ....................................... 907 457 189
-------- -------- --------
Total deferred tax assets .............. 1,237 640 382
-------- -------- --------
Net deferred tax liability .................. $ (7,714) $ (9,656) $ (5,497)
Reconciliation of federal statutory rates to effective income tax rates:
1999 1997 1998
Federal corporate statutory rate ......... 35.0% 35.0% 35.0%
State and local income taxes, net
of federal income tax benefit ....... 2.1% 1.9% 1.6%
Goodwill amortization and other
nondeductible expenses .............. 2.2% 1.5% 1.8%
Tax credits .............................. (1.9)% (1.4)% (1.4)%
Effect of change in deferred tax rate .... (2.4)% (1.5)% (.5)%
Other .................................... 1.7% 1.5% 1.3%
------ ------ -----
Effective tax rate ....................... 36.7% 37.0% 37.8%
F-7
35
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 January 30, 2000. For 1999, 1998, and 1997, rent expense
for operating leases was $11,119, $8,267, and $5,404, respectively. At January
30, 2000, future minimum lease payments required under operating leases are
$11,995, 2000; $11,604, 2001; $11,523, 2002; $10,624, 2003; $10,374, 2004; and
$153,014, thereafter.
NOTE 7: COMMON STOCK
In 1995, the Company adopted the Dave & Buster's, Inc. 1995 Stock Option Plan
(the "Plan") covering 675 shares of common stock. In 1997 and 1998, the Company
increased the shares of common stock covered by the Plan to 1,350 and 2,350,
respectively. 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 exercisable 20%
per year after one year from the date of the 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
156 shares). The per share exercise price for each such option is $10.00. Twenty
percent of such options were 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 become exercisable on the second, third, fourth
and fifth anniversary of the Distribution.
In 1996, the Company adopted a stock option plan for outside directors (the
"Directors Plan"). A total of 150 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. 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 1999, 1998,
and 1997, respectively: risk-free interest rates of 5.39%, 5.36%, and 6.09%;
dividend yields of 0.0%; volatility factors of the expected market price of the
Company's common stock of .494, .386, and .363; and a weighted-average life of
the option of 4.4, 4.8, and 4.4 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 require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from 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.
F-8
36
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 earnings 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:
1999 1998 1997
Net income, as reported .................... $ 5,205 $ 13,578 $ 8,897
Pro forma net income ....................... $ 3,627 $ 12,699 $ 8,353
Basic net income per share, as reported .... $ .40 $ 1.04 $ .77
Pro forma basic net income per share ....... $ .28 $ .97 $ .72
Diluted net income per share, as reported... $ .39 $ 1.03 $ .76
Pro forma diluted net income per share ..... $ .27 $ .96 $ .71
A summary of the Company's stock option activity, and related information is as
follows:
1999 1998 1997
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
Outstanding - beginning of year 1,145 $16.82 949 $14.88 534 $11.11
Granted 734 $18.10 395 $20.89 432 $19.41
Exercised (59) $12.88 (50) $11.88 (17) $11.91
Forfeited (154) $20.09 (149) $16.92 -- $ --
Outstanding - end of year 1,666 $17.24 1,145 $16.82 949 $14.88
Exercisable - end of year 516 $14.87 332 $13.59 174 $11.06
Weighted-average fair value of options
granted during the year $ 8.36 $ 8.56 $ 7.48
As of January 30, 2000, exercise prices for 688 options and 978 options ranged
from $6.81 to $15.50 and $18.38 to $27.56, respectively. The weighted-average
remaining contractual life of the options is 7.6 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 commons 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 share 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
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).
F-9
37
NOTE 8: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
1999 1998 1997
Numerator-Net Income $ 5,205 $13,578 $ 8,897
------- ------- -------
Denominator:
Denominator for basic net income per share -
Weighted average shares 13,054 13,053 11,532
Effect of dilutive securities - employee stock options 160 193 179
------- ------- -------
Denominator for diluted earnings per share - adjusted
weighted average shares 13,214 13,246 11,711
Basic net income per share $ .40 $ 1.04 $ .77
Diluted net income per share $ .39 $ 1.03 $ .76
Options to purchase 210 shares of common stock at prices ranging from $23.63 to
$24.75 were outstanding during the second half of 1997 but were not included in
the computation of diluted net income per share because the options would be
antidilutive. Options to purchase 178 and 262 shares of commons stock at prices
ranging from $24.75 to $24.91 and $21.19 to $23.75, respectively, were
outstanding during all of 1998, but were not included in the computation of
diluted net income per share for the whole year and second half of the year,
respectively, because the options would be antidilutive. Options to purchase 441
shares of common stock at prices ranging from $21.00 to $24.91 were outstanding
all of 1999 but were not included in the computation of diluted net income per
share for the first, third and fourth quarters because the options would be
antidilutive. Options to purchase 543 and 28 shares of common stock at prices
ranging from $15.50 to $20.71 and $25.12 to $25.32, respectively, were
outstanding during all of 1999 and the second half of 1999, respectively, but
were not included in the computation of diluted net income per share for the
second half of the year because the options would be antidilutive Options to
purchase 525 and 76 shares of common stock at prices ranging from $10.00 to
$14.08 and $9.24 to $13.00, respectively, were outstanding during all of 1999
and the second half of 1999 respectively, but were not included in the
computation of diluted net income per share for the second half of the year and
the fourth quarter, respectively, because the options would be antidilutive.
NOTE 9: RELATED PARTY ACTIVITY
In April 1998, a limited liability litigation corporation owned by the creditors
of Edison Brothers filed a lawsuit against the Company and related parties,
seeking recovery in connection with the Distribution and certain related
transactions. In August 1998, the Company settled the litigation with the
limited liability corporation. In full and final settlement of all claims, the
Company paid $2,244 and charged such amount to paid in capital because all
alleged claims were associated with the spin-off transactions.
During 1999, the Company was party to a consulting agreement with Sandell
Investments ("Sandell"), a partnership whose controlling partner is a director
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 1999,1998, and 1997, the maximum fee provided for under the
agreement.
F-10
38
NOTE 10: 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 of 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 11: 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 the advice of legal counsel, the amount of ultimate
liability with respect to all actions will not materially affect the
consolidated results of operations or financial condition of the Company.
NOTE 12: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fiscal 1999 First Second Third Fourth
Total revenues .................................. $ 59,700 $ 57,617 $ 58,988 $ 70,829
Income before provision for income taxes
and cumulative effect of a change in an
accounting principle ....................... 6,052 3,124 361 6,079
Income before cumulative effect of a
change in an accounting principle .......... 3,813 1,990 229 3,860
Net income (loss) ............................... (874) 1,990 229 3,860
Basic net income per share:
Income before accounting change ............ $ .29 $ .15 $ .02 $ .30
Net income (loss) .......................... (.07) .15 .02 .30
Basic weighted average shares outstanding ....... 13,072 13,111 13,076 12,956
Diluted net income per share:
Income before accounting change ............ $ .29 $ .15 $ .02 $ .30
Net income (loss) .......................... (.07) .15 .02 .30
Diluted weighted average shares outstanding ..... 13,276 13,461 13,163 12,957
Fiscal 1999 First Second Third Fourth
Total revenues ................................ $ 38,917 $ 40,691 $ 45,409 $ 57,267
Income before provision for income taxes ...... 4,609 4,501 4,395 8,042
Net income .................................... 2,866 2,801 2,734 5,177
Basic net income per share .................... $ .22 $ .22 $ .21 $ .40
Basic weighted average shares outstanding ..... 13,031 13,052 13,062 13,068
Diluted net income per share .................. $ .22 $ .21 $ .21 $ .39
Diluted weighted average shares outstanding ... 13,274 13,272 13,183 13,253
F-11
39
REPORT OF INDEPENDENT AUDITORS
STOCKHOLDERS AND BOARD OF DIRECTORS
DAVE & BUSTER'S, INC.
We have audited the accompanying consolidated balance sheets of Dave & Buster's,
Inc. as of January 30, 2000 and January 31, 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended January 30, 2000. 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 auditing standards generally accepted
in the United States. 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 January 30, 2000 and January 31, 1999 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 30, 2000, in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, in 1999 the
Company changed its method of accounting for the cost of start-up activities.
Ernst & Young LLP
Dallas, Texas
March 30, 2000
F-12
40
INDEX TO EXHIBITS
Exhibit
- -------
3.1 Restated Articles of Incorporation of the Company. (1)
3.2 Bylaws of the Company. (1)
10.1 Second Amendment to Credit Agreement. (2)
10.7 Rights Agreement between the Company and Rights Agent, dated June 16, 1995. (1)
10.8 1995 Stock Option Plan. (3)
10.9 Stock Option Plan for Outside Directors. (5)
10.11 Employment Agreement for Co-Chief Executive Officers, dated June 16, 1995. (1)
10.12 Form of Indemnity Agreements with Executive Officers and Directors. (3)
21.1 Subsidiaries of the Company. (4)
23 Independent Auditors' Consent. (4)
27 Financial Data Schedule. (4)
99 Proxy Statement, dated April 28, 2000. (6)
41
- -----------------------
(1) 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.
(2) Filed as an Exhibit to the registrant's Form 10-Q for the 13-week
period ended November 1, 1998 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) Filed as an Exhibit to the registrant's Form 10-K for the 52 week
period ended February 1, 1997 and incorporated herein by reference.
(6) To be filed with the Commission on or before April 28, 2000.