<PAGE>
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 9, 1998
Planet Hollywood International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 000-28230 59-3283783
(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification
Incorporation) Number)
8669 Commodity Circle
Orlando, FL 32819
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (407)363-7827
- ------------------------------------------------------------------------------
<PAGE>
Item 5. Other Events
In connection with a private offering (the "Offering") by Planet
Hollywood International, Inc. ("PHII") of $250 million of debt securities,
PHII has disclosed in a confidential Preliminary Offering Memorandum (the
"Offering Memorandum") relating to the Offering its complete 1997 financial
results. The relevant information is contained in the following sections of
the Offering Memorandum: "Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
A copy of the "Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" sections of
the Offering Memorandum are attached hereto as Exhibits 99.1 and 99.2,
respectively, and are incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
99.1 "Financial Statements" section of
the Offering Memorandum
99.2 Management's Discussion and
Analysis of Financial Condition and
Results of Operations, as included
in the Offering Memorandum
1
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
Planet Hollywood International, Inc.,
By: /s/ Scott E. Johnson
-----------------------------------
Senior Vice President, General Counsel
and Secretary
March 9, 1998
2
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
99.1 "Financial Statements" section of the
Offering Memorandum
99.2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations, as included in the Offeing
Memorandum
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Statements of Operations for fiscal 1995, 1996 and 1997.................. F-3
Consolidated Balance Sheets as of December 29, 1996 and December 28, 1997............. F-4
Consolidated Statements of Changes in Stockholders' Equity for fiscal 1995, 1996 and
1997................................................................................ F-5
Consolidated Statements of Cash Flows for fiscal 1995, 1996 and 1997.................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
------------------------
To the Board of Directors and Stockholders of Planet Hollywood International,
Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Planet Hollywood International, Inc. and its subsidiaries at
December 29, 1996 and December 28, 1997, and the results of their operations and
their cash flows for each of the three years in the period ended December 28,
1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Orlando, Florida
March 3, 1998
F-2
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Direct..................................................................... $ 265,048 $ 347,436 $ 447,310
Franchise.................................................................. 4,000 21,400 16,100
Royalty and other.......................................................... 1,558 4,528 11,715
---------- ---------- ----------
270,606 373,364 475,125
Costs and expenses:
Cost of sales.............................................................. 76,462 93,426 124,808
Operating.................................................................. 116,805 156,893 208,484
General and administrative................................................. 20,057 20,431 49,324
Depreciation and amortization.............................................. 22,182 27,295 38,825
Impairment of long-lived assets............................................ -- -- 48,699
---------- ---------- ----------
235,506 298,045 470,140
Income from operations....................................................... 35,100 75,319 4,985
Non-operating (income) expense
Interest income............................................................ (598) (2,121) (1,327)
Interest expense........................................................... 11,827 4,995 --
Equity in earnings of unconsolidated affiliates............................ (848) (4,308) (6,900)
Minority interests......................................................... 3,728 1,037 --
Gain on sale of subsidiary interests....................................... (611) -- --
---------- ---------- ----------
13,498 (397) (8,227)
Income before provision for income taxes..................................... 21,602 75,716 13,212
Provision for income taxes................................................... 875 27,636 4,954
---------- ---------- ----------
Income before extraordinary item............................................. 20,727 48,080 8,258
Extraordinary loss on early extinguishment of debt (net of income tax benefit
of $5,991)................................................................. -- 10,421 --
---------- ---------- ----------
Net income................................................................... $ 20,727 $ 37,659 $ 8,258
---------- ---------- ----------
---------- ---------- ----------
Earnings per share:
BASIC
Income before extraordinary item......................................... $ 0.26 $ 0.47 $ 0.08
Extraordinary item....................................................... -- (0.10) --
---------- ---------- ----------
Net income............................................................... $ 0.26 $ 0.37 $ 0.08
---------- ---------- ----------
---------- ---------- ----------
DILUTED
Income before extraordinary item......................................... $ 0.25 $ 0.47 $ 0.08
Extraordinary item....................................................... -- (0.10) --
---------- ---------- ----------
Net income............................................................... $ 0.25 $ 0.37 $ 0.08
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 49,831 $ 9,089
Accounts receivable, less allowance of $1,500 in 1997.............................. 22,697 25,084
Inventories........................................................................ 20,604 42,612
Deferred taxes..................................................................... 7,166 10,427
Pre-opening cost, net.............................................................. 8,096 6,716
Prepaid expenses and other assets.................................................. 5,479 7,082
------------ ------------
Total current assets............................................................. 113,873 101,010
Property and equipment, net.......................................................... 250,108 322,949
Goodwill, net........................................................................ 25,779 29,922
Deferred taxes....................................................................... -- 6,015
Other assets, net.................................................................... 1,487 5,259
Investment in affiliated entities.................................................... 10,013 40,404
------------ ------------
Total assets..................................................................... $ 401,260 $ 505,559
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 41,668 $ 54,100
Accrued expenses................................................................... 10,908 15,215
Notes payable - current............................................................ 746 1,264
------------ ------------
Total current liabilities........................................................ 53,322 70,579
Deferred rentals..................................................................... 10,329 10,798
Deferred taxes....................................................................... 849 --
Notes payable........................................................................ 7,529 70,491
Deferred credits..................................................................... 17,100 15,150
------------ ------------
Total liabilities................................................................ 89,129 167,018
------------ ------------
Commitments and contingencies (Note 7 and Note 11)
Stockholders' equity:
Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued;
preferences, limitations and rights to be established by the Board of
Directors........................................................................ -- --
Common stock - Class A voting, $.01 par value; 250,000,000 shares authorized;
95,972,563 and 97,127,526 issued and outstanding, respectively................... 960 972
Common stock - Class B non-voting, $.01 par value; 25,000,000 shares authorized;
11,545,706 and 11,764,144 issued and outstanding, respectively................... 115 118
Capital in excess of par value..................................................... 252,695 279,372
Deferred compensation.............................................................. (525) (4,125)
Retained earnings.................................................................. 58,386 66,644
Cumulative currency translation adjustment......................................... 500 (4,440)
------------ ------------
Total stockholders' equity....................................................... 312,131 338,541
------------ ------------
Total liabilities and stockholders' equity..................................... $ 401,260 $ 505,559
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B CAPITAL IN
---------------------- ---------------------- EXCESS OF RETAINED DEFERRED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS COMPENSATION
--------- ----------- --------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995..... 80,000 $ 800 -- $ -- $ 7,568 $ -- ($ 990)
Net Income..................... 20,727
Celebrity restricted stock
options...................... 140
Employee restricted stock
awards....................... 100 1 99 220
Currency translation
adjustment...................
--------- ----------- --------- ----------- ----------- ----------- -------
Balance at December 31, 1995... 80,100 801 -- -- 7,807 20,727 (770)
Net Income..................... 37,659
Proceeds from public
offering..................... 11,609 116 193,020
Shares issued for All-Star
acquisition.................. 11,547 115
Shares issued for acquisition
of minority interests........ 1,709 17 35,167
Conversion of redeemable
warrants..................... 2,555 26 14,974
Celebrity restricted stock
options and awards........... 1,727
Employee restricted stock
awards....................... 245
Currency translation
adjustment...................
--------- ----------- --------- ----------- ----------- ----------- -------
Balance at December 29, 1996... 95,973 960 11,547 115 252,695 58,386 (525)
Net Income..................... 8,258
Celebrity restricted stock
options and awards........... 218 3 5,959 (3,800)
Proceeds from sale of stock.... 1,087 11 19,555
Exercise of stock options...... 108 1 1,163
Employee restricted stock
awards....................... 200
Retirement of employee
restricted stock............. (40)
Currency translation
adjustment...................
--------- ----------- --------- ----------- ----------- ----------- -------
Balance at December 28, 1997... 97,128 $ 972 11,765 $ 118 $ 279,372 $ 66,644 ($ 4,125)
--------- ----------- --------- ----------- ----------- ----------- -------
--------- ----------- --------- ----------- ----------- ----------- -------
<CAPTION>
CUMMULATIVE TOTAL
TRANSLATION STOCKHOLDERS'
ADJUSTMENT EQUTY
------------- -------------
<S> <C> <C>
Balance at January 1, 1995..... $ 81 $ 7,459
Net Income..................... 20,727
Celebrity restricted stock
options...................... 140
Employee restricted stock
awards....................... 320
Currency translation
adjustment................... (501) (501)
------------- -------------
Balance at December 31, 1995... (420) 28,145
Net Income..................... 37,659
Proceeds from public
offering..................... 193,136
Shares issued for All-Star
acquisition.................. 115
Shares issued for acquisition
of minority interests........ 35,184
Conversion of redeemable
warrants..................... 15,000
Celebrity restricted stock
options and awards........... 1,727
Employee restricted stock
awards....................... 245
Currency translation
adjustment................... 920 920
------------- -------------
Balance at December 29, 1996... 500 312,131
Net Income..................... 8,258
Celebrity restricted stock
options and awards........... 2,162
Proceeds from sale of stock.... 19,566
Exercise of stock options...... 1,164
Employee restricted stock
awards....................... 200
Retirement of employee
restricted stock.............
Currency translation
adjustment................... (4,940) (4,940)
------------- -------------
Balance at December 28, 1997... ($ 4,440) $ 338,541
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from operations................................................... $ 20,727 $ 48,080 $ 8,258
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.............................................................. 7,727 11,620 18,173
Amortization.............................................................. 14,455 15,676 20,652
Impairment of long-lived assets........................................... -- -- 48,699
Amortization of discount on senior subordinated notes, debt issue costs
and line of credit costs................................................ 1,563 1,167 --
Amortization of celebrity restricted stock options and awards............. 140 1,268 2,864
Gain on sale of subsidiary interests...................................... (611) -- --
Minority interests........................................................ 3,728 1,037 --
Equity in income of unconsolidated affiliates............................. (848) (4,308) (6,900)
Changes in assets and liabilities:
Accounts receivable..................................................... (2,599) (15,604) (4,959)
Inventories............................................................. 2,245 (7,747) (22,008)
Prepaid expenses and other assets....................................... (1,188) (1,778) (3,604)
Preopening costs........................................................ (15,498) (13,916) (18,782)
Deferred income taxes................................................... (10,706) 5,711 (10,125)
Accounts payable and accrued expenses................................... 8,924 3,230 4,780
Deferred rentals........................................................ 3,441 3,827 469
Deferred credits........................................................ 2,000 100 (1,950)
Other, net.............................................................. (130) 467 199
---------- ---------- ----------
Net cash provided by operating activities............................... 33,370 48,830 35,766
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................................... (80,291) (81,675) (124,526)
Proceeds from sale of subsidiary interest................................... 900 -- --
Proceeds from sale of transportation equipment.............................. 6,450 7,936 --
Purchase of restaurant from franchisee...................................... -- -- (8,083)
Purchase of minority interest............................................... (250) -- --
Investment in affiliated entities........................................... (2,408) (131) (22,721)
Other....................................................................... -- -- (1,115)
---------- ---------- ----------
Net cash used in investing activities................................... (75,599) (73,870) (156,445)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash and investments................................... 3,064 610 --
Proceeds from issuance of senior subordinated notes......................... 60,000 -- --
Distributions to minority interests......................................... (3,209) (271) --
Proceeds from issuance of common stock...................................... -- 196,581 19,137
Proceeds from exercise of options........................................... -- -- 891
Proceeds from issuance of notes payable..................................... 6,350 3,360 63,028
Proceeds from notes and advances from stockholders.......................... 29,583 -- --
IPO costs and financing costs capitalized................................... -- (3,445) --
Deferred financing costs.................................................... (3,750) (698) (1,020)
Repayment of stockholder notes payable...................................... (25,194) (70,750) --
Repayment of notes payable.................................................. (14,716) (65,439) (883)
---------- ---------- ----------
Net cash provided by financing activities............................... 52,128 59,948 81,153
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH....................................... -- -- (1,216)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 9,899 34,908 (40,742)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 5,024 14,923 49,831
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................... $ 14,923 $ 49,831 $ 9,089
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Planet
Hollywood International, Inc. ("PHII") and its wholly and majority owned
subsidiaries (collectively, the "Company"). All material intercompany
transactions and accounts have been eliminated in consolidation. The Company has
interests in various entities which are not majority owned or controlled. The
Company uses the equity method to account for these interests.
The Company's fiscal year is the 52 or 53 weeks ending the Sunday closest to
December 31. The fiscal years ended December 31, 1995, December 29, 1996 and
December 28, 1997 are herein referred to as "fiscal 1995", "fiscal 1996" and
"fiscal 1997", respectively. All years presented herein are 52 week years.
DESCRIPTION OF BUSINESS
The Company's primary business is to create and develop consumer brands. To
date, the Company has promoted its brands primarily through the operation of
distinctive entertainment-oriented theme restaurants and their associated
merchandise sales. The Company currently operates under the PLANET HOLLYWOOD and
OFFICIAL ALL STAR CAFE brands. Direct revenues in the accompanying financial
statements include sales of food, beverage and merchandise.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid investments with
original maturities of three months or less and consist of amounts held as bank
deposits and certificates of deposit.
INVENTORIES
Inventories, consisting primarily of merchandise, are valued at the lower of
cost (determined by the first-in, first-out method) or market.
PREOPENING COSTS
The Company capitalizes costs relating to opening of units and amortizes
such costs over the twelve months following the opening date of the unit.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided for by using the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and equipment.................................................................................... 5-10
Memorabilia................................................................................................ 20
Leasehold improvements..................................................................................... 5-40
</TABLE>
F-7
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expenditures for additions and improvements which extend the life of the
assets are capitalized. Expenditures for normal repairs and maintenance are
charged to expense as incurred. Depreciation of memorabilia commences when it is
placed in service upon its installation at a unit location.
GOODWILL
The excess of purchase price over the fair value of assets acquired is
amortized on a straight-line basis over 20 years. Accumulated amortization of
goodwill at December 29, 1996 and December 28, 1997 was $1,028 and $2,393,
respectively.
DEBT ISSUANCE COSTS
Costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the term of the
related debt.
MINORITY INTERESTS
Minority interests represent third parties' equity in the earnings or losses
in the entities which are majority owned by the Company.
FOOD, BEVERAGE AND MERCHANDISE REVENUES
Food, beverage and merchandise revenues are recognized as the products are
sold to customers.
FRANCHISE AND ROYALTY REVENUES
Revenues from the sale of franchises are deferred until the Company fulfills
its obligations under the franchise agreement, which is generally upon the
opening of a franchise restaurant or merchandise shop. The franchise agreements
provide for continuing royalty fees based on a percentage of gross receipts.
ADVERTISING AND PROMOTIONAL COSTS
All costs associated with advertising and promoting the Company's brands are
expensed in the period incurred. Advertising expense for fiscal 1995, 1996 and
1997 totaled $2,103, $2,753 and $6,309, respectively.
INCOME TAXES
Deferred taxes are provided for the tax effects of the differences between
the carrying value of assets and liabilities for tax and financial reporting
purposes. These differences relate primarily to differences in depreciable lives
and amortization periods for property and equipment and preopening costs,
deferred rentals, the timing of franchise revenue recognition, net operating
losses, certain accrued expenses and reserves. Deferred tax assets and
liabilities represent the future tax consequence of those differences.
No provision is made for United States income taxes applicable to
undistributed earnings of foreign subsidiaries or affiliates that are
indefinitely reinvested in the foreign operations.
F-8
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated into United
States dollars at the year-end rate of exchange. Revenue and expense accounts
are translated at the average rate of exchange. Resulting translation
adjustments are included in the caption "Cumulative currency translation
adjustment" as a separate component of stockholders' equity. Gains and losses
from foreign currency transactions which are included in the consolidated
statements of operations were not material.
STOCK-BASED COMPENSATION
The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in accordance
with the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB
25 requires compensation costs for stock-based compensation plans to be
recognized based on the difference, if any, between the fair market value of the
stock on the date of grant and the option exercise price. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"). SFAS
123 established a fair value-based method of accounting for compensation costs
related to stock options and other forms of stock-based compensation plans.
However, SFAS 123 allows an entity to continue to measure compensation costs
using the principles of APB 25 if certain pro forma disclosures are made. The
Company adopted the provisions for pro forma disclosure requirements of SFAS
123.
Options granted to celebrities and other non-employees are recorded at their
estimated fair value at the date of grant and the expense is recognized over the
periods benefitted, generally 5 years.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" in the fourth quarter of 1997. As a result of this
adoption, the Company has restated all periods presented in these financial
statements to reflect "basic" and "diluted" earnings per share. Basic earnings
per share is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of common shares
outstanding plus common stock equivalents related to stock options for each
period.
A reconciliation of weighted average number of common shares to weighted
average number of common shares plus common stock equivalents is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of common shares.......................................... 80,000 100,741 108,465
Stock options and awards.......................................................... 399 1,849 1,340
Warrants.......................................................................... 1,834 -- --
--------- --------- ---------
Weighted average number of common shares plus common stock equivalents............ 82,233 102,590 109,805
--------- --------- ---------
--------- --------- ---------
</TABLE>
Options to purchase 3 million shares of common stock were not included in
the computation of diluted earnings per common share in fiscal 1997 because the
option exercise price was greater than the average market price of the common
stock.
F-9
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASES
The Company has various noncancelable operating and capital lease
agreements, primarily unit sites. Unit leases are established using a base
amount and/or a percentage of sales. Certain of these leases provide for
escalating lease payments over the terms of the leases. For financial statement
purposes, the total amount of base rentals over the terms of the leases is
charged to expense on the straight-line method over the lease terms. Rental
expense in excess of lease payments is recorded as a deferred rental liability.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, receivables and accounts
payable approximate the fair value because of the short maturity of these
instruments. The carrying value of notes payable approximate fair value as
interest rates vary with market interest rates.
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. Estimates are used in the determination of allowances for
doubtful accounts, impairment of long-lived assets, depreciation and
amortization, and taxes, among others. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' consolidated
financial statements to conform with the fiscal 1997 presentation.
2. IMPAIRMENT OF LONG LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), was implemented by the Company in fiscal 1996. SFAS 121 states
that if the carrying value of an asset, including associated intangibles,
exceeds the sum of estimated undiscounted cash flows from the operation of the
asset, an impairment loss should be recognized for the difference between the
asset's estimated fair value and carrying value.
As a result of operating losses incurred in fiscal 1997 and projected to
continue at certain restaurant units, the Company recorded a non-cash impairment
charge of $48.7 million related to a write-down of long-lived assets relating to
these non-performing domestic and foreign restaurant units. The Company
considers continued and projected operating losses or significant and long-term
changes in market conditions to be its primary indicators of potential
impairment. An impairment was recognized as the future undiscounted cash flows
for these units were estimated to be insufficient to recover the related
carrying value of the long-lived assets relating to the units. As a result, the
carrying values of these assets were written down to their estimated fair
values, based on the Company's estimates of future discounted cash flows.
F-10
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND DIVESTITURES
In August 1995, the Company entered into an agreement whereby the Company
purchased a 57.9% interest in All Star Cafe, Inc. ("All Star") for $567 from the
Company's President, who is a stockholder of All Star, and the All Star Cafe
Trust (the "Trust"), a trust established for the benefit of the President's
children (collectively the "Sellers").
The acquisition of the 57.9% interest in All Star was accounted for using
the purchase method of accounting and the purchase price was allocated to the
assets acquired and the liabilities assumed based on their fair values at the
date of acquisition. The excess of the purchase price over the fair value of the
net assets acquired of $738 was recorded as goodwill.
In February 1996, the Company entered into an agreement to acquire the
remaining minority interests in All Star. Under the terms of the agreement, the
Company issued 11,545,706 shares of Class B non-voting stock in exchange for all
of the minority interests in All Star. Due to the high degree of common control
between the Company and All Star and the lack of an exchange of monetary
consideration, the acquisition was accounted for as a reorganization of entities
under common control. Accordingly, the bases of All Star's assets and
liabilities are carried at historical cost.
The following unaudited pro forma information has been prepared assuming
that the acquisition of All Star took place at the beginning of fiscal 1995. The
unaudited pro forma financial information does not purport to be indicative of
the results of operations had the transaction been effected at the beginning of
fiscal 1995, nor to project results for any future period:
<TABLE>
<CAPTION>
FISCAL 1995
-----------
<S> <C>
Revenues.............................................................................................. $ 270,606
Net income............................................................................................ 19,374
Basic earnings per share--net income.................................................................. .21
Diluted earnings per share--net income................................................................ .21
</TABLE>
During 1996, the Company acquired the remaining minority interests in PH
London and the minority interests in the Company's subsidiaries that operate
Planet Hollywood units in Maui, Washington D.C. and New York. These acquisitions
were accounted for using the purchase method of accounting and the purchase
price was allocated to the assets purchased and the liabilities assumed based on
their fair values at the date of acquisition. The excess of the purchase price
over the fair value of the net assets acquired was $23,090 and has been recorded
as goodwill which is being amortized on a straight line basis over twenty years.
The results of operations for All Star, PH London and the minority interests
in Maui, Washington D.C. and New York after their respective acquisition dates
are included in the consolidated statement of operations.
The following unaudited pro forma information has been prepared assuming
that the acquisitions of the minority interests took place at the beginning of
fiscal 1995 and 1996, respectively. The unaudited pro forma financial
information does not purport to be indicative of the results of operations had
the
F-11
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS AND DIVESTITURES (CONTINUED)
transaction been effected at the beginning of fiscal 1995 and 1996, nor to
project results for any future period:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
----------- -----------
<S> <C> <C>
Revenues................................................................................. $ 270,606 $ 373,364
Income before extraordinary item......................................................... 22,671 48,500
Net income............................................................................... 22,671 38,079
Basic earnings per share before extraordinary item....................................... .28 .48
Basic earnings per share--net income..................................................... .28 .38
Diluted earnings per share before extraordinary item..................................... .27 .47
Diluted earnings per share--net income................................................... .27 .37
</TABLE>
In January 1997, the Company acquired the net assets of a domestic franchise
unit for $8,000. The acquisition was accounted for using the purchase method of
accounting and the purchase price was allocated to the assets purchased and
liabilities assumed based on their fair values at the date of acquisition. The
excess of the purchase price over the fair value of the net assets acquired,
$5,835, was recorded as goodwill and is being amortized on a straight-line basis
over twenty years.
In December 1994, the Company purchased the PLANET HOLLYWOOD Cancun unit
from a former franchisee (see Note 5) for $5,600. The purchase was funded by a
$4,600 bank loan. In July 1995, the Cancun unit was sold to an affiliated
company, ECE, S.A. de C.V. ("ECE") for net book value ($1,000) and the
assumption of the related bank loan (see Note 9).
During 1995, the Company sold minority interests in a limited partnership
that operated one of its units. The gain on the sale is included in the caption
"Gain on sale of subsidiary interests" in the accompanying financial statements.
4. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Leasehold improvements............................................................... $ 181,107 $ 211,030
Furniture and equipment.............................................................. 50,855 63,396
Memorabilia.......................................................................... 26,244 33,274
Land................................................................................. -- 5,051
Capital lease facility............................................................... 3,900 3,900
Construction in progress............................................................. 11,854 43,965
------------ ------------
273,960 360,616
Less--accumulated depreciation....................................................... (23,852) (37,667)
------------ ------------
$ 250,108 $ 322,949
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. INVESTMENT IN UNCONSOLIDATED AFFILIATES
The Company's investments in affiliated companies which are not majority
owned or controlled are accounted for using the equity method.
In January 1995, the Company obtained a 50% equity interest in PH Asia,
which operates and franchises PLANET HOLLYWOOD and OFFICIAL ALL STAR units in
the Pacific Rim. The remaining interest in PH Asia is owned by an entity
controlled by a company in which a director of the Company is a major
stockholder.
In July 1995, the Company acquired a 20% equity interest in ECE for $5,000.
ECE operates themed restaurant/retail units in Mexico (see Notes 3 and 9). At
the acquisition date, the Company's share of the underlying net assets of ECE
exceeded the investment by $2,900. The excess is being amortized over 20 years.
A director of the Company is also a principal stockholder of ECE. In January
1997, ECE issued 21,587,145 shares of common stock in an initial public offering
in Mexico. The Company purchased 4,317,429 shares for $6,050 in order to retain
its 20% equity interest in ECE.
In September 1997, the Company entered into a venture to remodel and
renovate the Hotel Pennsylvania in New York City. During 1997, the Company
advanced the venture $9.6 million and estimates that total funding requirements
for its 20% equity investment in the venture will be $20 million. The renovated
hotel will be branded the OFFICIAL ALL STAR HOTEL, and the Company will receive
royalties for the use of its OFFICIAL ALL STAR HOTEL trademark.
In December 1997, the Company entered into a venture to construct a
50-story, 560-room movie-themed hotel in New York City. During 1997, the Company
contributed $5.0 million to the venture and estimates that its total funding
requirements for its 20% equity investment in the venture will be $7.0 million.
In addition to participation in the hotel's profits through its equity interest
in the venture, the Company will receive a license fee for the use of the Planet
Hollywood name and logo. A PLANET HOLLYWOOD restaurant will be constructed in
the lobby of the hotel. The Company has entered into a $35 million LIBOR-based
leveraged lease for this facility. The lease has a base term of three years and
can be extended up to 21 years.
F-13
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. INVESTMENT IN UNCONSOLIDATED AFFILIATES (CONTINUED)
Condensed financial information for affiliated companies accounted for by
the equity method is as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL
- ------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
Current assets...................................... $ 15,537 $ 13,884 $ 29,421 $ 17,370 $ 206,142 $ 223,512
Non-current assets.................................. 24,363 32,427 56,790 24,578 89,767 114,345
--------- --------- --------- --------- ---------- ----------
Total assets........................................ $ 39,900 $ 46,311 $ 86,211 $ 41,948 $ 295,909 $ 337,857
--------- --------- --------- --------- ---------- ----------
--------- --------- --------- --------- ---------- ----------
Current liabilities................................. $ 7,081 $ 27,968 $ 35,049 $ 9,255 $ 13,300 $ 22,555
Other liabilities................................... 31,349 319 31,668 25,219 139,804 165,023
Stockholders' equity................................ 1,470 18,024 19,494 7,474 142,805 150,279
--------- --------- --------- --------- ---------- ----------
Total liabilities and stockholders' equity.......... $ 39,900 $ 46,311 $ 86,211 $ 41,948 $ 295,909 $ 337,857
--------- --------- --------- --------- ---------- ----------
--------- --------- --------- --------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------- ------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA: PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ----------
Revenues................. $ 14,771 $ 17,330 $ 32,101 $ 27,993 $ 55,126 $ 83,119 $ 43,332 $ 72,606 $ 115,938
Operating income......... 414 8,537 8,951 3,073 19,194 22,267 7,073 25,893 32,966
Net income............... 550 2,181 2,731 2,530 6,818 9,348 6,196 15,296 21,492
Company's interest in net
income................. 100 748 848 1,200 3,108 4,308 3,250 3,650 6,900
</TABLE>
F-14
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Accrued taxes........................................................................ $ 4,658 $ 1,820
Accrued rent......................................................................... 878 3,318
Accrued payroll and related benefits................................................. 3,304 3,776
Other................................................................................ 2,068 6,301
------------ ------------
$ 10,908 $ 15,215
------------ ------------
------------ ------------
</TABLE>
7. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------- ------------
<S> <C> <C>
Revolving line of credit............................................................ $ -- $ 42,000
Term loan........................................................................... -- 20,000
Capital lease payable............................................................... 3,897 3,872
Other notes payable................................................................. 4,378 5,883
------ ------------
8,275 71,755
Less current portion................................................................ (746) (1,264)
------ ------------
$ 7,529 $ 70,491
------ ------------
------ ------------
</TABLE>
In August 1995, the Company issued $60,000 10% Senior Subordinated Notes
(the "1995 Notes") due in 2000 with warrants to purchase Class A common stock
(see Note 8). In connection with the 1996 initial public offering of stock, the
Company repaid the 1995 Notes from a portion of the offering's proceeds. The
Company incurred a one-time extraordinary charge of $10.4 million, net of $5.9
million in taxes, as a result of the early extinguishment of the 1995 Notes.
In September 1997, the Company replaced its existing $50 million credit
facility with a multi-currency, long-term credit facility with a consortium of
financial institutions. This facility consists of a $100 million revolving
credit facility and a $20 million term loan facility. The credit agreement
carries a commitment fee of .25% on the unused amount of the revolving credit
portion. Interest rates are variable, with either prime or LIBOR indexes. At
December 28, 1997, the Company's weighted average rate on outstanding borrowings
under the facility was 6.96%. The revolving credit facility matures in September
2000, while the term loan facility matures in 1999. During 1997, the Company
drew $42 million under the revolving credit facility. The credit facility also
provides for the Company to have up to $10 million in letters of credit. At
December 28, 1997, the Company had outstanding letters of credit totaling $5.8
million.
Under the terms of the credit facility, the Company is required to meet
certain minimum quarterly net worth, interest coverage and various other
financial ratios. At December 28, 1997, the Company was in violation of one of
the financial covenants. In March 1998, the lenders modified the covenant and
the Company was in compliance with the revised covenants at December 28, 1997.
F-15
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. NOTES PAYABLE (CONTINUED)
In fiscal 1996, notes due to stockholders totaling $70,750 were repaid from
the proceeds of the initial public offering of stock.
During fiscal 1995, the principal stockholders or their affiliates advanced
or guaranteed various loans and credit facilities to the Company totaling
$21,600. These borrowings were repaid with proceeds of the 1995 Notes. During
fiscal 1995 and 1996, approximately $7,705 and $2,202, respectively, was charged
to interest expense under these loans.
During fiscal 1995, 1996 and 1997, approximately $12,661, $6,093 and $2,555,
respectively, was charged to interest expense and approximately $834, $1,098 and
$2,555 in fiscal 1995, 1996 and 1997, respectively, of interest was capitalized.
Aggregate principal amounts maturing in each of the five fiscal years
subsequent to fiscal 1997 and thereafter are summarized as follows:
<TABLE>
<CAPTION>
FISCAL
- -------------------------------------------------------------------------------------------------------
<S> <C>
1998................................................................................................... $ 1,264
1999................................................................................................... 20,486
2000................................................................................................... 42,490
2001................................................................................................... 530
2002................................................................................................... 575
Thereafter............................................................................................. 6,410
---------
$ 71,755
</TABLE>
8. STOCKHOLDERS' EQUITY AND REDEEMABLE WARRANTS
STOCKHOLDERS' EQUITY
On January 1, 1995, the Company issued 1,333,333 shares of Class A common
stock to certain employees, including 466,666 shares issued under a
participation agreement with an employee dated January 1, 1994. The shares are
restricted and cannot be transferred or sold unless the Company waives its right
of first refusal to purchase any shares. The shares are subject to forfeiture by
the employee in the event the employee is no longer employed by the Company. The
forfeiture restriction lapses generally over a five year period. The shares were
valued at their estimated market value totaling $1,100. Compensation expense is
recognized over the vesting period. Deferred compensation expense has been
reflected as a reduction of stockholders' equity.
In April 1996, the Company completed an initial public offering of
12,406,452 shares of common stock at an offering price of $18.00 per share,
including 1,618,233 shares from the exercise of the Underwriters' over allotment
option. The Company received net proceeds of approximately $193.1 million.
In April 1997, the Company issued 1,087,000 shares of Class A Common Stock
to an investor in conjunction with the consummation of a franchise agreement
with the investor. Approximately $19.6 million was received for the shares
issued (Note 9).
F-16
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. STOCKHOLDERS' EQUITY AND REDEEMABLE WARRANTS (CONTINUED)
In January 1997, the Company issued 218,438 shares of restricted Class B
Common Stock to certain celebrities. The restrictions lapse over a period of
years, generally three to four years. The shares were valued at their estimated
market value totaling $4.0 million. Compensation expense is recognized ratably
over the period benefitted. Deferred compensation expense has been reflected as
a reduction of stockholders equity.
REDEEMABLE WARRANTS
In connection with the issuance of the 1995 Notes (see Note 7), the Company
issued warrants to purchase up to 5,112,765 shares of common stock at an
exercise price of $0.01 per share. The proceeds of the offering were allocated
between the 1995 Notes and warrants based upon their fair values at the date of
issuance. The number of shares which may be purchased upon exercise of the
warrants were subject to increase or decrease by up to 50% based upon the total
rate of return to the holders upon repayment of the 1995 Notes, including the
fair value of the warrants at the date they become exercisable or are deemed
exercised. The warrants became exercisable upon the repayment of the 1995 Notes.
The number of warrants which may be exercised were reduced by 50% to 2,556,383
based upon the total rate of return to the holders at the date of repayment of
the 1995 Notes. In connection with the initial public offering of stock in
fiscal 1996, warrants to purchase 788,219 shares were exercised. In 1996, the
Company registered the shares issued upon the exercise of the remaining
warrants.
STOCK OPTIONS
During 1995, the Board of Directors adopted the 1995 Stock Option Award and
Incentive Plan ("1995 Stock Plan"). The 1995 Stock Plan calls for up to
4,000,000 shares of Class A common stock to be available for issuance upon the
exercise of options and stock appreciation rights. In October 1996, the 1995
Stock Plan was amended to provide for 5,000,000 shares of Class A common stock
to be available. In May 1997, the 1995 Stock Plan was amended to provide for
6,000,000 shares of Class A common stock to be available. Under the 1995 Stock
Plan, options and/or stock appreciation rights may be granted to officers and
employees of the Company, and certain of the Company's independent contractors,
to purchase Class A common stock. During fiscal 1995, 1996 and 1997, options to
purchase 1,130,733, 3,051,161 and 839,800 shares, respectively, of Class A
common stock were granted under the 1995 Stock Plan at the estimated fair market
value at the date of grant. These options vest and are exercisable over a period
of four years and expire five years from the date of grant.
During 1995, the Board of Directors adopted the 1995 Celebrity Stock Option
Award and Incentive Plan ("1995 Celebrity Plan"). The 1995 Celebrity Plan calls
for up to 4,000,000 shares of the Class A common stock to be available for
issuance upon the exercise of options and stock appreciation rights. In October
1996, the 1995 Celebrity Plan was amended to provide for 6,000,000 shares of
Class A Common Stock to be available. During fiscal 1995, 1996, and 1997,
options to purchase 2,250,000, 1,895,000, and 180,000 shares, respectively, of
Class A common stock were granted under the 1995 Celebrity Plan at the estimated
fair market value at the date of grant. These options vest and are exercisable
over a period of
F-17
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. STOCKHOLDERS' EQUITY AND REDEEMABLE WARRANTS (CONTINUED)
four years and expire five years from the date of grant. During fiscal 1995,
1996, and 1997, approximately $140, $1,268, and $2,081, respectively, was
charged to expense relating to the grants.
<TABLE>
<CAPTION>
STOCK PLAN CELEBRITY PLAN
------------------------- ----------------------------
<S> <C> <C> <C> <C>
NUMBER WEIGHTED AVG. NUMBER WEIGHTED AVG.
OF SHARES OPTION PRICE OF SHARES OPTION PRICE
---------- ------------- ----------- ---------------
Granted during 1995 and outstanding at December 31,
1995,.................................................. 1,130,733 $ 7.88 2,250,000 $ 7.88
Exercisable at December 31, 1995,........................ -- --
Available for grant at December 31, 1995................. 2,869,267 1,750,000
Granted during 1996...................................... 3,051,161 18.70 1,895,000 17.65
Canceled................................................. (440,579) 11.08 (50,000) 7.88
Outstanding at December 29, 1996,........................ 3,741,315 16.34 4,095,000 12.40
Exercisable at December 29, 1996,........................ -- --
Available for grant at December 29, 1996................. 1,258,685 1,905,000
Granted during 1997...................................... 839,800 18.11 180,000 16.28
Canceled................................................. (649,343) 17.00 (796,334) 17.64
Exercised................................................ (77,297) 8.40 (30,666) 7.88
Outstanding at December 28, 1997,........................ 3,854,475 16.76 3,448,000 10.55
Exercisable at December 28, 1997,........................ 237,801 1,082,655
Available for grant at December 28, 1997................. 2,068,228 2,552,000
</TABLE>
The following tables summarize the stock options outstanding at December 28,
1997:
<TABLE>
<CAPTION>
EMPLOYEES: WEIGHTED
RANGE OF NUMBER WEIGHTED-AVERAGE AVERAGE
EXERCISE OUTSTANDING AT REMAINING EXERCISE
PRICES DECEMBER 28, 1997 CONTRACTUAL LIFE PRICE
- ---------------- ----------------- ---------------- -----------
<S> <C> <C> <C>
$ 7.88 662,289 3 Years $ 7.88
14.00--18.63 873,086 4 Years 17.03
19.00 2,095,100 4 Years 19.00
20.00--21.63 224,000 4 Years 21.05
</TABLE>
<TABLE>
<CAPTION>
CELEBRITIES: WEIGHTED
RANGE OF NUMBER WEIGHTED-AVERAGE AVERAGE
EXERCISE OUTSTANDING AT REMAINING EXERCISE
PRICES DECEMBER 28, 1997 CONTRACTUAL LIFE PRICE
- ---------------- ----------------- ---------------- -----------
<S> <C> <C> <C>
$ 7.88 2,169,334 3 Years $ 7.88
14.00--15.00 1,138,666 3 Years 14.42
19.00--24.00 140,000 4 Years 20.50
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation expense has been recognized for the 1995 Stock
Plan. Had compensation cost for the 1995 Stock Plan been determined based on the
fair value at the date of grant for awards in 1995 and 1996 consistent with the
F-18
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. STOCKHOLDERS' EQUITY AND REDEEMABLE WARRANTS (CONTINUED)
provisions of SFAS 123, the Company's net income and earnings per share would
approximate the following pro forma amounts:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income--as reported.......................................................... $ 20,727 $ 37,659 $ 8,258
Net income--pro forma............................................................ 20,723 36,987 4,852
Basic earnings per share--as reported............................................ .26 .37 .08
Basic earnings per share--pro forma.............................................. .26 .37 .04
Diluted earnings per share--as reported.......................................... .25 .37 .08
Diluted earnings per share--pro forma............................................ .25 .36 .04
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted-average
assumptions for grants in 1995, 1996 and 1997: no dividend yield for all three
years; expected volatility of 33% in 1995 and 1996, 40% in 1997; risk free rates
of 5.95% in 1995 and 1996, 5.70% in 1997; and expected lives of 4 years for all
periods presented. The weighted-average fair value of options granted during
each year was $1.63, $6.83, and $6.32 for fiscal 1995, 1996 and 1997,
respectively.
9. FRANCHISE REVENUES
The Company has an agreement with PH Asia, whereby PH Asia was granted the
right to license the PLANET HOLLYWOOD name and rights within a number of
countries, primarily in the Pacific Rim. In 1996, PH Asia opened or franchised
four units, and the Company received the initial franchise fee revenue for three
of the units. In 1997, PH Asia opened or franchised eight units, and the Company
received the initial franchise fee revenue for five of the units.
During 1995, the Company entered into a franchise agreement with ECE, an
affiliated company (see Note 5), which allows ECE to develop and operate up to
five PLANET HOLLYWOOD units and up to ten OFFICIAL ALL STAR CAFE units in
Mexico. Upon Company approval, ECE may open an additional five PLANET HOLLYWOOD
units. In 1996, ECE opened 5 units. No units were opened in 1997. ECE pays
continuing royalty fees as defined in the agreement.
In December 1995, the Company terminated the site franchise agreement of an
existing franchisee and purchased the franchise rights to four undeveloped
locations. The Company assumed certain liabilities and lease obligations
relating to the four undeveloped locations. In consideration for the franchise
rights, the Company will pay the seller an amount equal to a multiple of each
unit's first year profits less the costs to develop and open the site, as
defined. The franchisee forfeited the nonrefundable initial franchise fees of
$2,000 each for four sites. Unearned franchise fees are included in deferred
credits and any consideration paid for the sites will be offset against each
site's related unearned franchise fee. In fiscal 1997, the Company recognized
the deferred credit for two of the sites.
In March 1997, the Company entered into a franchise agreement which provides
for the development of up to 34 Planet Hollywood restaurant-merchandise units in
23 countries throughout the Middle East and Europe. The franchise agreement
provided for and the investor made a payment to the Company of $8.0 million for
six sites. Additional franchise fees may be payable to the Company under the
terms of the
F-19
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. FRANCHISE REVENUES (CONTINUED)
franchise agreement for the additional sites. In connection with the agreement,
the investor purchased 1% of the Company's total common stock outstanding
directly from the Company for approximately $19.6 million.
The number of franchised units opened in fiscal 1995, 1996 and 1997 were 6,
21 and 34, respectively.
10. INCOME TAXES
The sources of income before income taxes are presented as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
United States.................................................................. $ 18,977 $ 47,370 $ 15,529
Foreign........................................................................ 2,625 28,346 (2,317)
--------- --------- ----------
Income before taxes............................................................ $ 21,602 $ 75,716 $ 13,212
--------- --------- ----------
--------- --------- ----------
</TABLE>
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
---------- --------- ----------
<S> <C> <C> <C>
Current:
Federal...................................................................... $ 5,949 $ 12,616 $ 9,927
State and local.............................................................. 1,857 1,472 1,777
Foreign...................................................................... 1,592 3,168 3,375
---------- --------- ----------
9,398 17,256 15,079
---------- --------- ----------
Deferred:
Federal...................................................................... (7,586) 2,941 (7,499)
State and local.............................................................. (937) 1,448 (337)
Foreign...................................................................... -- -- (2,289)
---------- --------- ----------
(8,523) 4,389 (10,125)
---------- --------- ----------
$ 875 $ 21,645 $ 4,954
---------- --------- ----------
---------- --------- ----------
</TABLE>
In 1997, the Company recognized $783 of benefits for deductions from the
exercise of employee stock options and the vesting of certain celebrity
restricted stock awards. The benefits were recorded directly to capital in
excess of par value and are not reflected in the provision for income taxes.
F-20
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. INCOME TAXES (CONTINUED)
Income tax expense included in the financial statements is as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Continuing operations............................................................... $ 875 $ 27,636 $ 4,954
Extraordinary item.................................................................. -- (5,991) --
--------- --------- ---------
$ 875 $ 21,645 $ 4,954
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes were recorded to reflect the tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts for income tax purposes for December 31,
1995, December 29, 1996 and December 28, 1997.
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Preopening costs................................................................... $ 6,483 $ 4,712
Deferred credits................................................................... 6,584 6,104
Accrued expenses & reserves........................................................ 588 5,177
Deferred rental expense............................................................ 3,977 4,157
Net operating loss carryforwards................................................... 1,034 4,884
Tax credit carryforwards........................................................... 269 1,047
Other.............................................................................. 410 809
------------ ------------
19,345 26,890
Valuation allowance................................................................ -- (1,925)
------------ ------------
19,345 24,965
------------ ------------
Deferred tax liabilities:
Depreciation and amortization...................................................... (12,893) (8,473)
Deferred compensation.............................................................. (104) --
Other.............................................................................. (31) (50)
------------ ------------
(13,028) (8,523)
------------ ------------
Net deferred tax asset............................................................. $ 6,317 $ 16,442
------------ ------------
------------ ------------
</TABLE>
The valuation allowance for the deferred tax asset as of January 1, 1995 was
$8,478. The allowance was decreased in fiscal 1995 due to the taxable income
generated by the Company in fiscal 1995 and the expectation of sufficient
taxable income in the future to utilize the deductible temporary differences and
carryforwards. A valuation allowance of $1,925 was established during fiscal
1997 for the deferred tax assets relating to foreign operations. SFAS No. 109
requires that deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred tax asset will not
be realized.
F-21
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. INCOME TAXES (CONTINUED)
Reconciliation of the federal statutory tax rate and the effective tax rate
is as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax rate................................................................ 35.0% 35.0% 35.0%
Nondeductible expenses.................................................................... 2.2 0.6 1.9
Tax benefit of foreign operations......................................................... (1.3) (1.8) (1.5)
State and local income taxes, net of federal tax benefit.................................. 5.7 3.2 7.1
Utilization of tax loss carry forward..................................................... (1.4) -- --
Valuation allowance....................................................................... (35.4) -- --
Tax credits............................................................................... (2.4) (1.2) (6.5)
Other..................................................................................... 1.7 0.7 1.5
--------- --------- ---------
Effective tax rate........................................................................ 4.1% 36.5% 37.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The amount of domestic net operating loss carryforwards generated by certain
subsidiaries prior to their acquisition was $4,288 with expiration dates through
the fiscal year 2011. The use of pre-acquisition operating loss carryforwards is
subject to limitations imposed by the Internal Revenue Code. The Company does
not anticipate that these limitations will affect utilization of the
carryforwards prior to their expiration.
The amount of foreign net operating loss carryforwards at December 28, 1997
was $8,220, of which $5,674 has no expiration date and $2,546 expires between
2002 and 2007.
Provision has not been made for United States or foreign taxes on the
undistributed earnings of foreign affiliates, as those earnings are considered
to be permanently invested. It is not practicable to estimate the amount of the
tax on such earnings. Such earnings would become taxable upon the sale or
liquidation of the investment in these foreign affiliates or upon the remittance
of dividends. Upon remittance, certain foreign countries impose withholding
taxes that are then available, subject to certain limitations, for use as
credits against the Company's United States tax liability.
F-22
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum lease payments under the terms of operating and capital lease
agreements at December 28, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ---------
<S> <C> <C>
1998........................................................................................ $ 36,915 $ 400
1999........................................................................................ 37,636 400
2000........................................................................................ 38,003 400
2001........................................................................................ 38,190 400
2002........................................................................................ 38,144 400
Thereafter.................................................................................. 654,512 9,400
---------- ---------
Total..................................................................................... $ 843,400 11,400
----------
----------
Less: amount representing interest.......................................................... (7,523)
---------
Present value of net minimum lease payments................................................. $ 3,877
---------
---------
</TABLE>
Rent expense approximated $23,900, $34,540 and $44,607 for fiscal 1995, 1996
and 1997, respectively. Included in fiscal 1995, 1996 and 1997 rent expense is
approximately $7,300, $8,600 and $8,620, respectively, of contingent rental
payments.
OTHER
In connection with the construction and development of future restaurants
and corporate headquarters, the Company has entered into various construction
contracts. As of December 28, 1997, these outstanding contract commitments
totaled approximately $20,473.
In July 1997, the Company entered into a venture with AMC Entertainment,
Inc. ("AMC") to develop, own and operate "Planet Movies By AMC", an integrated
moviegoing, dining and retail concept worldwide. The Company anticipates funding
$30 million to the joint venture in fiscal 1998 for the purpose of developing
and operating "Planet Movies By AMC" complexes throughout the world.
In fiscal 1997, the Company and Aladdin Gaming, LLC announced their intent
to form a venture to develop, own and operate a 1,000 room hotel and 50,000
square foot casino in Las Vegas, Nevada. Each partner will be required to
contribute initial equity of approximately $41 million. The Company will
initially contribute cash for its ownership interest and receive ongoing
licensing and marketing fees.
LITIGATION
The Company is a defendant in certain lawsuits for which counsel has been
retained. In the opinion of management, the ultimate outcome of these matters
will not have a material adverse effect upon the financial condition, results of
operations, or cash flows of the Company.
F-23
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. RELATED PARTY TRANSACTIONS
In December 1994, the Company transferred ownership of an aircraft to a
company owned by two of the Company's stockholders. The transportation equipment
was leased to the Company on a month-to-month basis, and the debt assumed by the
stockholders was guaranteed by the Company. The results of operations for this
company are included in the Company's consolidated results until June 1995, when
the Company repurchased the aircraft at its book value. No gain or loss was
recognized on the transactions.
Through fiscal 1995, certain of the Company's officers and employees were
employed by a service company owned by the Company's president and stockholder.
The service company's expenses were allocated to the Company and other entities
based upon the employees' time spent on each entity. During fiscal 1995, the
Company was allocated $890. During fiscal 1996 and fiscal 1997, the Company paid
officers' and employees' salaries directly.
A company that is controlled by a director and stockholder of the Company
bought the franchise rights to develop one PLANET HOLLYWOOD unit in 1995 and two
units in 1997 for $5,250. The franchise fees were recognized by the Company in
1997.
In fiscal 1997, the Company paid approximately $1 million in investment
banking fees for services rendered by a firm in which a director of the Company
is also a member of that firm's board of directors.
13. OTHER FINANCIAL DATA
GEOGRAPHIC SEGMENT DATA
Condensed financial information, summarized by geographic area, is as
follows:
<TABLE>
<CAPTION>
UNITED OTHER
STATES EUROPE AREAS(1) CORPORATE(2) TOTAL
---------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues 1997 $ 355,641 $ 103,083 $ 16,401 $ -- $ 475,125
1996 305,221 67,824 319 -- 373,364
1995 228,833 36,150 5,623 -- 270,606
Operating income (loss) 1997 11,273 (6,834) 546 6,900 11,885
1996 71,282 3,972 65 4,308 79,627
1995 27,828 5,284 1,988 848 35,948
Identifiable assets 1997 362,363 85,411 10,392 47,393 505,559
1996 297,470 41,241 2,704 59,845 401,260
1995 185,058 34,020 -- 21,107 240,185
</TABLE>
- ------------------------
(1) Includes Mexico and Canada
(2) Corporate assets include cash and cash equivalents and investment in
unconsolidated affiliates. Corporate operating income includes equity in
earnings in unconsolidated affiliates.
F-24
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. OTHER FINANCIAL DATA (CONTINUED)
DIRECT REVENUES AND COST OF SALES
Direct revenues and cost of sales are summarized as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct revenues:
Food and beverage.......................................................... $ 160,997 $ 222,481 $ 273,345
Merchandise................................................................ 104,051 124,955 173,965
---------- ---------- ----------
$ 265,048 $ 347,436 $ 447,310
---------- ---------- ----------
---------- ---------- ----------
Cost of sales:
Food and beverage.......................................................... $ 38,537 $ 50,190 $ 61,930
Merchandise................................................................ 37,925 43,236 62,878
---------- ---------- ----------
$ 76,462 $ 93,426 $ 124,808
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
14. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Issuance of common stock for the purchase of minority interests $ -- $ 35,185 $ --
Additions to property and equipment, construction in process and other assets
included in accounts payable and accrued expenses 3,821 12,538 9,459
Capital lease -- 3,900 --
Sale of franchise in exchange for equity interest in unconsolidated affiliate 661 -- --
Transfer of deposit to minority interest contributions 500 -- --
Purchase of franchise for assumption of franchisee liabilities -- 3,181 --
Receivable exchanged for stock in an affiliate -- -- 770
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized 7,605 10,132 --
Cash paid for income taxes 7,518 13,398 14,848
</TABLE>
F-25
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. QUARTERLY DATA (UNAUDITED)
Summarized quarterly data for 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL 1996--QUARTERS ENDED
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAR. 31 JUNE 30 SEP. 29 DEC. 29 TOTAL
---------- ---------- ---------- ---------- ----------
Revenues....................................................... $ 77,025 $ 85,366 $ 111,840 $ 99,133 $ 373,364
Income from operations......................................... 9,323 17,422 28,213 20,361 75,319
Income before provision for income taxes....................... 5,276 17,546 30,598 22,296 75,716
Income before extraordinary item............................... 3,350 11,142 19,430 14,158 48,080
Net income..................................................... 3,350 721 19,430 14,158 37,659
Basic EPS--income before extraordinary item.................... $ 0.04 $ 0.11 $ 0.18 $ 0.13 $ 0.48
Diluted EPS--income before extraordinary item.................. $ 0.04 $ 0.11 $ 0.18 $ 0.13 $ 0.47
Basic EPS--net income.......................................... $ 0.04 $ 0.01 $ 0.18 $ 0.13 $ 0.37
Diluted EPS--net income........................................ $ 0.04 $ 0.01 $ 0.18 $ 0.13 $ 0.37
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997--QUARTERS ENDED
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAR. 30 JUNE 29 SEP. 28 DEC. 28 TOTAL
---------- ---------- ---------- ---------- ----------
Revenues....................................................... $ 101,647 $ 121,892 $ 149,598 $ 101,988 $ 475,125
Income from operations......................................... 13,296 23,150 39,111 (70,572) 4,985
Income before provision for income taxes....................... 16,858 26,059 40,167 (69,872) 13,212
Net income..................................................... 10,536 16,287 25,245 (43,810) 8,258
Basic EPS--net income.......................................... $ 0.10 $ 0.15 $ 0.23 ($ 0.40) $ 0.08
Diluted EPS--net income........................................ $ 0.10 $ 0.15 $ 0.23 ($ 0.40) $ 0.08
</TABLE>
In the fourth quarter of fiscal 1997, the Company recorded a pre-tax charge
of $71.2 million ($44.5 million after tax). The charge was primarily related to
the writedown of impaired assets ($48.7 million); the writeoff of accounts
receivable due to the Company's change in business strategy and the financial
uncertainties of certain franchisees ($13.5 million); and other costs associated
with the Company's change in business strategy ($9.0 million).
F-26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS OFFERING MEMORANDUM.
OVERVIEW
Historically, the Company has derived substantially all of its revenues from
its theme restaurants, which revenues have consisted of (i) food and beverage
revenues, (ii) merchandise revenues, (iii) royalties and (iv) franchise fees.
Food and beverage revenues and merchandise revenues derived from Company-owned
units, as well as merchandise revenues from other retail channels, are referred
to herein collectively as "Direct Revenues." For fiscal 1997, food and beverage
revenues were approximately 61.1% of Direct Revenues and merchandise revenues
were approximately 38.9% of Direct Revenues.
Franchisees are typically required to pay an upfront franchise fee ranging
from $1.0 million to $2.0 million, which is recognized when all the Company's
pre-opening obligations in respect of the unit are fulfilled and the franchised
unit opens. Thereafter, the franchisee is required to pay royalties based on its
gross revenues from food, beverage and merchandise sales. These royalties
typically range from 5% to 10% of the franchisee's food and beverage revenues
and 10% to 15% of the franchisee's merchandise revenues.
The Company historically has capitalized pre-opening costs for each of its
new units and has amortized such costs over the 12-month period following the
opening of the unit. Pre-opening costs consist of direct costs related to hiring
and training the initial workforce and other direct costs related to opening a
new unit, including expenses related to the grand opening. A new accounting
standard is currently under consideration by the American Institute of Certified
Public Accountants which, if adopted, would require a change in the Company's
accounting for pre-opening costs to an expense-as-incurred basis. See "--New
Accounting Standards."
During the initial period following its opening, a new unit typically
realizes higher revenues than in subsequent periods of operation, due primarily
to the substantial promotional activity during this period, including its
celebrity grand opening event. Because of this "honeymoon" period, a unit is
included in the "same unit" analysis, which only includes Company-owned units,
discussed below only after it has been open for a full fiscal period after the
eighteenth month of its operations, at which time its performance for that
period can be compared to its performance for the first full period following
the sixth month of its operations (the comparable year ago period). In fiscal
1997, only 18 of the 53 Company-owned units were included in the "same unit"
analysis.
The Company believes that its future growth will come from expansion of its
theme restaurant operations, including its new Music Concept, as well as
capitalizing on its brands through various strategic ventures outside the
restaurant industry. New Company-owned PLANET HOLLYWOOD and OFFICIAL ALL STAR
CAFE units will be smaller than most existing Company-owned units and
correspondingly will have lower development and operating costs than existing
units. However, because of their smaller size, new units also are expected to
generate lower revenues than have historically been realized by the Company's
existing units.
During fiscal 1997, the Company organized its operations into five separate
operational divisions to support the further diversification of its business.
The Food & Beverage division is primarily responsible for the development of,
and the food and beverage operations associated with, the Company's theme
restaurants (other than those theme restaurants associated with the Company's
joint venture projects). The Retail & Merchandising division is primarily
responsible for the development of, and sales of products and merchandise
through, retail stores located within the Company's theme restaurants as well as
stand-alone retail stores and other distribution channels. The Theaters &
Entertainment division is primarily responsible for the development and
oversight of the Company's joint venture with AMC and for the creation and
20
<PAGE>
development of other entertainment ventures. The Lodging & Gaming division is
responsible for the Company's participation in the Las Vegas Project, the
OFFICIAL ALL STAR HOTEL and the PLANET HOLLYWOOD HOTEL, as well as similar
ventures that may be pursued in the future. The Consumer Products division is
primarily responsible for the licensing of the Company's brands in connection
with selected consumer products, such as "PLANET HOLLYWOOD--The Game" and COOL
PLANET ice cream. In the future, the Company expects to report its financial
results in line with the new divisional structure.
OPERATING RESULTS
The following table sets forth various components of the Company's operating
results expressed as a percentage of total revenues (except where otherwise
indicated) for fiscal 1995, 1996 and 1997. The table also sets forth certain
relevant operating data for the periods presented.
<TABLE>
<CAPTION>
FISCAL
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
INCOME STATEMENT DATA:
Revenues:
Food and beverage............................................................. 59.5% 59.6% 57.5%
Merchandise................................................................... 38.4 33.5 36.6
Royalties..................................................................... 0.6 1.2 2.5
Franchise fees................................................................ 1.5 5.7 3.4
--------- --------- ---------
Total revenues.............................................................. 100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
Costs and expenses:
Food and beverage cost of sales (a)........................................... 23.9% 22.6% 22.7%
Merchandise cost of sales (b)................................................. 36.4 34.6 36.1
Operating expenses(c)......................................................... 44.1 45.2 46.6
General and administrative expenses........................................... 7.4 5.5 10.4
Depreciation and amortization................................................. 8.2 7.3 8.2
Equity in earnings of unconsolidated affiliates............................... (0.3) (1.2) (1.5)
Total costs and expenses........................................................ 87.0 79.8 99.0
Income from operations.......................................................... 13.0 20.2 1.0
Interest income (expense), net.................................................. (4.1) (0.8) 0.3
Minority interests.............................................................. 1.4 0.3 --
Provision for income taxes...................................................... 0.3 7.4 1.0
Net income...................................................................... 7.7 10.1 1.7
OPERATING DATA:
Food and beverage sales (c)..................................................... 60.7% 64.0% 61.1%
Merchandise sales (c)........................................................... 39.3 36.0 38.9
--------- --------- ---------
Total Direct Revenues....................................................... 100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
Units in operation at fiscal year end:
Company-owned units........................................................... 23 37 53
Franchised units.............................................................. 6 21 34
--------- --------- ---------
Total....................................................................... 29 58 87
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) As a percentage of food and beverage revenues.
(b) As a percentage of merchandise revenues.
(c) As a percentage of Direct Revenues.
21
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
In fiscal 1997, "same unit" revenues of Company-owned units declined 11%
compared to fiscal 1996. In addition, the Company recorded a charge in the 1997
fourth quarter of $71.2 million ($44.5 million after tax), $3.0 million of which
represented a cash charge. The principal components of this charge were (i)
$48.7 million related to a writedown of long-lived assets, associated with
underperforming domestic and foreign Company-owned restaurant units, (ii) $19.0
million related to the write-off of certain franchise and other receivables as
well as the abandonment of certain marketing initiatives and (iii) $3.0 million
related to the write-off of obsolete merchandise inventories. In response to
these lower than expected results, and as discussed above under "Summary--Recent
Developments," the Company has begun to undertake various measures to improve
its performance.
REVENUES. Total revenues increased 27.2% from $373.4 million in fiscal 1996
to $475.1 million in fiscal 1997. The increase in revenues is due primarily to
the Company's continued expansion through the development of new themed
restaurants, franchising activities and the expansion of its retail distribution
system, including direct merchandise sales.
Direct Revenues increased 28.8% from $347.4 million in fiscal 1996 to $447.3
million in fiscal 1997, due primarily to the opening of 16 new Company-owned
units in fiscal 1997 ($42.1 million of the increase) and the inclusion in fiscal
1997 results of a full year of operations of 14 Company-owned units that were
opened in fiscal 1996 ($47.6 million of the increase). Increased sales of
merchandise to specialty retailers and through other retail distribution
channels also contributed to higher Direct Revenues in fiscal 1997. Fiscal 1997
Direct Revenues were adversely impacted by the 11% decline in "same unit"
revenues. The decline in "same unit" revenues was due to a decline in customer
traffic that was attributable principally to (i) increased competition in the
theme-dining sector and (ii) a diversion of management's focus from existing
unit operations to new unit openings and strategic initiatives. Competition in
major tourist markets increased significantly in fiscal 1997. Four PLANET
HOLLYWOOD units accounted for 46% of the dollar amount of the decline in "same
unit" revenues, while contributing only 27% of "same unit" revenues as a whole.
In addition, fiscal 1997 "same unit" revenues at certain of the Company's units
were adversely impacted by the particularly strong revenues realized by these
units in fiscal 1996 due to increased customer traffic generated by the Summer
Olympics. In the near term, the Company anticipates further declines in "same
unit" revenues, primarily as a result of decreased customer traffic due to
increased competition.
As a percentage of Direct Revenues, merchandise sales increased from 36.0%
in fiscal 1996 to 38.9% in fiscal 1997. The increase in merchandise sales as a
percentage of Direct Revenues was primarily due to the introduction of new
product lines, sales to specialty retailers and promotional sales. To increase
the exposure of its brands to consumers worldwide, the Company markets its
branded products in innovative ways, including the sale of merchandise to
specialty retailers having a worldwide distribution and marketing presence.
Franchise fees were $21.4 million in fiscal 1996 and $16.1 million in fiscal
1997. In fiscal 1996, a total of 16 franchised units were opened, compared to 13
in fiscal 1997. Royalties and other revenues increased from $4.5 million in
fiscal 1996 to $11.7 million in fiscal 1997, due primarily to growth in the
number of franchised units and the licensing of the Company's brands.
COSTS AND EXPENSES. Food and beverage costs as a percentage of food and
beverage revenues increased slightly from 22.6% in fiscal 1996 to 22.7% in
fiscal 1997. In fiscal 1997, merchandise costs as a percentage of merchandise
revenues increased to 36.1% from 34.6% in fiscal 1996 due to a write-off of
certain discontinued inventories (including inventories affected by a redesign
of the Company's OFFICIAL ALL STAR CAFE logo), which resulted in a $3.0 million
charge. Operating expenses, which consist primarily of occupancy, labor and
other direct unit operating costs, increased from 45.2% of Direct Revenues in
fiscal 1996 to 46.6% of Direct Revenues in fiscal 1997. Occupancy costs
increased as a percentage of Direct Revenues in fiscal 1997 because revenues at
many of the Company's units were below the minimum rent thresholds in the
applicable leases. In fiscal 1997, labor costs increased as a percentage of
Direct Revenues
22
<PAGE>
because salaried labor costs remained relatively constant as the Company opened
smaller units in new markets. The increase in operating expenses as a percentage
of Direct Revenues was also a result of the decline in "same unit" sales.
General and administrative expenses increased to $49.3 million in fiscal
1997 from $20.4 million in fiscal 1996. Approximately $19.0 million of the $28.9
million increase was attributable to the fourth quarter charge, consisting
primarily of write-offs of certain franchise and other receivables as a result
of the change in the Company's business strategy and financial uncertainties
facing certain franchisees in Eastern Europe and Asia. The remainder of the
increase was due principally to the expansion of the Company's corporate
infrastructure, including increased employee headcounts.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
7.3% of total revenues in fiscal 1996 to 8.2% of total revenues in fiscal 1997
due to increased depreciation on units constructed in 1996 and 1997 and a full
year's amortization of goodwill on the units acquired by the Company in fiscal
1996.
IMPAIRMENT OF LONG-LIVED ASSETS. As a result of operating losses incurred
and projected to continue at certain restaurant units, the Company recorded a
noncash impairment charge of $48.7 in fiscal 1997 related to the writedown of
long-lived assets associated with certain underperforming units. The Company
considers continued and projected operating losses or significant and long-term
change in market conditions to be its primary indicators of potential
impairment. An impairment was recognized as the future projected undiscounted
cash flows for these units were estimated to be insufficient to recover the
related carrying value of the long-lived assets relating to the units. As a
result, the carrying values of these assets were written down to their estimated
fair values based on the projected discounted cash flows. No such charges were
required in fiscal 1996.
INTEREST INCOME (EXPENSE), NET. Net interest expense was $2.9 million in
fiscal 1996 compared to net interest income of $1.3 million in fiscal 1997.
Proceeds from the Company's initial public offering in April of 1996 were
utilized to extinguish Company debt and interest was earned on the investment of
remaining funds.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES. Equity in earnings of
unconsolidated affiliates increased from $4.3 million in fiscal 1996 to $6.9
million in fiscal 1997, primarily due to additional franchise openings by ECE
and PH Asia in 1997 and earnings from the Company's investment in the Hotel
Pennsylvania.
OTHER. Minority interests decreased from $1.0 million in fiscal 1996 to
zero in fiscal 1997 due to the acquisition by the Company of all minority
interests during fiscal 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes was $27.6
million or 36.5% of pretaxable income in fiscal 1996 compared to $5.0 million or
37.5% in fiscal 1997. The increase in the Company's effective tax rate is
primarily due to an increase in the percentage of total earnings from domestic
units in fiscal 1997.
EXTRAORDINARY ITEM, NET. In fiscal 1996, the Company incurred an
extraordinary charge of $10.4 million, net of $5.9 million in taxes, as a result
of the early extinguishment of long-term notes payable.
SEASONALITY AND QUARTERLY COMPARISONS. The Company's revenues have been
seasonal, due to the greater number of tourists who patronize the Company's
units during the summer and year-end holiday season. Although units in certain
locations are affected by different seasonal influences, the Company has
historically experienced its strongest operating results from June through
August. Moreover, as a result of the substantial revenues associated with each
new Company-owned unit and the recognition of franchise fees, the timing of new
unit openings may result in significant fluctuations in quarterly results.
Additionally, in 1997 the Company realized substantial revenues through its
retail distribution system. Quarterly results may fluctuate significantly in
association with the timing of these transactions.
23
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Total revenues increased 38.0% from $270.6 million in fiscal 1995
to $373.4 million in fiscal 1996.
Direct Revenues increased 31.1% from $265.0 million in fiscal 1995 to $347.4
million in fiscal 1996, due primarily to the opening of 14 new Company-owned
units in fiscal 1996 ($43.3 million of the increase) and the inclusion of a full
year of operations of the nine Company-owned PLANET HOLLYWOOD units opened in
fiscal 1995 ($49.2 million of the increase). Direct Revenues on a "same unit"
basis decreased 2.0% from $200.6 million in fiscal 1995 to $196.6 million in
fiscal 1996. As a percentage of Direct Revenues, merchandise sales decreased
from 39.3% in fiscal 1995 to 36.0% in fiscal 1996. The decrease in merchandise
mix is mostly due to the timing of new unit openings and development of new
concepts which typically have a lower merchandise mix in their development
stage.
Franchise fees were $4.0 million in fiscal 1995 and $21.4 million in fiscal
1996 due to the opening of 16 franchises during 1996. Royalties increased 190.7%
from $1.6 million in fiscal 1995 to $4.5 million in fiscal 1996, due primarily
to the growth in the number of franchised units.
COSTS AND EXPENSES. Food and beverage costs decreased from 23.9% of food
and beverage revenues in fiscal 1995 to 22.6% in fiscal 1996 as a result of
improved buying power and efficiencies from the greater unit base, allowing for
favorable negotiations with suppliers. Merchandise costs decreased from 36.4% of
merchandise revenues in fiscal 1995 to 34.6% in fiscal 1996 primarily as a
result of improved buying power and favorable negotiation with suppliers.
Operating expenses, which consist primarily of labor, occupancy and other direct
unit operating costs, increased from 44.1% of Direct Revenues in fiscal 1995 to
45.2% in fiscal 1996, due primarily to opening of Company-owned units in Europe,
which generally have higher operating costs.
General and administrative expenses increased slightly from $20.1 million in
fiscal 1995 to $20.4 million in fiscal 1996, as the Company continued to develop
its infrastructure. However, these expenses were offset by reduced legal costs
and cost savings generated from the sale of a Company-owned aircraft to an
unaffiliated third party. As a percent of total revenues, general and
administrative expenses decreased from 7.4% in fiscal 1995 to 5.5% in fiscal
1996 due to the greater number of Company-owned units contributing to total
revenues. Depreciation and amortization increased 23.1% from $22.2 million in
fiscal 1995 to $27.3 million in fiscal 1996, due primarily to the larger number
of units in operation in 1996. Equity in income of unconsolidated affiliates
increased from $0.8 million in fiscal year 1995 to $4.3 million in fiscal year
1996, attributable to various unit openings by the Company's minority
investments in ECE and PH Asia.
INTEREST INCOME (EXPENSE), NET. Net interest expense decreased 74.4% from
$11.2 million in fiscal 1995 to $2.9 million in fiscal 1996 as a result of
repayment of debt with the proceeds from the Company's initial public offering.
OTHER. Minority interests decreased from $3.7 million in fiscal 1995 to
$1.0 million in fiscal 1996, due to the acquisition by the Company of all
minority interests during fiscal 1996. In fiscal 1995, the Company realized a
$0.6 million gain on the sale of a portion of its interest in the entity that
owns the Washington, D.C. PLANET HOLLYWOOD unit.
PROVISION FOR INCOME TAXES. The provision for income taxes was $27.6
million for fiscal year 1996. In fiscal 1995, the Company recorded a provision
for income taxes of $0.9 million.
The Company incurred an extraordinary charge during fiscal 1996 of $10.4
million, net of $5.9 million in taxes, as a result of the early retirement of
long-term notes payable.
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LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
fiscal 1995, 1996 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL
---------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- --------- ----------
Net cash provided by operating activities.................. $ 33,370 $ 48,830 $ 35,766
Net cash used in investing activities...................... (75,599) (73,870) (156,445)
Net cash provided by financing activities.................. 52,128 59,948 81,153
Net effect of exchange rates on cash....................... -- -- (1,216)
Net increase (decrease) in cash and cash equivalents....... $ 9,899 $ 34,908 ($ 40,742)
</TABLE>
In its operations, the Company does not have significant receivables and
receives trade credit based upon negotiated terms in purchasing food products
and other supplies. The Company does have accounts receivable arising out of
franchise fees and royalties which will vary depending on the number of
franchises in operation and the number of franchises granted in a given year.
The Company's business has not required significant working capital to meet its
operating requirements. The Company requires capital primarily for the
development and operation of Company-owned units and has historically financed
these activities from development loans and capital contributions by its
stockholders, cash generated from operations and fees received in connection
with the sale of franchises. In addition, in August 1995 the Company received
net proceeds of $57.2 million from the private placement of $60.0 million
principal amount of senior subordinated notes and common stock purchase
warrants. In April 1996, the Company received proceeds of $196.6 million from
the initial public offering of its common stock, which were used in part to
retire the senior subordinated notes. In fiscal 1997, the Company utilized
borrowings against its credit facility and funds received from a private sale of
its common stock to help finance development activity.
Net cash provided by financing activities in fiscal 1995, 1996 and 1997 was
$52.1 million, $59.9 million and $81.2 million, respectively. In fiscal 1995,
the primary sources of financing were the sale of the senior subordinated notes
and warrants and development loans from stockholders. In fiscal 1996, the
primary source of financing was the initial public offering of the Company's
common stock. In fiscal 1997, the primary sources of financing were borrowings
on the Company's credit facility and proceeds from a private sale of its common
stock.
Net cash provided by operating activities in fiscal 1995, 1996 and 1997 was
$33.4 million, $48.8 million and $35.8 million, respectively. The increase in
cash provided by operating activities from fiscal 1995 to fiscal 1996 primarily
due was the increased profitability of the Company. The decrease in cash
provided by operating activities from fiscal 1996 to fiscal 1997 was due
primarily to the utilization of cash in fiscal 1997 for inventory and operating
expenses. Expenditures for pre-opening expenses, which are capitalized and
amortized over a 12-month period following the opening of a unit, were $15.5
million, $13.9 million and $18.8 million for fiscal 1995, 1996 and 1997,
respectively, and averaged $1.3 million per unit during the three-year period.
Net cash used in investing activities in fiscal 1995, 1996 and 1997 was
$75.6 million, $73.9 million and $156.4 million, respectively. The increase in
net cash used in investing activities from fiscal 1996 to fiscal 1997 was
primarily the result of the increased development and construction of new units
and the construction of the Company's corporate headquarters. Capital
expenditures for fiscal 1995, 1996 and 1997 were $80.3 million, $81.7 million
and $124.5 million, respectively.
Of the $196.6 million net proceeds from the initial public offering of the
Company's common stock in fiscal 1996, the Company used approximately $130.8
million to prepay indebtedness consisting of approximately $70.8 million of
notes payable to stockholders and $60.0 million of senior subordinated notes
held
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<PAGE>
by institutional investors. The remaining proceeds were used for general
corporate purposes, including the development and construction of new units.
In September 1997, the Company replaced its existing $50 million credit
facility with a $155 million multi-currency, long-term credit agreement (the
"Credit Agreement") with a consortium of lenders for which SunTrust Bank,
Central Florida, N.A., acted as agent. The Credit Agreement provides for a $100
million revolving credit facility, a $20 million long-term loan facility and a
$35 million LIBOR-based leveraged lease facility. The Credit Agreement carries
an annual facility fee on the total revolving credit portion and a commitment
fee on the unused amount of the revolving credit portion. Interest rates are
variable, with either prime or LIBOR indexes. At year end, the Company's
weighted average borrowing rate under the Credit Agreement was 6.96%. The
revolving credit facility matures in September 2000, the term loan facility
matures in 1999 and the LIBOR-based leveraged lease facility has a base lease
term of three years that can be extended up to 21 years. During 1997, the
Company borrowed an aggregate of $42.0 million under the revolving credit
facility. The Credit Agreement also provides for the issuance of up to $10.0
million of letters of credit. At year end, the Company had outstanding letters
of credit totaling $5.8 million. See "Description of Credit Agreement."
Under the terms of the Credit Agreement, the Company is required to meet
certain minimum quarterly net worth, interest coverage and various other
financial ratios. At December 28, 1997, the Company was in violation of one of
the financial covenants. In March 1998, the lenders modified the covenant and
waived the violation retroactively to December 28, 1997. In addition, the
lenders have agreed to amend various provisions of the Credit Agreement at or
prior to the consummation of the sale of the Notes. See "Description of Credit
Agreement."
The Company anticipates total capital expenditures to approximate $200.0
million in fiscal 1998. Expenditures related to the opening of theme restaurants
are estimated to be $86.4 million. The Company's new strategic ventures are
estimated to require $88.3 million, including $30.0 million for the PLANET
MOVIES BY AMC venture, $41.3 million for the Las Vegas Project, $10.0 million
for the OFFICIAL ALL STAR HOTEL, $3.0 million for the PLANET HOLLYWOOD HOTEL and
$4.1 million for COOL PLANET shops. The remaining $25.3 million is expected to
be utilized for restaurant refurbishments, purchases of memorabilia and
expenditures related to the new corporate headquarters and computer system
upgrades. Actual capital expenditures in 1998 could differ materially from this
projection if the number of unit openings varies, if any strategic venture is
delayed or if the Company accelerates or postpones certain other capital
expenditures.
The Company expects that cash generated from operations, together with
proceeds from the sale of the Notes in excess of the amount used to retire
indebtedness and available borrowings under the Company's Credit Agreement, will
be sufficient to meet its cash requirements for at least the next 18 months.
NEW ACCOUNTING STANDARDS. In February 1997, the Financial Accounting
Standards Board (FASB) adopted Statement of Financial Accounting Standards
(SFAS) no. 128, "Earnings Per Share," which caused the Company to change in
fiscal 1997 statements the way that it calculates and displays per share
information. Under the new rules, the Company displays "basic" earnings per
share, which is net income divided by weighted average shares outstanding during
the period. Also displayed is "diluted" earnings per share, which considers the
impact of common stock equivalents. Based on the Company's capital structure,
its common stock equivalents are employee and director stock options and
restricted stock. The difference between basic and diluted earnings per share is
not significant for the Company, nor is the difference between per share
earnings computed under the new and previous methods. Earnings per share
presented for prior periods has been restated to the new method.
In June 1997, the FASB adopted two standards, SFAS Nos. 130 and 131,
"Reporting Comprehensive Income" and "Disclosures about Segments of an
Enterprise and Related Information." Both of these new standards relate to the
display of financial information rather than impacting the computation of net
26
<PAGE>
income or earnings per share, and both will be effective for the Company
beginning with its 1998 annual financial statements. SFAS 130 requires that
companies display "comprehensive income," which in addition to the current
definition of net income, includes certain amounts currently recorded directly
in equity. For the Company, the only such item is foreign currency translation
adjustments. The new standard will be adopted by adding a column, which will
show comprehensive income to the statement of changes in shareholders' equity.
SFAS 131 mandates the management approach to identifying business segments.
Under the management approach, segments are defined as the organizational units
that have been established for internal performance evaluation purposes. For the
Company, this will mean segmenting the Company's current operations into five
segments: Food & Beverage, Retail, Consumer Products, Lodging and Gaming, and
Theaters and Entertainment.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued a proposed Statement of Position (SOP)
entitled "Reporting on the Cost of Start-Up Activities." The Company currently
capitalizes costs relating to opening of units and amortizes such costs over the
twelve months following the opening date of the unit. The proposed SOP, if
adopted in it's current form, would require the Company to expense all such
preopening costs as incurred. If issued, the proposed SOP would be effective for
fiscal 1999 and all costs capitalized at the date the SOP is adopted would be
charged to income as a cumulative effect of a change in accounting principle.
YEAR 2000 COMPLIANCE. The Company has studied the issue of year 2000
compliance and its potential effects on the Company's operations. Based on its
assessment, the Company expects to upgrade its critical computer systems to make
them year 2000 compliant by the end of fiscal 1998 without material
expenditures. Year 2000 compliance is not expected to have a material adverse
effect on the Company's operations. See "Risk Factors--Year 2000 Compliance."
IMPACT OF INFLATION. Inflation as measured by consumer price indices has
continued at a low level in most of the countries in which the Company operates.
A portion of the Company's sales comes from its international operations (See
Note 12 to the Consolidated Financial Statements). Although these operations are
geographically dispersed, which partially mitigates the risks associated with
operating in particular countries, the Company is subject to the usual risks
associated with international operations. These risks include local political
and economic environments and relations between foreign and U.S. governments.
CURRENCY EXCHANGE RISK. The Company's international operations expose it to
fluctuations in exchange rates when translating foreign currency to U.S. dollars
for financial reporting purposes. The Company is not able to project the effect
of future exchange rate fluctuations on its operating results. Currency
fluctuations did not have a material effect on the Company's results in fiscal
1997.
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