DAVE & BUSTERS INC - 10-Q Quarterly Report

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o

The number of shares of the Issuer’s common stock, $.01 par value, outstanding as of December 12, 2003 was 13,607,618 shares.


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PART I	FINANCIAL INFORMATION
Item 1	Financial Statements		3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3	Quantitative and Qualitative Disclosures About Market Risk		18
Item 4	Controls and Procedures		18
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		19
Item 6	Exhibits and Reports on Form 8-K		20
SIGNATURES			21

DAVE & BUSTER’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)


		13 Weeks Ended						39 Weeks Ended

		November 2,			November 3,			November 2,		November 3,
		2003			2002			2003		2002

Food and beverage revenues		$	44,446		$	43,950		$	137,723	$	138,849
Amusements and other revenues			38,436			40,600			125,054		135,092

	Total revenues		82,882			84,550			262,777		273,941
Cost of revenues			15,901			15,583			49,116		50,414
Operating payroll and benefits			25,570			27,301			78,322		86,173
Other store operating expenses			27,346			28,756			83,591		85,373
General and administrative expenses			5,595			5,952			17,931		19,664
Depreciation and amortization expense			7,441			7,405			22,142		22,520
Preopening costs			—			857			—		1,258

	Total costs and expenses		81,853			85,854			251,102		265,402
Operating income (loss)			1,029			(1,304	)		11,675		8,539
Interest expense, net			1,802			1,455			5,610		5,256

Income (loss) before provision for income taxes			(773	)		(2,759	)		6,065		3,283
Provision (benefit) for income taxes			(263	)		(1.089	)		2,062		1,116

Income (loss) before cumulative effect of a change in an accounting principle			(510	)		(1,670	)		4,003		2,167
Cumulative effect of a change in an accounting principle			—			—			—		(7,096	)

Net income (loss)		$	(510	)	$	(1,670	)	$	4,003	$	(4,929	)

Net income (loss) per share — basic
	Before cumulative effect of a change in an accounting principle	$	(0.04	)	$	(0.13	)	$	0.31	$	0.17
	Cumulative effect of a change in an accounting principle		—			—			—		(0.55	)

		$	(0.04	)	$	(0.13	)	$	0.31	$	(0.38	)

Net income (loss) per share — diluted
	Before cumulative effect of a change in an accounting principle	$	(0.04	)	$	(0.13	)	$	0.31	$	0.16
	Cumulative effect of a change in an accounting principle		—			—			—		(0.53	)

		$	(0.04	)	$	(0.13	)	$	0.31	$	(0.37	)

Basic weighted average shares outstanding			13,144			13,003			13,117		12,978
Diluted weighted average shares outstanding			13,144			13,460			14,218		13,431

DAVE & BUSTER’S, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)


		November 2, 2003			February 2, 2003

ASSETS
Current assets:
	Cash	$	2,484		$	2,530
	Inventories		26,540			26,634
	Prepaid expense		3,309			2,049
	Other current assets		1,273			2,136

Total current assets			33,606			33,349
Property and equipment, net			249,403			249,451
Other assets and deferred charges			12,348			8,412

Total assets		$	295,357		$	291,212

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current installments of long-term debt	$	3,333		$	8,300
	Accounts payable		11,870			14,952
	Accrued liabilities		12,758			12,201
	Income tax payable		1,712			325
	Deferred income taxes		1,736			1,802

Total current liabilities			31,409			37,580
Deferred income taxes			14,065			14,065
Other liabilities			12,734			10,471
Long-term debt, less current installments			61,671			59,494
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, 10,000,000 authorized; none issued		—			—
	Common stock, $0.01 par value, 50,000,000 authorized 13,147,118 and 13,080,117 shares issued and outstanding as of November 2, 2003 and February 2, 2003, respectively		133			132
	Paid-in capital		118,313			116,678
	Restricted stock awards		845			608
	Retained earnings		58,033			54,030

			177,324			171,448
Less: treasury stock, at cost (175,000 shares)			(1,846	)		(1,846	)

Total stockholders’ equity			175,478			169,602

Total liabilities and stockholders’ equity		$	295,357		$	291,212

DAVE & BUSTER’S, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)


	Common Stock
					Paid-in		Retained		Restricted		Treasury
	Shares		Amount		Capital		Earnings		Stock		Stock			Total

Balance, February 2, 2003		13,080	$	132	$	116,678	$	54,030	$	608	$	(1,846	)	$	169,602
Net earnings								4,003							4,003
Stock option exercises		67		1		449									450
Tax benefit related to stock option exercises						84									84
Amortization of restricted stock awards										237					237
Fair value of warrants issued in in connection with convertible subordinated notes						1,102									1,102

Balance, November 2, 2003		13,147	$	133	$	118,313	$	58,033	$	845	$	(1,846	)	$	175,478


				39 Weeks Ended			39 Weeks Ended
				November 2, 2003			November 3, 2002

Cash flow from operating activities
	Income before cumulative change in an accounting principle			$	4,003		$	2,167
	Adjustments to reconcile income before cumulative change in an accounting principle to net cash provided by operating activities:
		Depreciation and amortization			22,142			22,520
		Benefit for deferred income taxes			(66	)		(63	)
		Restricted stock awards			237			—
		Gain on sale of assets			(3	)		(121	)
		Changes in operating assets and liabilities
			Inventories		95			(285	)
			Prepaid expenses		(1,260	)		(3,773	)
			Other current assets		863			(19	)
			Other assets and deferred charges		(3,946	)		1,060
			Accounts payable		(3,082	)		1,697
			Accrued liabilities		557			3,037
			Income taxes payable		1,387			(2,673	)
			Other liabilities		2,262			2,489

Net cash provided by operating activities					23,189			26,036
Cash flow from investing activities
		Capital expenditures			(18,919	)		(19,937	)
		Business acquisition			(3,600	)		—
		Proceeds from sale of property and equipment			439			597

Net cash used in investing activities					(22,080	)		(19,340	)
Cash flow from financing activities
		Borrowing under long-term debt			40,560			14,352
		Repayments under long-term debt			(43,350	)		(20,329	)
		Proceeds from exercises of stock options			533			601
		Convertible debt warrants net of amortization			1,102			—

Net cash used by financing activities					(1,155	)		(5,376	)

Decrease in cash and cash equivalents					(46	)		1,320
Beginning cash and cash equivalents					2,530			4,521

Ending cash and cash equivalents				$	2,484		$	5,841

Supplemental disclosures of cash flow information:
		Cash paid for income taxes — net of refunds		$	675		$	3,815
		Cash paid for interest, net of amounts capitalized		$	4,676		$	3,561

Dave and Buster’s, Inc., a Missouri corporation, is a leading operator of large format, high-volume regional entertainment complexes. Our one industry segment is the ownership and operation of restaurant/entertainment complexes under the name “Dave and Buster’s” which are located in the United States and Canada.

The accompanying consolidated financial statements include the accounts of Dave & Buster’s, Inc. and wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, as filed with the SEC.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Inventories, which consist of food, beverage and merchandise, are reported at the lower of cost or market determined on a first-in, first-out method. Static supplies inventory is capitalized at each store opening date and reviewed periodically for valuation.

Pursuant to SFAS 142, we changed our accounting policy related to goodwill effective January 1, 2002. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead should be reviewed for impairment at least annually. Under SFAS 142, impairment is deemed to exist when the carrying value of goodwill is greater than its implied fair value. This methodology differs from the Company’s previous policy, as permitted under accounting standards existing before SFAS 142, of using undiscounted cash flows of the businesses acquired over its estimated life.

As a result of applying the new standards, the initial assessment of fair value of the Company resulted in a one-time charge for the entire write off of goodwill of $7,100 in the quarter ended May 5, 2002. This was recorded as a cumulative effect of a change in accounting principle. The write off of goodwill resulted in a negative $0.53 per diluted share for the first quarter ended May 5, 2002. The remaining intangible asset (trademark) is insignificant and continues to be amortized over its useful life.

We have elected to follow Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for our employee stock options. Under APB 25, if the exercise price of an employee’s stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. At November 2, 2003, we had two stock-based compensation plans covering employees and directors.

Although SFAS 123 allows us to continue to follow the present APB 25 guidelines, we are required to disclose pro forma net income (loss) and pro forma net income (loss) per share as if we had adopted SFAS 123. The pro forma impact of applying SFAS 123 for the quarters ended November 2, 2003 and November 3, 2002 will not necessarily be representative of the pro forma impact in future years. Our pro forma information is as:


	13 Weeks Ended						39 Weeks Ended

	November 2,			November 3,			November 2			November 3,
	2003			2002			2003			2002

Net income (loss), as reported	$	(510	)	$	(1,670	)	$	4,003		$	(4,929	)
Stock compensation expenses recorded under the intrinsic method, net of income taxes		58			41			156			108
Pro forma stock compensation expense recorded under the fair value method, net of income taxes		(228	)		(321	)		(632	)		(1,035	)

Pro forma net income (loss)	$	(680	)	$	(1,950	)	$	3,527		$	(5,856	)

Basic e


MISSOURI		43-1532756
(State of Incorporation)		(I.R.S. Employer Identification No.)

2481 Manana Drive
Dallas, Texas		75220
(Address of Principle Executive Offices)		(Zip Code)


Part I. Financial Information
Item 1. Consolidated Financial Statements
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4 Controls and Procedures
Part II Other Information
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
INDEX OF EXHIBITS
EX-10.1.6 Amended/Restated Credit & Loan Agreement
EX-31.1 Rule 13-a14(a) - Certification of the CEO
EX-31.2 Rule 13a-14(a) - Certification of the CFO
EX-32.1 Section 1350 Certification of the CEO
EX-32.2 Section 1350 Certification of the CFO

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þ		QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR THE QUARTER ENDED NOVEMBER 2, 2003.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 FOR THE TRANSACTION PERIOD FROM __________ TO __________ .