<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 JULY 5, 1998
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, $.01 par value per share outstanding as of
August 12, 1998:
25,530,213
<PAGE> 2
RAINFOREST CAFE, INC.
INDEX
PART I. FINANCIAL INFORMATION Page number
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
July 5, 1998 and December 28, 1997............................... 2
Consolidated Statements of Operations for the thirteen and
twenty-seven weeks ended July 5, 1998 and thirteen and
twenty-six weeks ended June 29, 1997............................. 3
Consolidated Statements of Cash Flows for the
thirteen and twenty-seven weeks ended July 5, 1998
and thirteen and
twenty-six weeks ended June 29, 1997............................. 4
Condensed 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 5. Discretionary Proxy Voting Authority/Shareholder
Proposals............................................... 16
Item 6. Exhibits and Reports on Form 8-K........................ 16
Signature Page................................................... 17
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RAINFOREST CAFE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 5, December 28,
(In Thousands, Except Share Data) 1998 1997
----------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 31,094 $ 53,621
Short-term investments 25,591 16,963
Accounts receivable and other 16,439 9,893
Inventories 8,907 6,705
Preopening expenses - 4,546
-------- ---------
Total current assets 82,031 91,728
Long-Term Investments 27,433 39,948
Furniture, Equipment and Leasehold Improvements, net 135,349 112,695
Other Assets 3,983 1,729
-------- ---------
Total Assets $248,796 $ 246,100
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,554 $ 7,135
Accrued liabilities-
Payroll and payroll taxes 3,934 3,318
Other 4,061 3,543
Income taxes payable 927 -
-------- ---------
Total current liabilities 16,476 13,996
Deferred Rent 13,756 8,214
Deferred Income Taxes 908 908
-------- ---------
Total liabilities 31,140 23,118
-------- ---------
Commitments and Contingencies
Shareholders' Equity:
Common stock, no par value, 50,000,000 shares authorized;
25,530,213 and 26,351,268 issued and outstanding 196,689 206,277
Retained earnings 20,967 16,705
-------- ---------
Total shareholders' equity 217,656 222,982
-------- ---------
Total Liabilities and Shareholders' Equity $248,796 $ 246,100
======== =========
</TABLE>
2
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RAINFOREST CAFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-seven Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 5, June 29, July 5, June 29,
(In Thousands, Except Share Data) 1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 40,777 $ 18,107 $ 75,784 $ 34,728
Retail sales 12,779 5,479 22,091 10,477
Licensing fees and royalties 308 5 615 255
----------- ----------- ----------- -----------
Total revenues 53,864 23,591 98,490 45,460
----------- ----------- ----------- -----------
Costs and Expenses:
Food and beverage costs 9,592 4,201 17,923 8,163
Cost of retail goods sold 5,554 2,545 9,907 4,901
Restaurant operating expenses 21,438 8,900 39,368 17,079
Retail operating expenses 3,973 1,776 7,097 3,344
Depreciation and amortization 3,096 1,214 5,650 2,383
Preopening expenses 1,441 805 3,872 1,626
----------- ----------- ----------- -----------
Total costs and expenses 45,094 19,441 83,817 37,496
----------- ----------- ----------- -----------
Income from Unit Operations and Licensing 8,770 4,150 14,673 7,964
----------- ----------- ----------- -----------
Other (Income) Expense:
General, administrative and development expenses 3,221 1,869 5,996 3,385
Interest income (1,693) (2,347) (3,901) (4,476)
Write-off of development and debt offering costs - - - 1,935
Equity in earnings of unconsolidated subsidiaries 188 - 188 -
----------- ----------- ----------- -----------
Total other (income) expense 1,716 (478) 2,283 844
----------- ----------- ----------- -----------
Income before Income Taxes and Cumulative Effect of
Change in Accounting Principle 7,054 4,628 12,390 7,120
Provision for Income Taxes 2,398 1,673 4,212 2,559
----------- ----------- ----------- -----------
Income before Cumulative Effect of Change in
Accounting Principle 4,656 2,955 8,178 4,561
Cumulative Effect of Change in Accounting Principle
Related to Start-Up Costs (net of income taxes of
$2,202) - - 3,916 -
----------- ----------- ----------- -----------
Net Income $ 4,656 $ 2,955 $ 4,262 $ 4,561
BASIC EARNINGS PER SHARE
Basic Earnings Per Common Share before Change in
Accounting Principle $ 0.18 $ 0.11 $ 0.32 $ 0.18
Cumulative Effect of Change in Accounting Principle - - 0.15 -
----------- ----------- ----------- -----------
Basic Earnings Per Common Share $ 0.18 $ 0.11 $ 0.17 $ 0.18
=========== =========== =========== ===========
Basic Weighted Average Shares Outstanding 25,468,707 25,888,828 25,727,840 25,843,283
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Diluted Earnings Per Common Share before Change
in Accounting Principle $ 0.18 $ 0.11 $ 0.31 $ 0.17
Cumulative Effect of Change in Accounting Principle - - 0.15 -
----------- ----------- ----------- -----------
Diluted Earnings Per Common Share $ 0.18 $ 0.11 $ 0.16 $ 0.17
=========== =========== =========== ===========
Diluted Weighted Average Shares Outstanding 26,030,987 26,726,486 26,034,303 26,685,038
=========== =========== =========== ===========
</TABLE>
3
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RAINFOREST CAFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-seven Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 5, June 29, July 5, June 29,
(In Thousands) 1998 1997 1998 1997
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Operating Activities:
Net income $ 4,656 $ 2,955 $ 4,262 $ 4,561
Adjustments to reconcile net income to net cash
flows from operating activities-
Depreciation and amortization 11,195 2,073 15,953 3,589
Change in accounting principle - - 3,916 -
Write-off of discontinued development costs - - - 1,935
Change in operating assets and liabilities-
Accounts receivable and other (2,795) (265) (6,658) (1,265)
Inventories (3,298) (1,335) (2,202) (675)
Preopening expenses (996) (582) (3,242) (595)
Accounts payable (499) 6,064 419 12,836
Accrued liabilities 1,556 989 2,166 (306)
---------- --------- -------- --------
Net cash provided by operating activities 9,819 9,899 14,614 20,080
---------- --------- -------- --------
Investing Activities:
(Purchases) sales of short-term investments, net 3,256 20,154 (8,628) 122
(Purchases) sales of long-term investments, net 3,896 (791) 12,515 (7,711)
Purchases of furniture, equipment and leasehold
improvements, net (12,308) (22,128) (29,194) (39,401)
Purchases of other assets (249) (485) (2,254) (890)
---------- --------- -------- --------
Net cash used in investing activities (5,405) (3,250) (27,561) (47,880)
---------- --------- -------- --------
Financing Activities:
Proceeds from the sale of common stock and put
options, net 949 325 1,935 1,583
Repurchase of common stock - (194) (11,627) (194)
Tenant allowances collected - - 112 -
---------- --------- -------- --------
Net cash provided by (used in) financing
activities 949 131 (9,580) 1,389
---------- --------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents 5,363 6,780 (22,527) (26,411)
Cash and Cash Equivalents, beginning of period 25,731 50,703 53,621 83,894
---------- --------- -------- --------
Cash and Cash Equivalents, end of period $ 31,094 $ 57,483 $ 31,094 $ 57,483
========== ========= ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Interest $ - $ - $ - $ -
Income taxes 925 1,865 948 6,340
</TABLE>
4
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RAINFOREST CAFE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 5, 1998
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include all accounts of Rainforest Cafe,
Inc. and its wholly-owned and majority-owned subsidiaries (collectively, the
Company). All significant intercompany balances and transactions have been
eliminated.
The accompanying unaudited 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 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 and twenty-seven weeks ended July 5, 1998 are
not necessarily indicative of the results that may be expected for the fiscal
year ending January 3, 1999.
(2) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income", effective beginning in fiscal 1998, establishes standards
of disclosure and financial statement display for reporting total comprehensive
income and the individual components thereof. The adoption of SFAS No. 130 did
not have a material impact on the Company's financial position or results of
operations as comprehensive income and net income were the same for all periods
presented.
During April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accounts (AICPA) issued Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires
companies to expense as incurred all start-up and preopening costs that are not
otherwise capitalizable as long-lived assets. The Company elected to implement
the accounting standard during the second quarter of 1998. The effect of this
accounting change was a charge to operations of $3.9 million, net of $2.2
million of related tax benefit for the unamortized balance of preopening costs
and other start-up expenses as of December 28, 1997. Also, $2.4 million of
preopening costs capitalized during the first quarter of 1998 have been expensed
during the first quarter of 1998 as preopening costs in the accompanying
statements of operations for the twenty-seven week period ended July 5, 1998.
5
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(3) EARNINGS PER COMMON SHARE
The Company adopted in fiscal 1997, SFAS No. 128 "Earnings per Share" which
requires disclosure of basic earnings per share (EPS) and diluted EPS, which
replace 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 period. Diluted EPS is computed
similarly to primary EPS as previously reported provided that, when applying the
treasury stock method to common equivalent shares (consisting solely of
outstanding stock options), the Company must use its average share price for
that period rather than the more dilutive greater of the average share price or
end-of-period share price required by APB No. 15.
As a result of the adoption of SFAS No. 128, the Company's reported earnings per
share for the thirteen and twenty-six weeks ended June 29, 1997 did not change.
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 (each a "Unit") under the name "Rainforest Cafe - A
Wild Place to Shop and Eat(R)." As of August 15, 1998, the Company owned and
operated 16 Units in the United States and licensed four Units outside of the
United States. Rainforest Cafe Units range in size from the Company's initial
Unit opened on October 3, 1994 in the Mall of America in Bloomington, Minnesota,
which is approximately 15,000 square feet, to the 34,000 square foot Unit
located at Disney's Animal Kingdom at Walt Disney World(R) in Orlando, Florida.
The Company's other domestic Units are located in Chicago, Schaumburg and
Gurnee, Illinois; McLean, Virginia; Miami, Fort Lauderdale and Downtown Disney
Marketplace at Walt Disney World(R) in Orlando, Florida; Ontario and Costa Mesa
in Orange County, California; Westbury and West Nyack, New York; Dallas, Texas;
Tempe, Arizona; and at the MGM Grand Hotel and Casino in Las Vegas, Nevada.
The Company presently plans to open five additional domestic Units for the
remaining two quarters of 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 14,000 to 23,000 square feet, with between 275 and 450 restaurant
seats and 10% to 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 Downtown Disney Market Place Unit and the
free-standing 34,000 square foot Disney's Animal Kingdom Unit, both of which
contain approximately 550 restaurant seats.
In addition to operations in the United States, the Company has pursued
international growth opportunities through licensing arrangements. The Company
has entered into five exclusive license agreements to develop up to 24 Units, of
which four are currently open, over the next ten years in the United Kingdom and
Ireland, Mexico, Canada, and certain Asian countries. The Company intends to
enter into additional license agreements in the future. Pursuant to these
agreements, the Company is entitled to receive area licensing fees in excess of
$500,000 (other than the license agreement relating to the United Kingdom and
Ireland which does not have an area licensing fee) and is entitled to receive a
development fee per Unit and royalties ranging from 3% to 10% of gross revenues.
Certain agreements, such as the agreement relating to the United Kingdom and
Ireland, allow the Company to become an equity participant of 20%-50% of each
Unit developed. The agreement for the Canadian development is a 50/50 joint
venture with the Elephant and Castle Group located in Vancouver, Canada. The
first international licensed Unit opened in London in June, 1997, followed by
Units in Cancun, Mexico City and Vancouver which opened in August and October
1997 and June 1998, respectively. The Company believes three additional Units
will be developed outside the United States for the remaining two quarters of
1998.
7
<PAGE> 9
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. Historically when a new Unit
opens, it incurs 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
of established Units. Each of the Company's current leases includes both fixed
rate and percentage rent provisions.
General, administrative and new 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
related to the recruiting and training of Unit management personnel are also
included. Management, supervisory and staff salaries, employee benefits, travel,
information systems, marketing, rent and office expenses are primary items of
cost in this category.
The Company uses a 52- or 53- week fiscal year ending on the Sunday nearest
December 31.
8
<PAGE> 10
RESULTS OF OPERATIONS FOR THE THIRTEEN AND TWENTY-SEVEN WEEKS ENDED JULY 5,
1998, COMPARED TO THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JUNE 29, 1997.
The operating results of the Company expressed as a percentage of total revenues
(except where noted) were as follows:
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-seven Twenty-six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
July 5, 1998 June 29, 1997 July 5, 1998 June 29, 1997
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales 75.7 % 76.8 % 77.0 % 76.4 %
Retail sales 23.7 23.2 22.4 23.0
Licensing fees and royalties .6 -- .6 .6
============ ============ =========== ============
Total revenues 100.0 100.0 100.0 100.0
============ ============ =========== ============
Costs and Expenses:
Food and beverage costs (1) 23.5 23.2 23.7 23.5
Cost of retail goods sold (2) 43.5 46.5 44.8 46.8
Restaurant operating expenses (1) 52.6 49.2 51.9 49.2
Retail operating expenses (2) 31.1 32.4 32.1 31.9
Depreciation and amortization (3) 5.8 5.1 5.8 5.3
Preopening expenses (3) 2.7 3.4 4.0 3.6
Total costs and expenses (3) 84.2 82.4 85.6 82.9
Income from Unit Operations and Licensing 16.3 17.6 14.9 17.5
------------ ------------ ----------- ------------
Other (Income) Expense:
General, administrative and development 6.0 7.9 6.1 7.4
Interest Income (3.1) (9.9) (4.0) (9.8)
Write-off of development costs -- -- -- 4.3
Equity in earnings of unconsolidated subsidiaries .3 -- .2 --
------------ ------------ ----------- ------------
Total other (income) expense 3.2 (2.0) 2.3 1.9
------------ ------------ ----------- ------------
Income before Income Taxes and Cumulative Effect
of Change in Accounting Principle 13.1 19.6 12.6 15.6
Provision for income taxes 4.4 7.1 4.3 5.6
------------ ------------ ----------- ------------
Income before Cumulative Effect of Change in
Accounting Principle 8.6 12.5 8.3 10.0
Cumulative Effect of Change in Accounting
Principle -- -- 4.0 --
------------ ------------ ----------- ------------
Net Income 8.6 % 12.5 % 4.3 % 10.0 %
============ ============ =========== ============
</TABLE>
(1) Percentage of restaurant sales
(2) Percentage of retail sales
(3) Percentage of unit sales
<PAGE> 11
Results of operations for the quarter ended July 5,1998, reflect
the operations of eleven mall Units and four free-standing Units open for the
second quarter.
Total revenues increased 128% to $53.9 million for the thirteen week period
ended July 5, 1998 and 117% to $98.5 million for the twenty-seven weeks of 1998
from $23.6 million for the thirteen weeks ended June 29, 1997 and $45.5 million
for the twenty-six weeks of 1997. The increase in revenues is primarily due to
the addition of eight domestic Rainforest Cafe Units which contributed $30.1
million for the second quarter of 1998 and $50.1 million for the six months of
1998 and $2.8 million generated from the additional week during the first
quarter of 1998. The increase in revenues was partially offset by a decrease in
sales of the comparable store sales base consisting of six Units open more than
18 months. These Units experienced a decrease in sales of $1.7 million for the
second quarter of 1998 compared to the second quarter of 1997 and $1.5 million
for the six months of 1998 compared with the six months of 1997. The Company's
experience to date indicates that a Unit's revenues may decrease on a comparable
basis after the first year of operations, although this has not been the case
for all of the Company's Units. The comparable store sales base decreased 7% in
the second quarter of 1998 and decreased 3% for the first six months of 1998.
Management believes that such decreases result from the fact that the Company's
new Units typically open at or near full capacity. Local market conditions and
competition may also impact Unit sales.
Retail sales increased as a percentage of total revenues from 23.2% for the
second quarter in 1997 to 23.7% for the comparable period in 1998 and decreased
as a percentage of total revenues from 23.0% for the six months of 1997 to 22.4%
for the six months of 1998. The increase in the percentage of retail sales in
the second quarter is primarily due to the addition of the free-standing Unit at
Disney's Animal Kingdom and the Unit at MGM Hotel and Casino in Las Vegas.
Retail sales at free-standing Units typically comprise a greater percentage of
total sales than mall Units.
Food and beverage costs increased 128% to $9.6 million for the second quarter of
1998 and 120% to $17.9 million for the six months of 1998 compared to $4.2
million and $8.2 million for the comparable periods of 1997. The increase in
food and beverage costs was primarily due to Unit expansion. Food and beverage
costs remained relatively stable as a percentage of sales.
Cost of retail goods sold increased 118% to $5.6 million for the second quarter
of 1998 compared to $2.5 million for the second quarter of 1997, and 102% to
$9.9 million for the six months of 1998 from $4.9 million for the comparable
period in 1997. The increase in cost of retail goods sold was primarily due to
Unit expansion. Cost of retail goods sold decreased as a percentage of retail
sales from 46.5% in the second quarter of 1997 to 43.5% for the comparable
period in 1998 and from 46.8% for the six months of 1997 to 44.8% for the six
months of 1998. The decrease in cost of retail goods sold as a percentage of
sales was primarily due to improved margins in children's apparel, toys,
glassware and the overall increase of volume purchasing leverage due to Unit
expansion.
Restaurant and retail operating expenses increased 141% and 124% respectively
from the second quarter of 1997, and 131% and 112%, respectively from the six
months of 1997 to the comparable periods in 1998. The increase in restaurant and
retail operating expenses was primarily due to Unit expansion. Restaurant
operating expenses increased as a percentage of restaurant sales from 49.2% in
the second quarter of 1997 to 52.6% in the second quarter of 1998 and from 49.2%
in the six months of 1997 to 51.9% in the six months of 1998. The increase in
restaurant operating expenses for both comparable
10
<PAGE> 12
periods as a percentage of restaurant sales is primarily due to increased
expenditures on repairs and maintenance, sales and marketing and increased costs
of labor. The labor increase is predominantly due to the payment of higher union
wage rates at the Company's Unit at MGM Grand Hotel and Casino, high labor costs
during the first month of operation at Disney's Animal Kingdom Unit and reduced
restaurant labor utilization at several Units. Expenditures on advertising and
marketing increased at most Units and the initial investment in Corporate sales
teams in Las Vegas, South Florida, Orlando and Chicago contributed to the higher
costs. A high level of operating expenses at the Aventura Mall Unit which was
caused by low customer traffic resulting from delays in mall construction
contributed to the increase in restaurant operating expenses as a percentage of
restaurant sales for both comparable periods. Retail operating expenses as a
percentage of retail sales decreased from 32.4% in the second quarter of 1997 to
31.1% in the second quarter of 1998 and is relatively stable as a percentage of
retail sales for the six months of 1998 compared to 1997. The decrease in retail
operating expenses in the second quarter of 1998 as a percentage of retail sales
is primarily due to improved retail labor efficiencies.
Depreciation and amortization increased 155% to $3.1 million in the second
quarter of 1998 compared to $1.2 million for the comparable period in 1997 and
137% to $5.7 million for the six months of 1998 from $2.4 million in 1997.
Preopening expenses increased 79.0% from $0.8 million in the second quarter of
1997 to $1.4 million in the same period of 1998 and 138% from $1.6 million for
the six months of 1997 to $3.9 million for the six months of 1998. The increase
in depreciation and amortization and preopening expenses was primarily due to
Unit expansion. Depreciation and amortization as a percentage of restaurant and
retail sales increased to 5.8% for the second quarter of 1998 from 5.1% for the
same period in 1997 and to 5.8% for the six months of 1998 from 5.3% for the six
months of 1997. The increase in these expenses as a percentage of sales is due
to increased costs of new Unit development and capital improvements in existing
Units. Preopening expenses decreased as a percentage of restaurant and retail
sales from 3.4% for the second quarter of 1997 to 2.7% for the second quarter of
1998 and increased as a percentage of restaurant and retail sales from 3.6% for
the six months in 1997 to 4.0% for the six months of 1998. The increase as a
percentage of sales for the six months is primarily due to the Unit at Palisades
Center in West Nyack, New York which opened late in the first quarter of 1998
and the Unit at Disney's Animal Kingdom in Orlando, Florida which opened early
in the second quarter of 1998 whose preopening costs were primarily expensed
during the first quarter of 1998 due to the change in accounting principle. The
decrease as a percentage of sales for the second quarter of 1998 is primarily
due to the change in accounting method.
General, administrative and development expenses increased 72.3% to $3.2 million
and 77.1% to $6.0 million for the second quarter and six months of 1998 compared
to $1.9 million and $3.4 million for the comparable periods of 1997. The
increase in general administrative and development expenses was due primarily to
the increases of regional Unit management, corporate employees and Unit
management personnel involved with and in training related to the Company's
growth. General, administrative and development expenses as a percentage of
revenues decreased to 6.0% in the second quarter from 7.9% for the same period
in 1997 and decreased to 6.1% for the six months of 1998 from 7.4% for the
comparable period in 1997. Management believes general, administrative and
development expenses will continue to grow at a slower rate than total revenues
over the next year resulting in a continual decrease in these expenses as a
percentage of total revenues.
Interest income of $1.7 million and $3.9 million for the second quarter and six
months of 1998 was generated primarily by investing the proceeds from the
Company's two follow-on public offerings
11
<PAGE> 13
completed in January and September 1996 and capital gains on investments
realized during the first quarter of 1998. Interest income of $2.3 million and
$4.5 million for the second quarter and six months of 1997 was generated
primarily by investing the proceeds of the Company's two 1996 follow-on public
offerings.
The write-off of development costs of $1.9 million in the first six months of
1997 was the result of the termination of planned Units at Trump Taj Mahal
(Atlantic City, New Jersey) and Stratosphere (Las Vegas, Nevada).
The provision for income taxes in the 1998 and 1997 periods are both based upon
the Company's estimated effective tax rate, including tax exempt interest
income. The effective tax rate for 1998 was reduced to 34% from 36% in 1997,
reflecting the addition of more Units in lower tax states such as Nevada and
Florida.
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 6,210,000 shares
of Common Stock pursuant to a secondary public offering at $12.67 per share. The
net proceeds to the Company, after payment of underwriting fees and offering
expenses, were approximately $73.6 million. In May 1996, the Company received
approximately $1.0 million in net proceeds from the exercise of warrants at
$3.20 per share issued to Underwriters of the Company's IPO. In September 1996,
the Company issued an aggregate of 4,837,500 shares of Common Stock pursuant to
an additional public offering at $21.00 per share. The net proceeds to the
Company, after payment of underwriting fees and offering expenses, were
approximately $96.0 million. On July 5, 1998 the Company had working capital of
approximately $65.6 million and long-term investments of $27.4 million,
consisting principally of investment grade, fixed income securities.
The Company generated cash flow from operating activities of $9.8 million and
$14.6 million for the second quarter and six months of 1998 compared to $9.9
million and $20.1 million for the second quarter and six months of 1997.
Additionally, during the first six months of 1998 the Company generated $340,000
from stock options exercised, compared with $405,000 for the comparable period
in 1997. During the first six months of 1998 the Company generated approximately
$1.3 million from the sale of put options compared to approximately $1.1 million
for the same period in 1997. At July 5, 1998, put options which may require the
purchase of approximately 660,000 shares of the Company's Common Stock (at
exercise prices ranging from $10.00 to $15.00 per share) were outstanding. The
sale of the put options was executed as a part of a stock repurchase program
announced in January 1997 and amended in January 1998 pursuant to which up to
1.5 million shares and 3.0 million shares, respectively, of the Company's Common
Stock may be repurchased over a one year period. In the first six months of 1998
approximately 909,000 shares of Common Stock were repurchased through put option
assignments and open market purchases at a cost of $11.6 million compared with
10,000 shares in the first six months of 1997 at a cost of $194,000. 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.
12
<PAGE> 14
The average investment to open the Company's first five Mall Units was $5.5
million, net of landlord contributions which averaged $1.1 million.
Additionally, the Company averaged approximately $650,000 in preopening expenses
and purchased an average of $300,000 of inventory in connection with the
openings. Total expenditures to develop the Downtown Disney Marketplace Unit
were $11.2 million, net of $1.5 million landlord contributions. Preopening
expenses incurred for the opening of the Downtown Disney Marketplace Unit were
approximately $1.2 million and the initial inventory purchased was approximately
$600,000. Total expenditures to develop the Disney's Animal Kingdom Unit were
$14.5 million, net of $1.8 million landlord contributions. Preopening expenses
incurred for the opening of the Disney's Animal Kingdom Unit were approximately
$1.6 million and the initial inventory purchased was approximately $700,000.
The estimated average investment to open the Company's five Mall Units during
1997 was $7.1 million, net of landlord contributions. The Company received
average landlord contributions of approximately $900,000 for the Mall Units.
Additionally, the Company averaged approximately $730,000 in preopening expenses
and purchased approximately $300,000 in initial inventory for the 1997 Mall
Units. Total expenditures to develop the free-standing downtown Chicago Icon
Unit were approximately $10.8 million. Total expenditures to develop the MGM
Grand Hotel and Casino Icon Unit were approximately $11.1 million, net of
$750,000 landlord contribution. The opening of the downtown Chicago Unit
resulted in preopening expenses of approximately $750,000 and the opening of the
MGM Grand Hotel and Casino Unit resulted in preopening expenses of approximately
$1.3 million. Both Units required the purchase of approximately $300,000 in
initial inventory.
The Company expects future domestic Mall Units to cost between $5.5 million and
$8.5 million to develop, net of anticipated landlord contributions. In addition,
the Company expects that it will incur approximately $750,000 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 Icon
Units, such as its Unit at Disney's Animal Kingdom at Walt Disney World(R). 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
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.
NEW ACCOUNTING PRONOUNCEMENT
During April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accounts (AICPA) issued Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires
companies to expense as incurred all start-up and preopening costs that are not
otherwise capitalizable as long-lived assets. The Company elected to implement
the
13
<PAGE> 15
accounting standard during the second quarter of 1998. The effect of this
accounting change was a charge to operations of $3.9 million, net of $2.2
million of related tax benefit for the unamortized balance of preopening costs
and other start-up expenses as of December 28, 1997. Also, $2.4 million of
preopening costs capitalized during the first quarter of 1998 have been expensed
during the first quarter of 1998 as preopening costs in the accompanying
statements of operations.
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
As a result of the substantial revenues associated with each new Unit, the
timing of new Unit openings may result in significant fluctuations in quarterly
results. Units at entertainment centers or Disney theme parks may show
fluctuations in accordance with any overall seasonality at these locations.
The primary inflationary factors affecting the Company's operations include
food, beverage and labor costs. Management does not anticipate any significant
labor cost increases as a result of the minimum wage increases enacted in 1997
and 1998. 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 base rent, 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.
The Company has performed an assessment of its information systems, equipment,
and vendors to determine compliance with Year 2000 issues. Results of the
assessment indicate that costs associated with Year 2000 compliance are expected
to be immaterial to future financial results.
FORWARD-LOOKING DISCLOSURE
The Private Securities Litigation Reform Act of 1995 provides a "safe-harbor"
for forward-looking statements. Certain information included in this report and
other materials filed by the Company with 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,
including 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 in addition to expenses related to any Company
litigation. 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 are indicated in the Company's Form 10-K for fiscal 1997 and
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 and the future Unit performance, 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 and unanticipated results of litigation.
14
<PAGE> 16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
SHAREHOLDER CLASS ACTION LITIGATION
The Company and certain executive officers of the Company are named as
defendants in a purported class action complaint, In Re: Rainforest Cafe, Inc.
Securities Litigation, alleging violations by the Company and such executive
officers of certain Federal securities laws. The complaint was filed on July 31,
1998 and is a consolidation of seven separate actions which were all filed in
the United States District Court for the District of Minnesota. The complaint
alleges that the defendants violated Federal securities laws by making
misrepresentations and omissions regarding the Company's performance and future
prospects during the class period while individually selling the Company's
Common Stock. The complaint purports to seek relief on behalf of a class of
plaintiffs who purchased the Company's Common Stock during the period between
October 20, 1997 and January 6, 1998. The Company believes these claims are
without merit and intends to defend these claims vigorously.
SHAREHOLDER DERIVATIVE LITIGATION
Luis San Andres, derivatively on behalf of Rainforest Cafe, Inc. vs.
Kenneth W. Brimmer, et al was filed on February 10, 1998 in the United States
District Court for the District of Minnesota. The Luis San Andres complaint
purports to seek relief on behalf of the Company against Kenneth W. Brimmer,
Mark Bartholomay, Gregory C. Carey, Mark S. Robinow, Ercu Ucan, Steven W.
Schussler and Lyle Berman and the Company as a nominal defendant. The complaint
alleges that the defendants breached their respective fiduciary duties to the
Company and were unjustly enriched as a result of certain trading activity.
Item 4. Submission of Matters to a Vote of Security Holders
A. The Annual Meeting of Shareholders was held on May 18, 1998.
B. Matters voted upon:
(1) Directors elected at meeting:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE
VOTES VOTES ABSTENTIONS
----------- --------- -----------
<S> <C> <C> <C>
Lyle Berman 21,825,010 508,162 4,059,846
Kenneth W. Brimmer 21,807,345 525,827 4,059,846
David L. Rogers 21,812,841 520,331 4,059,846
Steven W. Schussler 21,830,399 502,773 4,059,846
Ercu Ucan 21,817,736 515,436 4,059,846
Joel N. Waller 21,815,899 517,273 4,059,846
</TABLE>
15
<PAGE> 17
Item 5. Discretionary Proxy Voting Authority / Shareholder Proposals
On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934. The amendment to Rule 14a-4(c)(1) governs the Company's use of its
discretionary proxy voting authority with respect to a shareholder proposal
which the shareholder has not sought to include in the Company's proxy
statement. The new amendment provides that if a proponent of the proposal fails
to notify the company at least 45 days prior to the month and day of mailing of
the prior year's proxy statement, then the management proxies will be allowed to
use their discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Shareholders, if
the Company is not provided notice of a shareholder proposal, which the
shareholder has not previously sought to include in the Company's proxy
statement, by February 19, 1999, the management proxies will be allowed to use
their discretionary authority as outlined above.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
10.1 1998 Non-Executive Employee Stock Option Plan
27.1 Financial Data Schedule
B. Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
quarter ended July 5, 1998.
16
<PAGE> 1
EXHIBIT 10.1
RAINFOREST CAFE, INC.
1998 NON-EXECUTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the 1998 Non-Executive Stock Option Plan
(the "Plan") of Rainforest Cafe, Inc. (the "Company") is to increase shareholder
value and to advance the interests of the Company by attracting, motivating and
retaining non-executive full-time employees of the Company ("Non-Executive
Employees") by furnishing Non-Executive Employees non-qualified stock options to
purchase Common Stock, no par value, of the Company ("Stock Options").
2. Administration. The Plan shall be administered by a committee (the
"Committee") of the Board of Directors of the Company. The Committee shall
consist of not less than two directors of the Company and shall be appointed
from time to time by the Board of Directors of the Company. The members of the
Committee may be employee Directors of the Company, non-employee Directors of
the Company, or any combination thereof. The Board of Directors of the Company
may from time to time appoint members of the Committee in substitution for, or
in addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. The Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable. A majority of the Committee's members shall constitute a quorum. All
action of the Committee shall be taken by the majority of its members. Any
action may be taken by a written instrument signed by majority of the members
and actions so taken shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable. The
Committee shall have complete authority to award Stock Options under the Plan,
to interpret the Plan, and to make any other determination which it believes
necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
3. Eligible Employees. Non-Executive Employees of the Company who are
full-time employees shall become eligible to receive Stock Options under the
Plan when designated by the Committee. For purposes of the Plan, "Non-Executive
Employees" shall be any employee of the Company who is not a director or officer
of the Company, as defined in Rule 16a-1(f) of the Securities Exchange Act of
1934, as amended (the "1934 Act"). Non-Executive Employees may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate.
4. Shares Subject to the Plan.
4.1 Number of Shares. Subject to adjustment as provided in
Section 6.5, the number of shares of Common Stock which may be issued
under the Plan shall not exceed 1,000,000 shares of Common Stock.
4.2 Cancellation. In the event that a Stock Option granted
hereunder expires or is terminated or canceled unexercised as to any
shares of Common Stock, options relating to such shares may again be
issued under the Plan. The Committee may also determine to cancel, and
agree to the cancellation of, Stock Options in order to make a
participant eligible for the grant of a Stock Option at a lower price
than the option to be canceled.
<PAGE> 2
4.3 Type of Common Stock. Common Stock issued under the Plan
in connection with Stock Options shall be authorized and unissued
shares.
5. Stock Options. A Stock Option is a right to purchase shares of
Common Stock from the Company. Each Stock Option granted by the Committee under
this Plan shall be subject to the following terms and conditions:
5.1 Price. The option price per share shall be determined by
the Committee, subject to adjustment under Section 6.5.
5.2 Number. The number of shares of Common Stock subject to
the option shall be determined by the Committee, subject to adjustment
as provided in Section 6.5.
5.3 Non-Qualified Stock Option. No Stock Option granted under
the Plan shall qualify as an incentive stock option (as such term is
defined in Section 422A of the Internal Revenue Code of 1986, as
amended).
5.4 Duration and Time for Exercise. Subject to earlier
termination as provided in Section 6.3, the term of each Stock Option
shall be determined by the Committee but shall not exceed ten years and
one day from the date of grant. Each Stock Option shall become
exercisable at such time or times during its term as shall be
determined by the Committee at the time of grant. Except as provided in
any Stock Option Agreement approved by the Committee, no Stock Option
may be exercised during the first twelve months of its term. Except as
provided by the preceding sentence, the Committee may accelerate the
exercisability of any Stock Option. Subject to the foregoing and with
the approval of the Committee, all or any part of the shares of Common
Stock with respect to which the right to purchase has accrued may be
purchased by the Company at the time of such accrual or at any time or
times thereafter during the term of the option.
5.5 Manner of Exercise. A Stock Option may be exercised, in
whole or in part, by giving written notice to the Company, specifying
the number of shares of Common Stock to be purchased and accompanied by
the full purchase price for such shares. The option price shall be
payable in United States dollars upon exercise of the option and may be
paid by cash; uncertified or certified check; bank draft; by delivery
of shares of Common Stock in payment of all or any part of the option
price, which shares shall be valued for this purpose at the Fair Market
Value on the date such option is exercised; by instructing the Company
to withhold from the shares of Common Stock issuable upon exercise of
the Stock Option shares of Common Stock in payment of all or any part
of the option price, which shares shall be valued for this purpose at
the Fair Market Value or in such other manner as may be authorized from
time to time by the Committee. Prior to the issuance of shares of
Common Stock upon the exercise of a Stock Option, a participant shall
have no rights as a shareholder.
6. General.
6.1 Duration. The Plan shall remain in effect until all Stock
Options granted under the Plan have either been satisfied by the
issuance of shares of Common Stock or the payment of cash or been
terminated under the terms of the Plan and all restrictions imposed on
shares of Common Stock in connection with their issuance under the Plan
have lapsed. No Stock Options may be granted under the Plan after the
tenth anniversary of the date the Plan is approved by the shareholders
of the Company.
2
<PAGE> 3
6.2 Non-transferability of Stock Options. No Stock Option may
be transferred, pledged or assigned by the holder thereof (except, in
the event of the holder's death, by will or the laws of descent and
distribution to the limited extent provided in the Plan or in the Stock
Option) and the Company shall not be required to recognize any
attempted assignment of such rights by any participant. During a
participant's lifetime, a Stock Option may be exercised only by him or
by his guardian or legal representative.
6.3 Effect of Termination of Employment or Death. In the event
that a participant ceases to be an employee of the Company for any
reason, including death, any Stock Options may be exercised or shall
expire at such times as may be determined by the Committee.
6.4 Additional Condition. Notwithstanding anything in this
Plan to the contrary: (a) the Company may, if it shall determine it
necessary or desirable for any reason, at the time of award of Stock
Option require the recipient of the Stock Option, as a condition to the
receipt thereof, to deliver to the Company a written representation of
present intention to acquire the Stock Option or the shares of Common
Stock issued pursuant thereto for his own account for investment and
not for distribution; and (b) if at any time the Company further
determines, in its sole discretion, that the listing, registration or
qualification (or any updating of any such document) of any Stock
Option issuable pursuant thereto is necessary on any securities
exchange or under any federal or state securities or blue sky law, or
that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with the
award of any Stock Option, the issuance of shares of Common Stock
pursuant thereto, or the removal of any restrictions imposed on such
shares, such Stock Option shall not be awarded or such shares of Common
Stock shall not be issued or such restrictions shall not be removed, as
the case may be, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the
Company.
6.5 Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or
corporations, there shall be substituted for each of the shares of
Common Stock then subject to the Plan, including shares subject to
restrictions, options, or achievement of performance share objectives,
the number and kind of shares of stock or other securities to which the
holders of the shares of Common Stock will be entitled pursuant to the
transaction. In the event of any recapitalization, stock dividend,
stock split, combination of shares or other change in the Common Stock,
the number of shares of Common Stock then subject to the Plan,
including shares subject to restrictions, options or achievements of
performance shares, shall be adjusted in proportion to the change in
outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance
objectives of any Stock Option, and the shares of Common Stock issuable
pursuant to any Stock Option shall be adjusted as and to the extent
appropriate, at the discretion of the Committee, to provide
participants with the same relative rights before and after such
adjustment.
6.6 Stock Option Plans and Agreements. The terms of each
Stock Option shall be stated in an agreement approved by the Committee.
6.7 Withholding.
(a) The Company shall have the right to withhold from
any payments made under the Plan or to collect as a condition
of payment, any taxes required by law to be withheld. At any
time when a participant is required to pay to the Company an
amount required to be withheld under applicable income tax
laws in connection with an exercise
3
<PAGE> 4
of an option, the participant may satisfy this obligation in
whole or in part by electing (the "Election") to have the
Company withhold from the distribution shares of Common Stock
having a value up to the amount required to be withheld. The
value of the shares to be withheld shall be based on the Fair
Market Value of the Common Stock on the date that the amount
of tax to be withheld shall be determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date.
The Committee may disapprove of any Election, may suspend or
terminate the right to make Elections, or may provide with
respect to any Stock Option that the right to make Elections
shall not apply to such Stock Option. An Election is
irrevocable.
6.8 No Continued Employment or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of the Company for any period
of time or to any right to continue his or her present or any other
rate of compensation. Nothing contained in the Plan shall be construed
as giving an employee, the employee's beneficiaries or any other person
any equity or interests of any kind in the assets of the Company or
creating a trust of any kind or a fiduciary relationship of any kind
between the Company and any such person.
6.9 Amendment of the Plan. The Board may amend or discontinue
the Plan at any time. However, no such amendment or discontinuance
shall, subject to adjustment under Section 6.5, change or impair,
without the consent of the recipient, a Stock Option previously
granted.
6.10 Immediate Acceleration of Stock Option. Notwithstanding
any provision in this Plan or in any Stock Option to the contrary, all
outstanding options will become exercisable immediately any of the
following events occur unless otherwise determined by the Board of
Directors and a majority of the Continuing Directors (as defined
below):
(1) any person or group of persons becomes the
beneficial owner of 30% or more of any equity security of the
Company entitled to vote for the election of directors;
(2) a majority of the members of the Board of
Directors of the Company is replaced within the period of less
than two years by directors not nominated and approved by the
Board of Directors; or
(3) the shareholders of the Company approve an
agreement to merge or consolidate with or into another
corporation or an agreement to sell or otherwise dispose of
all or substantially all of the Company's assets (including a
plan of liquidation).
For purposes of this Section 6.10, beneficial ownership by a
person or group of persons shall be determined in accordance with
Regulation 13D (or any similar successor regulation) promulgated by the
Securities and Exchange Commission pursuant to the 1934 Act. Beneficial
ownership of more than 30% of an equity security may be established by
any reasonable method, but shall be presumed conclusively as to any
person who files a Schedule 13D report with the Securities and Exchange
Commission reporting such ownership. If the restrictions and
forfeitability periods are eliminated by reason of provision (1), the
limitations of this Plan shall not become applicable again should the
person cease to own 30% or more of any equity security of the Company.
4
<PAGE> 5
For purposes of this Section 6.10, "Continuing Directors" are
directors (a) who were in office prior to the time any of provisions
(1), (2) or (3) occurred or any person publicly announced an intention
to acquire 20% or more of any equity security of the Company, (b)
directors in office for a period of more than two years, and (c)
directors nominated and approved by the Continuing Directors.
6.11 Definition of Fair Market Value. For purposes of this
Plan, the "Fair Market Value" of a share of Common Stock at a specified
date shall, unless otherwise expressly provided in this Plan, be the
amount which the Committee determines in good faith to be 100% of the
fair market value of such a share as of the date in question; provided,
however, that notwithstanding the foregoing, if such shares are listed
on a U.S. securities exchange or are quoted on the NASDAQ National
Market System, then Fair Market Value shall be determined by reference
to the last sale price of a share of Common Stock on such U.S.
securities exchange or NASDAQ on the applicable date. If such U.S.
securities exchange or NASDAQ is closed for trading on such date, or if
the Common Stock does not trade on such date, then the last sale price
used shall be the one on the date the Common Stock last traded on such
U.S. securities exchange or NASDAQ.
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JULY 5, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUL-05-1998
<CASH> 31,094
<SECURITIES> 53,024
<RECEIVABLES> 16,439
<ALLOWANCES> 0
<INVENTORY> 8,907
<CURRENT-ASSETS> 82,031
<PP&E> 135,349
<DEPRECIATION> 0
<TOTAL-ASSETS> 248,796
<CURRENT-LIABILITIES> 16,476
<BONDS> 0
0
0
<COMMON> 196,689
<OTHER-SE> 20,967
<TOTAL-LIABILITY-AND-EQUITY> 248,796
<SALES> 97,875
<TOTAL-REVENUES> 98,490
<CGS> 27,830
<TOTAL-COSTS> 83,817
<OTHER-EXPENSES> 2,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,390
<INCOME-TAX> 4,212
<INCOME-CONTINUING> 8,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,916
<NET-INCOME> 4,262
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>