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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File No. 0-27366
RAINFOREST CAFE, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1779527
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
720 SOUTH FIFTH STREET
HOPKINS, MINNESOTA 55343
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(Address of principal executive offices) (Zip Code)
(612) 945-5400
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
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NO PAR VALUE
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of March 20, 1998, 25,499,687 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on such date, based upon the last sale price of
the Common Stock as reported on the Nasdaq National Market on March 20, 1998,
was $384,927,000. For purposes of this computation, affiliates of the Registrant
are deemed only to be the Registrant's executive officers and directors.
DOCUMENTS INCORPORATED BY REFERENCE
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PART II and IV - Portions of the Registrant's Annual Report to Shareholders for
the year ended December 28, 1997, are incorporated by reference into Items 5
through 8, inclusive.
PART III - Portions of the Registrant's definitive proxy statement in connection
with the annual meeting of the shareholders to be held on May 18, 1998, are
incorporated by reference into Items 10 through 13, inclusive.
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PART I
ITEM 1. BUSINESS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
actual results of Rainforest Cafe, Inc. (the "Company") could differ materially
from the Company's historical results of operations and those discussed in the
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those identified in "Certain
Factors."
The Company owns, operates and licenses large, high volume, themed
restaurant/retail facilities (a "Unit" or "Rainforest Cafe") under the name
"Rainforest Cafe -- A Wild Place to Shop and Eat." The Company's Units are
designed to provide a visually and audibly stimulating and entertaining rain
forest environment that appeals to a broad range of customers of all ages. Each
Rainforest Cafe consists of a Restaurant and a Retail Village. The Restaurant
provides an attractive value to customers by offering a full menu of high
quality food and beverage items, generous portions and excellent service in a
unique and exciting environment. The Retail Village features apparel, toys and
gifts with the Rainforest Cafe logo and other items reflecting the rain forest
theme.
THE RAINFOREST CAFE CONCEPT AND STRATEGY
The Company seeks to differentiate itself by providing high quality, freshly
prepared food and proprietary retail merchandise in a themed environment. The
key factors of the Company's market positioning and operating strategy are as
follows:
Distinctive Concept. The Company's rain forest theme is promoted by a
simulated unique rain forest environment throughout the Unit. Each Rainforest
Cafe features a visually and audibly exciting environment that usually includes
a variety of live tropical birds, exotic saltwater fish in large custom-designed
aquariums, animated robotic animals and sculpted banyan trees that create a
canopy of foliage. The dynamic rain forest atmosphere is further enhanced by
simulated thunder and lightning storms, tropical rain showers, waterfalls, mists
that emanate from extensive rock formations, and specially-developed aromatic
scents. This entertaining rain forest environment makes each Rainforest Cafe "A
Wild Place to Shop and Eat."
Broad-Based Appeal. Management believes that the Company's Rainforest Cafe
concept has broader appeal than other theme-based restaurant concepts because it
attracts customers of all ages. The Company's distinctive concept, combined with
high quality food and retail merchandise, make the Rainforest Cafe appealing to
children, teenagers, adults, and senior citizens.
High Profile Unit Locations. In order to take maximum advantage of the
Company's broad-based appeal, the Company believes that the placement of its
Units in high profile, heavy-traffic locations is critical to its success. By
being in such locations, the Company believes its Units appeal to both
destination customers as well as passers-by who are drawn to its visually and
audibly exciting environment. The Company believes that its format, as developed
at its existing Units, can be utilized in multiple high traffic locations with
favorable demographics such as shopping malls, entertainment centers and Disney
theme parks.
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High Quality Food. The Restaurant provides an attractive value to customers
by offering a moderately-priced, full menu of high quality food and beverage
items served in generous portions in a distinctive environment. The Restaurant
features a wide variety of beverages, appetizers, pastas, sandwiches, salads,
pizzas, burgers and full-platter entrees, presented in a visually appealing
manner. Menu items are prepared on-site using high quality ingredients. Lunch
and dinner entrees range in price from $7.99 to $18.99 and the average guest
check was approximately $13.00 for the fiscal year ended December 28, 1997.
Management believes that its high quality food contributes to a significant
level of repeat business.
Commitment to Retail and Building Brand Awareness. In order to enter the
Restaurant, all customers must pass through the Unit's Retail Village. The
Retail Village offers over 3,000 SKUs and includes apparel, toys and gifts with
the Rainforest Cafe logo and other items suggesting the rain forest theme. The
Company has also developed eight proprietary Animal Characters, each with a
distinct personality, as an additional method of merchandising its retail
products. The Company utilizes several of its Animal Characters for clothing,
toys and gifts. By offering items featuring the Rainforest Cafe logo and Animal
Characters, the Company believes it is continuing to build "brand equity" in the
Rainforest Cafe name that will allow it to attract more customers and to enhance
its competitive retail position. The Retail Village is also intended to be
educational, with displays of live exotic tropical birds and fish and an
animated talking tree that delivers environmental messages.
Focus on Customer Satisfaction. The Company is committed to staffing each
Unit with an experienced management team and providing its customers with
prompt, friendly and efficient service. A customer's experience is also enhanced
by the attitude and attention of Unit personnel, including "tour guides"
(greeters), "safari guides" (food servers), "navigators" (bartenders),
"pathfinders" (retail staff) and tropical bird curators. The Company recognizes
that, in order to maintain a high level of repeat customers and to attract new
business through word of mouth, it must provide superior customer service.
Commitment to Attracting and Retaining Quality Employees. By providing
extensive training and attractive compensation, the Company fosters a strong
corporate culture and encourages a sense of personal commitment from its
employees. The Company believes its compensation structure and positive
corporate culture enable it to attract and retain quality employees. The Company
believes that Unit management is important for the profitability of each
Rainforest Cafe and accordingly, places particular emphasis on recruiting
Unit-level Directors of Operations that have significant restaurant and
management experience. The Company anticipates that, prior to opening a Unit, a
Director of Operations will have been trained at one or more Rainforest Cafes
for four to six months. All full-time corporate employees and certain members of
Unit management are eligible to participate in the Company's 1995 Stock Option
Plan and all full-time employees are eligible to participate in the Company's
1997 Employee Stock Purchase Plan. All full-time employees who are not officers
or directors of the Company are eligible to participate in the Company's 1998
Stock Option Plan.
RAINFOREST CAFE FEATURES
To create a simulated rain forest environment, Rainforest Cafes generally
include:
Live Exotic Birds -- Most Rainforest Cafes display live exotic birds
such as macaws and
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cockatoos in the Retail Village. The Company has curators specifically devoted
to caring for the birds and fish and for answering guest questions. When the
exotic birds are not on display they are kept and maintained in a specially
designed "habitat room."
Aquariums -- Rainforest Cafes have large aquarium systems, including
walk-through aquariums that contain many varieties of saltwater fish from
locales such as Africa and South America. Aquariums range in size from 750 to
10,000 gallons and are placed throughout each Unit to maximize visibility to
customers.
Tropical Rainstorms and Waterfalls -- Simulated lightning and thunderstorms
"sweep" through each Rainforest Cafe every 20 to 30 minutes. Rainforest Cafes
also utilize a mist system emanating from rock formations throughout the Unit
and rain showers around the perimeter of the Restaurant and Mushroom Bar area.
Other Rainforest Cafe features include cascading waterfalls, fountains and a
ventilation system emitting a light floral aroma.
Trees, Foliage and Animated Animals -- The ceiling level of the Restaurant
and Retail Village of a Rainforest Cafe are intertwined with a "forest" of
sculpted life-like banyan trees that creates a canopy of foliage over diners and
shoppers. Each banyan tree is sculpted for a realistic presentation of its
overgrown root system. The Restaurant and Retail Village contains several rock
formations, abundant foliage and jungle-like scenes. Interspersed throughout the
facility are robotic animals such as life-size crocodiles, elephants, gorillas,
dolphins, snakes, butterflies and frogs.
Educational Commitment -- The Company makes each Rainforest Cafe an
environmentally educational experience. The Rainforest Cafe's talking banyan
tree "Tracy" delivers environmental messages to help educate and entertain
children. Each Rainforest Cafe has an on-site curator who educates customers,
including school groups, on the tropical birds and the rain forest. The curator
also makes numerous presentations at schools and community organizations.
UNIT ECONOMICS
The Company identifies its current and planned domestic Rainforest Cafes as
either "Mall" or "Icon" Units. The Mall Unit format generally ranges in size
from approximately 15,000 to 23,000 square feet and has between 300 and 450
restaurant seats. Mall Units are located primarily in high traffic shopping
malls such as Mall of America in Minneapolis Minnesota, South Coast Plaza in
Orange County, California and Tysons Corner Center I in McLean, Virginia, a
suburb of Washington D.C. The larger Icon Units are generally in excess of
20,000 square feet and have 400 to 600 restaurant seats (although some may be
slightly smaller). Icon Units are generally located in high traffic tourist
areas such as Downtown Disney Marketplace, the MGM Grand Hotel and Casino in Las
Vegas, Nevada and downtown Chicago. The Company's fourth Icon Unit opened at
Disney's Animal Kingdom theme park in March, 1998.
The Company's six Units that were open the entire fiscal year ended December
28, 1997, generated average revenues of $13.1 million during 1997. The Company's
ten Mall Units open at the end of 1997, were developed at an average cost of
$6.2 million, net of landlord contributions. Additionally, the Company incurred
average pre-opening costs of approximately $650,000 and purchased an average of
$300,000 of inventory in connection with each opening.
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Management anticipates that the majority of its future domestic Units will be
Mall Units and that average development cost, pre-opening cost and inventory
costs will be similar to these historical averages. The Company currently has
four Icon Units, and only one of these was open the entire fiscal year ended
December 28, 1997. The Company expects development costs for additional Icon
Units to range from $10 million to $15 million, net of landlord contributions.
In addition, the Company anticipates pre-opening costs for each Icon Unit of
$1.0 million to $1.5 million and expects to purchase approximately $500,000 of
inventory in connection with each opening.
Management believes that the Company's demonstrated ability to generate high
sales volumes and customer traffic at its existing Units enables it to obtain
attractive sites and negotiate favorable lease terms, including landlord
contributions.
CURRENT UNIT LOCATIONS
The following table sets forth certain information about the Company's
existing Units and international Units developed by licensees of the Company:
<TABLE>
<CAPTION>
APPROXIMATE RESTAURANT
UNIT LOCATION SQUARE FOOTAGE SEATS DATE OPENED
------------------------------ ------------------------ -------------- ---------- -------------
<S> <C> <C> <C> <C>
Domestic
Mall of America............... Bloomington, MN 14,900 295 October 1994
Woodfield Mall................ Schaumburg, IL 23,000 425 October 1995
Gurnee Mills.................. Gurnee, IL 20,000 300 June 1996
Downtown Disney Marketplace(1) Orlando, FL 30,000 550 July 1996
Tysons Corner Center I........ McLean, VA 19,500 350 October 1996
Sawgrass Mills................ Ft. Lauderdale, FL 20,000 350 November 1996
South Coast Plaza............. Costa Mesa, CA 17,000 300 June 1997
The Source.................... Westbury, Long Island, NY 22,000 375 September 1997
Downtown Chicago(1)........... Chicago, IL 23,000 375 October 1997
Grapevine Mills............... Dallas, TX 20,000 350 October 1997
Arizona Mills................. Phoenix, AZ 20,000 350 November 1997
Aventura Mall................. Miami, FL 21,500 350 December 1997
MGM Grand Hotel & Casino(1)... Las Vegas, NV 20,000 400 December 1997
Palisades Center.............. West Nyack, NY 22,500 375 March 1998
Disney's Animal Kingdom(1).... Orlando, FL 34,000 550 March 1998
International
London........................ London, England 18,000 300 June 1997
Cancun........................ Cancun, Mexico 16,000 220 August 1997
Mexico City................... Mexico City, Mexico 16,000 225 October 1997
</TABLE>
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(1) Designates Icon Units.
EXPANSION PLANS AND SITE SELECTION
The following table sets forth certain information about the Company's
planned Units, all of which are subject to existing leases except where
otherwise indicated:
<TABLE>
<CAPTION>
APPROXIMATE RESTAURANT DATE PLANNED TO BE
UNIT LOCATION SQUARE FOOTAGE SEATS OPENED
----------------------------- --------------------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
Domestic
Ontario Mills............... Ontario, CA 20,000 350 Third Quarter 1998
Cherry Creek Mall........... Denver, CO 23,000 375 Third Quarter 1998
Menlo Park Mall(2).......... Edison, NJ 20,000 350 Third Quarter 1998
Great Lakes Crossing........ Detroit, MI 20,400 325 Fourth Quarter 1998
Franklin Mills (2).......... Philadelphia, PA 13,000 300 Fourth Quarter 1998
Burlington Mall (2)......... Burlington, MA 17,500 325 Fourth Quarter 1998
Oak Park Mall............... Oak Park, KS 14,000 300 Fourth Quarter 1998
International
Eaton Center................ Vancouver, Canada 18,000 325 Second Quarter 1998
Manchester.................. Manchester, England 17,000 350 Third Quarter 1998
Mundo E..................... Mexico City, Mexico 14,000 250 Fourth Quarter 1998
Festival Walk............... Hong Kong 17,000 350 Fourth Quarter 1998
Toronto(2).................. Toronto, Canada 17,500 325 Fourth Quarter 1998
</TABLE>
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(1) Designates Icon Units.
(2) The Company has executed letters of intent or is negotiating leases with
respect to these Units.
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The Company's domestic site selection strategy is to locate its Units in
high profile, heavy traffic locations. A variety of factors are analyzed in the
site selection process, including local market demographics, site visibility,
business seasonality, construction costs and projected Unit economics. By
operating in high profile, heavy traffic locations, the Company believes its
Units appeal to both destination customers as well as passers-by who are drawn
to its visually and audibly exciting environment. The Company believes that its
format, as developed at its existing Units, can be utilized in a number of high
traffic venues with favorable demographics such as shopping malls, entertainment
centers and Disney theme parks.
While most of the future Rainforest Cafes will be located in shopping malls
or entertainment centers, the Downtown Disney Marketplace Unit is a stand-alone
facility located in Walt Disney World near Orlando, Florida. Customers are able
to enter the Downtown Disney Marketplace Unit without having to enter Disney's
adjacent theme parks. The Rainforest Cafe at Disney's Animal Kingdom in Walt
Disney World is also a stand-alone facility. The 34,000 square foot, 550 seat
Unit will be the only sit-down restaurant at Disney's Animal Kingdom. Because
the Rainforest Cafe is at the entrance to Disney's Animal Kingdom, patrons pass
by the Rainforest Cafe upon entering and leaving the park.
The Company's Disney leases provide, among other things, that the Company
will not own, operate, develop or manage a restaurant: (i) within a 75 mile
radius of Downtown Disney Marketplace or Disney's Animal Kingdom or (ii) in a
theme park located anywhere in the world that is not affiliated with Disney or
its affiliates. The Company also agreed that it would not open a Unit within 50
miles of current or future theme parks owned by Disney without giving Disney the
right of first refusal with regard to such proposed Unit. Disney waived its
radius restriction with respect to the Company's South Coast Plaza and Ontario
Mills Units. The Company is continuing discussions with Disney regarding opening
Rainforest Cafes at other locations; however, no assurance can be given that
other Disney sites will be developed. Additionally, the Company has granted MGM
Grand the right of first refusal, with certain exceptions, with respect to the
development of a Unit in any hotel/casino operation.
INTERNATIONAL LICENSE AND JOINT VENTURE AGREEMENTS
The Company has entered into five separate exclusive license arrangements
relating to the development of Rainforest Cafes in the United Kingdom and
Ireland, Mexico, Canada and certain countries and cities in Asia. These
Agreements have per Unit development fees of at least $100,000 and 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
exceeding $500,000. For the fiscal year ended December 28, 1997, approximately
6% of the Company's total revenues were derived from international licensing
fees and royalties.
United Kingdom and Ireland. In August 1996, the Company entered into a
License and Area Development Agreement with Glendola Leisure Ltd. ("Glendola"),
an affiliate of the Foundation Group, a London-based hotel and restaurant
developer and operator, pursuant to which Glendola will develop five Units over
a ten year period in the United Kingdom and Ireland. Pursuant to this agreement,
the Company will have the option to purchase, prior to the opening of the Unit,
between 20% and 50% of the equity interest in any Unit developed by Glendola.
The Company has purchased a 20% ownership interest in the London Unit for
approximately $400,000 and has agreed to purchase a 49% ownership in the
Manchester Unit which is scheduled to open in the
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third quarter of 1998.
Mexico. In October 1996, the Company entered into a License and Area
Development Agreement with a subsidiary of Empresas de Comunicacion y
Entretenimiento ("ECE"), a Mexican-based restaurant owner and operator, pursuant
to which ECE will develop seven Units over a ten-year period in Mexico. Pursuant
to this agreement, ECE has developed Units in Cancun and in Mexico City, which
opened in August and October 1997, respectively. ECE intends to open an
additional Unit in Mexico City during the fourth quarter of 1998.
Canada. In March 1997, the Company entered a joint venture and exclusive
license agreement with the Elephant and Castle Group ("E & C"), a Vancouver
based owner and operator of Elephant and Castle pubs and restaurants. E & C and
the Company agreed to develop five Rainforest Cafes in Canada over a four-year
period. Under the terms of this agreement, the Company is also entitled to
receive a warrant to purchase 600,000 shares of E & C stock at $8.00 per share
exercisable for a period of five years. In addition, the Company and E & C have
a 50% equity interest in the joint venture Canadian Rainforest Restaurants, Inc.
("CRRI"). The Company will have the option to purchase E & C's interest in CRRI
after seven years based on a predetermined formula of cash flow and investment.
CRRI intends to open its first Canadian Unit near Vancouver during the second
quarter of 1998 and its second Canadian Unit in Toronto during the fourth
quarter of 1998.
Southeast Asia. In August 1997, the Company entered into a Master License
Agreement with Movie Dream Corporation ("MDC"), a subsidiary of Far East
Holdings International Limited, a Singapore-based holding company. Under the
terms of the agreement, MDC will develop a minimum of five Units over ten years.
Countries covered by this agreement include Singapore, Malaysia, Indonesia,
Thailand, the Philippines, Vietnam, Cambodia, Brunei and Burma. MDC has the
right to establish sub-franchisees within the territory, subject to certain
terms and conditions, which include a right of the Company to approve all
investors and all other rights in the license agreement. Pursuant to this
agreement, the Company will have the option to purchase, prior to the opening of
the Unit, up to 20% of the equity interest in any Unit developed by MDC. This
license agreement also grants MDC an option for the development rights to India,
subject to meeting future performance criteria.
Hong Kong. In March 1998, the Company entered into a Master Franchise
Agreement with Jungle Investment Limited ("JIL"), a Hong Kong based entity, to
develop a minimum of two units in a territory including Hong Kong, Macau,
Taiwan, and Shanghai. JIL has the right to establish sub-franchises within the
territory, subject to certain terms and conditions, such as the Company's right
to approve all shareholders of the sub-franchisee. Under the terms of this
agreement, JIL will develop a minimum of two restaurants over the next 27
months, if no restaurant is opened in Shanghai. If a restaurant is opened in
Shanghai, the minimum will be three restaurants over the next three years.
Pursuant to the agreement, the Company has a right to purchase, prior to the
opening of each Unit, up to 20% of the equity interest in any unit developed, as
well as 20% of JIL. The Company has agreed to purchase 20% ownership, for
approximately $1.8 million, in both JIL and the first Unit which is scheduled to
open in Hong Kong in the fourth quarter of 1998.
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RESTAURANT
For the fiscal year ended December 28, 1997, approximately 77.4% of the
Company's total revenues were derived from Restaurant sales. The Company
believes that Rainforest Cafes enjoy a high level of repeat business and
customer diversity because of the Company's commitment to providing high quality
food and customer service in an exciting and entertaining environment. Features
of the Restaurant are as follows:
Menu. The Company considers its extensive menu selection to be an
important factor in the appeal of its Restaurant and, accordingly,
continuous attention is devoted to the development of new menu items. The
Restaurant features casual cuisine that caters to broad customer
preferences. The menu presently offers several types of appetizers such as
"Jungle Chowder," "Rainforest Pita Quesadillas" and "Caribbean Chicken
Tenders." The menu also offers different types of pastas, sandwiches,
salads, pizzas, burgers and full-platter entrees, such as "Rasta Pasta" (bow
tie pasta tossed in a garlic cream sauce with grilled chicken, broccoli and
pesto), "The Old Man and the Sea" (swordfish sauteed in cajun spices topped
with corn and shrimp salsa), and "Rumble in the Jungle" (grilled pita bread
stuffed with roasted turkey and Caesar salad). A children's menu and
complete dessert selection are also available. Portions are generous and
significant attention is placed on presentation and the quality of
preparation. Lunch and dinner entrees range in price from $7.99 to $18.99.
The Restaurant's full-service bar, the "Mushroom Bar," features a number of
customized alcoholic and non-alcoholic drinks, such as the "Don't Panic It's
Organic" (carrot juice), the "Margarilla" (a margarita blended with orange
sherbet) and the "Spotted Chocolate Monkey" (fresh banana-chocolate syrup,
vanilla ice cream and banana liqueur). Alcoholic beverages are primarily
served to complement meals and accounted for approximately 10% of total
restaurant sales for the fiscal year ended December 28, 1997. The average
check per person for such period was approximately $13.00. Because the
Unit's menu is not tied to any particular type of food or beverage, the
Company can introduce and eliminate items based on local or current consumer
trends without altering its rain forest theme.
Decor. Restaurant decor is divided into distinctive dining environments
developed around the rain forest and other nature themes. Current themes
include the rainforest Atlas and waterfall, gorillas, elephants, tropical
fish and star gazing. Table decor complements the rain forest theme through
the use of brilliantly-colored tablecloths and upholstery with patterns of
animals, wildlife and plant life. In an effort to enhance the dining
experience, attempts are made to maximize restaurant seating near aquariums,
waterfalls, sculpted rock formations or one of the Restaurant's several
banyan trees. An integral part of the Restaurant is the "Mushroom Bar," the
"stem" of which consists of the bar with a "cap" extending over the
customers. Seating at the bar is provided by customized stools designed to
resemble the legs of wild animals.
Staffing. An important part of the Company's mission is to ensure that
during each visit to a Rainforest Cafe, customers receive excellent service.
To extend the adventure theme, Restaurant customers are greeted at the
entrance by "tour guides", food servers are known as "safari guides" and the
bartenders are known as "navigators." The "tour guides" at the front desk
are trained to communicate, via headsets, with the floor management staff
who greet Restaurant customers and seat them at their tables. The Company
believes that a customer's experience is enhanced by the attitude and
attention of its personnel. Customer service is
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based on a team approach so that each customer is continually attended to,
and employees go through extensive ongoing training to ensure consistent
service. The Company endeavors to hire experienced chefs and invests
substantial time training kitchen employees to maintain consistent food
preparation.
RETAIL VILLAGE
For the fiscal year ended December 28, 1997, approximately 22.0% of the
Company's total revenues were derived from retail sales. In order to enter the
Restaurant, all customers must pass through the Unit's Retail Village. The
Retail Village offers over 3,000 SKUs and includes apparel and gifts with the
Rainforest Cafe logo and other items with a rain forest theme such as toys and
educational games. The Company has also developed eight proprietary Animal
Characters, each with a distinct personality, including Cha! Cha!, an
adventuresome tree frog; Ozzie, a rascally orangutan; Rio, a colorful, tropical
macaw; Tuki Makeeta, an imaginative baby elephant; Nile, a proud crocodile;
Maya, a regal feline; Bamba, a gentle gorilla; and Iggy, a philosophical iguana.
These Animal Characters are designed to appeal to a broad range of customers,
thereby increasing retail sales and repeat business. The Company intends to
utilize several Animal Character for clothing and gifts. Custom designed
t-shirts and sweatshirts with colorful animals spelling out the "Rainforest
Cafe" logo and Animal Characters are signature items. By offering items
featuring the Rainforest Cafe logo and Animal Characters, the Company believes
it is continuing to develop "brand equity" in the Rainforest Cafe name that will
allow it to attract more customers and to enhance its competitive retail
position.
The Retail Village also includes a large selection of colorful rocks, plush
and animated toys and puppets, and educational and entertaining games and
puzzles. Gift items and other artifacts suggesting the rain forest theme,
including colorful animal figurines and prints, kitchen magnets, serving plates
and other tableware, handmade wood products and other unique rain forest related
home accessories, are also available. The Company varies its merchandise mix by
season and location and has developed specific retail profiles for mall Units,
discount center Units, and tourist Units
OPERATIONS, MANAGEMENT AND EMPLOYEES
The Company's ability to manage complex operations, including high volume
Restaurants and Retail Villages, has been, and will continue to be, central to
its overall success. The Company believes that its management must include
skilled personnel at all levels, including senior corporate management, Unit
Directors of Operations and other Unit employees. The Company's senior corporate
management, including the Company's Chairman and Chief Executive Officer, Lyle
Berman, has significant restaurant and retail experience. Gregory C. Carey, the
Company's Chief Operating Officer and Tim Gavigan, the Company's Vice President
of Operations each have over 20 years of restaurant experience. The Company's
three Regional Directors of Operations, each of whom have extensive experience
in the restaurant industry, supervise the opening of new Units, monitor quality
control and customer service, and are responsible for the financial performance
of the Units within their respective regions. The Company believes that Unit
management is important for the profitability of each Rainforest Cafe and
accordingly, places particular emphasis on recruiting Directors of Operations
that have significant restaurant and management experience. The Company
anticipates that, prior to opening a Unit, a Director of Operations and
executive chef will have been trained at one or more Rainforest Cafes for
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approximately six months and three months, respectively. All salaried Unit
employees attend one week of culturalization training.
The Company strives to maintain quality and consistency in each of its Units
through the careful training and supervision of personnel and the establishment
of, and adherence to, high standards relating to personnel performance, food and
beverage preparation, and maintenance of facilities. All managers must complete
an eight-week training program during which they are instructed in areas such as
food quality and preparation, customer service, and employee relations. New
staff members participate in approximately three weeks of training under the
close supervision of Company management. The Company has also prepared
operations manuals relating to food and beverage quality and service standards.
Management strives to instill enthusiasm and dedication in its employees,
regularly solicits employee suggestions concerning Company operations and
endeavors to be responsive to employees' concerns. In addition, the Company has
extensive and varied programs designed to recognize and reward employees for
superior performance. The Company believes that it has been able to attract high
quality, experienced restaurant and retail management and personnel with its
competitive compensation and bonus programs.
In general, each Unit has between 250 and 500 employees, although staffing
levels vary according to the size of the Unit. As of March 20, 1998, the Company
had approximately 5,000 employees, including 93 employees at its corporate
headquarters. The Company believes that its relationship with its employees is
good.
PURCHASING
The Company strives to obtain consistent quality items at competitive prices
from reliable sources. In order to maximize operating efficiencies and to
provide the freshest ingredients for its food products while obtaining the
lowest possible prices for the required quality, each Restaurant's management
team includes a purchasing manager who determines the daily quantities of food
items needed and orders such quantities from major suppliers at prices often
negotiated directly by the Company's corporate office. Food and supplies are
shipped directly to the Units. The Company purchases perishable food products
locally. The Company does not maintain a central food product warehouse or
commissary. With respect to retail products, the Company maintains over 3,000
SKUs, which it purchases from several suppliers. The Company maintains a
centralized warehouse for retail product distribution. The Company has not
experienced any significant delays in receiving restaurant or retail supplies
and equipment. The Company is not dependent on any one supplier for any of its
restaurant or retail goods. The Company is committed to private label
manufacturing, which it believes will improve the Company's retail margins due
to the lower cost of private label products. The Company has formed a joint
venture with a California company to purchase wholesale clothing items,
principally from foreign suppliers. Purchases by the Company from such joint
venture aggregated $2.3 million for the fiscal year ended December 28, 1997.
MANAGEMENT INFORMATION SYSTEMS/ACCOUNTING
The Company uses integrated management information systems that are designed
to accommodate significant expansion in the number of Units. These systems
include a computerized restaurant point-of-sale system which facilitates the
movement of customer food
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<PAGE> 11
and beverage orders between the customer areas and kitchen operations, controls
cash, handles credit card authorizations, keeps track of revenues on a per
employee basis and provides management with revenue and inventory data. The
point-of-sale system is accessed by service personnel who are assigned
individual identification keys, guest orders are printed in the kitchen and bar
areas which eliminates the need to read handwritten tickets. The Company's
retail point of sale, merchandising and distribution system allows management to
track retail inventory daily. The point-of-sale system electronically transfers
data nightly to Company headquarters. The Company also uses a computerized time
management system, which determines the time worked by each employee, allows
management to gather data and schedule work hours, and produces payroll reports.
Each Unit also uses computerized systems to control and gather data with respect
to food, beverage, retail and supplies inventories.
The Company's automated Unit-level systems provide data for posting directly
to the Company's general ledger and to other accounting subsystems. The
automated general ledger system provides various management reports comparing
current and prior operating results as well as measuring performance against
predetermined operating budgets. The results are reported to and reviewed with
Company management. Such reporting includes (i) weekly reports of revenues, cost
of revenues and selected controllable Unit expenses, (ii) detailed monthly Unit
performance reports of revenues and expenses and (iii) monthly reports of Unit-
by-Unit and administrative and occupancy expense performance.
MARKETING AND PROMOTION
To date, the Company has primarily relied upon "word of mouth" advertising
to attract customers to its Rainforest Cafes. The Company also utilizes outdoor
billboards, distinctive exterior signage and limited print advertising. The
unique and dynamic environment of the Rainforest Cafe and its tropical bird
habitat have resulted in a significant amount of unsolicited positive media
publicity. Additionally, the Company has attempted to create equity in its
"Rainforest Cafe" name by offering items featuring the Rainforest Cafe logo and
Animal Characters. At certain Units, the Company employs a Group Sales Manager
who is responsible for promoting and arranging corporate and other group
catering events at the Unit.
COMPETITION
The restaurant and specialty retail businesses are highly competitive. In
the restaurant industry, competition is based primarily upon price, service,
food quality and location. There are numerous well-established competitors,
including national, regional and local restaurant chains, possessing
substantially greater financial, marketing, personnel and other resources than
the Company. The Company also competes on a general basis with a large variety
of national and regional restaurant operations, as well as with locally owned
restaurants, diners, and other establishments that offer moderately priced food.
The Company competes with other theme restaurants in the highly competitive and
developing theme restaurant market. Other restaurants and companies utilize the
rain forest or related themes. Additionally, the Company competes with a number
of well-established specialty retailers possessing substantially greater
financial, marketing, personnel and other resources than the Company. In the
retail industry, competition is based primarily upon merchandise selection,
price and customer service. There can be no assurance that the Company will be
able to respond to various competitive factors affecting the restaurant and
retail industries.
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The performance of individual Units may also be affected by factors such as
traffic patterns, demographic considerations, and the type, number and location
of competing restaurants. In addition, factors such as inflation, increased
food, labor and employee benefit costs, and the availability of experienced
management and hourly employees may also adversely affect the restaurant and
retail industries in general and the Company's Units in particular. Restaurant
and retail operating costs may be further affected by increases in the minimum
hourly wage, unemployment tax rates, real estate taxes and similar matters over
which the Company has no control.
REGULATION
Restaurants are subject to licensing and regulation by state and local
health, sanitation, safety, fire, and other authorities and are also subject to
state and local licensing and regulation of the sale of alcoholic beverages and
food. Additionally, businesses that maintain or sell animals are subject to
additional levels of state and local health and sanitation regulations. Having
tropical birds as part of the Rainforest Cafe concept requires the Company to
adhere to stringent health codes that prohibit crossover between kitchen workers
and animal handlers, and any exchange of air from the bird areas to the rest of
the Unit. The Company overcame this problem at its existing Units that utilize
live birds by installing specially designed air exhaust hoods for the birds'
perch area. Additionally, a separate waste disposal system is provided for the
birds. Although, to date, the Company has satisfied animal-related licensing
authorities for its existing Units, no assurance can be given that the Company
will be able to maintain such approvals or obtain such approvals at other
locations. Difficulties or failure in obtaining required licenses and approvals
will result in delays in, or cancellation of, the opening of Units. Retail
establishments are also subject to licensing and regulation by safety, fire and
other authorities on the state and local level.
TRADEMARKS AND INTELLECTUAL PROPERTY
The Company's ability to implement successfully its Rainforest Cafe concept
will depend in part on its ability to further establish "brand equity" through
the use of its trademarks, service marks, trade dress and other proprietary
intellectual property, including its name and logos, the Animal Characters and
unique features of its rain forest theme decor. It is the Company's policy to
seek to protect and to defend vigorously its rights to this intellectual
property.
The Company's original logo incorporating "RAINFOREST CAFE" and the mark "A
WILD PLACE TO SHOP AND EAT" are federally registered service marks for the
Company's Restaurant and Retail Village. The Company also owns a federal
registration for the mark "RAINFOREST" for the Company's restaurant services.
The Company has filed and has pending several federal trademark applications for
"RAINFOREST CAFE" in various formats and for a variety of goods and services.
The Company is also in the process of protecting its proprietary Animal
Characters by the filing of copyright applications and, in certain instances,
trademark registration applications. While the Company expects that these
additional applications will result in registrations affording the Company
additional protections, there is no assurance that all of these applications
will issue as registrations.
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<PAGE> 13
There is also no assurance that any of the Company's rights in any of its
intellectual property will be enforceable, even if registered, against any prior
users of similar intellectual property or competitors of the Company who seek to
utilize similar intellectual property in areas where the Company operates or
intends to conduct operations. The failure to enforce any of the Company's
intellectual property rights could have the effect of reducing the Company's
ability to capitalize on its efforts to establish brand equity. The Company is
aware of trademark applications, registrations and uses that may accord to third
parties certain rights in the words "rain forest" or in certain elements of some
of the proprietary Animal Character names and illustrations with respect to
utilization of these marks on certain clothing and retail products. The
existence of any such third party rights could result in claims of infringement
against the Company with respect to its uses of "Rainforest Cafe" or its Animal
Characters. The Company is currently involved in litigation with a party that
alleges that the Company's restaurants infringe its trade dress rights. Although
the Company does not expect this lawsuit to have a materially adverse result on
the Company or its business, in the event this matter is not successfully
resolved, or in the event the Company encounters other claims of infringement,
it is possible that the Company's operations could be materially limited or that
the Company may have to pay damages.
CERTAIN FACTORS
In addition to the factors discussed elsewhere in this Annual Report or Form
10-K, the following are important factors that could cause actual results or
events to differ materially from those contained in any forward-looking
statements made by or on behalf of the Company.
GROWTH FACTORS/EXPANSION STRATEGY
Future growth will depend to a substantial extent on the Company's ability
to increase the number of its Units. The Company's primary strategy is to
develop new Rainforest Cafes in shopping malls, urban entertainment centers and
Disney theme parks. Because of the relatively large size of each Rainforest Cafe
and the Company's site selection criteria, the availability of desirable
locations may be limited and the Company may be hindered in finding suitable
locations for the development of new Units. Additionally, the Company's ability
to open additional Units will depend upon a number of other factors including
the ability of the Company to negotiate leases on acceptable terms, timely
approval of local regulatory authorities, acceptance of the Rainforest Cafe
concept in new markets, and the general state of the economy. Finally, the
capital resources required to develop each new Unit are significant.
The Company's ability to open and successfully operate additional Units will
also depend upon the hiring and training of skilled Unit management personnel
and the general ability to successfully manage growth, including monitoring
Units and controlling costs, food quality and customer service. Accordingly,
there can be no assurance that the Company will be able to open new Units or
that, if opened, those Units can be operated profitably.
LIMITED BASE OF OPERATIONS
The combination of the relatively small number of Unit locations and the
significant investment associated with each new Unit may cause the operating
results of the Company to fluctuate significantly and adversely affect the
profitability of the Company. Poor operating results at any one Unit or a delay
in the planned opening or non-opening of a Unit could
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<PAGE> 14
materially affect the profitability of the entire Company. Furthermore, the
Company is expected to derive a significant portion of its revenues from its
Units located in Walt Disney World. Because of the substantial financial
requirements associated with opening new Units, the investment risk related to
any one Rainforest Cafe is much larger than that associated with most other
companies' restaurant or retail revenues. The Company's new Units typically open
at maximum capacity. The Company's short history indicates that a Unit's
revenues may decrease during such Unit's second year of operations. Other
restaurant companies opening to similarly high per unit sales often do not show
significant comparable store sales increases.
Some of the Company's Units, have been or will be developed at newly
constructed shopping malls that have no operating history. As the Company
continues to develop Units in newly constructed shopping malls, the Company
could experience delays in openings similar to that experienced in the Palisades
Center Unit, the anticipated opening of which had been delayed for approximately
one year due to factors beyond the Company's control. The poor performance of
these malls could also negatively impact these Units and the financial
performance of the Company. Similarly, Disney's Animal Kingdom has no operating
history and the performance of this Unit and its scheduled opening are also
subject to the risks of new developments.
STOCK PRICE VOLATILITY
Since the Company's initial public offering in April 1995, the market price
of the Company's Common Stock fluctuated substantially and could fluctuate
substantially in the future due to a variety of factors, including market
perception of the Company's ability to achieve successfully its planned rapid
growth, quarterly operating results of the Company or other restaurant and
retail companies, the trading volume in the Company's Common Stock, changes in
general conditions in the economy, the financial markets or the restaurant or
retail industries, or other developments affecting the Company or its
competitors. In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING
The success of the Company's operations depends to a significant extent on a
number of factors relating to discretionary consumer spending, including
economic conditions affecting disposable consumer income, the overall success of
the malls, entertainment centers and Disney theme parks in which Units are
located and the continued popularity of theme restaurants generally and the
Company's rain forest concept in particular. Theme restaurants are susceptible
to shifts in consumer preferences and may experience a decline of revenue growth
or of actual revenues as consumers tire of the related theme.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has license agreements pursuant to which its licensees will
develop Units in the United Kingdom and Ireland, Mexico, Canada, Southeast Asia
and Hong Kong and intends to enter into other license agreements in the future.
A Unit opened in London in June 1997, in Cancun in August 1997 and in Mexico
City in October 1997. Accordingly, the Company's concept is relatively untested
outside of the United States, and no assurance can be given that
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<PAGE> 15
any international location will be successful. The Company's continued success
is dependent to a substantial extent on its reputation, and its reputation may
be affected by the performance of certain licensee-owned Units over which the
Company will have limited control. In addition, the Company has invested equity
capital in its London Unit and is likely to continue to invest equity capital in
certain other of its international Units. Such investments are likely to range
from approximately $400,000 to $1.5 million per Unit. Any international
operations of the Company will also be subject to certain external business
risks such as exchange rate fluctuations, political instability and a
significant weakening of a local economy in which a foreign Unit is located. In
addition, it may be more difficult to register and protect the Company's
intellectual property rights in certain foreign countries.
LEASES
The Company has entered into long-term leases relating to each of its
existing domestic Units and has entered into leases or letters of intent with
respect to certain of its planned domestic Units. These leases are or will be
non-cancelable by the Company (except in limited circumstances) and have or will
have annual base rents ranging from $200,000 to $1.0 million (except for Leases
related to certain Icon Units). Additional facilities developed by the Company
are likely to be subject to similar long-term leases which are non-cancelable by
the Company. If an existing or future Unit does not perform at a profitable
level, and the decision is made to close the Unit which may be deemed a default
under such Unit's lease, the Company may nonetheless be committed to perform its
obligations under the applicable lease which would include, among other things,
payment of the respective base rent for the balance of the respective lease
term. The leases related to the Downtown Disney Marketplace and Disney's Animal
Kingdom Units are cancelable by the landlord at any time upon sixty days notice
and payment of the Company's unamortized value of leasehold improvements and an
amount equal to the net operating income generated by such Unit for the previous
lease year. With regard to certain of the Company's leases, in the event the
Company fails to achieve specified gross sales by a certain date, such leases
may be terminated by the landlord. If such a termination were to occur at these
locations, the Company would lose a Unit without necessarily receiving an
adequate return on its investment.
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend largely on the efforts and
abilities of the Company's senior corporate management. Since April 1997, the
Company has been operating with an interim President, Kenneth W. Brimmer, who is
also a director of the Company. Mr. Brimmer has limited restaurant and retail
experience. Although the Company is actively searching for a President, no
assurance can be given that a new President will be retained in the near future.
Lyle Berman, the Company's Chairman and Chief Executive Officer, serves on four
boards of public companies. Mr. Berman devotes approximately 15% of his time to
the Company.
ITEM 2. PROPERTIES
The Company presently intends to lease the facilities for each of its Units.
It has entered into long-term ten year leases with respect to its existing Mall
of America, Woodfield Mall, Gurnee
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<PAGE> 16
Mills, Walt Disney World Marketplace, Tysons Corner Center I, Sawgrass Mills,
The Source, Grapevine Mills, Arizona Mills, Aventura Mall, MGM Grand, Palisades
Center, and Disney's Animal Kingdom units, and its planned Units at and Cherry
Creek Mall, Great Lakes Crossing, and Oak Park Mall. The Company also has
entered into an eleven year lease for South Coast Plaza and a fifteen year lease
for its downtown Chicago location. The Company's leases with Disney are
cancelable by the landlord at any time upon 60 days notice and payment by Disney
of the Company's unamortized value of leasehold improvements at the Downtown
Disney Marketplace Unit or Disney's Animal Kingdom Unit, respectively, and an
amount equal to the net operating income generated by such Unit for the previous
lease year. With regard to the Tysons Corner Center I and Cherry Creek Mall
leases, in the event the Company fails to achieve specified gross sales by a
certain date, the lease may be terminated by the landlords. The Company's leases
typically have annual base rent and percentage rents that range from 5 to 18
percent depending upon location and volume of sales.
The Company's executive offices, including retail warehouse space, are
located in Hopkins, Minnesota, under a lease, which terminates in June 2000.
ITEM 3. LEGAL PROCEEDINGS
SHAREHOLDER CLASS ACTION LITIGATION
The Company and certain executive officers of the Company are named as
defendants in seven separate purported class action complaints, indicated
below, alleging violations by the Company and such executive officers of
certain Federal securities laws. All complaints were filed in the United States
District Court for the District of Minnesota. These complaints each allege that
the defendants violated Federal securities laws by making misrepresentations
and omissions regarding the Company's performance and future prospects during
the respective class periods while individually selling the Company's Common
Stock. With the exception of the Amy Stern, v. Rainforest Cafe, Inc., et
al. complaint, all of these complaints purport 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.
Amy Stern v. Rainforest Cafe, Inc., et al. was filed January 12, 1998
and involves claims against the Company, Kenneth W. Brimmer, Ercu Ucan, and
Steven W. Schussler (each executive officers and directors of the Company) and
Mark Bartholomay, Mark S. Robinow and Gregory C. Carey (each executive offers of
the Company). The Stern complaint purports to seek relief on behalf of a class
of plaintiffs who purchased the Company's Common Stock during the period between
August 5, 1997 and January 6, 1998.
Emanuel Massing v. Lyle Berman, et al. was filed January 14, 1998 and
involves the claims against the Company, Lyle Berman, Kenneth W. Brimmer, Ercu
Ucan, Steven W. Schussler, Mark Bartholomay, Mark S. Robinow, and
Gregory C. Carey.
Wayne Stern and Sherry Bernstein v. Rainforest Cafe, Inc., et al. was
filed January 14, 1998 and involves claims against the Company, Lyle Berman,
Kenneth W. Brimmer, Ercu Ucan, Steven W. Schussler, and Mark S. Robinow.
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Thomas R. Obinger v. Lyle Berman, et al. was filed January 23, 1998 and
involves claims against the Company, Lyle Berman, Kenneth W. Brimmer, Ercu
Ucan, Steven W. Schussler, Mark Bartholomay, Mark S. Robinow, and Gregory C.
Carey.
Patricia Tempest v. Rainforest Cafe, Inc., et al. was filed February 4,
1998 and involves claims against the Company, Lyle Berman, Kenneth W. Brimmer,
Ercu Ucan, Steve W. Schussler, and Mark S. Robinow.
David Maltz v. Rainforest Cafe, Inc., et al. was filed February 23,
1998 and involves claims against the Company, Lyle Berman, Kenneth W. Brimmer,
Ercu Ucan, Steven W. Schussler, and Mark S. Robinow.
Rosalie Cutter v. Rainforest Cafe, Inc., et al. was filed February 27,
1998 and involves claims against the Company, Lyle Berman, Kenneth W. Brimmer,
and Mark Robinow.
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
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended December 28, 1997 other than in Part
II, Item 4 of the Company's Form 10-Q for the quarterly period ended September
28, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to each person who
is a director or executive officer of the Company:
Lyle Berman, age 56 has been Chairman of the Board and Chief Executive
Officer of the Company since its inception in February 1994. Mr. Berman was
Chief Executive Officer of Grand Casinos, Inc. from October 1990 to March, 1998
and has been Chairman of the Board of Grand Casinos, Inc. and its predecessor
since October 1990. Mr. Berman is also a director of G-III Apparel Group,
Innovative Gaming Corporation of America, New Horizons Kids Quest, Inc., and
Wilsons-The Leather Experts, Inc. ("Wilsons"). Mr. Berman was Chief Executive
Officer and Chairman of Stratosphere Corporation from July 1996 through July
1997. Stratosphere Corporation filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code in January 1997.
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Kenneth W. Brimmer, age 42 has been President of the Company since April
1997, Treasurer since September 1995 and involved with the Company in various
capacities since its inception. Mr. Brimmer was employed by Grand Casinos, Inc.
and its predecessor from October 1990 to January, 1998 as Special Assistant to
the Chairman and Chief Executive Officer, Lyle Berman. Mr. Brimmer is also a
director of New Horizons Kids Quest, Inc. and Oxboro Medical International, Inc.
Steven Schussler, age 42 has been Executive Vice President-Development of
the Company since its inception and a director of the Company since January
1995. From 1983 to February 1992, Mr. Schussler was an officer of Juke Box
Saturday Night of Minneapolis, Inc. ("JBSN"), a 1950's and 1960's theme
restaurant and nightclub.
Ercu Ucan, age 42 has been Executive Vice President-Retail of the Company
since its inception and a director of the Company since January 1995. From
September 1992 until December 1993, Mr. Ucan served as President of the Orjin
Textile Group in Istanbul, Turkey, a garment factory employing approximately 150
persons. From January 1989 until August 1992, Mr. Ucan served as Director of
Trend Merchandising and Director of Product Development for Wilsons.
Mark Robinow, age 41 has been Senior Vice President and Chief Financial
Officer since November 1995. From August 1993 to June 1995, Mr. Robinow served
as Senior Vice President and Chief Financial Officer of Edina Realty, Inc., the
country's fourth largest residential real estate brokerage company. From
December 1986 to August 1993, Mr. Robinow served as Chief Financial Officer,
Secretary and Treasurer of Ringer Corporation, a publicly held manufacturer of
natural lawn and garden products for the consumer market. Mr. Robinow is a
certified public accountant.
Gregory C Carey, age 45 has been Chief Operating Officer since March, 1998
and served as Senior Vice President-Operations from August 1996 to March, 1998.
From May 1996 to August 1996, Mr. Carey served as Director of Operations at the
Company's Downtown Disney Marketplace Unit. From June 1994 to May 1996, Mr.
Carey served as Director of Operations at the Company's Mall of America Unit.
From July 1989 to June 1994, Mr. Carey served as Senior General Manager at
Restaurants Unlimited, Inc., an upscale restaurant operating company. From
November 1987 to July 1989, Mr. Carey served as Regional Manager at General
Mills Restaurants, Inc.
Mark L. Bartholomay, age 38 has been Senior Vice President-International
Development and Operations of the Company since February 1997. From May 1995 to
February 1997 Mr. Bartholomay served as a Vice President and research analyst of
Dain Bosworth Incorporated, an investment banking firm. From April 1993 to May
1995, Mr. Bartholomay was Senior Vice President and Regional Director of
Corporate Finance for Principal Financial Securities, Inc. From February 1992 to
April 1993, Mr. Bartholomay was Vice President and Chief Financial Officer for
Universal International, Inc. Prior to that, Mr. Bartholomay worked in
investment banking from December 1985 to February 1992.
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<PAGE> 19
Stephen Cohen, age 40 has been General Counsel and Vice President of Real
Estate since August 1997. From October 1987 to July 1997, Mr. Cohen served in
various capacities at The Musicland Group, Inc., including Leasing Manager and
as Associate General Counsel.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The inside back cover of the Company's Annual Report to Shareholders for the
fiscal year ended December 28, 1997, is incorporated herein by reference.
The Company has never paid any cash dividends with respect to its Common
Stock and the current policy of the Board of Directors is to retain any earnings
to provide for the growth of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The inside front cover of the Company's Annual Report to Shareholders for
the fiscal year ended December 28, 1997, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pages 10 through 15 of the Company's Annual Report to Shareholders for the
fiscal year ended December 28, 1997, are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS
Pages 16 through 27 of the Company's Annual Report to Shareholders for the
fiscal year ended December 28, 1997, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information beginning immediately following the caption "Election of
Directors" to, but not including, the caption "Executive Compensation" in the
Company's Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year ended
December 28, 1997 and forwarded to stockholders prior to the
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Company's 1998 Annual Meeting of Shareholders (the "1998 Proxy Statement"), is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the 1998 Proxy Statement beginning immediately following
the caption "Executive Compensation" to, but not including, the caption
"Compensation Committee Interlocks and Insider Participation," is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the 1998 Proxy Statement beginning immediately following
the caption "Voting Securities and Principal Holders Thereof" to, but not
including, the caption "Election of Directors," is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the 1998 Proxy Statement under the caption "Certain
Transactions" is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets 16
as of December 28, 1997 and December 29, 1996
Consolidated Statements of Operations for the fiscal years ended 17
December 28, 1997, December 29, 1996 and December 31, 1995
Consolidated Statements of Shareholders' Equity for the fiscal years 18
ended December 28, 1997, December 29, 1996 and December 31, 1995
Consolidated Statements of Cash Flows for the fiscal years ended 19
December 28, 1997, December 29, 1996 and December 31, 1995
Notes to Financial Statements 20
Report of Independent Public Accountants 27
</TABLE>
---------------------------
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(a)(3) Exhibits
3.1 Articles of Incorporation, as amended. (1)
3.2 By-laws. (1)
10.1 Lease Agreement by and between Mall of America, Inc. and the Company
dated March 31, 1994. (1)
10.2 Lease Agreement by and between the Company and Woodfield Mall dated
April 1995. (2)
10.3 Lease Agreement by and between the Company and Walt Disney World dated
September 6, 1995. (3)
10.4 Company's 1995 Stock Option and Compensation Plan. (1)
10.5 Employment Agreement dated February 1, 1995 by and between the
Company and Steven W. Schussler. (1)
10.6 Indemnification Agreement dated April 6, 1995 by and between the
Company and Steven Schussler. (1)
10.7 Form of Director Stock Option Agreement dated April 7, 1995. (1)
10.8 Lease Agreement by and between the Company and Trump Taj Mahal
Associates dated December 6, 1995.(3)
10.9 Form of Lease Agreement by and between the Company and Strato-Retail
LLC.(4)
10.10 Company's 1996 Employee Stock Purchase Plan. (4)
10.11 Company's 1997 Director Stock Option Plan
13. Annual Report to Shareholders for the
fiscal year ended December 28, 1997.
21. Subsidiaries of Company.
27. Financial Data Schedule.
- ----------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-89256C.
(2) Incorporated herein by reference to the Company's Form 10-QSB for the
quarter ended April 2, 1995.
(3) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, File No. 33-99836.
(4) Incorporated herein by reference to the Company's Form 10-K for the fiscal
year ended December 29, 1996.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the fourth quarter ended
December 28, 1997.
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RAINFOREST CAFE, INC.
Registrant
Date: March 30, 1998 By: /s/ Lyle Berman
---------------
Name: Lyle Berman
Title: Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on March 30, 1998.
NAME TITLE
Chairman of the Board and Chief Executive
/s/ Lyle Berman Officer (principal executive officer)
- ----------------------------------
Lyle Berman
/s/ Kenneth W. Brimmer President, Secretary, Treasurer and Director
- ----------------------------------
Kenneth W. Brimmer
/s/ Gregory C. Carey Chief Operating Officer
- ----------------------------------
Gregory C. Carey
/s/ Steven W. Schussler Senior Vice President and Director
- ----------------------------------
Steven W. Schussler
/s/ Ercu Ucan Senior Vice President and Director
- ----------------------------------
Ercu Ucan
/s/ David L. Rogers Director
- ----------------------------------
David L. Rogers
Director
- ----------------------------------
Joel N. Waller
Chief Financial Officer (principal financial
/s/ Mark S. Robinow officer and principal accounting officer)
- ----------------------------------
Mark S. Robinow
23
<PAGE> 1
EXHIBIT 10.11
ANNEX A
RAINFOREST CAFE, INC.
1997 DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of the Rainforest Cafe, Inc. 1997 Director Stock
Option Plan (the "Plan") is to advance the interests of Rainforest Cafe, Inc.
(the "Company") and its shareholders by encouraging share ownership by members
of the Board of Directors of the Company (the "Board") who are not employees of
the Company or any of its subsidiaries, in order to promote long-term
shareholder value through continuing ownership of the Company's common stock.
2. ADMINISTRATION. The plan shall be administered by the Board. The
Board shall have all the powers vested in it by the terms of the Plan, such
powers to include authority (within the limitations described herein) to
prescribe the form of the agreement embodying awards of nonqualified stock
options made under the Plan ("Options"). The Board shall, subject to the
provisions of the Plan, grant Options under the Plan and shall have the power
to construe the Plan, to determine all questions arising thereunder and to
adopt and amend such rules and regulations for the administration of the Plan
as it may deem desirable. Any decisions of the Board in the administration of
the Plan, as described herein, shall be final and conclusive. The Board may
act only by a majority of its members in office, except that the members
thereof may authorize any one or more of their number or any other officer of
the Company to execute and deliver documents on behalf of the Board. No member
of the Board shall be liable for anything done or omitted to be done by him or
by any other member of the Board in connection with the Plan, except for his
own willful misconduct or as expressly provided by statute.
3. PARTICIPATION. Each member of the Board who is not an employee of the
Company or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive an Option in accordance with Paragraph 5 below.
4. AWARDS UNDER THE PLAN.
(a) Awards under the Plan shall include only Options, which are
rights to purchase common stock of the Company having no par value (the "Common
Stock"). Such Options are subject to the terms, conditions and restrictions
specified in Paragraph 5 below.
(b) There may be issued under the Plan pursuant to the exercise of
Options an aggregate of not more than 200,000 shares of Common Stock, subject
to adjustment as provided in Paragraph 6 below. If any Option is canceled,
terminates or expires unexercised, in whole or in part, any shares of Common
Stock that would otherwise have been issuable pursuant thereto will be
available for issuance under new Options.
(c) A Non-Employee Director to whom an Option is granted (and any person
<PAGE> 2
succeeding to such a Non-Employee Director's rights pursuant to the Plan) shall
have no rights as a shareholder with respect to any Common Stock issuable
pursuant to any such Option until the date of the issuance of a stock
certificate to him for such shares. Except as provided in Paragraph 6 below,
no adjustment shall be made for dividends, distributions or other rights
(whether ordinary or extraordinary, and whether in cash, securities or other
property) for which the record date is prior to the date such stock certificate
is issued.
5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan shall
be evidenced by an agreement in such form as the Board shall prescribe from
time to time in accordance with the Plan and shall comply with the following
terms and conditions:
(a) The Option exercise price shall be the "Fair Market Value" (as
herein defined) of the Common Stock subject to such Option on the date the
Option is granted. Fair Market Value shall be the closing sales price of a
share of Common Stock on the date of grant as reported on the Nasdaq National
Market or, if the Nasdaq National Market is closed on that date, on the last
preceding date on which the Nasdaq National Market was open for trading, but in
no event will such Option exercise price be less than the par value of the
Common Stock.
(b) The Board shall determine the number of shares of Common Stock
subject to each Option granted to Non-Employee Directors and, subject to
Section 5(d) hereof, the vesting schedule of each such Option. Notwithstanding
the foregoing, once such Options become outstanding, a Non-Employee Director
will still be entitled to the anti-dilution adjustments provided for in Section
6 hereof.
(c) The Option shall not be transferable by the optionee otherwise
than by will or the laws of descent and distribution, and shall be exercisable
during his lifetime only by him.
(d) Options shall not be exercisable:
(i) except pursuant to the vesting schedule established
by the Board of Directors and after the expiration of
ten years from the date it is granted.
Notwithstanding anything to the contrary herein, an
Option shall automatically become immediately
exercisable in full: (i) upon the removal of the
Non-Employee Director from the Board without cause;
or (ii) in the event of a "change in control" of the
Company, as defined in any existing agreements
between the Company and its senior officers.
(ii) unless payment in full is made for the shares of
Common Stock being acquired thereunder at the time of
exercise, such payment shall be made in United States
dollars by cash or check, or in lieu thereof, by
tendering to the Company Common Stock owned by the
person exercising the Option and having a Fair Market
Value equal to the cash exercise price applicable to
such Option, or by a combination of United States
dollars
<PAGE> 3
and Common Stock as aforesaid; and
(iii) unless the person exercising the Option has been at
all times during the period beginning with the date
of grant of the Option and ending on the date of such
exercise, a Non-Employee Director of the Company,
except that
(A) if such person shall cease to be such a Non-
Employee Director for reasons other than death, while
holding an Option that has not expired and has not been
fully exercised, such person may, at any time within three
years of the date he ceased to be a Non-Employee
Director (but in no event after the Option has expired
under the provisions of subparagraph 5(d)(i) above),
exercise the Option with respect to any Common Stock as to
which he could have exercised on the date he ceased to be
such a Non-Employee Director; or
(B) if any person to whom an Option has been granted
shall die holding an Option that has not expired and has
not been fully exercised, his executors, administrators,
heirs or distributees, as the case may be, may, at
any time within one year after the date of such death (but
in no event after the Option has expired under the
provisions of subparagraph 5(d)(i) above), exercise the
Option with respect to any shares subject to the Option.
6. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of substantially all of its assets, any
distribution to shareholders other than a normal cash dividend, or other
extraordinary or unusual event, the number or kind of shares that may be issued
under the Plan pursuant to subparagraph 4(b) above, and the number or kind of
shares subject to, and the Option price per share under, all outstanding
Options shall be automatically adjusted so that the proportionate interest of
the participant shall be maintained as before the occurrence of such event;
such adjustment in outstanding Options shall be made without change in the
total Option exercise price applicable to the unexercised portion of such
Options and with a corresponding adjustment in the Option exercise price per
share, and such adjustment shall be conclusive and binding for all purposes of
the Plan.
7. IMMEDIATE ACCELERATION OF OPTIONS. Notwithstanding any provision in
the Plan, all outstanding Options will become exercisable immediately if any of
the following events occur:
(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;
<PAGE> 4
(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 7, 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.
8. MISCELLANEOUS PROVISIONS.
(a) Except as expressly provided for in the Plan, no Non-Employee
Director or other person shall have any claim or right to be granted an Option
under the Plan. Neither the Plan nor any action taken hereunder shall be
construed as giving any Non-Employee Director any right to be retained in the
service of the Company.
(b) A participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right or
interest of any participant in the Plan shall be subject to any obligation or
liability of such participant.
(c) Common Stock shall not be issued hereunder unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign securities, securities exchange
and other applicable laws and requirements.
(d) It shall be a condition to the obligation of the Company to
issue Common Stock upon exercise of an Option, that the participant (or any
beneficiary or person entitled to act under subparagraph 5(d)(iii)(B) above)
pay to the Company, upon its demand, such amount as may be requested by the
Company for the purpose of satisfying any liability to withhold federal, state,
local or foreign income or other taxes. If the amount requested is not paid,
the Company may refuse to issue such Common Stock.
(e) The expenses of the Plan shall be borne by the Company.
<PAGE> 5
(f) By accepting any Option or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to,
any action taken under the Plan by the Company or the Board.
(g) The appropriate officers of the Company shall cause to be
filed any reports, returns or other information regarding Options hereunder or
any Common Stock issued pursuant hereto as may be required by Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, or any other
applicable statute, rule or regulation.
9. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time
and from time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without shareholder approval
if such shareholder approval is required by law, rule or regulation, and in no
event shall the Plan be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act or the rules thereunder. No amendment
of the Plan shall materially and adversely affect any right of any participant
with respect to any Option theretofore granted without such participant's
written consent.
10. TERMINATION. This Plan shall terminate upon the earlier of the
following dates or events to occur upon the adoption of a resolution of the
Board terminating the Plan or ten years from the date the Plan is initially
approved and adopted by the shareholders of the Company. No termination of the
Plan shall materially and adversely affect any of the rights or obligations of
any person, without his consent, under any Option theretofore granted under the
Plan.
11. EFFECTIVE DATE OF PLAN. The Plan will become effective on the
date that it is approved by the affirmative vote of the holders of the greater
of (a) a majority of the outstanding shares of Common Stock of the Company
present and entitled to vote or (b) a majority of the voting power of the
minimum number of shares entitled to vote that would constitute a quorum for
transaction of business at the Company's Annual Meeting of Shareholders.
<PAGE> 1
Management's Discussion & Analysis of Financial Condition & 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 December 28, 1997, the Company owned and
operated thirteen Units in the United States and licensed three 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 30,000 square foot
Unit located at the Downtown Disney Marketplace 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 and Fort Lauderdale,
Florida; Costa Mesa in Orange County, California; Westbury, New York; Dallas,
Texas; Tempe, Arizona and at the MGM Grand Hotel and Casino in Las Vegas,
Nevada.
The Company presently plans to open approximately nine domestic Units in
1998. Because the Company anticipates continued rapid expansion, period to
period comparisons may not be meaningful. The Company presently intends to lease
the sites for all future domestic Units and anticipates that most of its future
domestic Units will range in size from approximately 12,000 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
Marketplace Unit, and the planned free-standing Disney's Animal Kingdom Unit,
which is expected to open during the second quarter of 1998 and will consist of
approximately 34,000 square feet and have approximately 550 restaurant seats.
In addition to operations in the United States, the Company has been pursuing
international growth opportunities. The Company has entered into five exclusive
license agreements to develop up to 24 Units, of which three 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. In each of these existing international license
agreements, the Company is entitled to receive 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 up to 20% 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. The first
international licensed Unit opened in London in June 1997, followed by Units in
Cancun and Mexico City which opened in August and October 1997, respectively.
The Company believes approximately five Units will be developed outside the
United States in 1998.
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
at established Units. Each of the Company's current leases includes both fixed
rate 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 if such expenses do not meet the criteria to be capitalized as
preopening expenses. Management, supervisory and staff salaries, employee
benefits, travel, information systems, marketing, rent and office expenses are
primary items of costs in this category.
The Company uses a 52- or 53-week fiscal year ending on the Sunday nearest
December 31.
<PAGE> 2
Results of Operations
The operating results of the Company expressed as a percentage of total revenues
(except where noted) were as follows:
<TABLE>
<CAPTION>
December 28, December 29, December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Restaurant sales 77.4% 76.2% 74.2%
Retail sales 22.0 22.3 25.8
Licensing fees and royalties 0.6 1.5 -
-----------------------------------------
Total revenues 100.0 100.0 100.0
Costs and Expenses:
Food and beverage costs(1) 23.7 25.0 27.8
Cost of retail goods sold(2) 45.6 44.8 44.6
Restaurant operating expenses(1) 49.0 49.3 53.8
Retail operating expenses(2) 32.4 32.7 28.9
Depreciation and amortization(3) 5.3 4.9 3.5
Amortization of preopening expenses(3) 2.9 3.2 0.9
-----------------------------------------
Total costs and expenses(3) 82.0 83.0 83.9
Income from Unit Operations and Licensing 18.5 18.3 16.1
-----------------------------------------
Other (Income) Expense:
General, administrative and development expenses 6.9 9.6 9.4
Interest income (8.3) (10.7) (3.6)
Write-off of development and debt offering costs 2.1 - -
Other 0.1 0.4 1.6
-----------------------------------------
Total other (income) expense 0.7 (0.7) 7.4
Income before Income Taxes and Extraordinary Item 17.8 19.0 8.7
Provision for Income Taxes 6.4 6.8 -
-----------------------------------------
Income before Extraordinary Item 11.4 12.2 8.7
Extraordinary Item - - 7.8
-----------------------------------------
Net Income 11.4% 12.2% 0.9%
-----------------------------------------
</TABLE>
(1) Percentage of restaurant sales.
(2) Percentage of retail sales.
(3) Percentage of restaurant and retail sales.
<PAGE> 3
Year Ended December 28, 1997 Compared to
the Year Ended December 29, 1996
Results of operations for the fiscal year ended December 28, 1997 reflect the
operations of ten Mall Units and three free-standing Units. Units open for the
entire 1997 fiscal year include the Mall of America Unit, opened in October
1994; the Woodfield Mall Unit opened in October 1995; the Gurnee Mills Unit,
opened in June 1996; the Downtown Disney Marketplace Unit, the Company's first
Icon Unit, opened in July 1996; the Tysons Corner Center I Unit, opened in
October 1996 and the Sawgrass Mills Unit, opened in November 1996.
Total revenues increased 122% to $108.1 million in 1997 from $48.7 million in
1996. Revenue growth resulted primarily from the addition of seven domestic
Units opened during 1997 which contributed revenues of $18.1 million and from a
full period of operation of the Gurnee Mills, Downtown Disney Marketplace,
Tysons Corner Center I and Sawgrass Mills Units which contributed an increase in
revenues of $42.5 million in 1997. Sales at the Mall of America Unit increased
by $400,000 (3%) from 1996 to 1997 which was offset by a decrease in sales of
$1.5 million (11%) at the Woodfield Mall Unit. 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 any such decreases result from the
fact that the Company's new Units typically open at or near full capacity.
Food and beverage costs increased 114% to $19.8 million in 1997 compared to
$9.3 million in 1996. The increase in food and beverage costs was due primarily
to the increase in product sales. Food and beverage costs as a percentage of
restaurant sales decreased to 23.7% for 1997 from 25.0% for 1996, largely due to
improvements in food preparation, purchasing efficiencies, favorable commodity
prices and upselling of higher margin, add-on menu items.
Cost of retail goods sold increased 123% to $10.9 million for 1997 from $4.9
million for the comparable 1996 period. The increase in cost of retail goods
sold was also due to the increase in sales as well as the addition of an
expanded retail distribution center during the second half of 1996. This
increase was offset partially by savings resulting from enhanced volume
purchasing power and to less expensive vendor sources. Cost of retail goods sold
as a percentage of retail sales increased by .8% of sales in 1997 compared to
1996 primarily due to product sales promotions and greater discounts offered in
1997.
Restaurant and retail operating expenses increased 123% to $48.7 million for
1997 from $21.8 million for 1996, primarily due to Unit expansion. Both
restaurant and retail operating expenses as a percentage of applicable
restaurant and retail sales remained relatively stable.
Depreciation and amortization increased 142% to $5.6 million in 1997 from
$2.3 million for the comparable 1996 period. Amortization of preopening expenses
increased 103% to $3.1 million for 1997 from $1.5 million for 1996. The increase
in depreciation and amortization and amortization of preopening expenses was due
to Unit expansion. Depreciation and amortization as a percentage of restaurant
and retail sales increased to 5.3% for the 1997 fiscal year from 4.9% for 1996
due to increased costs of Unit development and the retrofitting of existing
Units to incorporate the latest elements of the Rainforest Cafe theme, including
the Company's latest animatronics. Amortization of preopening expenses remained
relatively stable as a percentage of restaurant and retail sales from 1996 to
1997.
General, administrative and development expenses increased 58% to $7.4
million in 1997 from $4.7 million in 1996. The increase in general,
administrative and development expenses was due primarily to the increase of
senior management, corporate employees and Unit management personnel in training
related to the Company's growth. General, administrative and development
expenses as a percentage of revenues decreased to 6.9% of revenues for 1997 from
9.6% of revenues for 1996. 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 decrease in these expenses as a percentage of
total revenues.
Interest income of $9.0 million for 1997 was generated primarily
by investing a portion of the proceeds from the Company's two follow-on public
offerings completed in January and September 1996. Interest income of $5.2
million for the comparable 1996 period was generated primarily by investing a
portion of the proceeds of the Company's two follow-on public offerings
completed in January and September 1996.
Write-offs totaling $2.2 million in 1997 were comprised of a $1.9 million
write-off in development costs in the first quarter of 1997 resulting from the
termination of planned Units at Trump Taj Mahal (Atlantic City, New Jersey) and
Stratosphere (Las Vegas, Nevada) due to local regulatory building restrictions
and landlord financial problems resulting in landlord declaration of bankruptcy.
In addition, in the fourth quarter of 1997 the Company wrote off approximately
$300,000 of costs related to a planned convertible debt offering cancelled in
January 1998.
The provision for income taxes in 1997 is based upon the Company's estimated
effective tax rate, including the effect of tax-exempt interest income. The
provision for income taxes for the 1996 fiscal year is based upon the Company's
<PAGE> 4
effective tax rate, including the benefits of approximately $350,000 in net
operating loss carryforwards and tax exempt interest income.
Net income was $12.3 million, or $0.46 per share, for the 1997 fiscal year
compared with $5.9 million, or $0.27 per share, for 1996.
Year Ended December 29, 1996 Compared to
the Year Ended December 31, 1995
Results of operations for the fiscal year ended December 31, 1995 reflect the
operations of the Mall of America Unit for the entire year and the Woodfield
Mall Unit which commenced operations on October 20, 1995. Revenues for the Mall
of America Unit and the Woodfield Mall Unit were $10.4 million and $3.1 million,
respectively, in 1995.
Total revenues increased 262% to $48.7 million in 1996 from $13.5 million in
1995. The increase in total revenues was primarily due to the operation of the
Woodfield Mall Unit for the entire year ($10.4 million), the addition of the
Gurnee Mills Unit ($5.6 million), the addition of the Downtown Disney
Marketplace Unit ($13.2 million), the addition of the Tysons Corner I Unit ($3.0
million), the addition of the Sawgrass Mills Unit ($1.4 million), and the
addition of 85 restaurant seats at the Mall of America Unit in August 1995 ($1.2
million). Retail sales decreased as a percentage of total sales to 22.3% for
1996 from 25.8% for 1995. The decrease in the percentage of retail sales is
primarily due to the increase in restaurant seating at the Mall of America Unit
and the addition of the Woodfield, Gurnee, Tysons and Sawgrass Units where
retail sales as a percentage of total sales averaged approximately 20%.
Food and beverage costs increased 233% to $9.3 million for 1996 compared to
$2.8 million for 1995. The increase in food and beverage cost was primarily due
to Unit expansion. Food and beverage costs decreased as a percentage of
restaurant sales for 1996 compared to 1995 largely due to improvements of food
preparation, purchasing efficiencies and favorable commodity prices.
Cost of retail goods sold increased 214% to $4.9 million in 1996 compared to
$1.5 million in 1995. The increase in cost of retail goods sold was due
primarily to Unit expansion and the addition of an expanded retail distribution
center during 1996. Cost of retail goods sold remained relatively flat as a
percentage of retail sales in 1996 and 1995.
Restaurant and retail operating expenses increased 243% to $21.8 million for
1996 compared to $6.4 million for 1995. The increase in restaurant and retail
operating expenses was primarily due to Unit expansion. Restaurant operating
expenses decreased as a percentage of restaurant sales to 49.3% in 1996 from
53.8% in 1995. The decrease as a percentage of restaurant sales was primarily
due to more efficient labor usage, negotiated price reductions for restaurant
supplies and lower occupancy costs as a percentage of sales for the Company's
Gurnee Mills, Tysons Corner and Sawgrass Mills Units. Retail operating expenses
as a percentage of retail sales increased to 32.7% in 1996 from 28.9% in 1995.
During August 1996, the Company introduced new retail packaging materials which
adversely affected retail operating expenses in the later part of the year. In
addition, the increase in retail operating expenses as a percentage of retail
sales was due to the decrease in retail sales as a percentage of total sales and
increased floor coverage during peak selling periods.
Depreciation and amortization expense increased 391% to $2.3 million in 1996
from $475,000 in 1995. Preopening amortization increased to $1.5 million in 1996
from $115,000 in 1995. Preopening amortization during 1995 included two months
of amortization expense for the Woodfield Mall Unit only. The increase in
depreciation and amortization and preopening amortization expense was primarily
due to unit expansion in 1996.
General, administrative and development expenses increased 271% to $4.7
million in 1996 compared to $1.3 million in 1995. The increase in general,
administrative and development expenses in fiscal 1996 was due to the addition
of senior management, corporate employees and Unit management personnel in
training related to the Company's growth.
Interest income of $5.2 million for 1996 was generated primarily by investing
the proceeds from the Company's two follow-on public offerings completed in
January and September 1996 in interest bearing investments. Interest income of
$482,000 for 1995 was generated primarily by investing the proceeds from the
exercise of the Class A Warrants and common stock issued as part of the
Company's initial public offering ("IPO"). During 1995 the Company recorded
$186,000 in interest expense due to amortization of loan discount.
The provision for income taxes in 1996 is based upon the Company's effective
tax rate, including benefits for approximately $350,000 in net operating loss
carryforwards and approximately $800,000 in tax exempt interest income. The
Company did not record a provision for federal or state income taxes in 1995
because net operating loss carryforwards were used to offset income tax
liabilities.
<PAGE> 5
Liquidity and Capital Resources
The Company's principal capital needs arise from the development and opening
of new Rainforest Cafe Units. In January 1996, the Company issued an aggregate
of 4,140,000 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 3,225,000 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 December 28, 1997, the Company
had working capital of approximately $77.7 million and long-term investments of
$39.9 million, consisting principally of investment grade, fixed income
securities.
The Company generated $15.9 million in cash flow from operating activities
for 1997 compared to $11.5 million for 1996. Additionally, for 1997, the Company
generated $5.0 million from stock options exercised, compared with $1.0 million
for the comparable period in 1996, and approximately $1.5 million cash from the
sale of put options on approximately 1.0 million shares of the Company's Common
Stock (at exercise prices ranging from $11.625 to $15.00 per share.) The sale of
the put options was executed as 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 April 1997, 15,000 shares of Common
Stock were repurchased through put option assignments. The Company believes that
it will continue to generate cash from operating activities and earn interest
income, both of which will be utilized for future development and working
capital purposes.
The 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.
The estimated average investment to open the Company's five Mall Units during
1997 was $7.1 million, net of landlord contributions, while total expenditures
to develop the free-standing downtown Chicago and MGM Grand Hotel and Casino
Icon Units were approximately $10.0 million and $10.3 million, respectively. 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. Opening of the downtown Chicago Unit resulted in
preopening expenses of approximately $750,000 and opening of the MGM Grand Hotel
and Casino Unit resulted in preopening expenses of approximately $1.2 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 $700,000 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 planned Unit at Disney's Animal Kingdom, which
may cost significantly more. In connection with the construction of existing
Units, the Company has received landlord contributions, which reduced the cost
of opening these Units. There can be no assurance, however, that landlord
contributions will be available in the future.
The Company contemplates that the development and opening of each of its
Units from 1998 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.
<PAGE> 6
Quarterly Fluctuations, Seasonality and Inflation
As a result of the substantial revenues associated with each new Unit, the
timing of new Unit openings will result in significant fluctuations in quarterly
results. 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 assessments indicate that costs associated with Year 2000 compliance are
expected to be immaterial to future financial results.
Proposed Accounting Standard
In April 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued an exposure draft
entitled "Reporting on the Costs of Start-Up Activities." The proposed
accounting standard contained in this draft would require entities to expense as
incurred all start-up and preopening costs that are not otherwise capitalizable
as long-lived assets. If adopted by the AICPA, this new accounting standard
would be effective for fiscal years beginning after December 15, 1998 with
earlier application encouraged. The comment period for the exposure draft ended
in July 1997, and the AICPA is expected to issue a final pronouncement on this
standard during the second quarter of 1998. If the new accounting principle is
adopted by the AICPA, the Company will choose early implementation during fiscal
1998. This implementation will involve the recognition of the cumulative effect
of the change in accounting principle required by the new standard as a one-time
charge against earnings, net of any related income tax effect, retroactive to
the beginning of fiscal 1998 the effect would be a change of earnings of
approximately $4.0 million.
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, 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 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.
<PAGE> 7
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) December 28, 1997 December 29, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 53,621 $ 83,894
Short-term investments 16,963 35,934
Accounts receivable and other 9,893 5,072
Inventories 6,705 2,865
Preopening expenses 4,546 2,302
----------------------------
Total current assets 91,728 130,067
LONG-TERM INVESTMENTS 39,948 42,274
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 112,695 48,097
DEFERRED INCOME TAXES - 2,009
OTHER ASSETS 1,729 254
----------------------------
$246,100 $222,701
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,135 $ 6,237
Accrued liabilities -
Payroll and payroll taxes 3,318 466
Other 3,543 843
Income taxes payable - 4,201
----------------------------
Total current liabilities 13,996 11,747
DEFERRED RENT 8,214 7,000
DEFERRED INCOME TAXES 908 -
Total liabilities 23,118 18,747
============================
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY:
50,000,000 shares no par value authorized; 26,351,268
and 25,779,759 shares of common stock issued and
outstanding 206,277 199,542
Retained earnings 16,705 4,412
----------------------------
Total shareholders' equity 222,982 203,954
----------------------------
$246,100 $222,701
----------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 8
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year ended Year ended Year ended
(In Thousands) December 28, 1997 December 29, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales $ 83,650 $ 37,088 $ 9,979
Retail sales 23,791 10,868 3,472
Licensing fees and royalties 633 750 -
----------------------------------------------------
Total revenues 108,074 48,706 13,451
----------------------------------------------------
COSTS AND EXPENSES:
Food and beverage costs 19,823 9,254 2,778
Cost of retail goods sold 10,856 4,867 1,548
Restaurant operating expenses 40,997 18,288 5,366
Retail operating expenses 7,700 3,558 1,003
Depreciation and amortization 5,641 2,331 475
Amortization of preopening expenses 3,088 1,519 115
----------------------------------------------------
Total costs and expenses 88,105 39,817 11,285
----------------------------------------------------
INCOME FROM UNIT OPERATIONS AND LICENSING 19,969 8,889 2,166
----------------------------------------------------
OTHER (INCOME) EXPENSE:
General, administrative and development expenses 7,409 4,688 1,265
Interest income (9,016) (5,220) (482)
Write-off of development and debt offering costs 2,230 - -
Other 136 181 214
----------------------------------------------------
Total other (income) expense 759 (351) 997
----------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 19,210 9,240 1,169
PROVISION FOR INCOME TAXES 6,917 3,316 -
----------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 12,293 5,924 1,169
EXTRAORDINARY ITEM - EXTINGUISHMENT OF DEBT - - 1,053
----------------------------------------------------
Net income $ 12,293 $ 5,924 $ 116
----------------------------------------------------
BASIC EARNINGS PER COMMON SHARE:
Basic earnings before extraordinary item $ 0.47 $ 0.29 $ 0.10
Extraordinary item - - (0.09)
----------------------------------------------------
Basic earnings per common share $ 0.47 $ 0.29 $ 0.01
----------------------------------------------------
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 25,988,459 20,586,750 10,968,568
----------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE:
Diluted earnings before extraordinary item $ 0.46 $ 0.27 $ 0.10
Extraordinary item - - (0.09)
----------------------------------------------------
Diluted earnings per common share $ 0.46 $ 0.27 $ 0.01
----------------------------------------------------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 26,834,601 21,586,961 10,968,568
----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Retained
------------------------ Earnings
(In Thousands, Except Share Data) Shares Amount (Deficit) Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 5,761,350 $ 3,422 $(1,628) $ 1,794
Conversion of debt to common stock
at $1.78 per share 687,656 1,222 - 1,222
Initial public offering, net 3,881,250 9,025 - 9,025
Common stock issued upon exercise
of warrants 3,877,515 14,198 - 14,198
Stock options exercised 18,750 - - -
Net income - - 116 116
----------------------------------------------------
BALANCE, DECEMBER 31, 1995 14,226,521 27,867 (1,512) 26,355
Common stock issued upon exercise
of warrants 337,500 1,061 - 1,061
Sale of common stock 11,047,500 169,510 - 169,510
Stock options exercised, net of tax effect 164,261 1,033 - 1,033
Employee stock purchases 4,052 71 - 71
Shares retired upon stock split (75) - - -
Net income - - 5,924 5,924
----------------------------------------------------
BALANCE, DECEMBER 29, 1996 25,779,759 199,542 4,412 203,954
Stock options exercised, net of tax effect 553,616 4,969 - 4,969
Employee stock purchases 32,893 402 - 402
Sale of written put options - 1,558 - 1,558
Common stock repurchased (15,000) (194) - (194)
Net income - - 12,293 12,293
----------------------------------------------------
BALANCE, DECEMBER 28, 1997 26,351,268 $206,277 $16,705 $222,982
----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
(In Thousands) December 28, 1997 December 29, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $12,294 $ 5,924 $ 116
Adjustments to reconcile net income to net
cash flows from operating activities -
Depreciation and amortization 10,796 7,093 693
Amortization of long-term debt discount - - 186
Write-off of discontinued development and debt offering costs 2,230 - -
Loss on extinguishment of debt - - 1,053
Deferred income tax benefit 1,944 (2,021) -
Change in assets and liabilities:
Accounts receivable and other (8,098) (3,090) (942)
Inventories (3,840) (1,789) (636)
Preopening expenses (5,332) (3,282) (629)
Accounts payable 898 3,024 2,323
Accrued liabilities 5,029 5,662 385
-------------------------------------------------
Net cash provided by operating activities 15,921 11,521 2,549
-------------------------------------------------
INVESTING ACTIVITIES:
(Purchases) sales of short-term investments, net 18,971 (35,934) -
(Purchases) sales of long-term investments, net 2,326 (42,274) -
Purchases of furniture, equipment and
leasehold improvements, net (73,322) (39,502) (9,505)
Purchases of other assets (1,475) (254) -
-------------------------------------------------
Net cash used in investing activities (53,500) (117,964) (9,505)
-------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from the issuance of debt to shareholders - - 100
Payments on long-term debt to shareholders - - (510)
Proceeds from the sale of common stock and put options, net 4,223 169,803 9,025
Proceeds from the exercise of warrants, net - 1,061 14,198
Repurchase of common stock (194) - -
Tenant allowances collected 3,277 3,150 -
-------------------------------------------------
Net cash provided by financing activities 7,306 174,014 22,813
-------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (30,273) 67,571 15,857
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 83,894 16,323 466
-------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $53,621 $ 83,894 $16,323
-------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest $ - $ - $ 86
Income taxes 8,310 195 -
Noncash investing and financing activities -
Conversion of debt to common stock - - 1,222
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 11
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies
NATURE OF BUSINESS Rainforest Cafe, Inc. (the Company) was incorporated in
the state of Minnesota on February 3, 1994 to own, operate, and license themed
restaurant/retail facilities (each a Unit). As of December 28, 1997, the
Company owned and operated 13 Rainforest Cafe Units in the United States and
licensed three Units internationally. The first unit opened on October 3, 1994
in the Mall of America in Bloomington, Minnesota, a suburb of Minneapolis. The
Company intends to open eight to ten additional units in the U.S. during each
of 1998 and 1999.
FISCAL YEAR The Company has adopted a 52-53-week year ending on the Sunday
nearest December 31 of each year. All references herein to "1997" and "1996"
represent the 52-week fiscal years ended December 28, 1997 and December 29,
1996, respectively.
CASH AND CASH EQUIVALENTS The Company includes as cash equivalents all
highly liquid investments with original maturities of three months or less
when purchased, which are recorded at the lower of cost or market.
INVESTMENTS The Company determines the appropriate classification of debt
and equity securities at the time of purchase and reevaluates such designation
as of each balance sheet date. As of December 28, 1997 and December 29, 1996,
all securities were designated as available-for-sale. The Company classifies
investments with original maturities of more than three months and less than
one year on their acquisition date as short-term investments and investments
with original maturities of more than one year as long-term investments.
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of
shareholders' equity, if significant.
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and
accretion, along with interest and dividends earned and realized gains and
losses, are included in interest income. The cost of securities sold is based
on the specific identification method.
INVENTORIES Inventories consist primarily of retail goods for resale and
food and beverages used in restaurant operations and are recorded at the lower
of cost or market value as determined by the retail inventory method on the
first-in, first-out basis for retail goods and average cost for food and
beverages. Inventories consisted of the following as of (in thousands):
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
- ------------------------------------------------
<S> <C> <C>
Retail goods $6,372 $2,661
Food and beverage 333 204
--------------------
$6,705 $2,865
--------------------
</TABLE>
PREOPENING EXPENSES It is the Company's policy to capitalize the direct and
incremental costs associated with opening a new unit, which consist primarily
of hiring and training the initial work force, mock service and other direct
costs. These costs are amortized over the 11 months of each unit's operations
beginning in the first full month of operation. If the recoverability of such
costs can be reasonably assured. At December 28, 1997 and December 29, 1996,
total capitalized preopening costs were $4.5 million and $2.3 million,
respectively.
In April 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued an exposure draft
entitled "Reporting on the Costs of Start-Up Activities." The proposed
accounting standard contained in this draft would require entities to expense
as incurred all start-up and preopening costs that are not otherwise
capitalizable as long-lived assets. The AICPA is expected to issue a final
pronouncement on this standard during the second quarter of 1998. The
accounting standard would be effective for fiscal years beginning after
December 15, 1998, with earlier application encouraged. If the new accounting
principle is adopted by the AICPA, the Company will choose early implementation
during fiscal 1998. This implementation will involve the recognition of the
cumulative effect of the change in accounting principle required by the new
standard as a one-time charge against earnings, net of any related income tax
effect, retroactive to the beginning of fiscal 1998.
<PAGE> 12
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and
leasehold improvements are recorded at cost. Improvements are capitalized,
while repair and maintenance costs are charged to operations when incurred.
Furniture, fixtures and equipment are depreciated using the straight-line
method over their estimated useful lives of 5 to 15 years. Leasehold
improvements are amortized using the straight-line method over the shorter of
their estimated useful lives or the initial lease term.
Property and equipment consisted of the following as of
(In thousands):
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Furniture, fixtures and
equipment $ 29,016 $ 11,532
Leasehold improvements 60,410 33,718
Construction in progress 33,529 6,245
---------------------------
122,955 51,495
Accumulated depreciation
and amortization (10,260) (3,398)
---------------------------
$112,695 $ 48,097
---------------------------
</TABLE>
LICENSING FEES The Company has entered into five exclusive license
agreements to develop an aggregate of at least 24 Units outside the United
States, of which three are currently open, over a ten year period in the
United Kingdom and Ireland, Mexico, Canada, and certain Asian countries. The
Company intends to enter into additional license agreements in the future. In
each of the existing international license agreements, the Company is entitled
to receive area licensing fees in excess of $500,000 (other than the license
agreement related to the United Kingdom and Ireland which has no area
licensing fee) and is entitled to receive a per Unit development fee as well
as royalties ranging from 3% to 10% of gross revenues. Development fees are
recognized when a licensed unit begins operations, at which time the company
has performed its obligations related to such fees. Area licensing fees
received are deferred and recognized on a pro rata basis as the licensed units
subject to the area development agreements begin operations. Both development
and area licensing fees are nonrefundable. Licensing royalties are recognized
as earned. Certain license agreements allow the Company to become an equity
participant of up to 20% of each Unit developed. The first international
licensed Unit opened in London, England in June 1997, followed by Units in
Cancun, Mexico and Mexico City, Mexico which opened in August and October of
1997, respectively.
INCOME TAXES The Company and its subsidiaries file a consolidated federal
income tax return and separate state returns. Deferred income taxes are
provided for differences between the financial reporting basis and tax basis
of the Company's assets and liabilities at currently enacted tax rates.
EARNINGS PER COMMON SHARE The Company adopted in fiscal 1997, Statement of
Financial Accounting Standards (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 year. 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
the 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 1996 and 1995 were restated. The effect of this
accounting change on previously reported EPS data was as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------
<S> <C> <C>
Primary EPS as reported $0.27 $0.01
Effect of SFAS No. 128 0.02 -
---------------
Basic EPS as restated $0.29 $0.01
---------------
Fully diluted EPS as reported $ - $ -
Effect of SFAS No. 128 0.27 0.01
---------------
Diluted EPS as restated $0.27 $0.01
---------------
</TABLE>
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
<PAGE> 13
2. Write-Off of Development and Debt Offering Costs
TERMINATION OF PLANNED UNITS Subsequent to December 29, 1996 the Company
determined that due to local building restrictions, future negotiations for
Trump Taj Mahal would not result in a mutually agreeable space by both parties
for the planned unit. The Company also determined that, due to Stratosphere's
announcement that it was seeking a bankruptcy reorganization, the required
space for such unit would not be delivered according to the required timeline.
As such, on March 3, 1997, the Company announced that it would write off
development costs related to previously planned units at Trump Taj Mahal
(Atlantic City, New Jersey) and Stratosphere (Las Vegas, Nevada). The
nonrecurring, pre-tax charge to earnings of approximately $1.9 million or
$0.05 per share after taxes was recorded during the first quarter of fiscal
1997.
CONVERTIBLE DEBT OFFERING On December 3, 1997 the Company filed a
registration statement with the Securities and Exchange Commission for a
proposed public offering of $100,000,000 aggregate principal amount of
Convertible Subordinated Notes due 2003. On January 8, 1998 the Company
withdrew the registration statement and wrote off all costs associated with
the proposed debt offering ($295,000) during the fourth quarter of 1997.
3. Marketable Debt and Equity Securities
A summary of securities classified as available for sale as of December
28, 1997 is set forth below (in thousands):
<TABLE>
<CAPTION>
Unrealized Unrealized Fair
1997 Cost Gains Losses Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 43,800 $127 $ 58 $ 43,869
Municipal Debt 34,195 116 24 34,287
Mutual Funds 17,016 - - 17,016
Equity 5,230 122 227 5,125
Other Debt 5,633 29 - 5,662
------------------------------------------------
Securities-Available
for Sale $105,874 $394 $309 $105,959
------------------------------------------------
</TABLE>
A summary of securities classified as available for sale as of December
29, 1996 is set forth below (in thousands):
<TABLE>
<CAPTION>
Unrealized Unrealized Fair
1996 Cost Gains Losses Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 57,246 $ 70 $309 $ 57,007
Municipal Debt 44,715 82 102 44,695
Mutual Funds 42,453 - - 42,453
Equity 10,149 1 36 10,114
Other Debt 5,199 35 140 5,094
------------------------------------------------
Securities-Available
for Sale $159,762 $188 $587 $159,363
------------------------------------------------
</TABLE>
Gross gains of $953,000, $115,000, and $0 were realized during 1997,
1996, and 1995 respectively. Gross losses of $71,000, $156,000, and $0 were
realized during 1997, 1996, and 1995 respectively.
Scheduled maturities of debt securities classified as available for sale
as of December 28, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Cost Fair Value
- ------------------------------------------------------------
<S> <C> <C>
Less than one year $50,783 $51,047
Due in 1-3 years 29,080 28,960
Due after 3 years 3,765 3,811
-------------------------
Total $83,628 $83,818
-------------------------
</TABLE>
4. Long-term Debt
The Company has an unsecured $3 million line of credit with a bank under a
commercial revolving note, expiring June 1998, bearing interest at the bank's
prime rate of interest. During fiscal 1996 and 1997 there were no cash
borrowings on the line and as of December 28, 1997, $305,666 in letters of
credit were outstanding.
In April 1995, the holders of $1,222,500 of promissory notes made an
irrevocable election, effective upon the effective date of an initial public
offering, to convert their notes into shares of the Company's common stock at
a conversion price of $1.78 per share. The Company recorded the conversion as
an extinguishment of debt, which resulted in an extraordinary charge to
operations of $1,053,128 at the date of conversion.
<PAGE> 14
5. Shareholders' Equity
INITIAL PUBLIC STOCK OFFERING In April 1995, the Company consummated an
initial public offering of 3,881,250 units at an offering price of $2.67 per
unit, including 506,250 units from the exercise of the underwriters'
overallotment option which occurred in May 1995. Each unit consisted of one
share of common stock and one Redeemable Class A Warrant. The Company received
net proceeds of $9.0 million after the payment of $1.3 million in related
underwriting discount and offering costs.
EXERCISE OF WARRANTS In August 1995, the holders of 3,877,515 of the
Redeemable Class A Warrants (the Warrants) discussed above exercised the
Warrants at an exercise price of $3.67. A total of 3,735 warrants were not
exercised, and the Company redeemed those 3,735 warrants at $.01 per warrant.
The Company received net proceeds of $14.2 million.
SECONDARY PUBLIC OFFERINGS In January 1996, the Company consummated a public
offering of 6,210,000 shares of common stock at an offering price of $12.67
per share. The Company received proceeds of $73.6 million, net of
approximately $5.1 million in offering costs.
In September 1996, the Company consummated a public offering of 5,175,000
shares of common stock at an offering price of $21.00 per share. Of the
5,175,000 shares sold, 337,500 shares were sold by selling shareholders. The
Company received proceeds of $96.0 million, net of approximately $5.6 million
in offering costs.
STOCK SPLIT In May 1996, the Company's board of directors approved a
three-for-two stock split in the form of a 50% stock dividend on its no par
value common stock. The split was payable to shareholders of record as of June
21, 1996 and was effective July 2, 1996. On November 18, 1997, the Company's
board of directors approved a three-for-two stock split in the form of a 50%
stock dividend on its no par value common stock. The split was payable to
shareholders of record as of December 26, 1997 and was effective January 15,
1998. All references to earnings per share, number of shares and share amounts
have been retroactively restated throughout the accompanying financial
statements to reflect these stock splits.
STOCK REPURCHASE PROGRAM During January 1997, the Company's board of
directors authorized, subject to certain business and market conditions, the
purchase of up to 1,500,000 shares of the Company's common stock. As of
December 28, 1997, the number of shares purchased under this authorization
was 15,000 as noted below. The Company also utilizes put options as a part of
its stock repurchase program. At December 28, 1997, put options to acquire
approximately 1,000,000 shares of the Company's common stock were outstanding
at exercise prices between $11.625 and $15.00 per share. The put options are
callable on specific dates in the first, second and third quarters of fiscal
1998, and give a third party the right to sell shares of the Company's common
stock at contractually specified prices. During 1997, the Company settled put
option obligations on 15,000 shares for cash of $194,000. The proceeds from
the issuance of the put options were accounted for as additional
paid-in-capital. As of December 28, 1997, the cash settlement amount for put
options sold and outstanding would be approximately $20 million.
6. Income Taxes
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Current:
Federal $4,197 $4,489
State 776 848
Deferred 1,944 (2,021)
-----------------------------------
Provision for income taxes $6,917 $3,316
-----------------------------------
</TABLE>
The differences between the effective tax rate and income taxes computed
using the federal statutory rate were as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Federal statutory rate 35.0% 34.0%
State income taxes, net of
federal tax benefit 4.0 6.2
Tax exempt income (3.1) (3.3)
Other, net 0.1 (1.0)
---------------------------------
36.0% 35.9%
---------------------------------
</TABLE>
<PAGE> 15
The Company has recorded the following net deferred income taxes as of (in
thousands):
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Current deferred income
tax benefits $1,345 $ 166
Current deferred income taxes (360) (154)
-----------------------------------
Net current deferred
income tax benefits 985 12
-----------------------------------
Noncurrent deferred
income tax benefits 3,281 2,398
Noncurrent deferred
income taxes (4,189) (389)
-----------------------------------
Net noncurrent deferred
income taxes (908) 2,009
-----------------------------------
Net deferred income
tax benefits $ 77 $2,021
-----------------------------------
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Preopening costs $(1,534) $ (118)
Accelerated depreciation (2,655) (272)
Landlord inducements 3,103 2,398
Miscellaneous reserves 454 -
Tax credit carryforwards 647 -
Other accruals 62 13
------------------------------------
Net deferred income $ 77 $ 2,021
tax benefits ------------------------------------
</TABLE>
7. Stock Options
STOCK OPTION AND COMPENSATION PLAN The Company has a Stock Option and
Compensation Plan as Amended (the Plan), pursuant to which options and other
awards to acquire an aggregate of 3,750,000 shares of the Company's common
stock may be granted to full-time employees of the Company. Stock options,
stock appreciation rights, restricted stock, other stock and cash awards may
be granted under the Plan. The Plan is administered by the Company's
compensation committee which has the discretion to determine the number and
purchase price of shares subject to stock options, which may not be below 100%
of the fair market value of the common stock on the date granted, the term of
each option, and the time or times during its term when the option becomes
exercisable. The Company has granted options on 3,286,000 shares through
December 28, 1997, with vesting periods ranging from three to five years and
maximum option terms of ten years.
OTHER STOCK OPTIONS As of its inception (February 3, 1994), the Company
granted options to acquire an aggregate of 450,000 shares of common stock with
an exercise price of $.01 per share to two of its employees. Of the options
granted, 393,750 are to an employee who is an officer and director of the
Company. These options vest on a pro rata basis on the first, second and third
anniversaries of the grant and are exercisable for a period of ten years from
the date of grant.
During 1995, the Company granted stock options to the Company's outside
directors. These options vest on a pro rata basis over three years and are
exercisable for a period of ten years from the date of grant. The Company has
options outstanding on 206,250 shares as of December 28, 1997.
During September 1997, the Company adopted the 1997 Directors' Stock
Option Plan, whereby stock options are granted to the Company's outside
directors to acquire an aggregate of 300,000 shares of the Company's common
stock. The Company has granted options on 37,500 shares through December 28,
1997.
<PAGE> 16
A summary of the status of the Company's various stock option plans for
the three year period ended December 28, 1997 is presented in the table and
narrative below:
<TABLE>
<CAPTION>
Adjusted for Stock Split
Year Ended Year Ended Year Ended
December 28, 1997 December 29, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 2,261,242 $ 6.13 1,662,000 $ 2.23 450,000 $ .01
Granted 1,844,251 19.06 85,250 13.27 1,233,000 3.01
Exercised 553,614 3.95 164,258 3.34 18,750 .01
Forfeited 309,153 6.13 87,750 9.17 2,250 2.27
---------------------------------------------------------------------------------------
Outstanding, end of period 3,242,725 $13.71 2,261,242 $6.13 1,662,000 $2.23
---------------------------------------------------------------------------------------
Exercisable, end of period 691,088 $ 3.74 542,843 $1.78 224,850 $1.60
---------------------------------------------------------------------------------------
Weighted average fair value
of options granted $14.00 $6.29 $2.33
------ ----- -----
</TABLE>
The Company accounts for these plans under Accounting Principles Board (APB)
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and diluted
EPS would have been decreased to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME
As Reported $12,294 $5,924 $ 116
Pro Forma 8,880 5,283 (86)
DILUTED EPS
As Reported 0.46 0.27 0.01
Pro Forma 0.33 0.24 (0.01)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
At December 28, 1997, 1,144,525 of the 3,242,725 options outstanding have
exercise prices between $.01 and $11.58, with a weighted average exercise
price of $4.39 and a weighted average remaining contractual life of 6.8 years.
The remaining 2,098,200 options have exercise prices between $11.59 and
$23.70, with a weighted average exercise price of $18.80 and a weighted
average remaining contractual life of 9.4 years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995: risk-free
interest rates of 5.8%, 6.0% and 5.5%; no expected dividend yields; expected
lives of 7, 6 and 5 years; and expected volatility of 60%, 40% and 50%,
respectively.
EMPLOYEE STOCK PURCHASE PLAN During 1996, the Company adopted the 1996
Employee Stock Purchase Plan (the 1996 Plan) which allows employees to set
aside up to 15% of their earnings for the purchase of the Company's common
stock. Shares are purchased quarterly under the 1996 Plan at a price equal to
85% of the lessor of the market price on either the first or last day of the
quarter. During 1997 and 1996, 21,935 and 4,051 shares were issued under the
1996 Plan, respectively, and at December 28, 1997, 312,684 shares were
available for future issuance. The average price per share was $17.57 and
$12.32 in 1997 and 1996, respectively.
WARRANTS In connection with its initial public offering in April 1995, the
Company issued a warrant to the underwriters to purchase 337,500 shares of
common stock at $3.20 per share. The warrant became exercisable on April 7,
1996, and subsequently, during 1996, 337,500 shares of common stock were
issued upon exercise of all of the outstanding warrants.
<PAGE> 17
8. Commitments and Contingencies
OPERATING LEASES The Company has entered into various operating leases for
its existing and future units which typically have an initial lease term of
ten to fifteen years with an option for renewal. All of these leases contain
provisions for contingent rentals based on a percentage of gross revenues, as
defined, and contain renewal options and provisions for payments of real
estate taxes, insurance and common area costs. In addition, certain of these
leases provide for tenant inducements and rent abatement. Total rent expense,
including common area costs, real estate taxes and percentage rent, was
$10,942,000, $5,067,000, and $793,000, for the years 1997, 1996 and 1995,
respectively.
Future minimum rental payments (including three units which are not yet
open and excluding percentage rents) are as follows as of December 28, 1997 (in
thousands):
<TABLE>
- --------------------------------------------
<S> <C>
1998 $ 10,349,000
1999 12,461,000
2000 12,425,000
2001 12,383,000
2002 12,383,000
Thereafter 58,965,000
------------
Total $118,966,000
------------
</TABLE>
EMPLOYMENT AGREEMENTS The Company entered into an employment agreement with
one of its officers which requires the payment of annual compensation of
$140,000 per year for up to three years and includes bonus provisions. If
terminated by the Company during this period without good cause, the employee
is entitled to up to one year's base compensation. This agreement expires
February, 1998.
LITIGATION The Company is involved in various legal actions rising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or the results of its operations.
RETIREMENT SAVINGS PLAN The Company offers a 401(k) savings and investment
plan (the Plan) to employees who meet certain eligibility requirements such as
1 year of services, 1000 hours worked during the year and age of 21. The
Company makes matching contributions to the Plan up to a maximum percentage of
each participating employee's annual investment. Matching and discretionary
contributions to the Plan are authorized by the Company's compensations
committee. The expense for the Plan was $138,000 in 1997.
9. Quarterly Data (unaudited, in thousands, except per share data)
The following is a summary of quarterly consolidated results of operations for
1997 and 1996.
<TABLE>
<CAPTION>
March 30, June 29, September 28, December 28,
Fiscal Year 1997 1997 1997 1997 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $21,869 $23,591 $28,008 $34,606
Income from unit operations and licensing 3,814 4,150 5,583 6,422
Net income 1,606 2,955 3,755 3,978
Diluted earnings per common share 0.06 0.11 0.14 0.15
<CAPTION>
March 31, June 30, September 29, December 29,
Fiscal Year 1996 1996 1996 1996 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $5,744 $7,070 $15,718 $20,174
Income from unit operations and licensing 858 1,319 2,626 4,086
Net income 548 833 1,924 2,619
Diluted earnings per common share 0.03 0.04 0.09 0.10
</TABLE>
<PAGE> 18
10. Subsequent Events (Unaudited)
SECURITIES LITIGATION In January and February 1998, the Company and certain
of its executive officers and directors were named as defendants in certain
shareholder class action and derivative action lawsuits alleging, among other
things, that the Company and certain of its officers failed to disclose
certain financial information about the Company in a timely fashion. The
Company intends to defend these actions vigorously and believes that the final
outcome of these lawsuits will not have a material adverse effect upon the
Company's financial position or its results of operations.
STOCK REPURCHASE PROGRAM In January 1998, the Company's Board of Directors
amended its stock repurchase program to provide that up to 3.0 million shares
may be repurchased over a one-year period.
Report of Independent Public Accountants
TO RAINFOREST CAFE, INC. We have audited the accompanying consolidated
balance sheets of Rainforest Cafe, Inc. (a Minnesota corporation) as of
December 28, 1997 and December 29, 1996 and the related consolidated
statements of operations, shareholders' equity and cash flows for the three
years in the period ended December 28, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rainforest
Cafe, Inc. as of December 28, 1997 and December 29, 1996 and the results of
its operations and its cash flows for the three years in the period ended
December 28, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
February 13, 1998
<PAGE> 19
Corporate Information
OFFICERS
Lyle Berman
Chairman of the Board
Chief Executive Officer
Kenneth W. Brimmer
Interim President/Treasurer/Secretary
Greg Carey
Chief Operating Officer
Mark Robinow
Sr. Vice President/Chief Financial Officer
Steven Schussler
Sr. Vice President of Development & Marketing
Ercu Ucan
Sr. Vice President of Retail
Mark Bartholomay
Sr. Vice President of International Development & Operations
Stephen Cohen
General Counsel/Vice President of Real Estate
DIRECTORS
Lyle Berman
Kenneth W. Brimmer
David L. Rogers - President, Wilsons The Leather Experts
Steven Schussler
Ercu Ucan
Joel N. Waller - Chairman, Wilsons The Leather Experts
ANNUAL MEETING
The Annual Meeting of the Shareholders of Rainforest Cafe, Inc., will be held
on May 18, 1998, at 8:45 a.m., in the Ballroom of the Marriott Hotel, 30 South
7th Street, Minneapolis, Minnesota.
QUARTERLY RESULTS & 10-K AVAILABILITY
The Company will furnish to any shareholder, without charge, a copy of the
Company's annual report on Form 10-K, filed with the Securities and Exchange
Commission for the 1997 fiscal year, upon written request from the shareholder
addressed to:
Mark Robinow
Chief Financial Officer
Rainforest Cafe, Inc.
720 South Fifth Street
Hopkins, Minnesota 55343
www.rainforestcafe.com
Phone: 612-945-5400
Fax: 612-945-5492
Shareholders who wish to receive the Company's quarterly Form 10-Q should call
the Investor Relations Communication Department at 612-945-5440 or write to
Rainforest Cafe Corporate Headquarters. A summary of the current quarter's
results is also posted on our website.
TRANSFER AGENT & REGISTRAR
Norwest Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55075-0854
Phone: 612-450-4064
800-468-9716
[email protected]
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Minneapolis, Minnesota
COMMON STOCK INFORMATION
The Company's common stock trades on the National Market tier of the NASDAQ
Stock Market under the symbol RAIN. On March 20, 1998 there were approximately
1,428 shareholders of record. The following table sets forth for the quarters
indicated the high and low sale prices of the Company's common stock, as
reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
1997 High Low
- ------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $18.58 $12.62
Second Quarter 18.75 12.04
Third Quarter 21.17 14.58
Fourth Quarter 25.33 20.00
<CAPTION>
1996
- ------------------------------------------------------------------------------
First Quarter $15.00 $ 9.83
Second Quarter 22.67 13.33
Third Quarter 22.83 13.33
Fourth Quarter 24.17 14.83
</TABLE>
Since its initial public offering of common stock in April 1995, the Company
has not paid dividends on its common stock, and has no plans to do so in the
foreseeable future.
RAINFOREST CAFE, DOWNTOWN CHICAGO, IS PICTURED ON THE FRONT COVER. THIS UNIT,
LOCATED AT THE INTERSECTION OF CLARK & OHIO STREETS, HAS A SPECTACULAR EXTERIOR
FEATURING CHA!CHA! A GIGANTIC 2 TON RED-EYED TREE FROG PERCHED ON THE ROOF.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF COMPANY
Rainforest Cafe, Inc. - Thunder
Rainforest Cafe, Inc. - Mist
Rainforest Cafe, Inc. - Cha Cha
Rainforest Cafe Canada Holding, Inc.
24
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 13, 1998 incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statement File Nos. 333-37817
and 333-37819.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 53,621
<SECURITIES> 56,911
<RECEIVABLES> 9,893
<ALLOWANCES> 0
<INVENTORY> 6,705
<CURRENT-ASSETS> 91,728
<PP&E> 112,695
<DEPRECIATION> 0
<TOTAL-ASSETS> 246,100
<CURRENT-LIABILITIES> 13,996
<BONDS> 0
0
0
<COMMON> 206,277
<OTHER-SE> 16,705
<TOTAL-LIABILITY-AND-EQUITY> 246,100
<SALES> 107,441
<TOTAL-REVENUES> 108,074
<CGS> 30,679
<TOTAL-COSTS> 88,105
<OTHER-EXPENSES> 759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,210
<INCOME-TAX> 6,917
<INCOME-CONTINUING> 12,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,293
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
