<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---- ----
COMMISSION FILE NUMBER 0-27366
RAINFOREST CAFE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1779527
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
720 South Fifth Street
Hopkins, MN 55343
(Address of principal executives offices, including zip code)
(612) 945-5400
(Registrant's telephone number, including area code)
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
--- -----
Number of shares of Common Stock , outstanding as of November 8, 1996:
17,168,256
<PAGE> 2
RAINFOREST CAFE, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page number
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets as of September 29, 1996 and December 31, 1995 .......................... 2
Statements of Operations for the thirteen weeks and thirty-nine weeks ended
September 29, 1996 and October 1, 1995 ................................................. 3
Statements of Cash Flows for the thirty-nine weeks ended
September 29, 1996 and October 1, 1995 ................................................. 4
Notes to Condensed Financial Statements ................................................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Procedures ....................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders .................................... 14
Item 6. Exhibits and Reports on Form 8-K ....................................................... 14
Signature Page .................................................................................. 16
</TABLE>
1
<PAGE> 3
RAINFOREST CAFE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 29, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $163,806,534 $16,323,178
Accounts receivable and other 3,561,559 1,447,610
Inventories 2,132,212 1,075,857
Preopening expenses 1,896,985 514,636
------------ -----------
Total current assets 171,397,290 19,361,281
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net 43,076,996 11,847,675
------------ -----------
$214,474,286 $31,208,956
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,162,081 $ 3,213,330
Accrued expenses-
Payroll and payroll taxes 574,884 288,758
Other 3,040,655 368,849
------------ -----------
Total current liabilities 8,777,620 3,870,937
DEFERRED RENT 4,549,755 982,638
------------ -----------
Total liabilities 13,327,375 4,853,575
------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 50,000,000 shares authorized;
17,165,555 and 9,484,347 shares issued and outstanding 199,357,907 27,867,419
Accumulated earnings (deficit) 1,789,004 (1,512,038)
------------ -----------
Total shareholders' equity 201,146,911 26,355,381
------------ -----------
$214,474,286 $31,208,956
============ ===========
</TABLE>
2
<PAGE> 4
RAINFOREST CAFE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
weeks weeks weeks weeks
ended ended ended ended
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales $11,325,641 $2,279,006 $21,637,682 $5,590,648
Retail sales 3,642,283 848,881 6,144,603 2,031,211
Licensing fee 750,000 -- 750,000 --
------------ ------------ ------------ ------------
Total revenues 15,717,924 3,127,887 28,532,285 7,621,859
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Food and beverage costs 2,864,353 599,601 5,488,581 1,557,705
Cost of retail goods sold 1,702,268 384,184 2,839,719 971,314
Restaurant operating expenses 5,502,470 1,091,332 10,600,345 2,930,752
Retail operating expenses 1,127,569 209,580 1,959,498 548,956
Depreciation and amortization 591,210 92,619 1,196,089 246,749
Preopening amortization 554,385 -- 896,123 --
------------ ------------ ------------ ------------
Total costs and expenses 12,342,255 2,377,316 22,980,355 6,255,476
------------ ------------ ------------ ------------
Income from unit operations and licensing 3,375,669 750,571 5,551,930 1,366,383
------------ ------------ ------------ ------------
OTHER EXPENSES
General, administrative and development 1,253,625 390,960 3,235,348 866,547
Loss on disposal of equipment 180,699 25,607 180,699 27,370
Interest (income) expense, net (1,075,416) (201,372) (3,012,159) (251,009)
Interest expense - amortization of loan discount -- -- -- 186,189
------------ ------------ ------------ ------------
Total other expenses 358,908 215,195 403,888 829,097
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 3,016,761 535,376 5,148,042 537,286
PROVISION FOR INCOME TAXES 1,093,000 -- 1,843,000 --
INCOME BEFORE EXTRAORDINARY ITEM 1,923,761 535,376 3,305,042 537,286
------------ ------------ ------------ ------------
EXTRAORDINARY ITEM -- -- -- 1,053,128
Net income (loss) $ 1,923,761 $ 535,376 $ 3,305,042 ($515,842)
============= ========== =========== ============
NET INCOME PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM $ 0.13 $ 0.06 $ 0.23 $0.09
============= ========== =========== ============
NET INCOME (LOSS) PER COMMON SHARE $ 0.13 $ 0.06 $ 0.23 ($0.08)
============= ========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 14,819,665 8,508,470 14,391,307 6,242,480
============= ========== =========== ============
</TABLE>
3
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RAINFOREST CAFE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty-nine Thirty-nine
weeks weeks
ended ended
September 29, October 1,
1996 1995
------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,305,042 $ (515,842)
Adjustments to reconcile net income (loss) to cash
flows provided by (used in) operating activities-
Depreciation and amortization 2,831,872 263,284
Amortization of long-term debt discount -- 186,189
Extinguishment of debt - long-term debt discount -- 1,053,128
Loss on disposal of equipment (180,699) 27,370
Change in operating assets and liabilities-
Accounts receivable and other (1,591,282) (388,110)
Inventories (1,056,355) (105,109)
Preopening expenses (2,255,500) --
Accounts payable 1,944,751 1,083,781
Accrued expenses 3,568,015 (90,880)
------------ -----------
Net cash provided by operating activities 6,565,844 1,513,811
------------ -----------
INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold
improvements, net (32,712,893) (7,047,938)
------------ -----------
Net cash (used in) investing activities (32,712,893) (7,047,938)
------------ -----------
FINANCING ACTIVITIES:
Payments on long-term debt to stockholders -- (509,625)
Proceeds from the issuance of debt to shareholders -- 100,000
Proceeds from the sale of common stock, net 169,550,734 9,025,286
Proceeds from stock options exercised 269,164 --
Proceeds from warrants exercised 1,060,507 14,198,083
Tenant allowances collected 2,750,000
------------ -----------
Net cash provided by financing activities 173,630,405 22,813,744
------------ -----------
INCREASE IN CASH AND CASH
EQUIVALENTS 147,483,356 17,279,617
CASH AND CASH EQUIVALENTS, beginning of period 16,323,178 465,967
------------ -----------
CASH AND CASH EQUIVALENTS, ending of period $163,806,534 $17,745,584
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ -- $ 85,922
Income taxes 45,000 --
Noncash investing and financing activities-
Conversion of debt to common stock -- 169,372
</TABLE>
4
<PAGE> 6
RAINFOREST CAFE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim condensed financial statements be read in conjunction with the
Company's most recent audited financial statements and notes thereto. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented have
been made. Operating results for the thirteen weeks and thirty-nine weeks
ended September 29, 1996 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 29, 1996.
(2) COMPLETED STOCK OFFERINGS AND STOCK SPLIT
In January 1996, the Company completed a follow-on public offering of 4,140,000
shares of common stock at an offering price of $19.00 per share, including
540,000 shares from the exercise of the Underwriters' overallotment option.
The Company received net proceeds of approximately $73.6 million after the
payment of approximately $5.1 million in related underwriting discount and
offering costs. On May 21, 1996, the Company's Board of Directors approved a
three-for-two stock split in the form of a fifty percent stock dividend. The
stock split has been retroactively reflected in the accompanying financial
statements and disclosures. In September 1996, the Company completed a second
follow-on public offering of 3,450,000 shares of common stock at an offering
price of $31.50 per share, including 450,000 shares from the exercise of the
Underwriters' overallotment option. Of the 3,450,000 shares sold, 3,225,000
shares and 225,000 shares were sold by the Company and selling shareholders,
respectively. The Company received net proceeds of approximately $96.0 million
after the payment of approximately $5.6 million in related underwriting
discount and offering costs.
(3) INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is based on the weighted average number of
common shares outstanding during each period. However, pursuant to certain
rules of the Securities and Exchange Commission, the calculations for the
thirteen week and thirty-nine week period ended October 1, 1995 also include
equity securities, including options and warrants, issued within one year of an
initial public offering with an issue price less than the initial public
offering price, even if the effect is anti-dilutive. The treasury stock
approach was used in determining the dilutive effect of such issuances. Common
stock equivalents (other than those issued within one year of an initial public
offering with an issue price less than the initial public offering price),
including options and warrants, are assumed to be exercised or converted into
common shares at the beginning of each period unless the aggregate effect of
such inclusion is anti-dilutive. Primary and fully diluted income (loss) per
share are the same.
5
<PAGE> 7
(4) INCOME TAXES
As of December 31, 1995, the Company had a net operating loss carryforward of
approximately $350,000 which, if not used, would have expired in 2009. At
September 29, 1996, the net operating loss carryforward was exhausted and the
Company recorded a provision for federal and state income taxes of $1,843,000.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was founded in February 1994 to own and operate themed
restaurant/retail facilities ("Unit") under the name "Rainforest Cafe -- A Wild
Place to Shop and Eat." As of September 29, 1996, the Company operated four
Units. The Company's initial Unit opened on October 3, 1994 in the Mall of
America in Bloomington, Minnesota. The Company's second Unit opened on October
20, 1995 in the Woodfield Mall in Schaumburg, Illinois, a suburb of Chicago.
The Company's third Unit opened June 2, 1996, in the Gurnee Mills Mall in
Gurnee, Illinois, a suburb of Chicago.
The Company opened its fourth and largest Unit on July 25, 1996, at Walt Disney
World Marketplace near Orlando, Florida. The Walt Disney World Marketplace
Unit is approximately 30,000 square feet, which includes approximately 6,000
square feet of retail selling space. The Walt Disney World Marketplace Unit
had revenues for the nine and one half weeks ended September 29, 1996 of $5.3
million, which is not necessarily indicative of the results that would actually
occur for a full fiscal year of operations. The Company opened its fifth unit
on October 3,1996, at Tysons Corner Center I, in McLean Virginia, a suburb of
Washington, D.C.. The financial data for the thirty-nine weeks ended September
29, 1996 does not reflect any of the operations for this Unit.
The Company presently plans to develop one additional Unit in 1996, seven Units
in 1997 and six Units in 1998. Because the Company anticipates rapid
expansion, period to period comparisons may not be meaningful. The Company
intends to lease its Units and anticipates that most of its future Units will
range in size from approximately 18,000 to 23,000 square feet, with between 300
and 425 restaurant seats and approximately 20-25% of square footage dedicated
to retail selling space. However, some Units may be significantly larger, such
as the free-standing Walt Disney World Marketplace Unit, the Trump Taj Mahal
Unit, and the free-standing Disney's Animal Kingdom Unit, which are expected to
comprise approximately 30,000 to 36,000 square feet and have approximately 500
restaurant seats.
In September 1996, the Company entered into an exclusive license agreement with
Empresas de Comunicacion y Entretenimiento ("ECE"), a Mexican based owner and
operator of seven Hard Rock Cafes, three Planet Hollywoods and an Official
All-Star Cafe in Mexico, under which ECE will develop seven Rainforest Cafes in
Mexico over a ten year period. Pursuant to this agreement, the Company
recorded a non-refundable licensing fee of $750,000 during the thirteen-week
period ended September 29, 1996. Under the terms of the agreement the Company
will receive per Unit development and licensing fees of $100,000 and royalties
of six percent of food and beverage sales and ten percent of merchandise sales.
The Company anticipates that the first Unit will be in Cancun in the second
quarter of 1997. In October 1996, the Company completed an exclusive license
agreement with Glendola Leisure, Ltd., ("Glendola") a wholly-owned subsidiary
of the Foundation Group, a London-based hotel and restaurant operator, under
which Glendola will develop five Rainforest Cafes in the United Kingdom and
Ireland over a ten year period. Pursuant to this agreement, the Company will
have the option to purchase up to 20% of the equity interest in any Unit
developed by Glendola. The Company will receive per Unit development fees of
$100,000 and will receive royalties of approximately five percent of gross
sales. The Company anticipates that the first Rainforest Cafe to be opened
under this joint venture will be in London during the third quarter of 1997.
Components of operating expenses include operating payroll and fringe benefits
costs, occupancy costs, maintenance costs related to the bird habitat and
aquariums, and advertising and promotion costs. The majority
7
<PAGE> 9
of these costs are variable and will increase with sales volume. Management
projects that when a new Unit opens, it will incur higher than normal levels of
labor and food costs as Unit personnel complete training. Management believes,
however, that as new staff gain experience, hourly labor schedules over the
ensuring 30-60 day period will be gradually adjusted to provide operating
efficiencies similar to those at established Units. Each of the Company's
current leases includes both fixed rate and percentage rent provisions.
The Company's policy is to capitalize costs associated with the opening of
Units, including the cost of hiring and training the initial workforce, travel
and other direct costs, if it is determined these costs are recoverable. These
costs are then amortized over the eleven month period following the opening of
a Unit beginning the first full month of operation. The Company charged to
operations all pre-opening costs for the Mall of America Unit during the period
ended October 2, 1994 due to the developmental nature of this Unit. For the
Woodfield Mall Unit, Gurnee Mills Unit and Walt Disney World Marketplace Unit,
the Company capitalized approximately $630,000, $550,000 and $1,200,000
respectively of pre-opening costs and is amortizing these expenses over the
eleven month period beginning November 1995 for the Woodfield Unit, over the
eleven month period beginning July 1996 for the Gurnee Mills Unit and over the
eleven month period beginning August 1996 for the Walt Disney World Marketplace
Unit.
General, administrative and development expenses include all corporate and
administrative functions that serve to support existing operations and provide
an infrastructure to support future growth. In addition, certain expenses of
recruiting and training Unit management personnel prior to meeting the criteria
to be capitalized as pre-opening expenses are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies are major items of costs in this category.
The Company uses a 52 or 53 week fiscal year ending on the Sunday nearest
December 31.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or
other written statements made or to be made by the Company) contain statements
that are forward-looking, such as statements relating to plans for future
expansion and other business development activities as well as other capital
spending, financial sources and the effects of competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include,
but are not limited to, those relating to development and construction
activities, including delays in opening new Units, acceptance of the Rainforest
Cafe concept, the quality of the Company's restaurant and retail operations,
dependence on discretionary consumer spending, the Company's failure to defend
its intellectual property rights, dependence on existing management, general
economic conditions, changes in federal or state laws or regulations.
8
<PAGE> 10
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total
revenues (except where noted) were as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
September 29, 1996 October 1, 1995 September 29, 1996 October 1, 1995
------------------ --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Restaurant sales 72.1% 72.9% 75.8% 73.4%
Retail sales 23.2 27.1 21.6 26.6
Licensing fee 4.7 - 2.6 -
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Costs and expenses
Food and beverage costs (1) 25.3 26.3 25.4 27.9
Cost of retail goods sold (2) 46.7 45.3 46.2 47.8
Restaurant operating expenses (1) 48.6 47.9 49.0 52.4
Retail operating expenses (2) 31.0 24.7 31.9 27.0
Depreciation and amortization (3) 3.9 3.0 4.3 3.2
Preopening amortization (3) 3.7 - 3.2 -
----- ----- ----- -----
Total costs and expenses (3) 82.5 76.0 82.7 82.1
----- ----- ----- -----
Income from unit operations & licensing 21.5 24.0 19.5 17.9
----- ----- ----- -----
Other expenses:
General, administrative and development 8.0 12.5 11.4 11.4
Loss on disposal of equipment 1.1 0.8 0.6 0.4
Interest (income) expense, net (6.8) (6.4) (10.6) (0.9)
----- ----- ----- -----
Total other expenses 2.3 6.9 1.4 10.9
Income before income taxes and extraordinary
item 19.2 17.1 18.1 7.0
Provision for income taxes 7.0 - 6.6 -
----- ----- ----- -----
Income before extraordinary item 12.2 17.1 11.6 7.0
Extraordinary item - - - 13.8
Net income (loss) 12.2% 17.1% 11.6% (6.8)%
===== ===== ===== =====
</TABLE>
(1) Percentage of restaurant sales
(2) Percentage of retail sales
(3) Percentage of unit sales
THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996, COMPARED TO THE
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 1, 1995.
Results of operations for the thirteen week and thirty-nine week periods ended
October 1, 1995 (the "1995 Periods") reflect operations of the Mall of America
Unit only while results of operations for the thirteen week and thirty-nine
week periods ended September 29, 1996 (the "1996 periods") reflect the
operations of the Mall of America Unit and the Woodfield Mall Unit for the
entire 1996 Periods and results of operations for the Gurnee Mills Unit
beginning June 2, 1996, and results of operations for the Walt Disney World
Marketplace Unit beginning July 25, 1996.
9
<PAGE> 11
Total revenues increased 402% to $15.7 million for the thirteen week period
ended September 29, 1996, from $3.1 million for the comparable 1995 period.
The increase in revenues was primarily due to the addition of the Woodfield
Mall Unit ($3.7 million), the addition of the Gurnee Mills Unit ($2.7 million),
the addition of the Walt Disney World Marketplace Unit ($5.3 million) and the
$750,000 licensing fee.
For the thirty-nine week period ended September 29, 1996, total revenues
increased 274% to $28.5 million from $7.6 million for the comparable period in
1995. The increase in revenues was primarily due to the addition of the
Woodfield Mall Unit ($10.4 million), the addition of the Gurnee Mills Unit
($3.6 million), the addition of the Walt Disney World Marketplace Unit ($5.3
million), the addition of 85 restaurant seats at the Mall of America Unit ($1.1
million) and the $750,000 licensing fee. The increase was offset by a decrease
in retail sales at the Mall of America Unit of approximately $300,000. Retail
sales decreased as a percentage of the total revenues from 26.6% for the
thirty-nine week period in 1995 to 21.6% of total revenues for the thirty-nine
week period in 1996. The decrease in the percentage of retail sales for the
thirty-nine week period in 1995 compared to the thirty-nine week period in 1996
is primarily due to the increase in restaurant seating and the decrease in
retail sales at the Mall of America Unit, the addition of the Woodfield Mall
Unit and the Gurnee Mills Units where retail sales as a percentage of total
sales were 20.6% and 19.0% respectively, and the licensing fee. The decrease
in the percentage of retail sales was offset by the Walt Disney World
Marketplace Unit, which had retail sales of 30.0% of total sales.
Food and beverage costs increased 378% to $2.9 million and 252% to $5.5 million
for the comparable thirteen week and thirty-nine week periods respectively in
1996 compared to 1995. The increase in food and beverage costs was due to
primarily Unit expansion. Food and beverage costs decreased as a percentage of
restaurant sales in the 1996 Periods compared to the 1995 Periods due to
improvements in food preparation and purchasing efficiencies. A portion of the
improvement in the comparable thirty-nine week periods is also due to menu
price increases initiated in August 1995 at the Mall of America Unit.
Cost of retail goods sold increased 343% to $1.7 million and 192% to $2.8
million for the comparable thirteen week and thirty-nine week periods
respectively in 1996 compared to 1995. The increase in cost of retail goods
sold was due to unit expansion. Cost of retail goods sold as a percentage of
retail sales increased from 45.3% to 46.7% for the thirteen week period in 1995
and 1996 respectively. The increase as a percentage of retail sales was
primarily due to increased promotional discounts and freight costs and
partially offset by purchase price decreases in the 1996 thirteen week period
compared to the same period in 1995. Cost of retail goods sold as a percentage
of retail sales decreased from 47.8% to 46.2% for the thirty-nine week period
in 1995 and 1996 respectively. The decrease as a percentage of retail sales
was primarily due to purchase price decreases, retail price increases and
higher margin product additions to the retail product line.
Restaurant and retail operating expenses increased 410% to $6.6 million and
261% to $12.6 million for the comparable thirteen week and thirty-nine week
periods respectively in 1996 compared to 1995. The increase in restaurant and
retail operating expenses was primarily due to Unit expansion. For the
thirteen week period in 1996 compared to 1995, restaurant operating expenses as
a percentage of restaurant sales increased from 47.9% in 1995 to 48.6% in 1996
and retail operating expenses as a percentage of retail sales increased from
24.7% in 1995 to 31.0% in 1996. Restaurant and retail operating expenses
increased as a percentage of sales due to occupancy costs which are a higher
percentage of sales at the Walt Disney World Marketplace Unit compared to the
Company's other existing Units. The Company introduced new retail packaging
materials in August 1996 which adversely affected retail operating expenses in
the third fiscal quarter of 1996. For the thirty-nine week period in 1996
compared to 1995, restaurant operating expenses as a percentage of restaurant
sales decreased from 52.4% in 1995 to 49.0% in 1996 and retail operating
expenses as a percentage of retail sales increased from 27.0% in 1995 to 31.9%
in 1996. Restaurant operating expenses decreased as a percentage of restaurant
sales due to increased leverage of fixed costs and restaurant labor. Retail
operating expenses increased as a
10
<PAGE> 12
percentage of retail sales due to the decrease in retail sales at the Mall of
America Unit, increased retail sales floor coverage and higher fixed costs of
Unit retail operations.
Depreciation and amortization expenses increased 538% to $591,000 and 385% to
$1.2 million for the thirteen week and thirty-nine week periods respectively,
in 1996 compared to 1995. The increase in depreciation and amortization
expense was due to the Mall of America Unit expansion and the additional Units
added since October 1, 1995.
General, administrative and development expenses increased 221% to $1.3 million
and 273% to $3.2 million for the thirteen week and thirty-nine week periods
respectively in 1996 compared to 1995. The increase in general, administrative
and development expenses in the 1996 Periods compared to the 1995 Periods was
due to expenses associated with negotiating and executing the Company's foreign
licensing agreements and the addition of senior management, corporate employees
and Unit management personnel in training, all of whom the Company hired to
execute its growth strategy for the remainder of 1996 and beyond.
The loss on disposal of equipment of $181,000 or 1.1% of total revenues
incurred during the thirteen week period ended September 29, 1996, was
primarily due to the upgrade of restaurant and retail point of sale computer
systems at the Mall of America and Woodfield Mall Units.
Interest income of $1.1 million and $3.0 million for the thirteen week and
thirty-nine week periods respectively in 1996 was generated primarily by
investing the proceeds from the Company's follow-on public offering completed
in January 1996. Interest income of $201,000 and $251,000 for the thirteen
week and thirty-nine week periods respectively in 1995 was generated primarily
by investing the proceeds from the exercise of the Class A Warrants issued as
part of the Company's initial public offering. During the thirty-nine week
period ended October 1, 1995, the Company recorded $186,000 in interest expense
due to amortization of loan discount.
The provision for income taxes in the 1996 Periods is based upon the Company's
anticipated tax rate, including benefits for approximately $350,000 in net
operating loss carryforwards. The Company did not record a provision for
federal or state income taxes in 1995 because net operating loss carryforwards
were used to offset income tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital needs arise from the development and opening of
new Units. Prior to the IPO, completed on April 7, 1995, the Company met its
capital requirements through the private placement of debt and Common Stock,
landlord contributions and cash flow from operations. During the period from
February 3, 1994 (inception) through July 2, 1994, the Company sold 2,969,400
shares of Common Stock in private transactions resulting in net proceeds to the
Company of approximately $2.0 million. The Company also received approximately
$1.3 million from the issuance of promissory notes to certain of its
shareholders. In addition, the Company acquired certain assets from a principal
shareholder in exchange for a $370,125 promissory note.
In April 1995, the Company completed an initial public offering (the IPO) of
2,587,500 units with each unit consisting of one share of Common Stock and one
Class A Warrant. The IPO resulted in net proceeds to the Company of
approximately $9.0 million. Simultaneous with the IPO, approximately $1.2
million owed under the Notes was converted into 458,437 shares of Common Stock.
The conversion of the Notes to equity resulted in an extraordinary charge to
earnings of approximately $1.1 million for the early extinguishment of debt. In
11
<PAGE> 13
August 1995, the Company received additional net proceeds of approximately
$14.2 million resulting from the exercise of its Class A Warrants, at an
exercise price of $5.50 per share.
From its IPO in April 1995 through December 31, 1995, the Company financed its
capital requirements through the proceeds from that offering, the exercise of
the Class A Warrants and cash flow from operations. In January 1996, the
Company issued an aggregate of 4,140,000 shares of Common Stock pursuant to a
follow-on public offering at $19.00 per share. The net proceeds to the
Company, after payment of underwriting fees and offering expenses was
approximately $73.6 million. In May 1996, the Company received approximately
$1.0 million net proceeds from the exercise of warrants at $4.80 per share
issued to Underwriters of the Company's IPO. In September 1996, the Company
issued an aggregate of 3,225,000 shares of Common Stock pursuant to a second
follow-on public offering at $31.50 per share. The net proceeds to the
Company, after payment of underwriting fees and offering expenses, were
approximately $96.0 million. On September 29, 1996 the Company had working
capital of approximately $162.6 million.
During the thirty-nine week period ended September 29, 1996, the Company
generated $6.6 million in cash flow from operating activities compared to $1.5
million in cash flow from operating activities for the thirty-nine weeks ended
October 1, 1995. The Company believes that it will continue to generate cash
from operating activities which will be utilized for future development and
working capital purposes.
The Company's total expenditures required to develop the Mall of America Unit
were approximately $4.0 million, including costs related to the expansions of
its restaurant and net of landlord contributions of approximately $500,000.
Total expenditures required to open the Woodfield Mall Unit, the Gurnee Mills
Unit, and the Walt Disney World Marketplace Unit were approximately $5.7
million, $3.7 million and $11.5 million, respectively, net of landlord
contributions of approximately $1.0 million, $2.75 million and $1.5 million,
respectively. Additionally, the Company incurred $630,000 in pre-opening costs
and purchased approximately $320,000 of inventory in connection with the
opening of its Woodfield Mall Unit, incurred approximately $550,000 in
pre-opening costs and purchased approximately $300,000 of inventory in
connection with the opening of its Gurnee Mills Unit and incurred approximately
$1.2 million in pre-opening costs and purchased approximately $600,000 of
inventory in connection with the opening of its Walt Disney World Marketplace
Unit.
In addition to the expenditures related to the development of the Gurnee Mills
and Walt Disney World Marketplace Units the Company spent approximately $11.2
million during the thirty-nine weeks ended September 29, 1996, related to the
Tysons Corner Center I Unit, the Sawgrass Mills Unit and other Units currently
in development, before deducting landlord contributions.
Management anticipates capital expenditures of approximately $8.0 million net
of landlord contributions for the remaining thirteen weeks in fiscal 1996,
related to the completion and opening of two Units in 1996, a portion of the
costs associated with the opening of Units in 1997 and capital expenditures
associated with maintenance of its existing Units and corporate office
expansion. The Company expects that future locations will cost between $4.0
million and $6.0 million, net of anticipated landlord contributions. In
addition, the Company expects that it will incur approximately $600,000 in
pre-opening costs and purchase approximately $400,000 of inventory in
connection with the opening of future Units. The Company also expects to open
selected, larger Units, such as its planned Units at Trump Taj Mahal Casino,
the MGM Grand Hotel and Casino and Disney's Animal Kingdom, which may cost
significantly more. In connection with the construction of existing Units, the
Company has received landlord contributions, reducing the cost of opening these
Units. There can be no assurance, however, that landlord contributions will be
available in the future or that the Company will be able to raise additional
capital on terms satisfactory to the Company or at all.
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<PAGE> 14
The Company contemplates that the development and opening of each of its Units
in 1996 through 1998 will be financed with existing cash on hand and cash flow
from operations. The Company may require additional equity or debt financing
for expansion beyond 1998.
It is not anticipated that the Company's business will require substantial
working capital to meet its operating requirements. Virtually all of the
Company's revenues are collected in cash or pursuant to credit card processing.
Food and beverage inventories and merchandise inventories are expected to
increase in relation to trade accounts payable.
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
As a result of the substantial revenues associated with each new Unit, the
timing of new Unit openings will result in significant fluctuations in
quarterly results. The mall-based Units may also have higher third or fourth
quarter revenues than the other two quarters as a result of seasonal traffic
increases at mall locations and seasonally stronger retail sales. Units at
entertainment centers or Disney theme parks may slow fluctuations in accordance
with any overall seasonality at these locations.
The primary inflationary factors affecting the Company's operations include
food and beverage and labor costs. In addition, the Company's leases require
the Company to pay taxes, maintenance, repairs and utilities, and these costs
are subject to inflationary increases. The Company believes low inflation rates
have contributed to relatively stable costs. There is no assurance, however,
that low inflation rates will continue.
13
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Procedures: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
Exhibit 11 - Statement regarding computation of earnings per share.
Exhibit 27 - Financial data schedule (only submitted electronically to the
Securities Exchange Commission for EDGAR information
purposes).
B. Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended September 29, 1996.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAINFOREST CAFE, INC.
Date: November 13, 1996 /s/ Martin J. O'Dowd
-------------------------------------------
Martin J. O'Dowd
President
Date: November 13, 1996 /s/ Mark S. Robinow
-------------------------------------------
Mark S. Robinow
Chief Financial Officer
(Principal Financial Officer)
15
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-nine Weeks Thirteen Weeks Thirty-nine Weeks
Ended Ended Ended Ended
September 29, 1996 September 29, 1996 October 1, 1995 October 1, 1995
------------------ ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Primary earnings per share
Weighted average number of issued
shares outstanding 14,118,838 13,593,285 8,380,400 6,242,480
Effect of:
Exercise of stock options 696,041 738,757 2,250 -
Exercise of underwriters warrants 4,786 59,266 125,820 -
----------- ----------- ---------- ----------
Shares outstanding used to compute
primary earnings per share 14,819,665 14,391,307 8,508,470 6,242,480
=========== =========== ========== ==========
Net income (loss) $ 1,923,761 $ 3,305,042 $535,376 $ (515,842)
=========== =========== ========== ==========
Primary net income (loss) per share $ 0.13 $ 0.23 $0.06 $ (0.08)
=========== =========== ========== ==========
Fully diluted earnings per share
Weighted average number of shares
used for primary earnings per shar 14,118,838 13,593,285 8,380,400 6,242,480
Effect of:
Exercise of stock options 719,088 668,535 2,250 -
Exercise of underwriters warrants 4,870 61,706 125,820 -
----------- ----------- ---------- ----------
Shares outstanding used to compute
fully diluted earnings per share 14,842,797 14,323,527 8,508,470 6,242,480
=========== =========== ========== ==========
Net income (loss) $ 1,923,761 $ 3,305,042 $ 535,376 $ (515,842)
=========== =========== ========== ==========
Net income (loss) per share $ 0.13 $ 0.23 $ 0.06 $ (0.08)
=========== =========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 163,806
<SECURITIES> 0
<RECEIVABLES> 3,562
<ALLOWANCES> 0
<INVENTORY> 2,132
<CURRENT-ASSETS> 171,397
<PP&E> 43,077
<DEPRECIATION> 0
<TOTAL-ASSETS> 214,474
<CURRENT-LIABILITIES> 8,778
<BONDS> 0
0
0
<COMMON> 199,358
<OTHER-SE> 1,789
<TOTAL-LIABILITY-AND-EQUITY> 214,474
<SALES> 14,968
<TOTAL-REVENUES> 15,718
<CGS> 4,567
<TOTAL-COSTS> 12,342
<OTHER-EXPENSES> 359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,017
<INCOME-TAX> 1,093
<INCOME-CONTINUING> 1,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,924
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
