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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 JANUARY 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
___________
Commission File No. 0-27366
RAINFOREST CAFE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1779527
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
720 SOUTH FIFTH STREET
HOPKINS, MINNESOTA 55343
(Address of principal executive offices) (Zip Code)
(612) 945-5400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
NO PAR VALUE
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
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 29, 1999, 24,548,304 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 29, 1999,
was $122,742,000. 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
PART II and IV - Portions of the Registrant's Annual Report to Shareholders for
the year ended January 3, 1999, 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 17, 1999, 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") 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.
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
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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 $8.99 to $21.99 and the average guest check was approximately
$13.50 for the fiscal year ended January 3, 1999. 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 Stock Option Plans
and all full-time employees are eligible to participate in the Company's 1997
Employee Stock Purchase 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 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."
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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, 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, Disney's Animal Kingdom, the MGM
Grand Hotel and Casino in Las Vegas, Nevada and downtown Chicago,.
The Company's thirteen domestic Units that were open the entire fiscal year
ended January 3, 1999, generated average revenues of $12.7 million during 1998.
The Company's seventeen Mall Units open at the end of 1998, were developed at an
average cost of $5.9 million, net of landlord contributions. Additionally, the
Company incurred average pre-opening costs of approximately $800,000 and
purchased an average of $270,000 of inventory in connection with each opening.
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 which were developed at an average cost of $12.3 million, net of
landlord contributions. The Company incurred an average of $1.1 million
pre-opening expenses and purchased an average of $400,000 inventory in
connection
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with the opening of these Icon Units. 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, 22,000 375 September 1997
NY
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
Ontario Mills................... Ontario, CA 20,000 350 July, 1998
Cherry Creek Mall .............. Denver, CO 23,000 375 August, 1998
Menlo Park Mall................. Edison, NJ 18,000 350 September, 1998
Burlington Mall................. Burlington, MA 17,500 325 October, 1998
Great Lakes Crossing............ Detroit, MI 20,400 325 November, 1998
Franklin Mills.................. Philadelphia, PA 16,000 300 November, 1998
Oak Park Mall................... Overland Park, KS 16,000 300 February, 1999
Towson Town Center.............. Baltimore, MD 17,000 325 March, 1999
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
Eaton Center.................... Vancouver, Canada 18,000 325 June, 1998
Manchester...................... Manchester, England 17,000 350 September, 1998
Festival Walk................... Hong Kong 17,000 350 October, 1998
Mundo E......................... Mexico City, Mexico 14,000 250 November, 1998
Scarborough Town Center......... Toronto, Canada 17,500 325 January, 1999
</TABLE>
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(1) Designates Icon Units.
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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
MacArthur Center............ Norfolk, VA 15,000 300 Second Quarter 1999
South Center Mall........... Seattle, WA 17,000 325 Third Quarter 1999
Jersey Gardens.............. Newark, NJ 16,000 325 Fourth Quarter 1999
Katy Mills.................. Katy, TX 16,000 325 Fourth Quarter 1999
West Farms Mall............. New Haven, CT 15,000 300 First Quarter, 2000
Fisherman's Warf (1) (2).... San Francisco, CA 27,000 450 Second Quarter, 2000
Opry Mills.................. Nashville, TN 17,000 325 Second Quarter, 2000
The Disneyland Resort (1) (2) Anaheim, CA 27,000 500 First Quarter, 2001
International
EuroDisney.................. Paris, France 20,000 400 Second Quarter 1999
Yorkdale.................... Toronto, Canada 17,500 325 Third Quarter, 1999
Montreal Forum.............. Montreal, Canada Fourth Quarter, 1999
</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.
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 is the only full service sit-down restaurant at 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.
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INTERNATIONAL LICENSE AND JOINT VENTURE AGREEMENTS
The Company has entered into seven separate exclusive license arrangements
relating to the development of Rainforest Cafes in the United Kingdom and
Ireland, France, Mexico, Canada and certain countries and cities in Asia and
South America. 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 which are proportionate to market size and economic
potential. For the fiscal year ended January 3, 1999, approximately 1.0% of the
Company's total revenues were derived from international licensing fees and
royalties. Through the fiscal year ended January 3, 1999, the Company's
expenditures in acquiring ownership interests in certain international
Rainforest Cafes was $5.5 million.
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 purchased a 49% ownership in the Manchester Unit
for approximately $550,000.
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 three Units through fiscal 1998, one in
Cancun and in two Mexico City.
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 opened its first Canadian Unit near Vancouver in June 1998 and its second
Canadian Unit in Toronto in January 1999.
Southeast Asia. In August 1997, the Company entered into a Master License
Agreement with Rainforest Cafe Far East, Ltd. ("RFC Far East Ltd.") formerly
Movie Dream Corporation, a subsidiary of Far East Holdings International
Limited, a Singapore-based holding company. The agreement was amended as of
January 1, 1999. Under the terms of the agreement, RFC Far East Ltd. will
develop a minimum of three Units over ten years. Countries covered by this
agreement include Singapore, Thailand and the Philippines. RFC Far East Ltd. 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
any Unit, up to 20% of the equity interest in all Units developed by RFC Far
East Ltd.. This license
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agreement also grants RFC Far East Ltd. an option for the development rights to
India, Malaysia, and Indonesia, 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. In March, 1998, the Company purchased 20% ownership, for
approximately $1.8 million, in both JIL and the first Unit which opened in Hong
Kong in October 1998.
France. In September 1998, the Company entered into a franchise agreement
to open a Unit at Disneyland Paris to be operated by Groupe Flo S.A.. The
agreement requires the Unit to open within one year and includes an option to
open an additional Unit in France prior to July,2002.
Argentina, Brazil, Chile and Puerto Rico. In December 1998, the Company
entered into an Area Development Agreement with HR Sudamerica S.A. DE C.V
("Sudamerica") to develop five Units in Argentina, Brazil, Chile and Puerto Rico
prior to December 2002. Under the terms of this agreement, the Company and
Sudamerica will each own approximately 50% of the restaurants required to be
developed under the agreement.
RESTAURANT
For the fiscal year ended January 3, 1999, approximately 77% 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
"Rainforest Pita Quesadillas" and "Awesome Appetizer Adventure". 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 Sunset
Salmon" (fresh salmon filet marinated in a soy mustard vinaigrette), and
"Rumble in the Jungle Turkey Pita" (grilled pita bread stuffed with fresh
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 $8.99 to $21.99. The Restaurant's
full-service bar, the "Mushroom Bar," features a number of customized
alcoholic and non-alcoholic drinks, such as the "Jungle Root" (carrot
juice), the "Margarilla" (a margarita blended with orange sherbet) and the
"Chocolate Covered Banana Blast" (fresh banana, chocolate syrup, vanilla
yogurt blended with rum). Alcoholic beverages are primarily served to
complement
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meals and accounted for approximately 10% of total restaurant
sales for the fiscal year ended January 3, 1999. The average check per
person for such period was approximately $13.50. 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 Atlas and waterfall, gorillas, elephants, tropical fish and star
gazing. Table decor complements the rain forest theme through the use of
brilliantly-colored tables 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 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 January 3, 1999, approximately 22% 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 utilizes
several Animal Characters 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,
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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. Charly Robinson, the
Company's Senior Vice President of Operations has over 20 years of restaurant
and hospitality experience. The Company's three Regional Vice Presidents 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 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 19, 1999, the Company
had approximately 6000 employees, including 137 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 or kitchen manager who
10
<PAGE> 11
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. Most 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 many
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 approximately $2.0 million for
the fiscal year ended January 3, 1999.
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 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.
Each Unit has an on-site accountant who assists in the accumulation and
processing of accounting data and performs other administrative functions.
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
The Company has created a marketing plan with an objective of positioning
the Company to reflect the following statement: Rainforest Cafe is an adventure
that stimulates the mind, emotion and senses by delivering high quality
proprietary entertainment, food and retail experiences to both children and
adults. The Company has multiple strategies for marketing newer versus mature
Rainforest Cafe Units in addition to Company-wide awareness strategies.
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<PAGE> 12
With respect to new Units, given that sales are frequently at or near
capacity during such Unit's first year of operations, the Company places less
emphasis on promotion of new Units during their first year of operations.
Advertising of new Units is focused on recruitment of new employees and building
brand awareness through public relations and regional print media. The Company
has found that Rainforest Cafe grand openings are frequently an event that
receives much local publicity. With respect to existing Units that have been
open more than 12 months, the Company's objective and strategies are to increase
same store sales through, among other things, promoting the Unit's reservations,
offering a special weekday kid's menu and implementing a weekday lunch menu.
With both new and existing Units, the Company strives to utilize its crewmembers
to help develop repeat visits and build guest loyalty.
In addition to strategies utilized for new and mature Units, the Company
intends to utilize the following to help build brand equity and create repeat
visits:
- Loyalty clubs for adults and children designed to motivate guest
visitation for occasions ranging from birthdays and anniversaries to
exemplary report cards.
- Year round promotions and events designed to help build off-peak hour
business.
- Advertising, primarily print and outdoor signage, to promote both the
Company's brand and Rainforest Cafe special event.
- Cross-marketing to certain businesses, organizations and individuals.
- Continued public relations through the Company's off-site educational
programs.
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 directly 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.
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 food
commodity prices, the minimum hourly wage, unemployment tax rates, real estate
taxes and similar matters over which the Company has no control.
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<PAGE> 13
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.
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.
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 believes these allegations are without merit and 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
13
<PAGE> 14
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 the Company's Annual
Report to shareholders or this Form 10-K such as competition, regulation and
trademarks, and intellectual property, 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.
SAME STORE SALES DECLINE
The Company's history indicates that a Unit's revenues frequently decrease
during such Unit's subsequent years of operations. Sales for the seven Units
opened eighteen months or more as of January 3, 1999 declined 9% in Fiscal 1998.
Although the Company has undertaken a number of strategies to offset declining
same store sales (such as revising the Restaurant's menu and discounting certain
retail items) no assurance can be given that comparable same store sales will
not continue to decline. In addition to negatively impacting the Company's
revenues, declining same store sales has had a negative impact on the Company's
stock price and resulted in stock price volatility. Furthermore, because a new
Unit typically experiences higher revenues in the initial six to twelve months
of operations, the opening of new Units may disproportionately impact revenue
analysis.
GROWTH FACTORS/EXPANSION STRATEGY
In addition to increasing revenues of existing Units, 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, at the planned rate of expansion, or on a timely basis, 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
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<PAGE> 15
results at any one Unit or a delay in the planned opening or non-opening of a
Unit could 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.
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
Burlington Mall Unit or 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 limited operating history and the performance of
this Unit is dependant on visitor attendance to the theme park.
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 quarterly
operating results of the Company or other restaurant and retail companies,
market perception of the Company's ability to achieve successfully its planned
rapid growth, 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,
South America, France and Hong Kong and intends to enter into other license
agreements in the future. The Company's concept is relatively untested outside
of the United States, and no assurance can be given that any international
location will be successful. The Company's success is also 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
Units in the U.K., Canada and Hong Kong and is
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<PAGE> 16
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 $2.5 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. 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 and planned Units except for an eleven year lease for the South Coast
Plaza Unit 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, certain common area maintenance expense and percentage rents that range
from 5 to 18 percent depending upon location and volume of sales.
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<PAGE> 17
The Company's executive offices are located in Hopkins, Minnesota, under a
lease, which terminates in October, 2003.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant from time to time in routine lawsuits incidental
to its business, which individually and in the aggregate, are not expected to
have any material adverse effect on the Company. In addition, the company is
party to the following:
SHAREHOLDER CLASS ACTION LITIGATION
The Company and certain executive officers of the Company are named as
defendants in a purported class action complaint, In Re: Rainforest Cafe, Inc.
Securities Litigation, alleging violations by the Company and such executive
officers of certain Federal securities laws. The complaint was filed on July 31,
1998 and is a consolidation of seven separate actions which were all filed in
the United States District Court for the District of Minnesota. The complaint
alleges that the defendants violated Federal securities laws by making
misrepresentations and omissions regarding the Company's performance and future
prospects during the class period while individually selling the Company's
Common Stock. The complaint purports to seek relief on behalf of a class of
plaintiffs who purchased the Company's Common Stock during the period between
October 20, 1997 and January 6, 1998. The action was dismissed without prejudice
on December 21, 1998. Plaintiffs filed an appeal of the judgement of dismissal
on January 29, 1999 and then filed a motion to voluntarily dismiss the appeal on
March 16, 1999. The Company expects the appeal will be dismissed.
SHAREHOLDER CLASS ACTION 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. The
action was dismissed with prejudice on December 21, 1998.
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 January 3, 1999.
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<PAGE> 18
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 57 has been Chairman of the Board and Chief Executive
Officer of the Company since its inception in February 1994. Mr. Berman has been
Chairman of the Board of Lakes Gaming since June 1998. Mr. Berman was Chief
Executive Officer of Grand Casinos, Inc. from October 1990 to March, 1998 and
had 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., Park Place
Entertainment Corporation 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.
Kenneth Brimmer, age 43 has been President of the Company since April 1997,
a Director of the Company since August, 1998, 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 Senior 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 43 has been Senior 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 42 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.
Charles Robinson, age 43 has been Senior Vice President - Operations of the
Company since August 1998. Mr. Robinson joined Rainforest Cafe in January 1996
as the Director of Operations for the Downtown Disney Marketplace unit. In
August 1997, he was named Regional Director of Operations for the eastern
division, followed by a promotion to Vice President of International Operations
in December 1997. Mr. Robinson has held executive positions in both the
restaurant and hotel industries. He holds a Bachelor of Science degree in
Restaurant, Hotel and Institutional Management from Purdue University.
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<PAGE> 19
Mark Bartholomay, age 39 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.
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 January 3, 1999, 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 January 3, 1999, 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 January 3, 1999, 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 January 3, 1999, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 20
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
January 3, 1999 and forwarded to stockholders prior to the Company's 1999 Annual
Meeting of Shareholders (the "1999 Proxy Statement"), is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the 1999 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 1999 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 1999 Proxy Statement under the caption "Certain
Transactions" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
None
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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: April 2, 1999 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, 1999.
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
Chairman of the Board and Chief Executive Officer
/s/ Lyle Berman (principal executive officer)
- ------------------------------------------------------------
Lyle Berman
/s/ Kenneth W. Brimmer President, Secretary, Treasurer and Director
- ------------------------------------------------------------
Kenneth W. Brimmer
/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
/s/ Joel N. Waller Director
- ------------------------------------------------------------
Joel N. Waller
Chief Financial Officer (principal financial officer
/s/ Mark S. Robinow and principal accounting officer)
- ------------------------------------------------------------
Mark S. Robinow
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
---------------------------
(a)(3) Exhibits
<S> <C>
3.1 Articles of Incorporation, as amended (Incorporated herein by reference to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2, File No. 33-89256C (the "SB-2"))
3.2 By-laws (Incorporated herein by reference as Exhibit 3.2 of the SB-2)
10.1 Lease Agreement by and between Mall of America, Inc. and the Company dated March 31, 1994. (Incorporated
herein by reference as Exhibit 10.1 of the SB-2)
10.2 Lease Agreement by and between the Company and Walt Disney
World dated September 6, 1995. (Incorporated herein by
reference to Exhibit 10.3 of the Company's Registration
Statement on Form S-1, File No.
33-99836 (the "S-1"))
10.3 Company's 1995 Stock Option and Compensation Plan. (Incorporated herein by reference as Exhibit 10.3 of
the SB-2)
10.4 Indemnification Agreement dated April 6, 1995 by and between the Company and Steven Schussler.
(Incorporated herein by reference as Exhibit 10.16 of the SB-2)
10.5 Form of Director Stock Option Agreement dated April 7, 1995. (Incorporated herein by reference as
Exhibit 10.1 of the SB-2)
10.6 Lease Agreement by and between the Company and Trump Taj Mahal Associates dated December 6, 1995.
(Incorporated herein by reference to Exhibit 10.10 of the S-1)
10.7 Company's 1996 Employee Stock Purchase Plan. (Incorporated herein by reference to Exhibit 10.12 of the
Company's Form 10-K for the fiscal year ended December 29, 1996)
10.8 Company's 1997 Director Stock Option Plan (Incorporated herein by reference to Exhibit 10.11 to the
Company's Form 10-K for the fiscal year ended December 28, 1997)
10.9 Company's 1998 Non-Executive Stock Option Plan.
13. Annual Report to Shareholders for the fiscal year ended January 3, 1999.
21. Subsidiaries of Company.
27. Financial Data Schedule.
</TABLE>
- ----------
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the fiscal year ended January
3, 1999.
22
<PAGE> 1
EXHIBIT 10.9
RAINFOREST CAFE, INC.
1998 NON-EXECUTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the 1998 Non-Executive Stock Option Plan
(the "Plan") of Rainforest Cafe, Inc. (the "Company") is to increase shareholder
value and to advance the interests of the Company by attracting, motivating and
retaining non-executive full-time employees of the Company ("Non- Executive
Employees") by furnishing Non-Executive Employees non-qualified stock options to
purchase Common Stock, no par value, of the Company ("Stock Options").
2. Administration. The Plan shall be administered by a committee (the
"Committee") of the Board of Directors of the Company. The Committee shall
consist of not less than two directors of the Company and shall be appointed
from time to time by the Board of Directors of the Company. The members of the
Committee may be employee Directors of the Company, non-employee Directors of
the Company, or any combination thereof. The Board of Directors of the Company
may from time to time appoint members of the Committee in substitution for, or
in addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. The Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable. A majority of the Committee's members shall constitute a quorum. All
action of the Committee shall be taken by the majority of its members. Any
action may be taken by a written instrument signed by majority of the members
and actions so taken shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable. The
Committee shall have complete authority to award Stock Options under the Plan,
to interpret the Plan, and to make any other determination which it believes
necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
3. Eligible Employees. Non-Executive Employees of the Company who are
full-time employees shall become eligible to receive Stock Options under the
Plan when designated by the Committee. For purposes of the Plan, "Non-Executive
Employees" shall be any employee of the Company who is not a director or officer
of the Company, as defined in Rule 16a-1(f) of the Securities Exchange Act of
1934, as amended (the "1934 Act"). Non-Executive Employees may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate.
4. Shares Subject to the Plan.
4.1 Number of Shares. Subject to adjustment as provided in
Section 6.5, the number of shares of Common Stock which may be issued
under the Plan shall not exceed 1,000,000 shares of Common Stock.
4.2 Cancellation. In the event that a Stock Option granted
hereunder expires or is terminated or canceled unexercised as to any
shares of Common Stock, options relating to such shares may again be
issued under the Plan. The Committee may also determine to cancel, and
agree to the cancellation of, Stock Options in order to make a
participant eligible for the grant of a Stock Option at a lower price
than the option to be canceled.
<PAGE> 2
4.3 Type of Common Stock. Common Stock issued under the Plan
in connection with Stock Options shall be authorized and unissued
shares.
5. Stock Options. A Stock Option is a right to purchase shares of
Common Stock from the Company. Each Stock Option granted by the Committee under
this Plan shall be subject to the following terms and conditions:
5.1 Price. The option price per share shall be determined by
the Committee, subject to adjustment under Section 6.5.
5.2 Number. The number of shares of Common Stock subject to
the option shall be determined by the Committee, subject to adjustment
as provided in Section 6.5.
5.3 Non-Qualified Stock Option. No Stock Option granted under
the Plan shall qualify as an incentive stock option (as such term is
defined in Section 422A of the Internal Revenue Code of 1986, as
amended).
5.4 Duration and Time for Exercise. Subject to earlier
termination as provided in Section 6.3, the term of each Stock Option
shall be determined by the Committee but shall not exceed ten years and
one day from the date of grant. Each Stock Option shall become
exercisable at such time or times during its term as shall be
determined by the Committee at the time of grant. The Committee may
accelerate the exercisability of any Stock Option. Subject to the
foregoing and with the approval of the Committee, all or any part of
the shares of Common Stock with respect to which the right to purchase
has accrued may be purchased by the Company at the time of such accrual
or at any time or times thereafter during the term of the option.
5.5 Manner of Exercise. A Stock Option may be exercised, in
whole or in part, by giving written notice to the Company, specifying
the number of shares of Common Stock to be purchased and accompanied by
the full purchase price for such shares. The option price shall be
payable in United States dollars upon exercise of the option and may be
paid by cash; uncertified or certified check; bank draft; by delivery
of shares of Common Stock in payment of all or any part of the option
price, which shares shall be valued for this purpose at the Fair Market
Value on the date such option is exercised; by instructing the Company
to withhold from the shares of Common Stock issuable upon exercise of
the Stock Option shares of Common Stock in payment of all or any part
of the option price, which shares shall be valued for this purpose at
the Fair Market Value or in such other manner as may be authorized from
time to time by the Committee. Prior to the issuance of shares of
Common Stock upon the exercise of a Stock Option, a participant shall
have no rights as a shareholder.
6. General.
6.1 Duration. The Plan shall remain in effect until all Stock
Options granted under the Plan have either been satisfied by the
issuance of shares of Common Stock or the payment of cash or been
terminated under the terms of the Plan and all restrictions imposed on
shares of Common Stock in connection with their issuance under the Plan
have lapsed. No Stock Options may be granted under the Plan after the
tenth anniversary of the date the Plan is approved by the shareholders
of the Company.
2
<PAGE> 3
6.2 Non-transferability of Stock Options. No Stock Option may
be transferred, pledged or assigned by the holder thereof (except, in
the event of the holder's death, by will or the laws of descent and
distribution to the limited extent provided in the Plan or in the Stock
Option) and the Company shall not be required to recognize any
attempted assignment of such rights by any participant. During a
participant's lifetime, a Stock Option may be exercised only by him or
by his guardian or legal representative.
6.3 Effect of Termination of Employment or Death. In the event
that a participant ceases to be an employee of the Company for any
reason, including death, any Stock Options may be exercised or shall
expire at such times as may be determined by the Committee.
6.4 Additional Condition. Notwithstanding anything in this
Plan to the contrary: (a) the Company may, if it shall determine it
necessary or desirable for any reason, at the time of award of Stock
Option require the recipient of the Stock Option, as a condition to the
receipt thereof, to deliver to the Company a written representation of
present intention to acquire the Stock Option or the shares of Common
Stock issued pursuant thereto for his own account for investment and
not for distribution; and (b) if at any time the Company further
determines, in its sole discretion, that the listing, registration or
qualification (or any updating of any such document) of any Stock
Option issuable pursuant thereto is necessary on any securities
exchange or under any federal or state securities or blue sky law, or
that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with the
award of any Stock Option, the issuance of shares of Common Stock
pursuant thereto, or the removal of any restrictions imposed on such
shares, such Stock Option shall not be awarded or such shares of Common
Stock shall not be issued or such restrictions shall not be removed, as
the case may be, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the
Company.
6.5 Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or
corporations, there shall be substituted for each of the shares of
Common Stock then subject to the Plan, including shares subject to
restrictions, options, or achievement of performance share objectives,
the number and kind of shares of stock or other securities to which the
holders of the shares of Common Stock will be entitled pursuant to the
transaction. In the event of any recapitalization, stock dividend,
stock split, combination of shares or other change in the Common Stock,
the number of shares of Common Stock then subject to the Plan,
including shares subject to restrictions, options or achievements of
performance shares, shall be adjusted in proportion to the change in
outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance
objectives of any Stock Option, and the shares of Common Stock issuable
pursuant to any Stock Option shall be adjusted as and to the extent
appropriate, at the discretion of the Committee, to provide
participants with the same relative rights before and after such
adjustment.
6.6 Stock Option Plans and Agreements. The terms of each
Stock Option shall be stated in an agreement approved by the Committee.
6.7 Withholding.
(a) The Company shall have the right to withhold from
any payments made under the Plan or to collect as a condition
of payment, any taxes required by law to be withheld. At any
time when a participant is required to pay to the Company an
amount
3
<PAGE> 4
required to be withheld under applicable income tax laws in
connection with an exercise of an option, the participant may
satisfy this obligation in whole or in part by electing (the
"Election") to have the Company withhold from the distribution
shares of Common Stock having a value up to the amount
required to be withheld. The value of the shares to be
withheld shall be based on the Fair Market Value of the Common
Stock on the date that the amount of tax to be withheld shall
be determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date.
The Committee may disapprove of any Election, may suspend or
terminate the right to make Elections, or may provide with
respect to any Stock Option that the right to make Elections
shall not apply to such Stock Option. An Election is
irrevocable.
6.8 No Continued Employment or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of the Company for any period
of time or to any right to continue his or her present or any other
rate of compensation. Nothing contained in the Plan shall be construed
as giving an employee, the employee's beneficiaries or any other person
any equity or interests of any kind in the assets of the Company or
creating a trust of any kind or a fiduciary relationship of any kind
between the Company and any such person.
6.9 Amendment of the Plan. The Board may amend or discontinue
the Plan at any time. However, no such amendment or discontinuance
shall, subject to adjustment under Section 6.5, change or impair,
without the consent of the recipient, a Stock Option previously
granted.
6.10 Immediate Acceleration of Stock Option. Notwithstanding
any provision in this Plan or in any Stock Option to the contrary, all
outstanding options will become exercisable immediately any of the
following events occur unless otherwise determined by the Board of
Directors and a majority of the Continuing Directors (as defined
below):
(1) any person or group of persons becomes the
beneficial owner of 30% or more of any equity security of the
Company entitled to vote for the election of directors;
(2) a majority of the members of the Board of
Directors of the Company is replaced within the period of less
than two years by directors not nominated and approved by the
Board of Directors; or
(3) the shareholders of the Company approve an
agreement to merge or consolidate with or into another
corporation or an agreement to sell or otherwise dispose of
all or substantially all of the Company's assets (including a
plan of liquidation).
For purposes of this Section 6.10, beneficial ownership by a
person or group of persons shall be determined in accordance with
Regulation 13D (or any similar successor regulation) promulgated by the
Securities and Exchange Commission pursuant to the 1934 Act. Beneficial
ownership of more than 30% of an equity security may be established by
any reasonable method, but shall be presumed conclusively as to any
person who files a Schedule 13D report with the Securities and Exchange
Commission reporting such ownership. If the restrictions and
forfeitability periods are eliminated by reason of provision (1), the
limitations of this Plan shall not
4
<PAGE> 5
become applicable again should the person cease to own 30% or more of
any equity security of the Company.
For purposes of this Section 6.10, "Continuing Directors" are
directors (a) who were in office prior to the time any of provisions
(1), (2) or (3) occurred or any person publicly announced an intention
to acquire 20% or more of any equity security of the Company, (b)
directors in office for a period of more than two years, and (c)
directors nominated and approved by the Continuing Directors.
6.11 Definition of Fair Market Value. For purposes of this
Plan, the "Fair Market Value" of a share of Common Stock at a specified
date shall, unless otherwise expressly provided in this Plan, be the
amount which the Committee determines in good faith to be 100% of the
fair market value of such a share as of the date in question; provided,
however, that notwithstanding the foregoing, if such shares are listed
on a U.S. securities exchange or are quoted on the NASDAQ National
Market System, then Fair Market Value shall be determined by reference
to the last sale price of a share of Common Stock on such U.S.
securities exchange or NASDAQ on the applicable date. If such U.S.
securities exchange or NASDAQ is closed for trading on such date, or if
the Common Stock does not trade on such date, then the last sale price
used shall be the one on the date the Common Stock last traded on such
U.S. securities exchange or NASDAQ.
5
<PAGE> 1
EXHIBIT 13
1998 ANNUAL REPORT
RAINFOREST CAFE
A WILD PLACE TO SHOP AND EAT
<PAGE> 2
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(In Thousands, Except Share Data) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Revenues $ 213,892 $ 108,074 $ 48,706 $ 13,451 $ 2,066
Unit Operating Income (Loss) 29,204 19,969 8,889 2,166 (20)
Pretax Income (Loss) 22,203(2) 19,210 9,240 1,169(1) (1,628)
Net Income (Loss) 14,654(2) 12,293 5,924 1,169(1) (1,628)
Net Income (Loss) Per Share 0.57(2) .46 .27 .10 (.46)
Weighted Average Shares Outstanding 25,729,650 26,834,601 21,586,961 10,968,568 5,314,500
AT YEAR END
Working Capital $ 49,736 $ 77,732 $ 118,320 $ 15,490 $ (467)
Total Assets 255,527 246,100 222,701 31,209 31,209
Shareholders' Equity 213,062 222,982 203,954 26,355 1,794
Book Value Per Share $ 8.64 $ 8.46 $ 7.91 $ 1.85 $ .31
</TABLE>
(1) Before extraordinary item
(2) Before cumulative change in accounting principle
RAINFOREST CAFE IS A VIBRANT AND GROWING BUSINESS.
1998 was our fifth consecutive year of significant growth and record profits.
With 21 domestic units and eight international units at year-end, the reach of
Rainforest Cafe extends our global brand from our original unit at the Mall of
America in Bloomington, Minnesota as far as Manchester, England in one direction
and Hong Kong in the other. Rainforest Cafe also has a major presence at Walt
Disney World in Orlando. At Rainforest Cafe over six thousand motivated
crewmembers work hard every day to bring the world "A Wild Place to Shop and
Eat(R)".
<TABLE>
<CAPTION>
[BAR GRAPH]
REVENUES OPERATING INCOME BOOK VALUE PER SHARE
(dollars in millions) (dollars in millions) (dollars)
<S> <C> <C> <C> <C> <C>
94 $ 2.1 94 $ 0.0 94 $0.31
95 $ 13.5 95 $ 2.2 95 $1.85
96 $ 48.7 96 $ 8.9 96 $7.91
97 $108.1 97 $20.0 97 $8.46
98 $213.9 98 $29.2 98 $8.64
</TABLE>
<PAGE> 3
MEXICO CITY, MEXICO
[PHOTO]
MGM GRAND, LAS VEGAS, NV
[PHOTO]
MALL OF AMERICA, MN
[PHOTO]
LONDON, ENGLAND
[PHOTO]
BURLINGTON, MA
[PHOTO]
CANCUN, MEXICO
[PHOTO]
VANCOUVER, CANADA
[PHOTO]
CHICAGO, IL
[PHOTO]
HONG KONG, CHINA
[PHOTO]
PHOENIX, AZ
[PHOTO]
MANCHESTER, ENGLAND
[PHOTO]
DISNEY'S ANIMAL KINGDOM, FL
[PHOTO]
<PAGE> 4
LYLE BERMAN KENNETH BRIMMER
[PHOTO} [PHOTO]
TO OUR SHAREHOLDERS, CREWMEMBERS, AND FRIENDS:
The year 1998 marked the fifth consecutive year of significant growth and record
profits for Rainforest Cafe. We opened eight domestic locations and we extended
our reach as far as Hong Kong with four international openings in 1998, bringing
the total number of Rainforest Cafes at year-end to 21 domestic and seven
international units. While we delivered record profits, our share price
performed poorly, declining significantly in 1998. We attribute the decline, in
part, to so-called "themed restaurants" falling from investor favor as well as
our own sales challenges. Our message in this report is that Rainforest Cafe is
a vibrant and growing business. Not only did we deliver record results in 1998,
but we enter 1999 with the financial wherewithal to continue to execute our
business plan. Our successes in 1998 included increasing sales 98 percent from
last year and increasing operating income by 46 percent. We concluded the year
in an enviably strong financial position with over $46 million in cash and
investments and shareholders' equity of over $213 million, representing $8.64
per share in book value.
FINANCIAL RESULTS
For the fiscal year ended January 3, 1999, revenues were $213.9 million with net
income of $10.7 million. Income before the change in accounting principle
increased to $14.7 million; an increase of 19 percent from last year. In meeting
the challenges of growth, we also met the challenge of controlling costs in an
expanding organization. We continued to leverage our corporate resources as the
business grew, with general and administrative expenses as a percentage of
revenue declining from 6.9 percent in 1997 to 5.7 percent in 1998.
While 1998 was a year of many accomplishments, we also faced several
challenges. Most notable among our challenges were the results of our
comparable-unit sales at locations open more than 18 months. For the 1998 fiscal
year, we experienced a 9 percent decrease in our same-store sales base. These
"same-store sales results" were particularly impacted by a decline from the
spectacular first-year sales achieved at our first unit at Walt Disney World in
Orlando. This decline can be attributed in part, to the opening of a second unit
in Orlando at Disney's Animal Kingdom and a soft tourist market in Orlando in
general. While overall comparable-store sales results were disappointing, it is
important to note that Rainforest Cafe continues to have the highest average
unit volume of any multi-unit operator in our industry. Despite our same-store
sales challenges, we are encouraged by results at our Mall of America unit,
where sales were approximately $11 million for the fourth consecutive year. We
were also pleased with results at our Gurnee Mills unit, where partly as a
result of changes to our unit's physical layout, sales increased for the year.
As we have noted in the past, strong first-year sales results make it difficult
for our units to exceed those sales in the second year. Market research
continues to show that over 90 percent of our guests plan to return. Improving
the productivity of each unit is a critical focus for the company and we have
targeted strategies to improve same store-sales performance. This is our
number-one priority in 1999.
1998 SUCCESSES AND 1999 FOCUS
Our 1999 strategies include a number of initiatives. In 1998 we focused on
building our marketing department and we developed a marketing plan designed to
increase first-time guest visits to our locations, repeat visits, visits during
off-peak hours, and retail transactions. Our number-one marketing technique is
to provide an unforgettable guest experience. In addition, some of our specific
planned marketing tactics include loyalty membership clubs for both adults and
children, incentives that encourage repeat visits, and special events for our
guests. Although we're initiating an annual calendar of companywide programs,
each unit's marketing program will be tailored to its specific needs.
In addition to marketing programs, we have a number of important operational
initiatives in place that we believe will produce positive results in 1999.
These include more efficient unit staffing, benchmarking performance between
units, improved communication between the units and our World Headquarters,
safety committees at each location to reduce accidents and insurance rates,
increased centralized buying, and better distribution. We're also focused on
improving training and promoting our crew from within - all with the goal of
improving the guest experience while controlling corporate administrative
expenses.
(Pictured left to right: Lyle Berman and Kenneth Brimmer)
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<PAGE> 5
The 1998 international openings were all very well received, representing the
continued extension of Rainforest Cafe as a global brand. Our continued growth
reinforces the broad consumer acceptance and growing worldwide recognition of
our product. Our international expansion also confirms our appeal to all ages,
all cultures, and all demographics. Our international openings in Mexico City;
Hong Kong; Manchester, England; and Vancouver, Canada; were successful and more
efficiently executed than our first international openings in 1997. Progress
came from the development of standardized documentation and procedures for
construction, detailed unit opening checklists, and crewmember training
procedures. We conduct quarterly on-site operational reviews of all
international locations to ensure adherence to standards so that our guests have
the same Rainforest Cafe experience in Minneapolis or Mexico City. In 1999, we
will continue to extend our global reach as we participate in the opening of a
unit at Disneyland Paris. This international tourist location represents an
important extension of our relationship with Disney worldwide.
Improving our product and service delivery through ongoing research with our
guests is a priority. We use feedback from surveying 12,000 guests each quarter
to continually improve Rainforest Cafe. Based on guest input, we enhanced our
menus and began taking reservations at all locations in 1998. Our goal is to
make it easy and convenient for guests to visit Rainforest Cafe. Group bookings
are another opportunity to increase incremental revenue. Our sales teams
actively develop this business at all locations and for all occasions -
corporate events, birthday parties, family celebrations, and more. This strategy
has been particularly successful at our Orlando and Las Vegas locations.
Improving retail performance was an important objective for us this past
year, and we made significant progress in that area; retail sales increased 98
percent in 1998. We strengthened the retail management team with the addition of
key managers and focused on more aggressive pricing and a broader assortment of
products. Better systems, improved sourcing, store profiling, planning, and
analysis are also helping to improve merchandise flow.
Retail sales play a significant role in our business, accounting for 22
percent of total revenue. Our sales productivity continues to outperform the
mall averages where we operate. For example, sales per square foot at our Mall
of America unit are $625 compared with an estimated mall average of $425. At our
Woodfield Mall location, sales per square foot are $520 compared with $450 for
the mall.
LOOKING AHEAD
The planned opening of six domestic and four to five international units in 1999
represents a slowing in unit growth from previous years. While we expect to
continue to grow, our focus in 1999 is on improved execution in all areas of our
business. Improving same-store sales performance through creative marketing
strategies and reducing operating and preopening expenses are key priorities. We
believe these efforts will enhance our already strong cash flow from operations
and continued progress towards the long-term goal of significant growth in
shareholder value.
Rainforest Cafe is a profitable company with a vibrant concept, sound
strategy, and strong management team - a team that has successfully grown the
company from one to 28 stores in just five years. We believe our future is
bright. Rainforest Cafe continues to extend its appeal as a worldwide brand,
building on the tremendous success we've realized since the company was
incorporated.
Thank you to our shareholders, crewmembers and friends for your support and
commitment to Rainforest Cafe.
Sincerely,
Lyle Berman
Lyle Berman
Chairman and Chief Executive Officer
/s/ Kenneth W. Brimmer
Kenneth W. Brimmer
President
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<PAGE> 6
EXPERIENCE FABULOUS FOOD AND GREAT SERVICE
GUESTS COME TO RAINFOREST CAFE FOR AN ADVENTURE - but what
matters most is the food. Our fresh, original recipes - influenced by the
cuisines of Mexico, Asia, the Caribbean, the American Southwest, and Louisiana -
set us far apart from other restaurant companies. Great food, combined with
superior service in a dynamic environment, results in repeat business. Our
surveys show over 90 percent of Rainforest Cafe guests are likely to return.
[PHOTO]
four
<PAGE> 7
[PHOTO]
Pictured: Awesome Appetizer Adventure
Menu enhancements - We worked hard in 1998 to improve our menu offerings and the
merchandising within the menu. We introduced the Awesome Appetizer Adventure
sampler which quickly became our number one selling appetizer. In 1998, we
changed the names of many selections to be more descriptive - with great
results. For example, our shrimp pasta dish changed to Mogambo Shrimp and then
moved from being our third most popular pasta dish to our number one selling
menu item, with over 321,000 sold annually!
[PHOTO]
AWARD WINNING FOOD: We have tailored our menus to individual locations. In our
icon units, we found that more menu variety would better meet the needs of the
tourist crowds. We added entrees and expanded our wine list. In our Walt Disney
World Animal Kingdom and Las Vegas locations, we successfully introduced
breakfast menus, adding an additional meal period. A redesign of our menu for a
cleaner, easier-to-read look has also been well received.
Our food not only inspires high marks from guests but also from food industry
and restaurant critics. In 1998, we received a number of awards, including the
Silver Platter Award for Best Themed Restaurant by Food Industry News; Best
Restaurant for Kids and Best Themed Restaurant by Orlando Magazine; Favorite
Restaurant by the Orange County Register; Best Restaurant for Kids in the 1998
Chicago's Choice Dining Poll in the Chicago Tribune; Best Themed Restaurant in
the annual Foodie Award competition in the Orlando Sentinel; Reader's Choice
Award for Coolest Restaurant by Dallas Child Magazine.
[PHOTO]
five
<PAGE> 8
EXPERIENCE QUALITY SHOPPING AND REASONS TO COME BACK FOR MORE!
WE OFFER FUN AND UNIQUE PRODUCTS - 80 to 90 percent of our retail products are
private label. Take the silk boxers featuring Cha Cha the Red Eye Tree Frog or
the collectable holiday ornaments adorned with the Rainforest Cafe characters -
you can't get these items anywhere else! It's all part of the Rainforest Cafe
experience, which brings guests back again and again.
[PHOTO]
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<PAGE> 9
[PHOTO]
Join the club - the Rainforest Cafe Safari Club for adults and the Rainforest
Cafe Wild Bunch Club for kids are planned to be in place by the end of the year.
The Rainforest Cafe Safari Club planned benefits include priority seating,
selected retail and restaurant discounts, and special events and promotions. The
Rainforest Cafe Wild Bunch Club planned perks include: collectible character
cards, educational materials and games, prize drawings and contests, and a
report card program.
[PHOTO]
REVEL IN THE RETAIL VILLAGE:
Just as individual units have unique needs for menu items, they also have unique
needs for retailing. In 1998, we adjusted our retail mix to fit our different
store profiles. Guests at tourist locations find more gift and collectible
items. At mall locations, we're changing our assortment more frequently,
offering more holiday items and following fashion trends. At value centers, our
strategy focuses on pricing and promotional items.
Our eight Wild Bunch characters continue to dominate our merchandise
assortments, which includes apparel, home accessories, jewelry, bath products,
food, and children's items. Based on the success of our children's line, we
introduced two educational and entertaining children's books and plan to build
this line. We've also capitalized on holidays and added related collectible and
gift items, such as ornaments, cookie jars, books, and Beanie Babies(R) -
another way to attract repeat business.
BRINGING GUESTS BACK FOR MORE:
A primary focus of our marketing efforts is within our own "four walls" where we
develop joint advertising and promotions with other businesses and tenants.
We've already launched initiatives to encourage repeat business.
Rainforest Cafe is launching two exciting new membership programs designed to
establish and grow a base of lifelong and loyal guests. The Rainforest Cafe
Safari Club, designed specifically for adults, and the Rainforest Cafe Wild
Bunch Club, designed specifically for kids, will communicate and reward members
who visit Rainforest Cafe.
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<PAGE> 10
EXPERIENCE RAINFOREST CAFE AROUND THE WORLD!
NORTH AMERICA. CENTRAL AMERICA. EUROPE AND ASIA. Rainforest Cafe
is an international company with seven locations spanning several continents and
four to five more international sites anticipated to be opening in 1999. Our
goal is to ensure guests have a consistently positive adventure in terms of
food, atmosphere, service, and educational experience at every Rainforest Cafe.
[PHOTO]
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<PAGE> 11
CHARITABLE CONTRIBUTIONS
(cumulative)
RAINFOREST CAFE
FRIENDS OF THE FUTURE
[LOGO]
FOUNDATION
<TABLE>
<S><C>
$ 16,341
$ 74,006
$205,418
$342,699
</TABLE>
Friends of the Future Foundation - Children take great interest in the
environment and the future of our world. That's why Rainforest Cafe's
Educational Outreach Program continues to be such a hit. Last year, more than
260,000 children participated in our program and received an Environmental
Awareness Diploma. The diploma includes a note to parents and a free children's
meal with the purchase of an adult entree.
[PHOTO]
SPANNING THE GLOBE:
We continue to refine the menus at our international units, with each market's
menu offering a mix of local cuisine. Our goal is to be the same as other
Rainforest Cafe locations while, at the same time, serving the tastes of the
local community.
Worldwide, our Retail Villages carry many of the top-selling items from our
domestic collection. In 1999, our international units will work more closely
with our retail department to tie in to U.S. orders, find local products, and
use the vendors of our licensing partners.
REACHING OUT TO THE COMMUNITY:
Since our beginning, we have been committed to educating our guests,
particularly children, about environmental and wildlife issues, endangered
species, and vanishing habitats. We have donated proceeds from our Wishing Ponds
to a variety of environmental organizations. In 1998, we formed the Rainforest
Cafe Friends of the Future Foundation to support environmental causes and
programs that enrich the lives of children, their families, and entire
communities. To date the company has donated over $340,000 to organizations
including the World Wildlife Fund, Rainforest Action Network, and the Rainforest
Alliance.
We've also created an Earth Month promotion for 1999. Tying in to national
Earth Day, schoolchildren will be encouraged to draw pictures about the
environment, bring them to their local Rainforest Cafe, and receive an Earth Day
poster and pin. These drawings will be displayed in the malls' common areas.
Teacher recognition and parent involvement is also part of this unique program.
nine
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, founded in February 1994, owns, operates, and licenses themed
restaurant/retail facilities (each a "Unit") under the name "Rainforest Cafe - A
Wild Place to Shop and Eat(R)". As of January 3, 1999, the Company owned and
operated 21 Units in the United States and licensed seven Units outside of the
United States. Rainforest Cafe Units range in size from the Company's initial
Unit opened on October 3, 1994 in the Mall of America in Bloomington, Minnesota,
which is approximately 15,000 square feet, to the 34,000 square foot Unit
located at Disney's Animal Kingdom at Walt Disney World in Orlando, Florida.
The Company presently plans to open six domestic Units in 1999, of which two
opened during 1999's first quarter. Because the Company anticipates continued
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 15,000 to 18,000 square feet, with between 300 and 400 restaurant
seats and 10% to 20% of square footage dedicated to retail selling space.
However, some Units may be significantly larger, such as the free-standing
30,000 square foot Downtown Disney Marketplace Unit, and the free-standing
34,000 square foot Disney's Animal Kingdom Unit, both of which contain
approximately 550 restaurant seats.
In addition to operations in the United States, the Company has pursued
international growth opportunities through licensing arrangements. The Company
has entered into seven exclusive license agreements to develop up to 28 Units,
of which seven are currently open, over the next ten years in the United Kingdom
and Ireland, Mexico, Canada, France and certain countries and cities in Asia and
South America. The Company intends to enter into additional license agreements
in the future. 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 which are proportionate to market size and economic
potential. Certain agreements, such as the agreement relating to the United
Kingdom and Ireland, allow the Company to become an equity participant of 20% to
50% of each Unit developed. The agreement for the Canadian development is a
50/50 joint venture with Elephant and Castle Group, Inc., a restaurant company
based in Vancouver, Canada. The first international licensed Unit opened in
London in June 1997. The Company believes approximately four to five Units will
be opened outside the United States in 1999.
Components of operating expenses include operating payroll and fringe
benefits costs, occupancy costs, maintenance costs related to animatronics, the
bird habitat and aquariums, and advertising and promotion costs. The majority of
these costs are variable and will increase with sales volume. Management
projects that when a new Unit opens, it will incur higher than normal levels of
labor and food costs as Unit personnel complete training. Management believes,
however, that as new staff gain experience, hourly labor schedules over the
ensuing 30-60 day period will gradually adjust because of operating
efficiencies, and then be similar to those at established Units. Each of the
Company's current leases includes both fixed rate and percentage rent
provisions.
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. Management, supervisory and staff salaries, employee benefits, travel,
information systems, training, rent and office supplies are primary items of
costs in this category.
The Company uses a 52 or 53 week fiscal year ending on the Sunday nearest
December 31.
ten
<PAGE> 13
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total
revenues (except where noted) were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
1999 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales 77.0% 77.4% 76.2%
Retail sales 22.0 22.0 22.3
Licensing fees and royalties 1.0 0.6 1.5
-------------------------------------
Total revenues 100.0 100.0 100.0
COSTS AND EXPENSES:
Food and beverage costs(1) 23.6 23.7 25.0
Cost of retail goods sold(2) 46.1 45.6 44.8
Restaurant operating expenses(1) 52.0 49.0 49.3
Retail operating expenses(2) 33.5 32.4 32.7
Depreciation and amortization(3) 6.2 5.3 4.8
Preopening expenses(3) 4.6 2.9 3.1
Total costs and expenses(3) 87.2 82.0 83.0
Income from unit operations and licensing 13.7 18.5 18.3
-------------------------------------
OTHER (INCOME) EXPENSE:
General, administrative and development expenses 5.7 6.9 9.6
Interest income (2.8) (8.3) (10.7)
Write-off of development and debt offering costs -- 2.1 --
Other 0.3 0.1 0.4
-------------------------------------
Total other (income) expense 3.3 0.7 (0.7)
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 10.4 17.8 19.0
PROVISION FOR INCOME TAXES 3.5 6.4 6.8
-------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE(4) 6.8 11.4 12.2
=====================================
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Percentage of restaurant sales.
(2) Percentage of retail sales.
(3) Percentage of restaurant and retail sales.
(4) Effective December 29, 1997, the company adopted Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities".
The effect of this accounting change was a charge to operations representing
1.8% of total revenues.
eleven
<PAGE> 14
FIFTY-THREE WEEKS ENDED JANUARY 3, 1999 COMPARED TO THE FIFTY-TWO WEEKS
ENDED DECEMBER 28, 1997
Results of operations for the fiscal year ended January 3, 1999 reflect the
operations of seventeen Mall Units and four free-standing Units. Thirteen
domestic Units and three international Units were open in the entire 1998 year.
Eight domestic Units and four international unites were opened during the year.
Total revenues increased 98% to $213.9 million in 1998 from $108.1 million in
1997. Revenue growth resulted primarily from the addition of eight domestic
Units during 1998 which contributed revenues of $45.8 million and from a full
year of operations of the seven Units which opened in 1997 and contributed an
increase in revenues of $65.9 million in 1998. International Unit growth
contributed $1.5 million additional revenues in 1998. These increases in
revenues were offset by a decrease in sales of $7.4 million for Units which were
opened prior to 1997. The Company's experience to date is that a Unit's sales
frequently decrease on a comparable basis after the first year of operations.
The comparable store sales base decreased 9% for the fiscal year 1998 as
compared to 1997. Management believes that any such decreases result primarily
from the fact that the Company's new Units typically open at or near full
capacity.
Food and beverage costs increased 96% to $38.8 million in 1998 compared to
$19.8 million in 1997. The increase in food and beverage costs was consistent
with the increase in restaurant sales. Food and beverage costs remained
relatively stable as a percent of sales. Cost of retail goods sold increased 99%
to $21.7 million from $10.9 million in 1997. The increase in cost of retail
goods sold was primarily due to the increase in retail sales from additional
Units. Cost of retail goods sold as a percentage of retail sales increased by
0.5% of sales in 1998 compared to 1997 primarily due to more frequent in-store
promotions and greater discounts offered in 1998.
Restaurant and retail operating expenses increased 108% to $101.4 million for
1998 from $48.7 million for 1997, primarily due to Unit expansion. Restaurant
operating expenses increases as a percentage of restaurant sales from 49.0% in
1997 to 52.0% in 1998. Retail operating expenses increased as a percentage of
retail sales from 32.4% in 1997 to 33.5% in 1998. The increase in restaurant and
retail operating expenses as a percentage of applicable restaurant and retail
sales is primarily due to increased expenditures on repairs and maintenance,
sales and marketing, and increased costs of restaurant labor. The restaurant
labor increase is partially due to the payment of higher union wage rates at the
Company's Unit at MGM Grand Hotel and Casino located in Las Vegas, Nevada.
Expenditures on sales and promotions increased at most Units and the initial
investment in corporate sales personnel in Las Vegas, South Florida, Orlando and
Chicago contributed to higher costs. A high level of operating expenses at the
Aventura Mall Unit combined with low sales volume also contributed to the
percentage increase in restaurant and retail operating expenses.
Depreciation and amortization increased 132% to $13.1 million in 1998
from $5.6 million for the comparable period in 1997. Preopening expenses
increased 215% from $3.1 million in 1997 to $9.7 million in 1998. The
increase in depreciation and amortization was primarily due to Unit
expansion and capital additions and improvements to existing Units.
Depreciation and amortization as a percentage of restaurant and retail
sales increased to 6.2% for the 1998 fiscal year from 5.3% for 1997 due to
increased costs of new Unit development, capital improvements in existing
Units and decreased comparable store sales in certain Units. Preopening
expenses increased as a percentage of restaurant and retail sales from
2.9% in 1997 to 4.6% in 1998. The increase as a percentage of sales is
primarily due to an increase in average Unit preopening costs and the
addition of eight new Units in 1998, whose preopening costs were expensed
during the year, and not capitalized as in the past due to a change in
accounting principle as discussed on the following page.
General, administrative and development expenses increased 66% to $12.3
million in 1998 from $7.4 million in 1997. The increase in general,
administrative and development expenses was primarily due to the addition
of corporate employees, an increase in regional Unit management and the
development of marketing and advertising programs. General, administrative
and development expenses as a percentage of revenues decreased to 5.7% of
revenues of 1998 from 6.9% of revenues for 1997.
Interest income of $5.9 million for 1998 was generated primarily by investing
the proceeds from the Company's two follow-on public offerings completed in
January and September, 1996, and capital gains on investments realized during
1998. Interest income of $9.0 million for 1997 was generated primarily by
investing the proceeds of the Company's two 1996 follow-on public offerings.
The provision for income taxes in the 1998 and 1997 fiscal years are
both based upon the Company's estimated effective tax rate, including
tax-exempt interest income. The effective tax rate for 1998 was reduced to
34% from 36% in 1997, reflecting the addition of more Units in lower tax
states such as Nevada and Florida.
twelve
<PAGE> 15
Income before cumulative effect of change in accounting principle was $14.7
million, or $.57 per diluted share, for the 53-week 1998 fiscal year compared
with $12.3 million, or $.46 per diluted share, for the 52-week 1997 fiscal year.
Effective December 29, 1997, the company adopted Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires
companies to expense as incurred all start-up and preopening costs that are not
otherwise capitalizable as long-lived assets. The effect of this accounting
change was a charge to operations of $3.9 million; net of $2.2 million of
related tax benefit for the unamortized balance of preopening costs and other
start-up expenses as of December 29, 1997. Net income was $10.7 million or $.42
per diluted share for the 1998 fiscal year compared with $12.3 million or $.46
per diluted share for fiscal 1997.
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, which
opened in October 1994; the Woodfield Mall Unit which commenced operations
in October 1995; the Gurnee Mills Unit, opened in June 1996; the Downtown
Disney Marketplace Unit, the Company's first Icon Unit, which commenced
operations in July 1996; the Tysons Corner Center I Unit, which opened in
October 1996, and the Sawgrass Mills Unit, which opened in November 1996.
Total revenues increased 122% to $108.1 million in 1997 from $48.7 in 1996.
Revenue growth resulted primarily from the addition of seven domestic Units and
licensing fees and royalties from three international Units opened during 1997.
The Company's experience to date indicates that a Unit's revenues may decrease
on a comparable basis during its second 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 Unit expansion. Food and beverage costs as a percentage of restaurant sales
decreased to 23.7% for the 1997 fiscal year from 25.0% for 1996, largely due to
improvements in food preparation efficiencies, 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 the 1997 fiscal
year from $4.9 million for the comparable 1996 period. The increase in cost of
retail goods sold was due primarily to Unit expansion and the addition of an
expanded retail distribution center during the second half of 1996. This
increase was offset partially by savings resulting from enhanced purchasing
power due to volume and additions of less expensive vendor sources. Cost of
retail goods sold as a percentage of sales remained relatively stable.
Restaurant and retail operating expenses increased 123% to $48.7 million for
1997 from $21.8 million for the 1996 fiscal year, 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 the fiscal year ended December 28, 1997 from
$1.5 million for the 1996 fiscal year. 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 4.8% for 1996 due to increased
costs of Unit development and the retrofitting of existing Units to incorporate
the latest elements of the rainforest theme, including the Company's latest
animatronics.
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 related to
the Company's growth. General, administrative and development expenses as a
percentage of revenues decreased to 6.9% for 1997 from 9.6% for 1996. Management
believes general, administrative and development expenses will 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 the 1997 fiscal year 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 January 1996 follow-on
public offering.
thirteen
<PAGE> 16
Write-offs totaling $2.2 million in 1997 were comprised of $1.9 million 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 lessor-related regulatory restrictions with respect
to construction and financial problems, respectively and $0.3 in debt offering
costs in the fourth quarter.
The provision for income taxes in 1997 is based upon the Company's estimated
effective tax rate, including tax-exempt interest income. The provision for
income taxes for the 1996 fiscal year is based upon the Company's effective tax
rate, including the benefits of approximately $350,000 in net operating loss
carryforwards and tax exempt interest income.
Net income was $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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital needs arise from the development and opening of
new Units. In January 1996, the Company issued an aggregate of 6,210,000 shares
of Common Stock pursuant to a secondary public offering at $12.67 per share. The
net proceeds to the Company, after payment of underwriting fees and offering
expenses, were approximately $73.6 million. In May 1996, the Company received
approximately $1.0 million in net proceeds from the exercise of warrants at
$3.20 per share issued to Underwriters of the Company's IPO. In September 1996,
the Company issued an aggregate of 5,175,000 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 January 3, 1999, the Company had working capital
of approximately $49.7 million and long-term investments of $15.9 million,
consisting principally of investment grade, fixed income securities.
The Company generated $27.9 million in cash flow from operating activities
for 1998, compared to $15.9 million for 1997. Additionally, for 1998, the
Company generated $0.6 million in stock options exercised, compared with $5.0
million for the comparable period in 1997. In 1998, the Company generated
approximately $2.5 million cash from the sale of put options on approximately
2.2 million shares of the Company's Common Stock (at exercise prices ranging
from $5.00 to $15.00 per share). In 1997, the Company generated approximately
$1.6 million in 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 and
January 1999, pursuant to which up to 1.5 million shares, 3.0 million shares,
and 2.0 million shares respectively of the Company's Common Stock may be
repurchased over a one year period. During 1998, 1.9 million shares of Common
Stock were repurchased through put option assignments and open market
repurchases for $23.3 million. 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 seventeen Mall Units was $5.9
million per Unit, net of landlord contributions, which averaged $1.6 million.
Additionally, the Company averaged approximately $800,000 in preopening expenses
and purchased an average of $270,000 of inventory in connection with the
openings. Total expenditures to develop the Company's four Icon Units averaged
$12.3 million per Unit, net of landlord contributions, which averaged $0.9
million. Preopening expenses incurred for these Units averaged approximately
$1.1 million and the initial average inventory purchased was approximately
$360,000.
The Company expects future domestic Mall Units to cost between $5.5 million
and $7.5 million to develop, net of anticipated landlord contributions. In
addition, the Company expects that it will incur approximately $700,000 in per
Unit 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 in San Francisco,
California, which may cost significantly more. In connection with the
construction of existing Units, the Company has received landlord contributions,
which reduced the cost of building these Units. There can be no assurance,
however, that landlord contributions will be available in the future.
The Company anticipates that the development and opening of each of its Units
from 1999 through 2000 will be financed with existing cash on hand and cash flow
from operations. The Company may require additional equity or debt financing for
expansion beyond 2000.
It is not anticipated that the Company's business will require substantial
working capital to meet its operating requirements. Virtually all of the
Company's revenues are collected in cash or pursuant to credit card processing.
Food and beverage inventories and merchandise inventories are expected to
increase in relation to trade accounts payable.
fourteen
<PAGE> 17
QUARTERLY FLUCTUATIONS, SEASONALITY
AND INFLATION
As a result of the substantial revenues associated with each new Unit, the
timing of new Unit openings may result in significant fluctuations in quarterly
results. The Mall Units may also have higher third or fourth quarter revenues
compared to the first two quarters as a result of seasonal traffic increases at
mall locations and seasonally stronger retail sales. Units at entertainment
centers or Disney theme parks may show fluctuations in accordance with any
overall seasonality at these locations.
The primary inflationary factors affecting the Company's operations include
food and beverage and labor costs. Management does not anticipate any
significant labor cost increases as a result of the minimum wage increases
enacted in 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 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.
YEAR 2000 UPDATE
In order to operate its business, the Company relies upon many third party
information technology systems ("IT"), including its point of sale systems,
table seating, electronic mail, inventory management, credit card processing,
payroll, accounts payable, and general ledger systems. The Company does not
maintain any proprietary IT systems and has not made any modifications to any of
the IT systems provided to it by its IT vendors.
As of January 3, 1999, the Company continued its assessment to identify and
evaluate the risks of the Year 2000 issue with respect to its business. The
Company's Year 2000 assessment as of October 4, 1998 focused on the following:
(1) the Company's internal business information and accounting systems,
including (a) the Company's point of sale systems, (b) financial and accounting
software and (c) computer hardware; and (2) the Company's vendors and suppliers
of food, beverage and retail products and other third party product and service
providers. To implement its assessment, the Company established an internal
review team to monitor and facilitate efficient Year 2000 Compliance. The
Company has also engaged a third-party consultant to assist in its evaluation of
Year 2000 readiness.
First, with respect to the Company's internal business information, including
the Company's point of sale systems and accounting systems, the Company has
reviewed its financial reporting systems, IT based and otherwise, to ensure that
they are Year 2000 compliant. The Company's software vendors have made
assurances that their software is either Year 2000 compliant or that timely
updates will be made to ensure that such software will be Year 2000 compliant.
In the process of reviewing the Company's internal business information and
accounting systems, the Company has determined that some of its personal
computers utilized by its corporate staff may not be Year 2000 compliant and may
have to be replaced. If required, the Company presently anticipates that it will
replace such computers by mid-1999.
Second, the Company is in the process of seeking to obtain assurances from
its material vendors and suppliers to determine the extent to which the Company
is vulnerable to Year 2000 issues because such vendor or supplier is or may not
be Year 2000 compliant.
FORWARD LOOKING DISCLOSURE
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this annual
report and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contain statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financial sources and the effects of competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to development and construction activities,
including delays in opening new Units, acceptance of the Rainforest Cafe
concept, the quality of the Company's restaurant and retail operations,
dependence on discretionary consumer spending, the Company's failure to defend
its intellectual property rights, dependence on existing management, general
economic conditions, changes in federal or state laws or regulations.
fifteen
<PAGE> 18
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
JANUARY 3, DECEMBER 28,
(In Thousands) 1999 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,863 $ 53,621
Accounts receivable and other 15,679 5,470
Short-term investments 13,567 16,963
Inventories 11,191 6,705
Deferred income taxes 3,766 985
Prepaid expenses 3,563 3,438
Preopening costs - 4,546
----------------------
Total current assets 64,629 91,728
LONG-TERM INVESTMENTS 15,915 39,948
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 168,982 112,695
OTHER ASSETS 6,001 1,729
----------------------
$255,527 $246,100
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,897 $ 7,135
Accrued liabilities -
Payroll and payroll taxes 2,831 3,318
Other 5,165 3,543
----------------------
Total current liabilities 14,893 13,996
DEFERRED OCCUPANCY COSTS 23,498 8,214
DEFERRED INCOME TAXES 4,074 908
----------------------
Total liabilities 42,465 23,118
----------------------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 8)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 50,000 shares authorized; 24,651 and 26,351
issued and outstanding 186,764 206,277
Retained earnings 27,443 16,705
Cumulative other comprehensive loss (1,145) -
----------------------
Total shareholders' equity 213,062 222,982
----------------------
$255,527 $246,100
======================
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
sixteen
<PAGE> 19
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 3, December 28, December 29,
(In Thousands, Except Per Share Data) 1999 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Restaurant sales $ 164,742 $ 83,650 $ 37,088
Retail sales 47,019 23,791 10,868
Licensing fees and royalties 2,131 633 750
-------------------------------------
Total revenues 213,892 108,074 48,706
-------------------------------------
COSTS AND EXPENSES:
Food and beverage costs 38,811 19,823 9,254
Cost of retail goods sold 21,657 10,856 4,867
Restaurant operating expenses 85,688 40,997 18,288
Retail operating expenses 15,736 7,700 3,558
Depreciation and amortization 13,082 5,641 2,331
Preopening costs 9,714 3,088 1,519
-------------------------------------
Total costs and expenses 184,688 88,105 39,817
-------------------------------------
INCOME FROM UNIT OPERATIONS & LICENSING 29,204 19,969 8,889
-------------------------------------
OTHER (INCOME) EXPENSES:
General, administrative and development expenses 12,295 7,409 4,688
Interest income (5,915) (9,016) (5,220)
Write-off of development and debt offering costs -- 2,230 --
Other 621 136 181
-------------------------------------
Total other (income) expenses 7,001 759 (351)
-------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 22,203 19,210 9,240
PROVISION FOR INCOME TAXES 7,549 6,917 3,316
-------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 14,654 12,293 5,924
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE RELATED TO START-UP COSTS,
NET OF INCOME TAXES OF $2,202 (3,916) -- --
-------------------------------------
Net income $ 10,738 $ 12,293 $ 5,924
=====================================
BASIC EARNINGS PER COMMON SHARE:
Basic earnings per common share before change in accounting principle $ 0.58 $ 0.47 $ 0.29
Cumulative effect of change in accounting principle (0.16) -- --
-------------------------------------
Basic earnings per common share $ 0.42 $ 0.47 $ 0.29
=====================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 25,387 25,988 20,587
=====================================
DILUTED EARNINGS PER COMMON SHARE:
Diluted earnings per common share before change in accounting principle $ 0.57 $ 0.46 $ 0.27
Cumulative effect of change in accounting principle (0.15) -- --
-------------------------------------
Diluted earnings per common share $ 0.42 $ 0.46 $ 0.27
=====================================
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 25,730 26,835 21,587
=====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
seventeen
<PAGE> 20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------- Accumulated
Retained Other
Earnings Comprehensive
(In Thousands) Shares Amount (Deficit) (Loss) Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 14,227 $ 27,867 $ (1,512) $ - $ 26,355
Common stock issued upon exercise of warrants 338 1,061 - - 1,061
Sale of common stock 11,048 169,510 - - 169,510
Stock options exercised, net of tax effect 164 1,033 - - 1,033
Employee stock purchases 4 71 - - 71
Shares retired upon stock split (1) - - - -
Net income - - 5,924 - 5,924
----------------------------------------------------------------
BALANCE, DECEMBER 29, 1996 25,780 199,542 4,412 - 203,954
Stock options exercised, net of tax effect 553 4,969 - - 4,969
Employee stock purchases 33 402 - - 402
Sale of written put options - 1,558 - - 1,558
Common stock repurchased (15) (194) - - (194)
Net income - - 12,293 - 12,293
----------------------------------------------------------------
BALANCE, DECEMBER 28, 1997 26,351 206,277 16,705 - 222,982
Stock options exercised, net of tax effect 89 555 - - 555
Employee stock purchases 72 644 - - 644
Sale of put options - 2,544 - - 2,544
Common stock repurchased (1,861) (23,256) - - (23,256)
Comprehensive income
Net income - - 10,738 - 10,738
Net unrealized change in investment securities,
net of tax - - - (1,048) (1,048)
Foreign currency translation adjustment, net of tax - - - (97) (97)
---------
Total comprehensive income 9,593
----------------------------------------------------------------
BALANCE, JANUARY 3, 1999 24,651 $ 186,764 $ 27,443 $ (1,145) $ 213,062
================================================================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
eighteen
<PAGE> 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 3, December 28, December 29,
(In Thousands) 1999 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,738 $ 12,293 $ 5,924
Adjustments to reconcile net income to cash flows provided by operating activities -
Depreciation of property, equipment and leasehold improvements 15,190 6,862 1,076
Amortization of deferred occupancy costs 15,284 3,934 6,017
Change in accounting principle 3,916 - -
Write-off of development and debt offering costs - 2,230 -
Deferred income tax benefit 385 1,944 (2,021)
Change in assets and liabilities -
Accounts receivable and other (14,571) (8,097) (3,090)
Inventories (4,486) (3,840) (1,789)
Prepaid Expenses (125) - -
Preopening costs 630 (5,332) (3,282)
Accounts payable (238) 898 3,024
Accrued liabilities 1,135 5,029 5,662
-----------------------------------
Net cash provided by operating activities 27,858 15,921 11,521
-----------------------------------
INVESTING ACTIVITIES:
Proceeds from sale and maturity of short-term investments 49,367 48,813 78,815
Purchases of short-term investments (45,971) (29,842) (114,749)
Proceeds from sale of long-term investments 47,774 3,986 2,769
Purchases of long-term investments (24,789) (1,660) (45,043)
Purchases of property, equipment and leasehold improvements (71,477) (73,322)
(39,502)
Purchases of other assets (4,217) (1,475) (254)
-----------------------------------
Net cash used in investing activities (49,313) (53,500) (117,964)
-----------------------------------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock and put options, net 3,743 4,223 169,803
Proceeds from the exercise of warrants, net - - 1,061
Repurchase of common stock (23,256) (194) -
Tenant allowances collected 4,362 3,277 3,150
-----------------------------------
Net cash provided by (used in) financing activities (15,151) 7,306 174,014
-----------------------------------
Effect of exchange rate changes on cash and cash equivalents (152) - -
-----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (36,758) (30,273) 67,571
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 53,621 83,894 16,323
-----------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 16,863 $ 53,621 $ 83,894
===================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest $ - $ - $ -
Income taxes 6,974 8,310 195
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
nineteen
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
[NOTE 1] NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS Rainforest Cafe, Inc. (the Company) owns, operates, and
licenses themed restaurant/retail facilities (each a Unit). As of January 3,
1999, the Company owned and operated 21 Rainforest Cafe Units in the United
States and licensed seven Units internationally. The first Unit opened in
October 1994 in the Mall of America in Bloomington, Minnesota. The first
international licensed Unit opened in London, England in June 1997. The Company
intends to open six additional Units in the U.S. and four to five international
Units during 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 "1998" represent the 53-week year
ended January 3, 1999. All references 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 January 3, 1999 and December 28, 1997, 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 other comprehensive
income until realized.
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>
- --------------------------------------------------------------------------------
JANUARY 3, December 28,
1999 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail goods $10,399 $6,372
Food and beverage 792 333
-----------------------
$11,191 $6,705
=======================
- --------------------------------------------------------------------------------
</TABLE>
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 3 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. In the
event that facts and circumstances indicate that the carrying amount of property
may not be recoverable, an evaluation would be performed using such factors as
recent operating results, projected cash flows and management's plans for future
operations.
Property, equipment, and leasehold improvements consisted of the following as
of (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
JANUARY 3, December 28,
1999 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Furniture, fixtures and equipment $ 61,226 $ 29,016
Leasehold improvements 123,009 60,410
Construction in progress 10,088 33,529
-------- ------------
194,323 122,955
Accumulated depreciation
and amortization (25,341) (10,260)
-------- ------------
$168,982 $112,695
======== ============
- -------------------------------------------------------------------------------
</TABLE>
twenty
<PAGE> 23
LICENSING FEES The Company has entered into seven exclusive license agreements
to develop an aggregate of at least 28 Units outside the United States over a
ten year period in the United Kingdom and Ireland, Mexico, Canada, and certain
countries and cities in Asia, Europe and South America. As of January 3, 1999,
seven units were open. In many of the existing international license agreements,
the Company is entitled to receive up-front area licensing fees and is entitled
to receive a per Unit development fee as well as royalties ranging from 3% to
10% of gross revenues. 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. 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 are nonrefundable. Licensing royalties
are recognized as earned. Certain license agreements allow the Company to become
an equity participant of up to 50% of each Unit developed.
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 Basic earnings per common share is computed by
dividing net income by the weighted average number of common shares outstanding
during the year. Diluted earnings per share is computed by dividing net income
by the sum of the weighted average number of common shares outstanding plus all
additional common shares that would have been outstanding if potentially
dilutive common shares related to stock options had been issued. The following
table reconciles the number of shares utilized in the earnings per share
calculations.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 10,738 $ 12,293 $ 5,924
Earnings per share - basic $ .42 $ .47 $ .29
Earnings per share - diluted $ .42 $ .46 $ .27
Weighted average common
shares outstanding - basic 25,387 25,988 20,587
Effect of dilutive securities -
stock options 343 847 1,000
Weighted average common
Shares outstanding - dilute 25,730 26,835 21,587
- --------------------------------------------------------------------------------
</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.
COMPREHENSIVE INCOME On December 29, 1997, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and foreign currency translation
gains (losses) and unrealized investment gains (losses). The adoption of SFAS
No. 130 did not have a material impact on the Company's financial position or
results of operations.
twenty-one
<PAGE> 24
PREOPENING COSTS Effective December 29, 1997 the Company adopted Statement of
Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities." SOP
No. 98-5 requires companies to expense as incurred all start-up and preopening
costs that are not otherwise capitalizable as long-lived assets. The effect of
this accounting change was a charge to operations of $3.9 million, net of $2.2
million of related tax benefit for the unamortized balance of preopening costs
and other start-up expenses as of December 28, 1997. Also, $2.4 million of
preopening costs capitalized during 1998 have been expensed as preopening costs
in the accompanying statements of operations.
[NOTE 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 with
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 ($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.
[NOTE 3] MARKETABLE DEBT AND EQUITY
SECURITIES
A summary of securities classified as available for sale as of January 3, 1999
and December 28, 1997 is set forth below (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Unrealized Unrealized Fair
JANUARY 3, 1999 Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 2,021 $ 3 $ - $ 2,023
Municipal debt 17,200 119 - 17,319
Mutual funds 15 - - 15
Equity 15,115 105 1,965 13,255
Other debt 3,069 60 40 3,089
---------------------------------------------
Securities available
for sale $37,420 $287 $2,005 $35,702
=============================================
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Unrealized Unrealized Fair
December 28, 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>
Gross gains of $3,190,000, $953,000 and $115,000 were realized during 1998,
1997 and 1996, respectively. Gross losses of $2,461,000, $71,000 and $156,000
were realized during 1998, 1997 and 1996, respectively.
Scheduled maturities of debt securities classified as available for sale as
of January 3, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Cost Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Less than one year $17,685 $17,770
Due in 1-3 years 4,019 4,060
Due after 3 years 586 601
-----------------------
Total $22,290 $22,431
=======================
- --------------------------------------------------------------------------------
</TABLE>
twenty-two
<PAGE> 25
[NOTE 4] LONG-TERM DEBT
The Company has an unsecured $6 million line of credit with a bank under a
commercial revolving note, expiring June 1999, bearing interest at the bank's
prime rate of interest. During fiscal 1998, 1997 and 1996 there were no cash
borrowings on the line. As of January 3, 1999, $2.0 million in letters of credit
were outstanding.
[NOTE 5] SHAREHOLDERS' EQUITY
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 SPLITS 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 PLAN In January 1997 and as amended in January 1998, the
Company's board of directors authorized, subject to certain business and market
conditions, the purchase of up to 3,000,000 shares of the Company's common
stock. Through January 3, 1999, the number of shares purchased under this plan
was 1,876,000. In January 1999, the Company's Board of Directors amended its
stock repurchase program to provide that up to 2.0 million shares may be
repurchased over a one year period.
The Company also utilizes put options as a part of its stock repurchase
program. At January 3, 1999, put options to acquire approximately 1,000,000
shares of the Company's common stock were outstanding at exercise prices between
$5.00 and $13.45 per share. The put options are callable on specific dates
during 1999, and give a third party the right to sell shares of the Company's
common stock at contractually specified prices to the Company. During 1998 and
1997, the Company repurchased through put option assignments and open market
purchases 1,861,000 and 15,000 shares for cash of $23,256,000 and $194,000,
respectively. The proceeds from the issuance of the put options were accounted
for as additional paid-in-capital. As of January 3, 1999, the cash settlement
amount for put options sold and outstanding would be approximately $7.1 million.
[NOTE 6] INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Current:
<S> <C> <C>
Federal $6,499 $4,197
State 665 776
Deferred 385 1,944
----------------
Provision for income taxes $7,549 $6,917
----------------
</TABLE>
twenty-three
<PAGE> 26
The differences between the effective tax rate and income taxes computed
using the federal statutory rate were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal tax benefit 3.0 4.0
Tax exempt income (3.0) (3.1)
Other, net (1.0) 0.1
--------------
34.0% 36.0%
==============
</TABLE>
The Company has recorded the following net deferred income taxes as of (in
thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
JANUARY 3, December 28,
1999 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Current deferred income tax benefits $4,485 $1,345
Current deferred income taxes (719) (360)
-------------------------
Net current deferred income
tax benefits 3,766 985
-------------------------
Noncurrent deferred income tax benefits 8,622 3,281
Noncurrent deferred income taxes (12,696) (4,189)
-------------------------
Net noncurrent deferred income taxes (4,074) (908)
-------------------------
Net deferred income taxes $(308) $ 77
=========================
</TABLE>
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
JANUARY 3, December 28,
1999 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Accelerated depreciation $(12,696) $(2,655)
Landlord inducements 8,622 3,103
Preopening costs 422 (1,534)
Miscellaneous reserves 1,197 454
Tax credit carryforwards 1,522 647
Other accruals 625 62
--------------------------
Net deferred income tax benefits $ (308) $ 77
==========================
</TABLE>
[NOTE 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 compensation committee
of the board of directors 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 January
3, 1999, with vesting periods ranging from three to five years and maximum
option terms of ten years.
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 31,876 shares as of January 3, 1999.
During February 1998, the Company adopted the 1998 Non-executive stock option
plan, whereby stock options are granted to non-officer employees to acquire an
aggregate of 1,000,000 shares of the Company's common stock. The Company has
granted options on 1,524 shares through January 3, 1999.
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 112,500 shares as of January 3, 1999.
twenty-four
<PAGE> 27
A summary of the status of the Company's various stock option plans for the
three-year period ended January 3, 1999 is presented in the table and narrative
below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
JANUARY 3, 1999 December 28, 1997 December 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
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 year 3,242,725 $ 13.71 2,261,242 $ 6.13 1,662,000 $ 2.23
Granted 5,646,733 10.44 1,844,251 19.06 85,250 13.27
Exercised 88,751 5.15 553,614 3.95 164,258 3.34
Forfeited 4,233,949 16.49 309,153 6.13 87,750 9.17
------------------------------------------------------------------------------------
Outstanding, end of year 4,566,758 $ 7.57 3,242,725 $ 13.71 2,261,242 $ 6.13
====================================================================================
Exercisable, end of year 1,459,299 $ 5.43 691,088 $3.74 542,843 $ 1.78
====================================================================================
Weighted average fair value of options granted $ 4.42 $ 14.00 $ 6.29
========= ========== =========
- ------------------------------------------------------------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME:
As Reported $10,738 $12,293 $5,924
Pro Forma 5,636 8,880 5,283
NET INCOME:
As Reported $ 0.42 $ 0.46 $ 0.27
Pro Forma 0.22 0.33 0.24
- -------------------------------------------------------------------------------
</TABLE>
At January 3, 1999, 552,287 of the 4,566,758 options outstanding have
exercise prices between $0.01 and $6.00, with a weighted average exercise price
of $0.95 and a weighted average remaining contractual life of 4.8 years. The
remaining 4,014,471 options have exercise prices between $6.01 and $20.92, with
a weighted average exercise price of $8.99 and a weighted average remaining
contractual life of 9.2 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 1998, 1997 and 1996: risk-free interest rates of
4.8%, 5.8% and 6.0%; no expected dividend yields; expected lives of 6, 7 and 6
years; and expected volatility of 50%, 60% and 40%, respectively.
twenty-five
<PAGE> 28
EMPLOYEE STOCK PURCHASE PLAN The Company also has an Employee Stock Purchase
Plan (the 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 Plan at a price equal to 85% of the lesser of the market price on
either the first or last day of the quarter. During 1998 and 1997, 71,873 and
32,894 shares were issued under the Plan, respectively, and at January 3, 1999,
228,682 shares were available for future issuance. The average price per share
was $8.96 and $17.57 in 1998 and 1997, respectively.
[NOTE 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 abatements. Total rent expense, including common
area costs, real estate taxes and percentage rent, was $26,983,000, $10,942,000
and $5,067,000, for the years 1998, 1997 and 1996, respectively.
Future minimum rental payments (including seven units which are not yet open
and excluding percentage rents) are as follows as of January 3, 1999 (in
thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
1999 $ 15,509
2000 17,215
2001 17,289
2002 17,451
2003 17,498
Thereafter 110,286
---------
Total $ 195,248
=========
- -------------------------------------------------------------------------------
</TABLE>
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 service, 1,000 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 $179,000 and $144,000 in 1998 and 1997,
respectively.
twenty-six
<PAGE> 29
[NOTE 9] QUARTERLY DATA
The following is a summary of quarterly consolidated results of operations
for 1998 and 1997 (unaudited, in thousands, except per share data):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
APRIL 5, JULY 5, OCTOBER 4, JANUARY 3,
FISCAL YEAR 1998 1998 1998 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $44,626 $53,864 $56,011 $59,391
Income from unit operations and licensing 5,904 8,770 7,757 6,773
Net income before cumulative effect of change in accounting principle 3,523 4,656 3,757 2,718
Diluted earnings per common share before cumulative effect of change
in accounting principle 0.14 0.18 0.15 0.11
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 January
3, 1999 and December 28, 1997 and the related consolidated statements of
operations, shareholders' equity and cash flows for the three years in the
period ended January 3, 1999. 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 January 3, 1999 and December 28, 1997 and the results of its
operations and its cash flows for the three years in the period ended January
3, 1999 in conformity with generally accepted accounting principles.
As explained in Note 1 to the Financial Statements, effective December 29,
1997, the Company changed its method of accounting for preopening costs.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 12, 1999
twenty-seven
<PAGE> 30
CORPORATE INFORMATION
OFFICERS
Lyle Berman
Chairman and Chief Executive Officer
Kenneth W. Brimmer
President, Treasurer and Secretary
Mark Robinow
Senior Vice President and Chief Financial Officer
Steven Schussler
Senior Vice President, Development
Ercu Ucan
Senior Vice President, Retail
Charles Robinson
Senior Vice President, Operations
Mark Bartholomay
Senior Vice President, International
Development & Operations
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 17, 1999, at 9:00 a.m., at the Minneapolis Marriott Southwest, 5801 Opus
Parkway, Minnetonka, 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 1998 fiscal year. The annual report on Form 10-K is available
on the Company's website at www.rainforestcafe.com or can be mailed upon
written request from the shareholder addressed to:
Investor Relations
Rainforest Cafe, Inc.
720 South Fifth Street
Hopkins, Minnesota 55343
[email protected]
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 at www.rainforestcafe.com.
TRANSFER AGENT & REGISTRAR
Norwest Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55075-0854
Phone: 651-450-4064
800-468-9716
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 26, 1999 there were approximately
1,300 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>
1998 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $22.75 $10.75
Second Quarter 16.75 13.25
Third Quarter 14.00 6.06
Fourth Quarter 7.41 5.44
</TABLE>
<TABLE>
<CAPTION>
1997
- --------------------------------------------------------------------------------
<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
</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.
twenty-eight
<PAGE> 31
WORLDWIDE LOCATIONS
RAINFOREST CAFE LOCATIONS
Arizona Mills, Phoenix/Tempe, AZ
South Coast Plaza, Costa Mesa, CA
Ontario Mills, Ontario, CA
Cherry Creek Shopping Center, Denver, CO
Sawgrass Mills, Ft. Lauderdale/Sunrise, FL
Aventura Mall, Miami, FL
Disney's Animal Kingdom(TM) Theme Park at Walt Disney
World Resort, near Orlando, FL
Downtown Disney Marketplace at Walt Disney World
Resort near Orlando, FL
Oak Park Mall, Overland Park, KS
Downtown Chicago, Chicago, IL
Gurnee Mills, Gurnee, IL
Woodfield Shopping Center, Schaumburg, IL
Burlington Mall, Burlington, MA
Towson Town Center, Towson, MD
Great Lakes Crossing, Detroit/Auburn Hills, MI
Mall of America, Bloomington, MN
Menlo Park Mall, Edison, NJ
The Source, Westbury/Long Island, NY
Palisades Center, West Nyack, NY
MGM Grand Hotel & Casino, Las Vegas, NV
Franklin Mills, Philadelphia, PA
Grapevine Mills, Dallas/Grapevine, TX
Tysons Corner Center, McLean, VA
FUTURE LOCATIONS
South Center Mall, Seattle, WA
MacArthur Center, Norfolk, VA
Katy Mills, Katy/Houston, TX
Jersey Gardens, Newark, NJ
INTERNATIONAL LOCATIONS
Piccadilly Circus, London, England
Cancun, Mexico
Mexico City, Mexico (2 locations)
Vancouver, British Columbia, Canada
Manchester, England
Hong Kong, China
Scarborough, Ontario, Canada
FUTURE INTERNATIONAL LOCATIONS
Disneyland Paris, France
Yorkdale, Ontario, Canada
RAINFOREST CAFE
<PAGE> 32
[RAINFOREST CAFE LOGO]
A WILD PLACE TO SHOP AND EAT(R)
720 South Fifth Street Hopkins, Minnesote 55343 Phone: 612-945-5400
Fax: 612-945-5492
www.rainforestcafe.com
[RECYCLE LOGO]
10% total recovered fiber
All post consumer fiber
Copyright(C) 1999 Rainforest Cafe, Inc.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF COMPANY
Rainforest Cafe, Inc. - Thunder
Rainforest Cafe, Inc. - Mist
Rainforest Cafe Canada Holding, Inc.
Cotton Concepts, L.L.C.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE
SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 3,
1999 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> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JAN-03-1999
<CASH> 16,863
<SECURITIES> 13,567
<RECEIVABLES> 15,679
<ALLOWANCES> 0
<INVENTORY> 11,191
<CURRENT-ASSETS> 64,629
<PP&E> 194,323
<DEPRECIATION> 25,341
<TOTAL-ASSETS> 255,527
<CURRENT-LIABILITIES> 14,893
<BONDS> 0
0
0
<COMMON> 186,764
<OTHER-SE> 26,298
<TOTAL-LIABILITY-AND-EQUITY> 255,527
<SALES> 211,761
<TOTAL-REVENUES> 213,892
<CGS> 60,468
<TOTAL-COSTS> 184,688
<OTHER-EXPENSES> 7,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,203
<INCOME-TAX> 7,549
<INCOME-CONTINUING> 14,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (3,916)
<NET-INCOME> 10,738
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
