<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2000
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 outstanding
as of November 13, 2000:
22,831,088
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RAINFOREST CAFE, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page number
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
October 1, 2000 and January 2, 2000.......... 2
Consolidated Statements of Operations for the
thirteen and Thirty-nine weeks ended
October 1, 2000 and thirteen and Thirty-nine
weeks ended October 3, 1999.................. 3
Consolidated Statements of Cash Flows for the
thirteen and thirty-nine weeks ended
October 1, 2000 and thirteen and thirty-nine
weeks ended October 3, 1999.................. 4
Condensed Notes to Consolidated Financial
Statements................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................ 16
Item 6. Exhibits and Reports on Form 8-K............. 16
Signature Page........................................ 17
</TABLE>
1
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RAINFOREST CAFE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 1, January 2,
(In Thousands) 2000 2000
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,386 $ 11,480
Restricted cash 2,574 --
Marketable securities available-for-sale -- 23,957
Accounts receivable and other 4,355 8,027
Income tax receivable 4,898 --
Inventories 9,672 9,043
Deferred income taxes -- 10,198
Note receivable from related party 1,846 1,721
Prepaid expenses and other 1,469 2,986
-------- --------
Total current assets 40,200 67,412
Property, Equipment and Leasehold Improvements, net 114,873 186,042
Other Assets 1,730 8,262
-------- --------
Total Assets $156,803 $261,716
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,213 $ 4,397
Accrued liabilities--
Payroll and payroll taxes 5,286 2,492
Other 10,935 7,282
-------- --------
Total current liabilities 19,434 14,171
Deferred Occupancy Costs 27,790 27,434
Deferred Income Taxes -- 9,385
-------- --------
Total liabilities 47,224 50,990
Minority Interest 360 1,168
Put Options -- 7,166
Commitments and Contingencies
Shareholders' Equity:
Common stock, no par value, 50,000 shares authorized;
22,831 and 24,237 issued and outstanding 172,851 171,321
Retained earnings (accumulated deficit) (63,599) 33,137
Cumulative other comprehensive loss (33) (2,066)
-------- --------
Total shareholders' equity 109,219 202,392
-------- --------
Total Liabilities and Shareholders' Equity $156,803 $261,716
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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RAINFOREST CAFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 1, October 3, October 1, October 3,
(In Thousands, Except Per Share Data) 2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $58,845 $58,070 $ 165,320 $157,688
Retail sales 12,071 13,225 34,424 39,127
Licensing fees and royalties 488 910 1,441 2,687
------- ------- --------- --------
Total revenues 71,404 72,205 201,185 199,502
------- ------- --------- --------
Costs and Expenses:
Food and beverage costs 13,775 13,752 39,069 37,045
Cost of retail goods sold 5,607 6,301 16,568 18,527
Restaurant operating expenses 34,238 32,123 100,143 88,481
Retail operating expenses 4,689 4,368 13,343 12,410
Impairment and store closure 351 -- 101,891 --
Depreciation and amortization 3,048 4,963 14,086 13,804
Preopening expenses 313 1,020 2,631 3,154
------- ------- --------- --------
Total costs and expenses 62,021 62,527 287,731 173,421
------- ------- --------- --------
Income from Unit Operations and Licensing 9,383 9,678 (86,546) 26,081
------- ------- --------- --------
Other (Income) Expense:
General, administrative and development expenses 3,111 4,288 11,628 12,010
Interest income (369) (480) (1,424) (2,223)
(Gain) loss on sale of investments (1,047) -- 2,615 --
Write-off of development and transaction costs -- -- 1,099 --
Equity in losses of unconsolidated subsidiaries 1,230 363 1,456 702
------- ------- --------- --------
Total other (income) expense 2,925 4,171 15,374 10,489
------- ------- --------- --------
Income (Loss) before Income Taxes 6,458 5,507 (101,920) 15,592
Provision for Income Taxes -- 1,927 (5,202) 5,416
------- ------- --------- --------
Net Income (Loss) $ 6,458 $ 3,580 $ (96,718) $ 10,176
======= ======= ========= ========
BASIC EARNINGS PER SHARE
Basic Earnings (Loss) Per Common Share: $ 0.29 $ 0.15 $ (4.26) $ 0.41
======= ======= ========= ========
Basic Weighted Average Shares Outstanding; 22,520 24,461 22,715 24,522
======= ======= ========= ========
DILUTED EARNINGS PER SHARE
Diluted Earnings (Loss) Per Common Share: $ 0.28 $ 0.14 $ (4.26) $ 0.41
======= ======= ========= ========
Diluted Weighted Average Shares Outstanding: 22,920 24,789 22,715 24,865
======= ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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RAINFOREST CAFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 1, October 3, October 1, October 3,
(In Thousands) 2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ 6,458 $ 3,580 $(96,718) $ 10,176
Adjustments to reconcile net income (loss) to net
cash flows from operating activities-
Depreciation and amortization 3,260 5,234 15,167 14,233
Amortization of deferred occupancy costs and other (737) 49 184 528
Impairment and store closure charge 351 -- 101,891 --
Equity in loss of unconsolidated affiliates 1,230 -- 1,456 --
Loss on sale of investments (1,047) -- 2,615 --
Deferred income tax -- -- 813 --
Change in operating assets and liabilities--
Accounts receivable and other 1,745 (3,902) 865 (3,393)
Inventories (1,093) (378) (629) 523
Prepaid expenses and other 1,061 1,195 (506) (22)
Accounts payable 470 (1,765) (1,184) (4,505)
Accrued liabilities 929 (1,002) 3,846 2,367
Income taxes (12) 3,323 (4,898) 4,937
-------- -------- -------- ---------
Net cash provided by operating activities 12,615 6,334 22,902 24,844
-------- -------- -------- ---------
Investing Activities:
Proceeds from sales of available-for-sale investments 2,376 9,665 33,531 27,589
Purchases of available-for-sale investments -- (9,323) (10,188) (27,627)
(Increase) in cash restricted for outstanding letters
of credit (2,574) -- (2,574) --
Purchases of furniture, equipment and leasehold
improvements,net of landlord reimbursements (11,703) (11,242) (34,414) (34,695)
Other (1,953) 454 (2,411) 811
-------- -------- -------- ---------
Net cash used in investing activities (13,854) (10,446) (16,056) (33,922)
-------- -------- -------- ---------
Financing Activities:
Proceeds from the sale of common stock and put options, net 47 199 283 1,237
Repurchase of common stock (1,268) (1,494) (5,918) (4,430)
Tenant advances 2,008 2,885 2,682 7,233
-------- -------- -------- ---------
Net cash provided by (used in) financing activities 787 1,590 (2,953) 4,040
-------- -------- -------- ---------
Effect of exchange rate changes on cash and cash equivalents 13 (108) 13 (108)
Increase (Decrease) in Cash and Cash Equivalents (439) (2,630) 3,906 (5,146)
Cash and Cash Equivalents, beginning of period 15,825 14,347 11,480 16,863
-------- -------- -------- ---------
Cash and Cash Equivalents, end of period $ 15,386 $ 11,717 $ 15,386 $ 11,717
======== ======== ======== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for--
Income taxes $ 71 $ 308 $ 1,295 $ 2,411
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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RAINFOREST CAFE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 2000
(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 included in the
Company's Form 10-K for the fiscal year ended January 2, 2000 (1999 fiscal year
end). 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 interim periods are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2000, in particular the declining trailing 12 month earnings before
income tax, depreciation and amortization (EBITDA).
The preparation of the financial statements in accordance with generally
accepted accounting principles requires the Company's management to make certain
estimates and assumptions for the periods covered by the financial statements.
These estimates and assumptions affect the reported amounts of assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
(2) CHANGE IN CONTROL OF RAINFOREST CAFE
On October 28, 2000, Landry's Seafood Restaurants, Inc., a Delaware corporation
("Parent"), through LSR Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Purchaser"), accepted for purchase 12,454,011
shares of the common stock, no par value (the "Shares"), of the Company, that
had been validly tendered and not withdrawn pursuant to Purchaser's tender offer
for all of the outstanding Shares at $3.25 per Share, net to the tendering
shareholder in cash (the "Offer"). The Offer was made pursuant to an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of September 26, 2000 by
and among the Company, Parent and Purchaser, which provides for, among other
things, the making of the Offer by Purchaser and, following the consummation of
the Offer, the merger of Purchaser with and into the Company (the "Merger"),
with the Company as the surviving corporation in the Merger and a wholly owned
subsidiary of Parent.
The Shares purchased pursuant to the Offer, together with 1,030,800 Shares
already owned by Parent, constitute approximately 59.1% of the Shares issued and
outstanding. The aggregate purchase price for the Shares purchased pursuant to
the Offer was approximately $40.5 million. Purchaser obtained all funds needed
for such purchase through a capital contribution from Parent. Parent obtained
such funds from an
5
<PAGE>
existing bank credit facility. Such credit facility is described in Section 9
("Source and Amount of Funds") of the Purchasers Offer to purchase dated
September 29, 2000, as amended (the "Purchasers Offer"). The Shares will be
pledged under the Parent's credit facility to secure borrowings thereunder.
Pursuant to the Merger Agreement, Parent was entitled, upon purchase of and
payment of Shares under the Offer, to designate such number of directors to the
Board of Directors of the Company as would give Parent representation
proportionate to its ownership interest. Pursuant thereto, Messrs. Lyle Berman,
Steven Schussler, Ercument Ucan and Kenneth Brimmer have resigned from their
positions on the Rainforest Board and Messrs. Tilman J. Fertitta, Steven L.
Scheinthal, and Paul S. West have been appointed to the Rainforest Board to fill
three of the vacancies created by the resignations. Mr. Fertitta has also been
appointed as Chairman, President and Chief Executive Officer of Rainforest. The
Company's Board of Directors intends to appoint certain additional new officers
of the Company.
(3) IMPAIRMENT AND STORE CLOSURE CHARGE
During the second quarter of 2000, same store sales of Company restaurants
continued to decline. As a result, the Company re-evaluated the future operating
results and in particular, its Mall locations. This re-evaluation led to the
Company recording a $98.8 million charge in the second quarter of 2000 relating
to the impairment of long-lived assets of 22 mall units and a store closing
charge of $2.7 million to exit a unit. An additional $351,000 charge was
recorded during the third quarter to close a second Unit. Projected future cash
flows for many Mall Units were insufficient to justify the book value of the
long-lived assets for these Units, and as a result, an impairment was recognized
as the future undiscounted cash flows or appraised values were estimated to be
insufficient to recover the related carrying value of these long-lived assets.
The carrying value of these specific assets, primarily Mall Units, were written
down based on these criteria. The store closing charge represents landlord exit
payment, tenant concession reimbursement, severance payments, legal and removal
of improvements costs.
(4) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
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(R)-
A Wild Place to Shop and Eat(R)." As of November 7, 2000, the Company owned and
operated 28 Units in the United States and licensed twelve Units outside of the
United States. Units vary in size. The Company's revenue consists primarily of
sales from its restaurant and retail operations that are combined within each of
the Units.
New Units enter the comparable sales base at the beginning of the nineteenth
month of operation. New Units that are not in the comparable sales base (i.e.,
Units open less than eighteen months) generally have a much greater initial
sales decline rate than stores within the comparable sales base.
6
<PAGE>
In addition to operations in the United States, the Company has pursued
international growth opportunities through licensing arrangements. The Company
has entered into nine exclusive license agreements to develop Units in the
United Kingdom and Ireland, Mexico, Canada, France, and certain cities and
countries in Asia.
These agreements have royalties ranging from 3% to 10% of Unit sales. However,
as a result of deteriorating results in certain international Units, some
agreements have been modified to lower or suspend royalties. Certain agreements,
such as the agreement relating to the United Kingdom and Ireland, have allowed
the Company to become an equity participant of 20%-50% of each Unit developed.
The agreement for Canadian development is a 50/50 joint venture with the
Elephant and Castle Group located in Vancouver, Canada. In addition, during the
third quarter of 1999, the Company purchased a 75% equity interest in Yorkdale
Rainforest Restaurant, Inc. (a Canadian federal corporation) which owns 100% of
the Unit in the Yorkdale Shopping Centre located in North York, Ontario, Canada.
Elephant and Castle is the owner of the 25% minority interest in Yorkdale
Rainforest Restaurant, Inc. The results of this entity are consolidated with
the Company's other wholly-owned and majority owned subsidiaries. Sales from
this Unit experienced comparable decreases similar to those of the Company's
domestic Mall Units. The Agreement with Jungle Investments Limited (JIL) to
develop Hong Kong, Macau, Taiwan and Shanghai allowed the Company to purchase
20% equity in JIL as well as 20% equity in the Unit opened in Hong Kong.
International activities and new agreements have been reduced.
Components of operating expenses include operating payroll and fringe benefits
costs, occupancy costs, maintenance costs, and advertising and promotion costs.
Historically when a new Unit opens, it incurs higher than normal levels of
sales, labor and food 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. Corporate management, supervisory
and staff salaries, employee benefits, travel, information systems, finance,
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. The Company will adopt a calendar financial reporting schedule upon
the completion of the Merger with Purchaser.
7
<PAGE>
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total revenues
(except where noted) were as follows:
<TABLE>
<CAPTION>
Third Quarter Year To Date
------------------------- --------------------------
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales 82.4% 80.4% 82.2% 79.0%
Retail sales 16.9 18.3 17.1 19.6
Licensing fees and royalties .7 1.3 .7 1.3
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
===== ===== ===== =====
Costs and Expenses:
Food and beverage costs (1) 23.4 23.7 23.6 23.5
Cost of retail goods sold (2) 46.5 47.6 48.1 47.4
Restaurant operating expenses (1) 58.2 55.3 60.6 56.1
Retail operating expenses (2) 38.8 33.0 38.8 31.7
Impairment and store closure (3) .5 -- 51.0 --
Depreciation and amortization (3) 4.3 7.0 7.1 7.0
Preopening expenses (3) .4 1.4 1.3 1.6
----- ----- ----- -----
Total costs and expenses (3) 87.5 87.7 144.0 88.1
----- ----- ----- -----
Income (loss) from Unit Operations
and Licensing 13.1 13.4 (43.0) 13.1
----- ------ ----- -----
Other (Income) Expense:
General, administrative and development 4.4 5.9 5.8 6.0
Interest income (.5) (.7) (.7) (1.1)
(Gain) loss on sale of investments (1.5) -- 1.3 --
Transaction costs -- -- .5 --
Equity in loss of unconsolidated
affiliates 1.7 .5 .7 .4
----- ----- ----- -----
Total other (income) expense 4.1 5.7 7.6 5.3
------ ----- ----- -----
Income (Loss) before Income Taxes 9.0 7.7 (50.6) 7.8
Provision (Benefit) for Income Taxes -- 2.7 (2.6) 2.7
------ ----- ----- -----
Net Income (Loss) 9.0% 5.0% (48.0)% 5.1%
====== ===== ===== =====
</TABLE>
------------------
(1) Percentage of restaurant sales
(2) Percentage of retail sales
(3) Percentage of restaurant and retail sales
8
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THIRTEEN WEEKS ENDED OCTOBER 1, 2000 COMPARED TO THE THIRTEEN WEEKS ENDED
OCTOBER 3, 1999.
REVENUES
Total revenues decreased 1.0% to $71.4 million for the thirteen week period
ended October 1, 2000 from $72.2 million for the thirteen weeks ended October 3,
1999. The decrease in revenues was due to a decrease in sales of all Units open
more than twelve months. The comparable store sales base, consisting of only
twenty-one Units open more than 18 months, experienced a decrease in sales of
$8.0 million, or 13.4%, for the third quarter of 2000 compared to the third
quarter of 1999. The decrease was partially offset by the addition of five
domestic Rainforest Cafe Units. The Company's experience to date indicates that
a Unit's revenues are likely to decrease on a comparable basis after the first
year of operations.
Comparable store sales for the Company's Mall and Icon Units declined 17.8% and
7.3%, respectively, for the quarter ended October 1, 2000. Due to the continued
decline in Mall Unit comparable sales, the Company is no longer planning
expansion in shopping malls, and due to overall Company performance, only one
more Company owned Unit opening is planned. All future expansion, if any, will
be at tourist locations and will be larger Icon Units such as the Unit planned
for Disneyland Resorts in Anaheim, California. The Company is currently
reviewing all of its options at some of its under-performing Mall Units, which
will include additional Unit closures.
Restaurant sales as a percentage of total revenue increased from 80.4% for the
third quarter of 1999 to 82.4% for the comparable period in 2000. The increase
in the percentage of restaurant sales in the third quarter of 2000 is primarily
due to the comparable retail sales for the quarter declining 21.1%, while
restaurant comparable third quarter sales declined 11.5% for a combined decline
of 13.4%.
Licensing fees and royalties decreased $422,000, or 46.4%, for the thirteen
weeks ended October 1, 2000 compared to the comparable period in 1999.
Licensing fees and royalties decreased as a percentage of revenue to 0.7% for
the thirteen weeks ended October 1, 2000 compared to 1.3% for the same period in
1999. The decrease was due to a continued decline in International Unit sales.
In addition, certain royalty arrangements were amended to lower or suspend the
royalty amounts for certain International Units.
COST OF FOOD, BEVERAGE AND RETAIL MERCHANDISE
Food and beverage costs were $13.8 million for both the third quarter of 2000
and 1999. Food and beverage costs decreased slightly as a percentage of
restaurant sales from 23.7% in the third quarter of 1999 to 23.4% for the
comparable period in 2000.
Cost of retail goods sold decreased 11.0% to $5.6 million for the third quarter
of 2000 compared to $6.3 million for the third quarter of 1999. The decrease in
cost of retail goods sold was primarily due to an even larger decrease in retail
sales. Cost of retail goods sold decreased as a percentage of retail sales from
47.6% in the third quarter of 1999 to 46.5% for the comparable period in 2000.
The decrease was due to timing differences of permanent markdowns. The Company
took permanent markdowns during the second quarter of 2000 while these seasonal
markdowns were taken in the third quarter of 1999.
9
<PAGE>
UNIT OPERATING EXPENSES
Restaurant operating expenses increased 6.6% and retail operating expenses
increased 7.3% from the third quarter of 1999 to the comparable period in 2000.
These increases in restaurant and retail expenses were primarily due to Unit
expansion.
Restaurant operating expenses increased as a percentage of restaurant sales from
55.3% in the third quarter of 1999 to 58.2% in the third quarter of 2000. The
increase in restaurant operating expenses as a percentage of restaurant sales is
primarily due to declining comparable Unit sales and, as a result, diminishing
utilization of fixed management salaries and other fixed costs at the individual
Units.
Retail operating expenses as a percentage of retail sales increased from 33.0%
in the third quarter of 1999 to 38.8% in the third quarter of 2000. The increase
in retail operating expenses in the third quarter of 2000 as a percentage of
retail sales is due to the same factors that affected restaurant expenses as
noted above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased 38.6% to $3.0 million in the third
quarter of 2000 compared to $5.0 million for the comparable period in 1999. The
decrease in depreciation and amortization was due to the $98.8 million charge
recorded in the second quarter and resulting reduction in depreciable asset
balances. For primarily the same reason, depreciation and amortization as a
percentage of restaurant and retail sales decreased to 4.3% for the third
quarter of 2000 from 7.0% for the same period in 1999.
IMPAIRMENT AND STORE CLOSURE
The Company recorded an additional $351,000 store closure charge during the
third quarter of 2000 for the closing of a Unit. The costs relate to severance
payments, removal of improvements costs and other related exit costs.
PREOPENING EXPENSES
Preopening expenses decreased 69.3% from $1.0 million in the third quarter of
1999 to $313,000 in the same period of 2000. Preopening expenses decreased as
a percentage of restaurant and retail sales from 1.4% for the third quarter of
1999 to 0.4% for the third quarter of 2000. The decrease as a percentage of
sales for the third quarter is primarily due to no new actual or planned Unit
openings in the third and fourth quarter of 2000 (the Unit at Disneyland Resort
in Anaheim, California -- opens first quarter 2001) compared with two new Unit
openings for the comparable period in 1999.
GENERAL, ADMINISTRATIVE AND DEVELOPMENT EXPENSES
General, administrative and development expenses decreased 27.4% to $3.1 million
for the third quarter of 2000 compared to $4.3 million for the comparable period
of 1999. The decrease in general administrative and development expenses was
due primarily to a decrease in the number of corporate employees, due largely to
voluntary terminations, and discontinuing the corporate management bonus at the
beginning of the quarter. General, administrative and development expenses as a
percentage of revenues decreased to 4.4% in the third quarter of 2000 from 5.9%
for the same period in 1999.
10
<PAGE>
INTEREST INCOME
Interest income was $369,000 and $480,000 for the third quarter of 2000 and
1999, respectively.
GAIN ON SALE OF INVESTMENTS
During the third quarter of 2000, the Company sold a convertible bond for an
approximate $1.0 million gain.
EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARIES
Equity losses of unconsolidated subsidiaries was $1.2 million for the quarter
ended October 1, 2000 compared to equity losses of $363,000 for the same period
in 1999. The larger current quarter loss primarily represents closing costs and
additional International writedowns. An International Unit was closed on
October 1, 2000. The Company owned 49% of this Unit.
INCOME TAXES
The effective tax provision for third quarter 2000 was nil, compared to $1.9
million, or an effective tax rate of 35% for the same quarter in 1999. There is
no current or deferred tax expense for the current quarter due to the financial
writedown recorded during the second quarter of 2000. The full tax benefits of
the second quarter net operating loss carryforward have not previously been
recorded. Realization of future tax benefits by recognizing a deferred tax
asset is dependent on many factors, including the Company's ability to generate
taxable income within the net operating loss carryforward period. Management
has considered these factors in reaching its conclusion and since future taxable
income is uncertain, the Company has fully reserved any deferred tax asset. Any
income tax associated with taxable income, such as that in the current quarter,
is charged to reductions in the valuation allowance allowing the current tax
provision to be nil.
If the historical tax provision of 35%, that was used for the third quarter of
1999, was applied to current third quarter income before taxes, a tax provision
of approximately $2.3 million would have been recorded. This would have reduced
third quarter 2000 diluted earnings per share by $0.10.
THIRTY-NINE WEEKS ENDED OCTOBER 1, 2000 COMPARED TO THE THIRTY-NINE WEEKS ENDED
OCTOBER 3, 1999.
REVENUES
Total revenues increased 0.8% to $201.2 million for the thirty-nine week period
ended October 1, 2000 from $199.5 million for the thirty-nine weeks ended
October 3, 1999. The increase in revenues is primarily due to the addition of
five domestic Rainforest Cafe Units. The increase in revenues was offset by a
decrease in sales of the comparable store sales base consisting of twenty-one
Units open more than 18 months. These Units experienced a decrease in sales of
$21.1 million, or 12.9%, for the thirty-nine weeks ended October 1, 2000
compared to the comparable period of 1999.
Restaurant sales as a percentage of total revenue increased from 79.0% for the
thirty-nine weeks ended October 3, 1999 to 82.2% for the comparable period in
2000. The increase in the percentage of restaurant sales in the first thirty-
nine weeks in 2000 is primarily due to the comparable retail sales declining
21.8%, while restaurant comparable thirty-nine week sales declined 10.5% for a
combined decline of 12.9%.
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Licensing fees and royalties decreased $1.2 million or 46.4%, for the thirty-
nine weeks ended October 1, 2000 compared to the comparable period in 1999.
Licensing fees and royalties decreased as a percentage of revenue to 0.7% for
the thirty-nine weeks ended October 1, 2000 compared to 1.3% for the same period
in 1999. The decrease was due to a continued decline in International Unit
sales as well as a decrease or suspension in royalty amounts for certain
International Units.
COST OF FOOD, BEVERAGE AND RETAIL MERCHANDISE
Food and beverage costs increased 5.5% to $39.1 million for the thirty-nine
weeks ended October 1, 2000 compared to $37.0 million for the comparable period
of 1999. The increase in food and beverage costs was primarily due to Unit
expansion. Food and beverage costs increased slightly as a percentage of
restaurant sales from 23.5% for the thirty-nine weeks ended October 3, 1999 to
23.6% for the comparable period in 2000.
Cost of retail goods sold decreased 10.6% to $16.6 million for the thirty-nine
weeks ended October 1, 2000 from $18.5 million for the comparable period of
1999. The decrease in cost of retail goods sold was primarily due to an even
larger decrease in comparable retail sales. Cost of retail goods sold increased
as a percentage of retail sales from 47.4% in the thirty-nine week period ended
October 3, 1999 to 48.1% for the comparable period in 2000. The increase in
cost of retail goods sold as a percentage of retail sales was primarily due to
an increase in retail discounts for the thirty-nine weeks ended October 1, 2000
compared to the comparable period in 1999.
UNIT OPERATING EXPENSES
Restaurant and retail operating expenses increased 13.2% and 7.5%,
respectively, from the thirty-nine weeks ended October 3, 1999 to the comparable
period in 2000, primarily due to Unit expansion.
Restaurant operating expenses increased as a percentage of restaurant sales from
56.1% in the thirty-nine weeks ended October 3, 1999 to 60.6% for the comparable
period of 2000. The increase in restaurant operating expenses as a percentage of
restaurant sales is primarily due to declining comparable Unit sales and as a
result, diminishing utilization of fixed Unit costs such as occupancy and
management salaries. Retail operating expenses as a percentage of retail sales
increased from 31.7% in the thirty-nine weeks ended October 3, 1999 to 38.8% for
the thirty-nine weeks ended October 1, 2000. The increase in retail operating
expenses as a percentage of retail sales is primarily due to the same factors
that affected restaurant expenses as noted above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 2% to $14.1 million in the thirty-nine
weeks ended October 1, 2000 compared to $13.8 million for the comparable period
in 1999. The increase in depreciation and amortization was primarily due to
Unit expansion offset by reduced depreciation in the third quarter due to the
$98.8 million writedown of fixed assets in the second quarter of 2000 resulting
in a reduction of depreciable asset balances. Depreciation and amortization as
a percentage of sales increased slightly to 7.1% for the thirty-nine weeks ended
October 1, 2000 from 7.0% for the same period in 1999
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IMPAIRMENT AND STORE CLOSURE
The Company took a $101.5 million asset impairment and store closing charge
during the second quarter of 2000 and an additional $351,000 store closing
charge during the third quarter of 2000.
PREOPENING EXPENSES
Preopening expenses decreased 16.6% from $3.2 million in the thirty-nine weeks
ended October 3, 1999 to $2.6 million in the same period of 2000. Preopening
expenses as a percentage of restaurant and retail sales decreased to 1.3% for
the thirty-nine weeks ended October 1, 2000 from 1.6% for the same period in
1999. The decrease in these expenses as a percentage of sales is due to opening
only four new units in 2000 compared to six new units in 1999.
GENERAL, ADMINISTRATIVE AND DEVELOPMENT EXPENSES
General, administrative and development expenses decreased 3.2% to $11.6 million
for the thirty-nine weeks ended October 1, 2000 compared to $12.0 million for
the comparable period of 1999. The decrease in general administrative and
development expenses was due primarily to a decrease in the number of corporate
employees, due largely to voluntary terminations. General, administrative and
development expenses as a percentage of revenues decreased as a percentage of
revenues from 6.0% for the thirty-nine weeks ended October 3, 1999 to 5.8% for
the same period in 2000.
INTEREST INCOME
Interest income was $1.4 million and $2.2 million for the thirty-nine weeks
ended October 1, 2000 and the comparable period of 1999, respectively.
LOSS ON SALE OF INVESTMENTS
Loss on sales of investments was $2.6 million for the thirty-nine weeks ended
October 1, 2000 compared to nil for the prior year thirty nine-weeks. During
the second quarter of 2000, the Company sold most of its available-for-sale
securities which resulted in a realized loss of $3.7 million and then sold its
remaining investment during the third quarter of 2000 resulting in a gain of
$1.0 million.
TRANSACTION COSTS
On February 9, 2000, the Company announced that it had entered into a merger
agreement with Landry's Seafood Restaurants, Inc. On April 26, 2000, the two
parties mutually agreed to terminate that original merger agreement. Costs
associated with that proposed merger of $1.1 million were charged to operations
during the thirty-nine weeks ended October 1, 2000.
INCOME TAXES
The effective tax benefit for the thirty-nine weeks ended October 1, 2000 was
$5.2 million, or 5.1% of the loss before income taxes, compared to an income tax
provision of $5.4 million, or an effective tax rate of 35% for the twenty-six
weeks ended July 4, 1999. The income tax benefit represents amounts expected to
be recovered from the prior two years income taxes paid based on the Company's
expected taxable net
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operating loss for 2000. No additional benefit credit was recorded as a deferred
tax asset valuation allowance was established due to the uncertainty of
realizing certain tax credit and loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The following table represents a summary of the Company's key liquidity
measurements for the thirty-nine-weeks ended October 1, 2000 and the thirty-nine
weeks ended October 3, 1999:
<TABLE>
<CAPTION>
(Dollar Amounts in Millions) Period Ended
---------------------------------
October 1, 2000 October 3, 1999
--------------- ---------------
<S> <C> <C>
Cash and marketable securities on hand, end of period $15.4 $44.0
Restricted cash $ 2.6 $---
Net working capital, end of period $20.8 $36.5
Current ratio, end of period 2.1 to 1 3.1 to 1
Long-term debt, end of period $--- $---
Cash provided by operations $22.9 $24.8
Capital expenditure $34.4 $34.7
</TABLE>
The Company generated cash flow from operating activities of $22.9 million for
the thirty-nine weeks ended October 1, 2000 compared to $24.8 million for the
thirty-nine weeks ended October 3, 1999. The Company believes that it will
continue to generate cash from operating activities and earn interest income,
both of which will be utilized for development of the Icon Unit at the
Disneyland Resort in Anahiem, California, and near term working capital
purposes.
During the thirty-nine weeks ended October 1, 2000, the Company generated
nothing from the sale of put options compared to approximately $1.0 million for
the comparable thirty-nine week period in 1999. At October 1, 2000, no put
options were outstanding. The last assignment of 200,000 shares occurred during
the third quarter of 2000.
For the thirty-nine weeks ended October 1, 2000, 1,202,000 shares of Common
Stock were repurchased through put option assignments at a cost of $5.9 million
compared with 640,300 shares repurchased through put option assignment and open
market purchases in the same period of 1999 at a cost of $4.4 million.
The Company expects development costs for its Icon Unit at the Disneyland
Resorts in Anaheim, California to be approximately $21 million, of which a
portion had been incurred as of October 1, 2000. In addition, preopening costs
are estimated to be approximately $1 million.
Restricted cash on the balance sheet of $2.6 million as of October 1, 2000,
represents cash pledged as collateral on outstanding letters of credits related
to retail inventory purchases. The pledging of cash is part of the new reduced
$3.0 million financing agreement with its Bank, which became effective during
the current quarter. The prior year's credit agreement was $6.0 million and did
not require pledging of cash for outstanding loan balances or letters of credit.
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The Company contemplates that the development and opening of the Icon Unit at
the Disneyland Resort in Anahiem, California will be financed with existing cash
on hand and cash flow from operations. The Company may require additional
equity or debt financing, if available, for expansion beyond 2000, if the merger
with Landry's is not consumated.
Future minimum rental payments (including the Disneyland Resort Unit which is
not yet open and excluding all landlord common area maintenance and percentage
rent) are as follows for the calendar year 2001 and thereafter (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2001 $ 18,211
2002 19,208
2003 19,345
2004 19,284
Thereafter 72,930
--------
Total $148,978
========
</TABLE>
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. The Mall Units may also have higher fourth quarter revenues compared
to the first two quarters as a result of seasonal traffic increases at mall
locations including seasonally stronger retail sales. 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. Units in higher cost labor markets may
experience lower operating margins than Units located in lower cost labor
markets. The Company is opening its fourth Unit in California and with
increases in the minimum wage rates for that state and with a larger presence
there, overall labor costs are expected to increase. 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.
FORWARD-LOOKING DISCLOSURE
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this 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,
Merger with Purchaser, unit closures 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
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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.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
The Company is a defendant from time to time in routine lawsuits incidental to
its business, which individually and in the aggregate, are not expected to have
any material adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
10.1 First Amended and Restated Credit Agreement ("Credit Agreement"),
dated as of June 28, 2000, by and among Landry's, Bank of America,
N.A. as Administrative Agent, and the other financial institutions
thereto, Banc of America Securities LLC, as Sole Lead Arranger and
Sole Book Manager, The Bank of Nova Scotia, as Syndication Agent,
Fleet National Bank, as Documentation Agent, and Guaranty Federal
Bank, F.S.B., as co-Agent (incorporated herein by reference to
Exhibit 10.1 to Current Report on Form 8-K of Landry's Seafood
Restaurants, Inc., filed with the SEC on July 13, 2000)
10.2 Term Sheet relating to the Credit Agreement (incorporated herein by
reference to Exhibit (b)(2) to the Tender Offer Statement on Schedule
TO filed by Landry's Seafood Restaurants, Inc. and LSR Acquisition
Corp. with the SEC on September 29, 2000)
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 October 1, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAINFOREST CAFE, INC.
Date: November 13, 2000 /s/ Robert V. Hahn
---------------------------------
Robert V. Hahn
Chief Financial Officer
(Principal Financial Officer)
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