<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 28, 1997
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, no par value per share outstanding as of
October 27, 1997: 17,446,392
<PAGE> 2
RAINFOREST CAFE, INC.
INDEX
<TABLE>
PART I. FINANCIAL INFORMATION Page number
Item 1. Consolidated Financial Statements
<S> <C> <C>
Consolidated Balance Sheets
as of September 28, 1997 and December 29, 1996............................................2
Consolidated Statements of Operations for the third quarter and nine months
ended September 28, 1997 and September 29, 1996...........................................3
Consolidated Statements of Cash Flows for the nine months
ended September 28, 1997 and September 29, 1996...........................................4
Notes to Consolidated 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 Proceedings.........................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.......................................15
Item 6. Exhibits and Reports on Form 8-K..........................................................15
Signature Page.....................................................................................16
</TABLE>
1
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RAINFOREST CAFE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 28, December 29,
(In Thousands) 1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 56,822 $ 83,894
Short-term investments 26,473 35,934
Accounts receivable and other 9,194 5,072
Inventories 5,793 2,865
Preopening expenses 2,071 2,302
------------ -----------
Total current assets 100,353 130,067
Long-Term Investments 45,554 42,274
Furniture, Equipment and Leasehold Improvements, net 91,192 48,097
Deferred Income Taxes 2,009 2,009
Other Assets 1,164 254
------------ -----------
Total Assets $ 240,272 $ 222,701
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,225 $ 6,237
Accrued liabilities-
Payroll and payroll taxes 2,909 466
Other 2,821 843
Income taxes payable 486 4,201
------------ -----------
Total current liabilities 17,441 11,747
Deferred Rent 6,439 7,000
------------ -----------
Total liabilities 23,880 18,747
------------ -----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, no par value, 50,000,000 shares authorized;
17,421,392 and 17,186,506 issued and outstanding 203,666 199,542
Retained earnings 12,726 4,412
------------ -----------
Total shareholders' equity 216,392 203,954
------------ -----------
Total Liabilities and Shareholders' Equity $ 240,272 $ 222,701
============ ===========
</TABLE>
2
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RAINFOREST CAFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Third Third Nine Nine
Quarter Ended Quarter Ended Months Ended Months Ended
September 28, September 29, September 28, September 29,
(In Thousands, Except Share Data) 1997 1996 1997 1996
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 21,455 $ 11,326 $ 56,183 $ 21,638
Retail sales 6,431 3,642 16,908 6,144
Licensing fees and royalties 122 750 377 750
----------- --------- ----------- -----------
Total revenues 28,008 15,718 73,468 28,532
----------- --------- ----------- -----------
Costs and Expenses:
Food and beverage costs 5,034 2,864 13,197 5,489
Cost of retail goods sold 2,919 1,702 7,820 2,840
Restaurant operating expenses 10,456 5,503 27,535 10,600
Retail operating expenses 2,004 1,128 5,348 1,959
Depreciation and amortization 1,327 591 3,710 1,196
Amortization of preopening expenses 685 554 2,311 896
----------- --------- ----------- -----------
Total costs and expenses 22,425 12,342 59,921 22,980
----------- --------- ----------- -----------
Income from Unit Operations and Licensing 5,583 3,376 13,547 5,552
----------- --------- ----------- -----------
.
Other (Income) Expense:
General, administrative and development expenses 2,022 1,254 5,397 3,235
Interest income (2,306) (1,076) (6,782) (3,012)
Write-off of development costs - - 1,935 -
Other - 181 10 181
----------- --------- ----------- -----------
Total other (income) expense (284) 359 560 404
----------- --------- ----------- -----------
Income before Income Taxes 5,867 3,017 12,987 5,148
Provision for Income Taxes 2,112 1,093 4,671 1,843
----------- --------- ----------- -----------
Net Income $ 3,755 $ 1,924 $ 8,316 $ 3,305
=========== ========= =========== ===========
Earnings Per Common Share: $ 0.21 $ 0.13 $ 0.47 $ 0.23
=========== ========= =========== ===========
Weighted Average Shares Outstanding 17,855,502 14,819,665 17,811,851 14,391,307
=========== ========== =========== ===========
</TABLE>
3
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RAINFOREST CAFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
(In Thousands) September 28, September 29,
1997 1996
------------- -------------
<S> <C> <C>
Operating Activities:
Net income $ 8,316 $ 3,305
Adjustments to reconcile net income to net cash
flows from operating activities-
Depreciation and amortization 5,973 2,832
Write-off of discontinued development costs 1,935 -
Change in operating assets and liabilities-
Accounts receivable and other (5,649) (1,591)
Inventories (2,928) (1,056)
Preopening expenses (2,080) (2,256)
Accounts payable 4,988 1,945
Accrued liabilities 2,211 3,568
--------- ----------
Net cash provided by operating activities 12,766 6,747
--------- ----------
Investing Activities:
(Purchases) sales of short-term investments, net 9,461 -
(Purchases) sales of long-term investments, net (3,280) -
Purchases of furniture, equipment and leasehold
improvements, net (49,253) (32,894)
Purchases of other assets (910) -
--------- ----------
Net cash used in investing activities (43,982) (32,894)
--------- ----------
Financing Activities:
Proceeds from the sale of common stock and put options, net 2,811 169,820
Proceeds from warrants exercised - 1,061
Repurchase of common stock (194) -
Tenant allowances collected 1,527 2,750
--------- ----------
Net cash provided by financing activities 4,144 173,631
--------- ----------
Increase (Decrease) in Cash and Cash Equivalents (27,072) 147,484
Cash and Cash Equivalents, beginning of period 83,894 16,323
--------- ----------
Cash and Cash Equivalents, end of period $ 56,822 $ 163,807
========= ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Interest $ - $ -
Income taxes 7,147 45
</TABLE>
4
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RAINFOREST CAFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all accounts of Rainforest Cafe,
Inc. and its wholly-owned and majority-owned subsidiaries (the Company). All
significant intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated 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 accompanying 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 nine months ended September 28, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 28, 1997.
(2) EARNINGS PER COMMON SHARE
Earnings per common share have been computed by dividing net income by the
weighted average number of common shares outstanding during the period. Common
stock equivalent shares which relate to stock options, are included in the
weighted average only when the effect is dilutive.
(3) TERMINATION OF PLANNED UNITS
During the first quarter of 1997, the Company wrote off development costs of
approximately $1.9 million related to previously planned units at Trump Taj
Mahal (Atlantic City, New Jersey) and Stratosphere (Las Vegas, Nevada). The
Company determined that future negotiations for Trump Taj Mahal would not result
in a mutually agreeable space by both parties for the planned Unit. The Company
also determined that due to Stratosphere's announcement that it was seeking a
bankruptcy reorganization, that the required space for the unit would not be
delivered according to the required timeline.
(4) NEW ACCOUNTING PRONOUNCEMENT
The Company will adopt in the fiscal year ending December 28, 1997, Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (SFAS No. 128),
which was issued in February
5
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1997. SFAS No. 128 requires disclosure of basic earnings per share (EPS) and
diluted EPS, which replaces the existing primary EPS and fully diluted EPS, as
defined by APB No. 15. Basic EPS is computed by dividing net income by the
weighted average number of shares of Common Stock outstanding during the year.
Dilutive EPS is computed similar to EPS as previously reported provided that,
when applying the treasury stock method to common equivalent shares, the Company
must use its average share price for the period rather than the more dilutive
greater of the average share price or end-of-period share price required by APB
No. 15.
(5) RECLASSIFICATIONS
Certain amounts for December 29, 1996 have been reclassified to conform to the
September 28, 1997 financial statement presentation. These reclassifications
have no effect on previously reported net income or shareholders' equity.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company, founded in February 1994, owns, operates, and licenses themed
restaurant/retail facilities ("Unit") under the name "Rainforest Cafe -- A Wild
Place to Shop and Eat(R)." As of September 28, 1997, the Company owned and
operated eight Units in the United States and licensed two Units outside of the
United States. 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, also 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 Company opened its fifth Unit on October 3,
1996, at Tysons Corner Center I, in McLean, Virginia, a suburb of Washington,
D.C., its sixth Unit on November 22, 1996, at Sawgrass Mills Mall in Fort
Lauderdale, Florida, its seventh Unit on June 5, 1997 in the South Coast Plaza
Mall in Costa Mesa (Orange County), California and its eighth Unit on September
5, 1997 in The Source in Westbury (Long Island), New York. The Company opened
its ninth Unit on October 1, 1997 in downtown Chicago, Illinois. Results of
operations for this Unit are not included for periods ended September 28, 1997.
The Company presently plans to develop four additional domestic Units in 1997
and nine domestic Units in 1998. Because the Company anticipates continued rapid
expansion, period to period comparisons may not be meaningful. The Company
presently intends to lease the sites for all future domestic Units and
anticipates that most of its future domestic Units will range in size from
approximately 16,000 to 23,000 square feet, with between 300 and 400 restaurant
seats and approximately 20-25% of square footage dedicated to retail selling
space. However, some Units may be significantly larger, such as the existing
free-standing 30,000 square foot Walt Disney World Marketplace Unit, and the
planned free-standing Disney's Animal Kingdom Unit, which is expected to open
near the end of the first quarter of 1998 and which will comprise approximately
36,000 square feet and have approximately 550 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 other theme restaurants in Mexico such as Hard Rock Cafe, Planet
Hollywood and Official All-Star Cafe, under which ECE will develop seven
Rainforest Cafe Units in Mexico over a ten year period. Pursuant to this
agreement, the Company received a non-refundable licensing fee of $750,000 in
September 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 ECE opened its
first Unit in Cancun on August 15, 1997 and its second Unit in Mexico City on
October 15, 1997. Results of operations for this Unit are not included for
periods ended September 28, 1997.
7
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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 Cafe Units in the United Kingdom and Ireland over a ten
year period. Pursuant to this agreement, the Company has the option to purchase
up to 20% of the equity interest in any Unit developed by Glendola. The Company
is entitled to receive per Unit development fees of $100,000 and will receive
royalties of approximately five percent of sales. The Company has elected to
purchase 20% of the first Unit opened under this agreement. The first Unit
opened at the Trucadero, Piccadilly Circus, in London, England on June 23, 1997.
In March 1997, the Company completed a joint venture and exclusive license
agreement with the Elephant and Castle Group ("E & C"), a Vancouver based owner
and operator of Elephant and Castle pubs and restaurants. E & C and the Company
agreed to develop five Rainforest Cafes in Canada over a seven year period.
Under the terms of the above agreements, the Company is entitled to receive from
E & C a $500,000 non refundable licensing fee, of which $250,000 was received in
first quarter of 1997, and a warrant to purchase 600,000 shares of E & C stock
at $8.00 per share exercisable for a period of five years. In addition, the
Company and E & C will each have a 50% equity interest in the joint venture
Rainforest Cafe Canada, Inc. ("RCCI"). The Company will receive development fees
of $100,000 per Unit opened and will receive royalties of approximately six
percent of food and beverage sales and ten percent of merchandise sales. The
Company will have the option to purchase E & C's interest of RCCI after seven
years based on a predetermined formula of cash flow and investment. RCCI intends
to open its first Canadian Unit near Vancouver, British Columbia at the end of
the second quarter of 1998.
In July 1997, the Company completed an agreement with Movie Dream Corporation
("MDC"), a subsidiary of Far East Holdings International Limited. Under the
terms of the agreement, the Singapore based group will develop a minimum of five
Rainforest Cafe Units, opening over ten years. Countries covered by this
agreement include Singapore, Malaysia, Indonesia, Thailand, Philippines,
Vietnam, Cambodia, Brunei and Burma. MDC has the right to establish
sub-franchisees within the territory, with terms and conditions, which include a
right of the Company to approve of all investors and all other rights in the
master license agreement. The master license agreement includes terms
substantially similar to those of the Company's prior international agreements
including a regional development fee, a per Unit opening fee and ongoing
royalties based on sales. The license agreement also grants MDC an option for
the development rights to India, subject to meeting future performance criteria.
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 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 ensuing 30-60 day period
will gradually adjust because of operating efficiencies and then be 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. Preopening costs for Units
opened in fiscal years 1995
8
<PAGE> 10
and 1996 averaged approximately $650,000 per Unit excluding the Walt Disney
World Marketplace Unit which incurred approximately $1.2 million of preopening
costs.
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 preopening expenses are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies are primary items of costs in this category.
The Company uses a 52 or 53 week fiscal year ending on the Sunday nearest
December 31.
9
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RESULTS OF OPERATIONS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28,
1997, COMPARED TO THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 29, 1996.
The operating results of the Company expressed as a percentage of total revenues
(except where noted) were as follows:
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales 76.6% 72.1% 76.5% 75.8%
Retail sales 23.0 23.2 23.0 21.6
Licensing fees and royalties 0.4 4.7 0.5 2.6
--------- ---------- --------- ----------
Total revenues 100.0 100.0 100.0 100.0
Costs and Expenses:
Food and beverage costs (1) 23.5 25.3 23.5 25.4
Cost of retail goods sold (2) 45.4 46.7 46.3 46.2
Restaurant operating expenses (1) 48.7 48.6 49.0 49.0
Retail operating expenses (2) 31.2 31.0 31.6 31.9
Depreciation and amortization (3) 4.8 3.9 5.1 4.3
Amortization of preopening expenses (3) 2.5 3.7 3.2 3.2
Total costs and expenses (3) 80.4 82.5 82.0 82.7
Income from Unit Operations and Licensing 19.9 21.5 18.4 19.5
Other (Income) Expense:
General, administrative and development expenses 7.2 8.0 7.3 11.4
Interest income (8.2) (6.8) (9.2) (10.6)
Write-off of development costs - - 2.6 -
Other - 1.1 - 0.6
--------- ---------- --------- ----------
Total other (income) expense (1.0) 2.3 0.7 1.4
--------- ---------- --------- ----------
Income before Income Taxes 20.9 19.2 17.7 18.1
Provision for Income Taxes 7.5 7.0 6.4 6.5
--------- ---------- --------- ----------
Net Income 13.4% 12.2% 11.3% 11.6%
========= ========== ========= ==========
</TABLE>
(1) Percentage of restaurant sales
(2) Percentage of retail sales
(3) Percentage of restaurant and retail sales
Total revenues increased 78% to $28.0 million for the third quarter and 158% to
$73.5 million for the nine months of 1997 from $15.7 million for the third
quarter and $28.5 million for the nine months of 1996. Revenue growth resulted
primarily from the addition of four Units since September 29, 1996 and from a
full period of operation of the Walt Disney World Marketplace Unit in the 1997
periods.
10
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Food and beverage costs increased 76% to $5.0 million for the third quarter and
140% to $13.2 million for the nine months of 1997 compared to $2.9 million and
$5.5 million for the comparable periods in fiscal 1996. The increase in food and
beverage costs was due primarily to Unit expansion. Food and beverage costs
decreased as a percentage of restaurant sales for the 1997 periods largely
because of improvements in food preparation, purchasing efficiencies, favorable
commodity prices and upselling of higher margin, add-on menu items.
Cost of retail goods sold increased 72% to $2.9 million for the third quarter of
1997 compared to $1.7 million for the third quarter of 1996, and 175% to $7.8
million for the nine months of 1997 from $2.8 million for the comparable period
in 1996. The increase in cost of retail goods sold was due primarily to Unit
expansion and the addition of an expanded retail distribution center during the
second half of 1996. The third quarter decrease in cost of retail goods sold as
a percentage of retail sales results from enhanced purchasing power due to
volume and additions of less expensive vendor sources.
Restaurant and retail operating expenses increased 90% and 78%, respectively,
for the third quarter and 160% and 173%, respectively, for the nine months of
1997, primarily due to Unit expansion. Both restaurant and retail operating
expenses as a percentage of applicable restaurant and retail sales remained
relatively stable.
Depreciation and amortization increased 125% to $1.3 million in the third
quarter of 1997 compared to $0.6 million for the comparable period in 1996 and
210% to $3.7 million for the nine months of 1997 from $1.2 million in 1996.
Amortization of preopening expenses increased 24% to $0.7 million for the third
quarter and 158% to $2.3 million for the nine months of 1997 from $0.6 million
for the third quarter and $0.9 million for the nine months of 1996. The increase
in depreciation and amortization and amortization of preopening expenses was due
to Unit expansion. The increase in depreciation as a percentage of restaurant
and retail sales is due to increased costs of Unit development and retrofit of
existing Units resulting from the standardization of the Unit concept theme.
General, administration and development expenses increased 61% to $2.0 million
and 67% to $5.4 million for the third quarter and nine months of 1997 compared
to $1.3 million and $3.2 million for the comparable periods of 1996. The
increase in general, administrative and development expenses was due to the
increase of senior management, corporate employees and Unit management personnel
in training. Management believes general, administrative and development
expenses will grow at a slower rate than total revenues over the next four
quarters resulting in a decrease in these expenses as a percentage of total
revenues.
Interest income of $2.3 million and $6.8 million for the third quarter and nine
months of 1997 was generated primarily by investing a portion of the proceeds
from the Company's two follow-on public offerings completed in January and
September 1996. Interest income of $3.0 million for the nine months of 1996 was
generated primarily by investing a portion of the proceeds of the Company's
January 1996 follow-on public offering.
The write-off of development costs of $1.9 million in the first quarter of 1997
was the result of the termination of planned Units at Trump Taj Mahal (Atlantic
City, New Jersey) and Stratosphere (Las Vegas, Nevada).
11
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The provision for income taxes in the 1997 nine-month period is based upon the
Company's estimated effective tax rate, including tax-exempt interest income.
The provision for income taxes in the 1996 nine-month period is based upon the
Company's effective tax rate, including the benefits of approximately $350,000
in net operating loss carryforwards and tax exempt interest income.
Net income was $3.8 million ($0.21 per share) and $8.3 million ($0.47 per share)
for the third quarter and nine months of 1997 compared with $1.9 million ($0.13
per share) and $3.3 million ($0.23 per share) for the third quarter and nine
months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital needs arise from the development and opening of
new Units. In January 1996, the Company issued an aggregate of 4,140,000 shares
of common stock pursuant to a secondary 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 in net proceeds from the exercise of warrants at
$4.80 per share issued to Underwriters of the Company's Initial Public Offering.
In September 1996, the Company issued an aggregate of 3,225,000 shares of common
stock pursuant to an additional 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 28, 1997 the Company
had working capital of approximately $82.9 million and long-term investments of
$45.6 million.
The Company generated $12.8 million in cash flow from operating activities for
the nine months of 1997 compared to $6.7 million for the nine months of 1996. In
addition, for the nine months of 1997 the Company generated $1.0 million in
stock options exercised, compared with $0.3 million for the comparable period in
1996, and approximately $1.5 million cash from the sale of put options on
approximately 935,000 shares of the Company's common stock. The sale of the put
options was executed as part of a stock repurchase program announced in January
1997 pursuant to which up to 1.0 million shares of the Company's common stock
may be repurchased. In April 1997, 10,000 shares of common stock were
repurchased through put option assignments. The Company believes that it will
continue to generate cash from operating activities and earn interest income,
both of 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 $4.1 million, including costs related to the expansions of
its restaurant and enhancements of thematic elements, net of landlord
contributions of approximately $500,000. Total expenditures required to open the
Woodfield Mall Unit were approximately $5.7 million, net of landlord
contributions of $1.0 million. Additionally, the Company incurred $630,000 in
preopening costs and purchased approximately $320,000 of inventory in connection
with the opening of its Woodfield Mall Unit.
The average gross investment to open the Company's Gurnee Mills, Tysons Corner,
and Sawgrass Mills Units during 1996 was $6.6 million. The Company recorded
landlord contributions of $2.7, $1.0 and $0.5 million associated with the
Gurnee, Tysons, and Sawgrass Units respectively. Total expenditures to
develop the Walt Disney World Marketplace Unit were $11.2 million net of
$1.5 million landlord contributions. Additionally, the Company averaged
approximately $650,000 in preopening expenses and purchased an average of
$300,000 of inventory in connection with the 1996 openings of the Gurnee,
12
<PAGE> 14
Tysons, and Sawgrass Units. Preopening expenses incurred for the opening
of the Walt Disney World Marketplace Unit were approximately $1.2
million and the initial inventory purchased was approximately $600,000.
The Company has opened three Units during 1997 and plans to develop four
additional Units by the end of the year. The estimated average gross investment
to open the Company's South Coast Plaza and The Source Units was $7.4 million,
while total expenditures to develop the free-standing downtown Chicago Unit were
$10.0 million. The Company recorded landlord contributions of approximately
$700,000 for the South Coast Plaza Unit. Additionally, the Company averaged
approximately $700,000 in preopening expenses and purchased approximately
$325,000 in initial inventory. The costs associated with the opening of these
three Units is higher than the average cost anticipated to open the remaining
1997 Units because these sites are higher cost markets.
During the third quarter of 1997, the Company spent approximately $9.3 million,
before deducting landlord contributions related to the development of Units to
open in fourth quarter 1997 and early 1998. Management anticipates capital
expenditures of approximately $17.5 million, net of landlord contributions, for
the remainder of fiscal 1997, related to the completion and opening of four
additional domestic Units in fourth quarter 1997, a portion of the costs
associated with the opening of Units in 1998 and capital expenditures associated
with maintenance of its existing Units and corporate office expansion. Currently
anticipated international Units will require significantly less investment than
domestic Units. The Company expects future domestic locations to cost between
$5.5 million and $7.5 million to develop, net of anticipated landlord
contributions. In addition, the Company expects that it will incur approximately
$650,000 in preopening costs and purchase approximately $300,000 of inventory in
connection with the opening of these Units. The Company also expects to open
selected, larger Units, such as its planned Units at 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, which reduced the cost of opening these Units. There can
be no assurance, however, that landlord contributions will be available in the
future.
The Company contemplates that the development and opening of each of its Units
in 1997 through 1999 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 1999.
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 show fluctuations in accordance with any
overall seasonality at these locations.
13
<PAGE> 15
The primary inflationary factors affecting the Company's operations include food
and beverage and labor costs. Management does not anticipate any significant
labor cost increases as a result of the minimum wage increases enacted in 1996
and 1997. Units in higher cost labor markets such as California, New York and
Nevada may experience lower operating margins than units located in lower cost
labor markets. In addition, the Company's leases require the Company to pay
costs that are subject to inflationary increases, such as taxes, maintenance,
repairs and utilities. The Company believes low inflation rates have contributed
to relatively stable costs. There is no assurance, however, that low inflation
rates will continue.
FORWARD LOOKING DISCLOSURE
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.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings: None
ITEM 4. Submission of Matters to a Vote of Security Holders
A. A Special Meeting of Shareholders was held on September 29, 1997.
B. Matters voted upon:
(1) Proposal to adopt the Company's 1997 Directors' Stock
Option and Compensation Plan.
AFFIRMATIVE VOTES NEGATIVE VOTES ABSTENTIONS
----------------- -------------- -----------
9,382,625 1,347,567 6,593,700
(2) Proposal to amend the Company's 1995 Stock Option and
Compensation Plan to increase the number of shares of
Common stock reserved for issuance thereunder from
1,500,000 to 2,500,000.
AFFIRMATIVE VOTES NEGATIVE VOTES ABSTENTIONS
----------------- -------------- -----------
8,403,799 2,469,772 6,450,321
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits: None
B. Reports on Form 8-K: The Company did not file any reports on
Form 8-K during the quarter ended September 28, 1997.
15
<PAGE> 17
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 7, 1997
------------------------------
Kenneth W. Brimmer
President
Date: November 7, 1997
------------------------------
Mark S. Robinow
Chief Financial Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 56,822
<SECURITIES> 72,027
<RECEIVABLES> 9,194
<ALLOWANCES> 0
<INVENTORY> 5,793
<CURRENT-ASSETS> 100,353
<PP&E> 91,192
<DEPRECIATION> 0
<TOTAL-ASSETS> 240,272
<CURRENT-LIABILITIES> 17,441
<BONDS> 0
0
0
<COMMON> 203,666
<OTHER-SE> 12,726
<TOTAL-LIABILITY-AND-EQUITY> 240,272
<SALES> 73,091
<TOTAL-REVENUES> 73,468
<CGS> 21,017
<TOTAL-COSTS> 59,921
<OTHER-EXPENSES> 560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,987
<INCOME-TAX> 4,671
<INCOME-CONTINUING> 8,316
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,316
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
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