<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 APRIL 2, 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 per share outstanding as of
May 15, 2000: 22,647,373
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RAINFOREST CAFE, INC.
INDEX
PART I. FINANCIAL INFORMATION Page number
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
April 2, 2000 and January 2, 2000.........................2
Consolidated Statements of Operations for the thirteen
weeks ended April 2, 2000 and thirteen weeks
ended April 4, 1999.......................................3
Consolidated Statements of Cash Flows for the thirteen
weeks ended April 2, 2000 and thirteen weeks
ended April 4, 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........................................13
Item 6. Exhibits and Reports on Form 8K..........................14
Signature Page...................................................15
2
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RAINFOREST CAFE, INC.
Consolidated Balance Sheets
(UNAUDITED)
<TABLE>
<CAPTION>
April 2, January 2,
(In Thousands) 2000 2000
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,647 $ 11,480
Marketable securities available-for-sale 22,244 23,957
Deferred income taxes 10,198 10,198
Inventories 8,996 9,043
Accounts receivable and other 7,905 8,027
Prepaid expenses 3,703 2,986
Note receivable from related party 1,756 1,721
--------- ---------
Total current assets 56,449 67,412
Property, Equipment and Leasehold Improvements, net 192,671 186,042
Other Assets 7,828 8,262
--------- ---------
Total Assets $ 256,948 $ 261,716
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,574 $ 4,397
Accrued liabilities-
Payroll and payroll taxes 4,068 2,492
Other 9,079 7,282
--------- ---------
Total current liabilities 14,721 14,171
Deferred Occupancy Costs 27,478 27,434
Deferred Income Tax 9,385 9,385
--------- ---------
Total liabilities 51,584 50,990
Minority Interest 869 1,168
Put Options 3,191 7,166
Commitments and Contingencies
Shareholders' Equity:
Common stock, no par value, 50,000 shares authorized;
22,722 and 24,549 issued and outstanding 172,190 171,321
Retained earnings 31,562 33,137
Cumulative other comprehensive loss (2,448) (2,066)
--------- ---------
Total shareholders' equity 201,304 202,392
--------- ---------
Total Liabilities and Shareholders' Equity $ 256,948 $ 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 Weeks Thirteen Weeks
Ended Ended
(In Thousands, Except Per Share Data) April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Revenues:
Restaurant sales $ 50,231 $ 46,076
Retail sales 10,480 12,766
Licensing fees and royalties 458 919
-------- --------
Total revenues 61,169 59,761
-------- --------
Costs and Expenses:
Food and beverage costs 11,869 10,649
Cost of retail goods sold 5,038 6,356
Restaurant operating expenses 31,571 26,420
Retail operating expenses 4,182 4,011
Depreciation and amortization 5,436 4,337
Preopening costs 904 940
-------- --------
Total costs and expenses 59,000 52,713
-------- --------
Income from Unit Operations and Licensing 2,169 7,048
-------- --------
Other (Income) Expenses:
General, administrative and development expenses 4,008 3,637
Interest income (602) (861)
Transaction costs 985 --
Equity in (earnings) loss of unconsolidated affiliates 202 163
-------- --------
Total other (income) expenses 4,593 2,939
-------- --------
Income before Income Taxes (2,424) 4,109
Provision for Income Taxes (849) 1,397
-------- --------
Net income (loss) $ (1,575) $ 2,712
======== ========
BASIC EARNINGS PER COMMON SHARE:
Basic earnings per common share $ (0.07) $ 0.11
======== ========
Basic Weighted Average Shares Outstanding 23,272 24,584
======== ========
DILUTED EARNINGS PER COMMON SHARE:
Diluted earnings per common share $ (0.07) $ 0.11
======== ========
Diluted Weighted Average Shares Outstanding 23,723 24,918
======== ========
</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 Weeks Thirteen Weeks
Ended Ended
April 2, April 4,
(In Thousands) 2000 1999
-------------- ---------------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (1,575) $ 2,712
Adjustments to reconcile net income to net cash
flows from operating activities-
Depreciation of property, equipment and leasehold improvements 5,801 5,116
Amortization of deferred occupancy costs and other 620 (463)
Transaction costs 985 --
Equity in (earnings) loss of unconsolidated affiliates 202 163
Change in operating assets and liabilities-
Accounts receivable (971) (2,055)
Inventories 47 131
Prepaid expenses and other (717) (1,001)
Accounts payable (2,823) (221)
Accrued liabilities 2,388 2,127
-------- --------
Net cash provided by operating activities 3,957 6,509
-------- --------
Investing Activities:
Proceeds from sale and maturity of available-for-sale securities 11,198 9,308
Purchases of available-for-sale securities (9,873) (4,550)
Purchases of property, equipment and leasehold
improvements, net of landlord reimbursements (13,006) (10,771)
Other (67) --
-------- --------
Net cash (used in) investing activities (11,748) (6,013)
-------- --------
Financing Activities:
Proceeds from the sale of common stock and put options, net 165 797
Repurchase of common stock (3,265) (929)
Tenant allowances collected 1,058 2,048
-------- --------
Net cash provided by (used in) financing activities (2,042) 1,916
-------- --------
Increase (decrease) in Cash and Cash Equivalents (9,833) 2,412
Cash and Cash Equivalents, beginning of period 11,480 16,863
-------- --------
Cash and Cash Equivalents, end of period $ 1,647 $ 19,275
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Income taxes 1 12
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
RAINFOREST CAFE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 2, 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 10k for the fiscal year ended January 2, 2000. 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.
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) NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company is
not required to adopt SFAS until January 1, 2001, since SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," amended the effective date of SFAS
No. 133 to apply for all fiscal quarters of all fiscal years beginning after
June 15, 2000. As the Company does not currently engage or plan to engage in
derivative or hedging activities, there will be no impact to the Company's
results of operations, financial position or cash flows upon adoption of this
standard.
(3) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation and to improve comparability with other restaurant entities.
(4) RECENT DEVELOPMENTS
On February 9, 2000, Landry's Seafood Restaurants, Inc. ("Landry's") and the
Company announced that they had entered into an Agreement and Plan of Merger
(the "Merger Agreement"), by and among the Company, Landry's and LSR Acquisition
Corp., a wholly owned subsidiary of the Landry's ("Merger Sub").
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On April 26, 2000, the Company and Landry's announced that they would not
proceed with their proposed merger transaction and entered into a mutual
termination agreement.
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 May 15, 2000, the Company owned and
operated 29 Units in the United States and licensed eleven 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 revenue consists primarily of sales from its restaurant and retail
operations that are combined within each of the Company's Units. Comparable Unit
sales include the sales of Units open for the full period of each period being
compared. New Units enter the comparable sales base at the beginning of the
nineteenth month of operation. As of May 15, 2000 the Company has opened one
additional domestic Unit during the second quarter of 2000. One additional Unit
is planned to open at Fisherman's Wharf in San Francisco, California in the
second quarter of 2000. Because the Company anticipates continued expansion,
period to period comparisons may not be meaningful.
In addition to operations in the United States, the Company has pursued
international growth opportunities through licensing arrangements. The Company
has entered into ten exclusive license agreements to develop up to 29 Units, of
which eleven are currently open, over the next ten years in the United Kingdom
and Ireland, Mexico, Canada, France, and certain cities and countries in Asia
and South America.
These agreements have royalties ranging from 3% to 10% of Unit sales. All
agreements, with the exception of the agreement relating to the United Kingdom
and Ireland, have area licensing fees that are proportionate to market size and
economic potential. 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 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
beneficial ownership of 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 beneficial 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. 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. The Company believes four additional licensed
Units will be opened during 2000.
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. 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
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<PAGE> 8
labor schedules over the ensuing 30-60 day period will gradually adjust because
of operating efficiencies and will then be similar to those of established
Units. Each of the Company's current leases includes both fixed rent and
percentage rent provisions.
General, administrative and development expenses include all corporate and
administrative functions that serve to support existing operations and provide
an infrastructure to support future growth. In addition, certain expenses
related to the recruiting and training of Unit management personnel are also
included. 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.
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RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total revenues
(except where noted) were as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Revenues
Restaurant sales 82.1% 77.1%
Retail sales 17.1 21.4
Licensing fees .8 1.5
----- -----
Total revenues 100.0 100.0
===== =====
Costs and Expenses
Food and beverage costs (1) 23.6 23.1
Cost of retail goods sold (2) 48.1 49.8
Restaurant operating expenses (1) 62.9 57.3
Retail operating expenses (2) 39.9 31.4
Depreciation and amortization (3) 9.0 7.4
Preopening expenses (3) 1.5 1.6
----- -----
Total costs and expenses 96.5 88.2
----- -----
Income from Unit Operations and Licensing 3.5 11.8
----- -----
Other (Income) Expense:
General, administrative and development 6.6 6.1
Interest income (1.0) (1.4)
Transaction costs 1.6 -
Equity in (earnings) loss of unconsolidated affiliates .3 .2
----- -----
Total other expenses 7.5 4.9
----- -----
Income (Loss) before Income Taxes (4.0) 6.9
Provision for Income Taxes (1.4) 2.4
----- -----
Net Income (2.6)% 4.5%
===== =====
</TABLE>
(1) Percentage of restaurant sales
(2) Percentage of retail sales
(3) Percentage of restaurant and retail sales
Results of operations for the quarter ended April 2, 2000, reflect the
operations of twenty-four mall Units and four freestanding Units open during the
quarter. The Unit at West Farms Mall in Hartford, Connecticut was open for 55
days during the first quarter of 2000.
8
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THIRTEEN WEEKS ENDED APRIL 2, 2000 COMPARED TO THE THIRTEEN WEEKS ENDED APRIL 4,
1999.
REVENUES
Total revenues increased 2.4% to $61.2 million for the thirteen-week period
ended April 2, 2000 from $59.8 million for the thirteen weeks ended April 4,
1999. The increase in revenues is primarily due to the addition of five domestic
Rainforest Cafe Units, which contributed $7.8 million for the first quarter of
2000. The increase in revenues was offset by a decrease in sales of the
comparable store sales base consisting of eighteen Units open more than 18
months. These Units experienced a decrease in sales of $6.4 million, or 12.5%,
for the first quarter of 2000 compared to the first quarter of 1999. 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. 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.
Comparable store sales for the Company's Mall and Icon Units declined 22% and
5.8%, respectively, for the quarter ended April 2, 2000. Due to the continued
decline in Mall Unit comparable sales, the Company is no longer planning
expansion in shopping malls. All future expansion will be at tourist locations
and will be larger Icon Units such as those planned for Fisherman's Wharf in San
Francisco, California and the Disneyland Resorts in Anaheim, California. The
Company is currently reviewing all of its options at some of its
under-performing Mall Units.
Restaurant sales as a percentage of total revenue increased from 77.1% for the
first quarter of 1999 to 82.1% for the comparable period in 2000. The increase
in the percentage of restaurant sales in the first quarter of 2000 is primarily
due to the comparable retail sales for the quarter declining 25.0%, while
restaurant comparable first quarter sales declined 8.7%.
Retail sales decreased as a percentage of total revenues from 21.4% for the
first quarter in 1999 to 17.1% for the comparable period in 2000. The decrease
in the percentage of retail sales in the first quarter is primarily due to an
84% decrease in sales of Beanie Babies. Beanie Babies as a percentage of retail
sales was 5.0% for the first quarter of 2000 compared to 23.2% for the
comparable period in 1999. Comparable retail sales, excluding Beanie Babies, for
those Units open more than 18 months decreased 7.7% for the thirteen weeks ended
April 2, 2000 compared to the same period in 1999.
Licensing fees and royalties decreased $461,000, or 50%, for the thirteen weeks
ended April 2, 2000 compared to the comparable period in 1999. Licensing fees
and royalties decreased as a percentage of revenue to .8% for the thirteen weeks
ended April 2, 2000 compared to 1.5% for the same period in 1999. The decrease
was due to lower International Unit sales. In addition, certain royalty
arrangements were amended to lower the royalty amounts for four struggling
International Units so that these Units could re-invest in their operations to
improve efficiency. Also during the quarter, no Unit opening fees were
recognized compared to two Unit opening fees being recognized in the comparable
quarter of 1999. The royalties received from the International Unit located in
North York, Ontario, Canada are not included in licensing fees and royalties as
this Unit is 75% owned by the Company and as such the intercompany royalty
payment amount is eliminated upon consolidation.
COST OF FOOD, BEVERAGE AND RETAIL MERCHANDISE
Food and beverage costs increased 12% to $11.9 million for the first quarter of
2000 compared to $10.6 million for the comparable period of 1999. The increase
in food and beverage costs was primarily due to
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Unit expansion. Food and beverage costs increased as a percentage of restaurant
sales from 23.1% for the first quarter of 1999 to 23.6% for the first quarter of
2000. The increase was primarily due to increased sales promotions and discount
offers.
Cost of retail goods sold decreased 21% to $5.0 million for the first quarter of
2000 compared to $6.4 million for the first quarter of 1999. The decrease in
cost of retail goods sold was primarily due to a decrease in retail sales. Cost
of retail goods sold decreased as a percentage of retail sales from 49.8% in the
first quarter of 1999 to 48.1% for the comparable period in 2000. The decrease
in the first quarter is primarily due to improved margins in toys and apparel
and a reduction in permanent markdowns taken during the quarter.
UNIT OPERATING EXPENSES
Restaurant operating expenses increased 19% and retail operating expenses
increased 4% from the first quarter of 2000 to the comparable period in 1999.
The increase in restaurant and retail operating expenses is primarily due to
Unit expansion.
Restaurant operating expenses increased as a percentage of restaurant sales from
57.3% in the first quarter of 1999 to 62.9% in the first quarter of 2000. The
increase in restaurant operating expenses as a percentage of restaurant sales
are primarily due to diminishing utilization of fixed management salaries and
other fixed costs at Units which experienced sales declines over the comparable
period from the prior year. Expenditures on advertising and marketing increased
at most Units and contributed to the higher costs.
Retail operating expenses as a percentage of retail sales increased from 31.4%
in the first quarter of 1999 to 39.9% in the first quarter of 2000. The increase
in retail operating expenses in the first 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 increased 25% to $5.4 million in the first quarter
of 2000 compared to $4.3 million for the comparable period in 1999. The increase
in depreciation and amortization was primarily due to Unit expansion and capital
improvements in existing Units. Depreciation and amortization as a percentage of
restaurant and retail sales increased to 9.0% for the first quarter of 2000 from
7.4% for the same period in 1999. The increase in these expenses as a percentage
of sales is due to capital improvements in existing Units and decreased
comparable store sales in certain Units.
PREOPENING COSTS
Preopening expenses decreased 4% from $940,000 in the first quarter of 1999 to
$900,000 in the same period of 2000. Preopening expenses decreased as a
percentage of restaurant and retail sales from 1.6% for the first quarter of
1999 to 1.5% for the first quarter of 2000. The slight decrease in preopening
expenses as a percentage of sales for the first quarter is primarily due to one
Unit being opened during the first quarter of 2000 compared to two Units in the
same quarter of 1999.
GENERAL, ADMINISTRATIVE AND DEVELOPMENT EXPENSES
General, administrative and development expenses increased 10% to $4.0 million
for the first quarter 2000 compared to $3.6 million for the comparable period of
1999. The increase in general administrative and development expenses was due
primarily to increases in corporate employees and development of
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marketing and loyalty programs. General, administrative and development expenses
as a percentage of revenues increased to 6.6% in the first quarter of 2000 from
6.1% for the same period in 1999.
INTEREST INCOME
Interest income of $602,000 and $861,0000 for the first quarter of 2000 and
1999, respectively, was generated primarily by investing the proceeds from the
Company's two follow-on public offerings completed in January and September
1996. The decrease in interest income is primarily due to investing $38.6
million, net of landlord contributions, in property, equipment and leasehold
improvement purchases to develop new Units since the first quarter of 1999.
TRANSACTION COSTS
On February 9, 2000, the Company announced that it had an agreement to merge
with Landry's Seafood Restaurants, Inc. On April 26, 2000, the two parties
mutually agreed to terminate the merger agreement. Costs associated with the
proposed merger of $985,000 were charged to operations during the quarter ended
April 2, 2000.
INCOME TAXES
The provision for income taxes in the 2000 and 1999 periods are both based upon
the Company's estimated effective tax rate, including tax-exempt interest
income. The effective tax rate for the first quarter of 2000 was increased to
35% from 34% for the same quarter in 1999, reflecting the reduction of tax
exempt interest in relation to taxable operating income. The effective tax rate
reflects the large sales volume and presence in lower tax states such as Florida
and Nevada.
LIQUIDITY AND CAPITAL RESOURCES
The following table represents a summary of the Company's key liquidity
measurements for the thirteen weeks ended April 2, 2000 and April 4, 1999:
<TABLE>
<CAPTION>
(Dollar Amounts in Millions) Period Ended
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Cash and marketable securities on hand, end of period $ 23.9 $ 43.3
Net working capital, end of period $ 41.7 $ 48.6
Current ratio, end of period 3.8 to 1 3.9 to 1
Long-term debt, end of period $ -- $ --
Cash provided by operations $ 4.0 $ 6.5
Capital expenditure $ 13.0 $ 10.8
</TABLE>
The Company generated cash flow from operating activities of $4.0 million for
the first quarter of 2000 compared to $6.5 million for the comparable period in
1999. The Company believes that it will continue
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<PAGE> 13
to generate cash from operating activities and earn interest income, both of
which will be utilized for future development, share repurchase and working
capital purposes.
During the first thirteen weeks of 2000, the Company generated $0 from the sale
of put options compared to approximately $756,000 in 1999. At April 2, 2000, put
options, which may require the purchase of approximately 552,000 shares of the
Company's Common Stock, were outstanding at exercise prices ranging from $5.00
to $6.75 per share, with a weighted average exercise price of $5.78. 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 and January 1999, pursuant to which
up to 1.5 million shares, 3.0 million shares and 2.0 million shares,
respectively, of the Company's Common Stock may be repurchased.
In the first thirteen weeks of 2000, 550,000 shares of Common Stock were
repurchased through put option assignments and at a cost of $3.3 million
compared with 113,800 shares repurchased through put option assignments and open
market purchases in same period of 1999 at a cost of $929,400.
The average investment to open the Company's 24 Mall Units was $5.8 million per
Unit, net of landlord contributions, which averaged $1.7 million. Additionally,
the Company averaged approximately $760,000 in preopening expenses and purchased
an average of $240,000 of inventory in connection with the openings. Total
expenditures to develop the Company's four Icon Units averaged $12.3 million per
Unit, net of landlord concessions, which averaged $0.9 million. Preopening for
these Units averaged approximately $1.1 million and the initial inventory
purchased was approximately $400,000.
The Company expects the cost to construct the Unit at Opry Mills in Nashville,
Tennessee to be between $5 million and $6 million, net of anticipated landlord
contributions. In addition, it expects it will incur approximately $700,000 in
preopening costs and purchase approximately $200,000 of inventory. The Company
expects development costs for the two Icon Units at Fisherman's Wharf in San
Francisco, California and the Disneyland Resorts in Anaheim, California to be
approximately $12.5 million and $21 million, respectively. In addition,
preopening costs are estimated to be approximately $1.1 million and inventory
purchases to be approximately $350,000 for each of these Units.
The Company contemplates that the development and opening of each of its Units
through 2000 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 2000.
It is not anticipated that the Company's business will require substantial
working capital to meet its operating requirements. Virtually all of the
Company's revenues are collected in cash or pursuant to credit card processing.
Food and beverage inventories and merchandise inventories are expected to
increase in relation to trade accounts payable.
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
As a result of the substantial revenues associated with each new Unit, the
timing of new Unit openings may result in significant fluctuations in quarterly
results. The Mall Units may also have higher third or fourth quarter revenues
compared to the first two quarters as a result of seasonal traffic increases at
mall locations 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 such as
California, New York and Nevada may experience lower
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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.
FORWARD LOOKING DISCLOSURE
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this annual
report and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contain statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financial sources and the effects of competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to development and construction activities,
including delays in opening new Units, acceptance of the Rainforest Cafe
concept, the quality of the Company's restaurant and retail operations,
dependence on discretionary consumer spending, the Company's failure to defend
its intellectual property rights, dependence on existing management, general
economic conditions, changes in federal or state laws or regulations.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
SHAREHOLDER CLASS ACTION LITIGATION
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. In addition, the company is party to
the following:
EMANUEL MASSING V. LYLE BERMAN ET AL. LITIGATION
The Company and certain present and former executive officers of the Company are
named as defendants in a purported class action complaint, Emanuel Massing vs.
Lyle Berman, et al., alleging violations by the Company and such executive
officers of certain Federal securities laws. The complaint was filed on May 3,
1999 in the United State District Court for the District of Minnesota. This
action is a follow-up action to the previous shareholder action, In Re:
Rainforest Cafe, Inc. Securities Litigation, which was dismissed without
prejudice on December 21, 1998. The new complaint alleges that the defendants
violated the 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 consisting of all persons who purchased the
Company's Common Stock during the period between October 20, 1997 and January 6,
1998. On January 12, 2000, the United States Magistrate Judge issued a Report
and Recommendation in which he recommended to the presiding judge that the
action be dismissed with prejudice and that plaintiffs be ordered to pay
sanctions of $3,000 to the defendants. By order filed on February 29, 2000, the
presiding judge accepted the Report and Recommendation in its entirety and
ordered that the action be dismissed with prejudice.
13
<PAGE> 15
IN RE: RAINFOREST CAFE, INC. SHAREHOLDERS' LITIGATION
The Company and certain directors are named as defendants in a purported class
action lawsuit, In re: Rainforest Cafe, Inc. Shareholders' Litigation. This is a
consolidation of three lawsuits, Billie Mack v. Lyle Berman, et al., Robert Fink
v. Rainforest Cafe, Inc., et al., and Heartland Group, Inc. v. Rainforest Cafe,
Inc., et al. filed on December 23, 1999, January 13, 2000 and March 27, 2000,
respectively. The actions were filed in Hennepin County District Court of
Minnesota, alleging that defendants breached their fiduciary duty and engaged in
unfair dealing to the detriment of the holders of Rainforest Cafe common stock
in connection with a proposed merger of the Company with Landry's. The Company
has requested dismissal of the actions in light of the announcement that the
proposed merger with Landry's has been terminated, thereby making plaintiffs'
allegations moot.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
27.1 Financial Data Schedule
B. Reports on Form 8-K.
During the quarter ended April 2, 2000, the Company filed three
reports on Form 8-K.
- On January 25, 2000 the Company filed a report on Form 8-K
terminating the Merger Agreement with Lakes Gaming, Inc. The
report included, as exhibits, (i) the Mutual Termination
Agreement and (ii) the press release issued by Lakes Gaming,
Inc. and Rainforest Cafe, Inc. announcing the Mutual Termination
Agreement.
- On February 18, 2000 the Company filed a report on Form 8-K
disclosing the Merger Agreement with Landry's Seafood
Restaurants, Inc. The report included, as exhibits, (i) the
Agreement and Plan of Merger outlining the terms of the proposed
merger and (ii) the press release issued by Rainforest Cafe,
Inc. announcing the merger agreement.
- On March 31, 2000 the Company filed a report on Form 8-K
announcing it had received a complaint in a class action lawsuit
filed by Heartland Group, Inc. and announcing an expected first
quarter loss based on preliminary projections. The report
included, as exhibits, (i) the press release issued by
Rainforest Cafe announcing the complaint filed by Heartland
Group, Inc. and (ii) the press release issued by Rainforest
Cafe, Inc. announcing it expects to report a first quarter loss.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAINFOREST CAFE, INC.
Date: May 15, 2000 /s/ Lyle Berman
-----------------------------------------------------
Lyle Berman
President
Date: May 15, 2000 /s/ Robert V. Hahn
-----------------------------------------------------
Robert V. Hahn
Chief Financial Officer (Principal Financial Officer)
15
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