UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________________
Commission File Number 00028230
PLANET HOLLYWOOD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-3283783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8669 Commodity Circle
Orlando, Florida 32819
(Address of principal executive office, including zip code)
(407) 363-7827
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter) period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 28, 1999, there were approximately 97,221,632 shares of the
registrant's Class A voting common stock and 11,764,144 shares of the
registrant's Class B non-voting common stock outstanding.
The approximate aggregate market value of the registrant's Class A voting common
stock held by non-affiliates of the registrant, as of the close of business on
February 28, 1999, based on the closing price of $2.375 per share as reported on
the New York Stock Exchange on Friday, February 26, 1999 was $79,848,004. The
approximate aggregate market value of the registrant's non-voting common stock
held by non-affiliates of the registrant, based on the assumption that such
stock on a per share basis should be valued at 80% of the value per share of the
registrant's voting common stock, as of the close of business on February 28,
1999 was $19,059,525. Such assumption is based in part on the convertibility
restrictions imposed upon, and the lack of public trading in, the registrant's
Class B non-voting common stock.
The Registrant's Definitive Proxy Statement to be filed in connection with the
registrant's annual stockholders meeting to be held on May 27, 1999, is
incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
The statements that follow which express belief, anticipation or
expectation, as well as other statements which are not historical fact, are
forward looking statements. Consequently, actual results may vary materially
from such beliefs, anticipations and expectations. Meaningful factors which
could cause actual results to differ include, but are not limited to,
uncertainty of future profitability, ability to service debt and obtain
satisfactory financing, uncertainty of market acceptance, impact of competitive
products, as well as other factors discussed in Item 7 of this Form 10-K --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GENERAL
Planet Hollywood International, Inc., a Delaware corporation (the
"Company"), is a creator and worldwide developer of consumer brands that
transcend international barriers and capitalize on the universal appeal of
movies, sports and other entertainment-based themes. Since the Company commenced
operations in October 1991, the PLANET HOLLYWOOD name and distinctive logo
design have become among the most widely-recognized trademarks in the world. To
date, the Company has promoted its brands primarily through the operation of
theme restaurants, most notably PLANET HOLLYWOOD and the OFFICIAL ALL STAR CAFE,
that provide a unique dining and entertainment experience in a high-energy
environment and, through their integrated retail stores, offer a broad selection
of merchandise displaying the Company's logos. The Company had revenues of
approximately $387.0 million and a loss of approximately $243.9 million in
fiscal 1998.
In 1998, the Company experienced declines in same unit revenues and
disappointing operating results at its restaurants. As a result, the Company
re-evaluated its long term growth strategy. This re-evaluation led to the
Company deciding to perform the following steps in order to refocus its
resources on the PLANET HOLLYWOOD brand:
o Cease the development of its SOUND REPUBLIC unit in New York City.
o Joint venture, franchise, sell or otherwise dispose of its SOUND REPUBLIC,
OFFICIAL ALL STAR CAFE and COOL PLANET locations.
o Identify franchise opportunities for selected international Company-owned
PLANET HOLLYWOOD locations.
o Explore opportunities to raise capital through the sale of certain assets.
o Refocus on its core PLANET HOLLYWOOD operations by introducing a new menu,
updating the look and appearance of the restaurants, launching a new
merchandise strategy aimed at providing more fashion-oriented merchandise
through the introduction of seasonal lines, and initiating a new marketing
and public relations strategy aimed at delivering a fresh, exciting and
consistent message to consumers.
In conjunction with these changes and other initiatives, the Company
recorded charges totaling $139.0 million relating to the impairment of long
lived assets, restructuring and severance costs, and accelerated compensation
costs. See Item 7 of this Form 10-K -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further discussion of these
charges.
Historically, an important part of the Company's strategy has been to
promote its brands through the active involvement of celebrities and celebrity
stockholders. In addition, the Company's theme restaurants are characterized by
distinctive design features and are generally located at high profile sites or
in major tourist markets. Units generally range in size from approximately
12,000 to 36,000 square feet and in seating capacity from 230 to 600 persons,
and offer high-quality, popular cuisine, attentive service and an atmosphere of
excitement created by combining unique layouts and decor
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with custom-designed videos and audio soundtracks. Units prominently display
celebrity memorabilia and offer merchandise. Sales of merchandise yield higher
operating margins than do food and beverage sales and provide additional
off-site promotion and retail distribution opportunities for the Company's
brands.
The Company has also embarked upon several strategic ventures in movie
theaters, lodging, and consumer products. These ventures, which the Company is
developing in association with other companies that are leaders in their
respective industries, include the following:
*PLANET MOVIES BY AMC. The Company has formed a 50/50 joint venture with
AMC Entertainment, Inc., one of the nation's leading motion picture exhibitors,
that will develop, own and operate a multi-screen, movie theater megaplex under
the brand name PLANET MOVIES BY AMC. The first PLANET MOVIES BY AMC multi-screen
megaplex, which the Company expects to open in the summer of 1999 near Columbus,
Ohio, will occupy approximately 160,000 square feet with total seating capacity
for approximately 6,000 persons, and will include an approximately 7,500 square
foot PLANET HOLLYWOOD restaurant and a similar size OFFICIAL ALL STAR CAFE
restaurant, each with its own merchandise store, and various refreshment kiosks.
Currently, the joint venture has no definitive plans to expand this concept once
the Columbus site is completed. The Company expects that the build-out of the
Columbus site will be financed out of the $9.0 million capital contribution that
each partner is required to make to the joint venture.
*OFFICIAL ALL STAR HOTEL. In the fall of 1997, the Company acquired a
20% equity interest in a joint venture with Vornado Realty Trust. The joint
venture has acquired the Hotel Pennsylvania, a 20-story, 1,700-room hotel
located directly opposite the entrance to New York City's Madison Square Garden.
While continuing its normal operations, the hotel is intended to be renovated
and renamed the OFFICIAL ALL STAR HOTEL. It is expected that the hotel will also
contain approximately 400,000 square feet of rentable retail space. In an effort
to raise operating capital, the Company is currently exploring opportunities to
sell its investment in this joint venture.
Currently, the income being derived from the joint venture's activities
is not being distributed. In addition to participation in the hotel's profits
through its 20% equity interest in the joint venture, the Company also receives
royalty payments from the joint venture under a ten-year license (renewable by
the joint venture for two additional five-year periods) of the OFFICIAL ALL STAR
name and logo and certain other intellectual property rights, subject to the
licensee's right to terminate the license agreement after 5 years upon the
payment of a termination fee.
The joint venture has entered into a $120.0 million loan agreement with
Salomon Brothers Realty Corp. and LaSalle National Bank in order to finance the
acquisition of the hotel. In connection with this loan, the joint venture
granted the lenders a security interest in certain assets of the joint venture,
an assignment of its interests in rents and leases relating to the hotel and a
mortgage on certain real property. In addition, if the joint venture does not
deposit $45.0 million dollars into a reserve account by September 24, 1999, each
of the partners will contribute a portion of any shortfall based on is ownership
interest in the joint venture. The Company's contribution is limited to $10.0
million.
*PLANET HOLLYWOOD HOTEL. In fiscal 1997, the Company acquired a 20%
equity interest in a venture with several prominent real estate developers to
construct and own a 50-story, 550-room, movie-themed hotel at the intersection
of Broadway and 47th Street in New York City's Time Square redevelopment area.
The venture expects that the new PLANET HOLLYWOOD HOTEL will be characterized by
striking, modern decor and will include motion picture memorabilia from the
Company's collection. In addition to participation in the hotel's profits
through its 20% equity interest in the venture, the Company will receive license
fees for the use of the PLANET HOLLYWOOD name and logo.
*COOL PLANET ICE CREAM. During the summer and fall of 1998, the Company
opened its first three COOL PLANET units in California. These ice cream and
dessert units range in size from 800 to 1,400 square feet,
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with counter service and a small table seating area featuring unique decor
derived from the PLANET HOLLYWOOD theme concept. The Company plans to joint
venture, franchise, sell or otherwise dispose of its existing COOL PLANET
locations.
* SOUND REPUBLIC. In October 1998, the Company opened its first SOUND
REPUBLIC unit in London, England, a tribute to the world of live music.
Previously, in June 1998, the Company announced that it had joined forces with
MTV: Music Television, a division of Viacom, Inc., to help promote and develop
the SOUND REPUBLIC brand through theme restaurants with integrated retail
stores. The Company has since decided to discontinue the expansion of the SOUND
REPUBLIC concept and in connection therewith has recorded certain charges, and
currently is negotiating the termination of its relationship with MTV. See Item
7 of this Form 10-K -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further discussion of the charges.
CELEBRITY INVOLVEMENT
A number of motion picture and sports celebrities promote the Company
and allow the Company to use their names, pictures and select memorabilia in
advertising, promoting and operating its units. Celebrities generally grant the
Company the right to use their name, approved likeness, approved biography and
selected career memorabilia in connection with the promotion, advertising and
operation of the Company's units. The Company must obtain prior consent with
respect to any use of a celebrity's name or likeness in connection with sales of
merchandise. In addition, each celebrity generally assists/participates in
various promotional activities, including attending the grand openings of new
units, screening new movies at the units and making periodic appearances at
parties and other special events at the units. The Company generally issues to
these celebrities shares or options to acquire shares of its common stock.
Resale of the shares is restricted for varying periods of years and the options
are subject to forfeiture in certain circumstances.
The Company has expanded its roster of celebrity stockholders, with an
emphasis on new, up-and-coming stars, in order to further expand its appeal to
broader segments of consumers. The Company anticipates that it will be able to
continue to attract new celebrities to enter into promotional agreements with
the Company similar to those currently in effect. There can be no assurance,
however, of the extent to which major motion picture, sports, music or other
celebrities will promote the Company or its brands in the future.
ADVERTISING AND PROMOTION
The Company attracts new customers through word-of-mouth, the visibility
of its branded merchandise, radio and print advertising, billboards and through
media coverage. In addition, certain Company-owned units employ their own public
relations manager. Motion picture premieres have become occasions for media
events at the Company's units, further enhancing the awareness and cachet of the
brand. The Company issues redeemable vouchers for food and merchandise purchases
to tour operators in an effort to encourage tourists to include certain of the
Company's units on their itineraries. The Company also hosts fund-raising
parties for local charities at its units with the support of celebrities.
FRANCHISING
A number of the Company's overseas units have been franchised. The
Company's standard franchise agreement grants the exclusive right for up to 50
years to operate restaurant and/or merchandise locations, and sell branded
merchandise in a specified market and to use the Company's brands and
trademarks. In addition, some of the franchisees have obtained the exclusive
rights to open units in specified countries, and the Company has entered into
master franchise arrangements with respect to several larger territories. In
return for the franchise, the Company is paid initial nonrefundable fees ranging
up to $2.0 million upon execution of the franchise agreements as well as
royalties based on a percentage of the total revenues from the units, ranging
from 3% to 10% of food and beverage revenues and 5% to 15% of merchandise
revenues. See Note
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14 to the Company's Consolidated Financial Statements for condensed financial
information, summarized by geographic area.
The franchisee generally assumes responsibility for the development and
construction of the unit, including all costs. The Company provides limited
pre-opening consultation services to the franchisee and has the right to reject
sites, plans and proposals that do not meet its specifications or standards. The
franchisee is obligated to operate the unit in accordance with the Company's
operating manual, which provides strict guidelines for the unit's design, decor
and furnishings, dress style of the staff, food menus and operating procedures.
The arrangements also include specific requirements regarding accounting and
records and the leasing and display of the Company's memorabilia.
The licensed rights for Asia are currently held by Planet Hollywood
(Asia) Pte Ltd. ("PH Asia"), an entity that is 50% owned by each of the Company
and Leisure Ventures Pte Ltd., a Singapore company of which Mr. Ong Beng Seng (a
director of the Company) is the largest stockholder. From time to time, some of
the Company's franchisees have also entered into management agreements with PH
Asia pursuant to which PH Asia has agreed to manage the franchisee's
restaurants. See Note 6 to the Company's Consolidated Financial Statements for
condensed financial information relating to affiliated companies, including PH
Asia.
The Company is party to a master franchise agreement with ECE, a
publicly-traded Mexican company in which the Company is a 20% stockholder. Mr.
Claudio Gonzalez (a director of the Company) is one of ECE's principal
stockholders and the Chairman of its Board of Directors. ECE is currently
operating and has rights to open PLANET HOLLYWOOD and OFFICIAL ALL STAR CAFE
units in certain international markets, including Mexico and South America.
Pursuant to the franchise agreement, ECE previously paid nonrefundable franchise
fees of $5.0 million for the right to open a total of five PLANET HOLLYWOOD
units and two OFFICIAL ALL STAR CAFE units in Mexico through 2000. ECE is
obligated to pay continuing royalties to the Company consistent with the
Company's standard franchise arrangements, based on a percentage of the total
revenues from its units.
The Company is party to a master franchise agreement with Kingdom Planet
Hollywood, Ltd. ("Kingdom"), an affiliate of HRH Prince Alwaleed Bin Talal
Abdulaziz Al Saud of Saudi Arabia and a significant stockholder of the Company,
pursuant to which Kingdom may develop up to 40 or more PLANET HOLLYWOOD units in
a total of 23 countries throughout the Middle East and Europe. During 1997,
Kingdom paid the Company approximately $9.5 million for seven locations and had
an option for an additional $1.5 million to develop up to two more units in
Italy. Kingdom also purchased approximately 1,087,000 shares of the Company's
common stock directly from the Company in 1997 for approximately $19.6 million.
In 1998, Kingdom entered into certain other transactions with the Company
relating to the formation and operation of three corporations to be owned
equally by Kingdom and the Company. Those corporations will own and operate
PLANET HOLLYWOOD units in Tokyo, Japan and Zurich, Switzerland and an OFFICIAL
ALL STAR CAFE unit in London, England. In connection therewith, the Company
received approximately $4.3 million in cash and $1.0 million in the form of a
note receivable from Kingdom from the sale of 50% of the Company's interest in
the three corporations. The Zurich PLANET HOLLYWOOD unit is currently operating,
however, the Company may have difficulty meeting its obligations in connection
with the development of restaurants in Tokyo and London. Furthermore, in
November 1998, the Company granted Kingdom the right to develop a number of
OFFICIAL ALL STAR CAFE and SOUND REPUBLIC units in 23 countries throughout the
Middle East and Europe.
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INTELLECTUAL PROPERTY
The Company has registered the PLANET HOLLYWOOD name and associated
designs and logos, has registered, applied for registration and received certain
licenses for the OFFICIAL ALL STAR CAFE name and associated designs and logos
and has applied for the registration of the PLANET MOVIES, COOL PLANET and SOUND
REPUBLIC concept brand names and associated designs and logos, as trademarks,
trade names and service marks with the United States Patent and Trademark
Office. The Company also has registered or has applied for registrations in
corresponding offices in all other countries in which its units are located and,
wherever legally permissible, has filed applications to register its trademarks,
designs, trade names and service marks in foreign countries where it has an
expectation of opening units in future years. There can be no assurance that
such registrations and other steps will prove effective in protecting the
proprietorship of the Company's brands. The Company regards its trademarks,
designs, trade names, service marks and trade dress as having significant value
and as material to its business.
The Company licenses its brands and trademarks to its franchisees and
joint ventures. A typical license agreement grants the licensee the right to use
on a non-exclusive basis and to sublicense certain intellectual property rights
of the Company, including the Company's brand names, logos, trademarks and
service marks. These intellectual property rights may be used only in connection
with the operation and promotion of a unit and the sale of branded merchandise
at a specified unit.
The Company has entered into a master license agreement with PH Asia
entitling PH Asia to use and sublicense the PLANET HOLLYWOOD name in connection
with developing, franchising and operating PLANET HOLLYWOOD units throughout
most of Asia and in certain Middle East countries. The Company receives no
royalties from PH Asia under this agreement but through its 50% equity interest
in PH Asia is entitled to 50% of the distributable profits realized by PH Asia.
Sales of counterfeit merchandise bearing the Company's trademarks have
occurred from time to time. The Company has attempted, and will continue to
attempt, to control the sale of counterfeit merchandise by instituting legal
proceedings against manufacturers or distributors of counterfeit merchandise.
Management believes that sales of such counterfeit merchandise have not had a
material adverse effect on the Company's merchandise sales.
COMPETITION
The restaurant and retail merchandising industries are affected by
changes in consumer tastes and by international, national, regional and local
economic conditions and demographic trends. Discretionary spending priorities,
traffic patterns, tourist travel, weather conditions, employee availability and
the type, number and location of competing restaurants, among other factors,
also directly affect the performance of the Company's units. Changes in any of
these factors in the markets where the Company currently operates units could
adversely affect the Company's results of operations. Moreover, the theme
restaurant industry is relatively young, is particularly dependent on tourism
and has seen the entrance of a number of new competitors.
The restaurant and retail merchandising industries are highly
competitive based on the type, quality and selection of the food or merchandise
offered, price, service, location and other factors. Many well-established
companies with greater financial, marketing and other resources and longer
operating histories than the Company compete with the Company in many markets.
In addition, some competitors have design and operating concepts similar to
those of the Company. There can be no assurance that the Company will be able to
respond to various competitive factors affecting the restaurant and retail
industries.
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Competition in the hotel industry is vigorous and is generally based on
quality of service, attractiveness of facilities and locations, price and other
factors. The Company believes its properties are distinguishable from those of
its competitors by their theme-orientations and celebrity involvement. However,
many well-established lodging companies with greater financial, marketing and
other resources and longer histories than the Company will compete with the
Company in the markets where the Company plans to open its facilities.
The motion picture exhibition industry is affected by a number of
factors, including the availability of desirable motion pictures and their
performance in the exhibitors' markets. Poor performance of, or disruption in
the production of or access to, motion pictures, whether produced by the major
studios or independent producers, could adversely affect the performance of the
PLANET MOVIES BY AMC joint venture. In addition, were the joint venture to
experience poor relationships with one or more major motion picture
distributors, its business could be adversely affected. The joint venture will
be subject to varying degrees of competition with respect to licensing films,
attracting patrons, obtaining new theater sites and acquiring theater circuits.
In addition, the joint venture's theaters face competition from a number of
motion picture exhibition delivery systems, such as pay television, pay-per-view
and home video systems, and from other forms of entertainment that compete for
the public's leisure time and disposable income.
EMPLOYEES
As part of its restructuring in the fourth quarter of 1998, the Company
identified 93 positions which would be eliminated. Sixty of these positions were
eliminated in fiscal 1998 and the remaining 33 positions were eliminated in the
first quarter of 1999. As of December 27, 1998, the Company employed
approximately 8,250 persons, 210 of whom were corporate management and
administrative employees, 945 were restaurant and merchandise management
personnel, and 7,095 were employed in non-management restaurant and
merchandising operations. The Company's employees are not covered by a
collective bargaining agreement, and the Company has never experienced an
organized work stoppage, strike or material labor dispute. The Company considers
relations with its employees to be satisfactory.
GOVERNMENTAL REGULATION
ALCOHOLIC BEVERAGE REGULATION. The Company's units are subject to
licensing and regulation by a number of governmental authorities. The Company is
required to operate its units in strict compliance with federal licensing
requirements imposed by the Bureau of Alcohol, Tobacco and Firearms of the
United States Department of Treasury, as well as the licensing requirements of
the states and municipalities where its units are located. Alcoholic beverage
control regulations require each of the Company's units to apply to a state
authority and, in certain locations, county and municipal authorities for a
license and permit to sell alcoholic beverages on the premises. Typically,
licenses must be renewed annually and may be revoked or suspended for cause at
any time. Alcoholic beverage control regulations relate to numerous aspects of
the daily operations of the units, including minimum age of patrons and
employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages. The Company
has obtained all regulatory permits and licenses necessary to operate its units
that are currently open, and intends to do the same for all future units.
Failure on the part of the Company to comply with federal, state or local
regulations could cause the Company's licenses to be revoked and force it to
terminate the sale of alcoholic beverages at its units. To reduce this risk,
each Company unit is operated in accordance with procedures intended to ensure
compliance with applicable laws and regulations. The failure to receive or
retain, or any delay in obtaining, a liquor license in a particular location
could adversely affect the Company's ability to obtain such a license elsewhere.
The Company is subject to "dram-shop" laws in several of the states in
which it has units. These laws generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to such person. While the Company carries
liquor liability coverage as part of its existing comprehensive general
liability insurance, there can be no assurance
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that it will not be subject to a judgment in excess of such insurance coverage
or that it will be able to obtain or continue to maintain such insurance
coverage at reasonable costs or at all. The imposition of a judgment
substantially in excess of the Company's insurance coverage, or the failure or
inability of the Company to obtain and maintain insurance coverage, could
materially and adversely affect the Company.
OTHER REGULATIONS. The Company's units are subject to regulation by
federal and foreign agencies and to licensing and regulation by foreign, state
and local health, sanitation, building, zoning, safety, fire and other
departments relating to the development and operation of restaurants and retail
establishments. These regulations include matters relating to environmental,
building construction, zoning requirements and the preparation and sale of food.
Various federal, foreign and state labor laws govern the Company's relationship
with its employees, including minimum wage requirements, overtime, working
conditions and citizenship requirements. Significant additional government
imposed increases in minimum wages, paid leaves of absence and mandated health
benefits, or increased tax reporting and tax payment requirements for employees
who receive gratuities could have an adverse effect on the Company. Delays or
failures in obtaining the required construction and operating licenses, permits
or approvals could delay or prevent the opening of new units.
Units established in countries other than the United States are subject
to governmental regulation in the jurisdiction in which they are established
principally with respect to sales of liquor, construction of premises and
working conditions of employees. The Company does not believe that such
regulations materially adversely affect its business.
ITEM 2. PROPERTIES
As of December 27, 1998, the Company, together with its franchisees and
licensees, operated 95 units, including 14 retail units only, located in 31
countries throughout the world, of which 60 are Company-owned. At present, all
Company-owned units are located on leased sites, with lease terms (including
renewal options) generally ranging from 15 to 25 years. Typically, the lease
rental includes a minimum fixed rent and additional rent based on a percentage
of total revenue from the unit. In fiscal 1998, total rental expense represented
approximately 13% of Direct Revenues. As of December 27, 1998, the following
tables provide information about the Company-owned and franchised units that
were operating. The Company may franchise or otherwise dispose of certain
underperforming Company-owned units.
COMPANY-OWNED UNITS
<TABLE>
<CAPTION>
PLANET HOLLYWOOD
LOCATION YEAR LOCATION YEAR
- -------- ---- -------- ----
OPENED OPENED
------ ------
<S> <C> <C> <C>
New York, New York............. 1991 San Antonio, Texas................ 1996
Costa Mesa, California......... 1992 Myrtle Beach, South Carolina...... 1996
London, England................ 1993 Nashville, Tennessee.............. 1996
Chicago, Illinois.............. 1993 Seattle, Washington............... 1996
Washington, D.C................ 1993 Disneyland Paris, France.......... 1996
Mall of America, Minnesota..... 1993 Berlin, Germany................... 1996
Aspen, Colorado................ 1994 Oberhausen, Germany............... 1996
Phoenix, Arizona............... 1994 Amsterdam, Netherlands............ 1996
Miami, Florida................. 1994 Gatwick Airport, England.......... 1996
Maui, Hawaii................... 1994 Vancouver, Canada................. 1996
Lake Tahoe, Nevada............. 1994 Toronto, Canada................... 1997
Las Vegas, Nevada.............. 1994 Cannes, France.................... 1997
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Dallas, Texas.................. 1994 Prague, Czech Republic............ 1997
Reno, Nevada................... 1994 Key West, Florida................. 1997
Orlando, Florida............... 1994 Indianapolis, Indiana............. 1997
San Diego, California.......... 1995 Edmonton, Canada.................. 1997
Atlantic City, New Jersey...... 1995 Gurnee Mills, Illinois............ 1997
New Orleans, Louisiana......... 1995 Houston, Texas.................... 1997
Honolulu, Hawaii............... 1995 Ft. Lauderdale, Florida........... 1997
Atlanta, Georgia............... 1995 Munich, Germany................... 1997
San Francisco, California...... 1995 St. Louis, Missouri............... 1997
Paris, France.................. 1995 Dublin, Ireland................... 1997
Beverly Hills, California...... 1995 Baltimore, Maryland............... 1998
Helsinki, Finland.............. 1995 Montreal, Canada.................. 1998
</TABLE>
OFFICIAL ALL STAR CAFE
<TABLE>
<CAPTION>
LOCATION YEAR LOCATION YEAR
- -------- ---- -------- ----
OPENED OPENED
------ ------
<S> <C> <C> <C>
New York, New York.............. 1995 Myrtle Beach, South Carolina....... 1997
Las Vegas, Nevada............... 1996 Miami, Florida..................... 1997
Atlantic City, New Jersey....... 1997 Atlanta, Georgia................... 1997
Orlando, Florida................... 1998
Honolulu, Hawaii................... 1998
</TABLE>
COOL PLANET
LOCATION YEAR
- -------- ----
OPENED
------
Santa Monica, California....... 1998
Irvine, California............. 1998
Anaheim, California............ 1998
SOUND REPUBLIC
LOCATION YEAR
- -------- ----
OPENED
------
London, England................ 1998
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FRANCHISED UNITS
<TABLE>
<CAPTION>
PLANET HOLLYWOOD
LOCATION YEAR LOCATION YEAR
- -------- ---- -------- ----
OPENED OPENED
------ ------
<S> <C> <C> <C>
Cancun, Mexico.................. 1992 Guam............................... 1997
Hong Kong....................... 1994 Johannesburg, South Africa(a)...... 1997
Jakarta, Indonesia.............. 1994 Melbourne, Australia............... 1997
Barcelona, Spain................ 1995 Manila, Philippines(a)............. 1997
Sydney, Australia............... 1996 Rome, Italy........................ 1997
Buenos Aires, Argentina (a)..... 1996 Kuala Lumpur, Malaysia(a).......... 1997
Los Cabos, Mexico............... 1996 Gold Coast, Australia(a)........... 1997
Puerto Vallarta, Mexico......... 1996 Madrid, Spain(a)................... 1997
Nassau, Bahamas................. 1996 Sao Paulo, Brazil(a)............... 1997
Cozumel, Mexico................. 1996 Taipei, Taiwan(a).................. 1997
Acapulco, Mexico................ 1996 Niagara Falls, Canada(a)........... 1997
Moscow, Russia.................. 1996 San Juan, Puerto Rico (a).......... 1998
Bangkok, Thailand............... 1996 Rio de Janiero, Brazil (a)......... 1998
Cape Town, South Africa......... 1996
Beirut, Lebanon(a).............. 1996
Dubai, United Arab Emirates(a).. 1996
Zurich, Switzerland(c).......... 1996
Tel Aviv, Israel(b)............. 1996
Singapore....................... 1997
</TABLE>
OFFICIAL ALL STAR CAFE
LOCATION YEAR
- -------- ----
OPENED
------
Cancun, Mexico.................. 1996
Melbourne, Australia............ 1996
Mexico City, Mexico (a)......... 1998
- -----------
(a) A stand-alone retail store is presently operating at this location and the
franchisee has the right to open a restaurant unit under certain
conditions.
(b) The Company is leasing the assets at this location to a third party that
operates the facility.
(c) The Zurich unit is a 50/50 joint venture between the Company and an
affiliate of Kingdom. See "Franchising".
The Company has entered into certain lease agreements with the Walt
Disney Co. or its affiliates, for various PLANET HOLLYWOOD and OFFICIAL ALL STAR
CAFE restaurants and merchandise stores. Each of the respective leases contain
certain unique provisions which are consistent with the standard terms imposed
by the Walt Disney Co. One such provision requires the consent of the landlord
prior to certain transfers of a controlling interest in the Company, the tenant
or its subsidiaries, which may include transfers of 50% or more of the shares of
any such entity, the transfer of a controlling interest in the entity by the
Company or Robert Earl, or the termination of Mr. Earl's active management of
any such entity. In addition, the landlord has a right of first refusal to match
certain offers to acquire more than 10% of the stock of the Company, the tenant
or its affiliates. Similarly, the landlord has a right of first refusal to match
any offer to locate a restaurant within or adjacent to any theme park that is
not owned or licensed by the landlord or its affiliates. Another provision
grants the landlord an option to terminate the lease for any reason upon 60 days
notice and acquire the improvements on the premises at fair market value, as
defined by the particular lease agreement.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant from time to time in routine lawsuits
incidental to its business, which individually and in the aggregate, are not
expected to have a material adverse effect on the Company. In addition, the
Company is a party to the following litigation:
PLANET HOLLYWOOD INTERNATIONAL, INC. V. AMERICA EUROPE ASIA
INTERNATIONAL TRADE AND MANAGEMENT CONSULTANTS, LTD., WITH A COUNTERCLAIM
AMERICA EUROPE ASIA INTERNATIONAL TRADE AND MANAGEMENT CONSULTANTS, LTD. V.
PLANET HOLLYWOOD INTERNATIONAL, INC. AND ROBERT EARL. Circuit Court of the Ninth
Judicial Circuit, Orange County, Florida, Case No. CJ-098-8372 (37). Originally,
the case was filed by the Company on October 19, 1998, against the defendant for
a breach of contract matter. The Company is seeking damages of approximately
$300,000 to $500,000. The defendant had failed to indemnify the Company for
certain costs incurred in connection with certain other litigation. On December
28, 1998, the defendant counterclaimed against the Company for a variety of
matters, including fraud and breach of contract. The defendant's counterclaim,
as amended, seeks damages in excess of $11,000,000. The Company has filed a
Motion to Strike certain affirmative defenses of the defendant and has filed a
Motion to Dismiss its counterclaim. A hearing is scheduled in May 1999 on the
Company's Motion to Strike and Motion to Dismiss. While discovery has not
commenced, the lawsuit is not expected to have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A voting common stock, $0.01 par value, was traded
on the Nasdaq National Market from April 19, 1996 through Friday, September 19,
1997. Since Monday, September 22, 1997, the Class A common stock has been traded
on the New York Stock Exchange under the symbol "PHL." The Company's Class B
non-voting common stock, $0.01 par value, is not traded on an established public
trading market and transfer of such stock is generally restricted. As of
February 28, 1999 there were approximately 3,790 stockholders of record of the
Class A common stock and 19 stockholders of record of the Class B common stock.
The following table shows the high and low per share closing prices for the
Class A common stock for each full quarterly period during the Company's last
two fiscal years (ending December 27, 1998):
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
(JAN.-MAR.) (APRIL-JUNE) (JULY-SEPT.) (OCT.-DEC.)
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Fiscal 1997 High $ 21.75 $ 22.69 $ 27.00 $ 19.63
Low $ 13.63 $ 16.13 $ 18.31 $ 12.50
Fiscal 1998 High $ 14.13 $ 10.84 $ 7.25 $ 4.38
Low $ 7.00 $ 7.13 $ 4.00 $ 2.38
</TABLE>
The Company has never declared any cash dividends on its Class A or
Class B common stock. The Company does not anticipate paying any cash dividends
in the foreseeable future, and intends to retain its available cash to finance
the development and operations of the Company. Any future dividend policy will
be determined by the Company's Board of Directors based upon conditions then
existing, including the Company's earnings, financial condition and capital
requirements, as well as such economic conditions, tax implications and other
factors as the Board of Directors may deem relevant. Although the Company does
not anticipate declaring any common stock dividends or any other distributions
on the Company's common stock
12
<PAGE>
in the foreseeable future, even if it desired to do so, the amount of any such
distribution would be limited under the terms of the Company's revolving credit
arrangements and the documents governing the Company's 1998 $250 million debt
offering.
RECENT SALES OF UNREGISTERED SECURITIES
In April 1998, the Company issued 190,476 shares of its Class A
common stock to consultants retained to assist the Company with relations and
promotions in the entertainment industry. The issuance of the shares was
consummated in reliance upon the exemption from registration provided in Section
4(2) of the Securities Act of 1933.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
PLANET HOLLYWOOD INTERNATIONAL, INC.
SELECTED FINANCIAL AND OPERATING DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PLANET HOLLYWOOD INTERNATIONAL, INC.
SELECTED FINANCIAL AND OPERATING DATA
(DOLLAR AMOUNTS IN THOUSANEDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED
------------------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUES
Food and beverage $ 78,377 $160,997 $ 222,481 $273,344 $ 259,644
Merchandise 41,826 104,051 124,955 173,966 107,652
Royalties and other 1,729 1,558 4,528 11,715 8,078
Franchise fees 4,000 4,000 21,400 16,100 11,600
TOTAL REVENUES 125,932 270,606 373,364 475,125 386,974
-------- -------- --------- -------- ---------
COSTS AND EXPENSES:
Food and beverage cost of sales 19,891 38,537 50,190 61,930 61,474
Merchandise cost of sales 15,401 35,769 40,626 57,519 49,400
Operating expenses 59,683 116,805 156,893 208,484 237,930
General and administrative 19,641 22,213 23,041 54,683 64,548
Preopening expenses 11,414 13,907 14,257 18,868 10,384
Depreciation and amortization 4,817 8,275 13,038 19,957 25,024
Restructuring charges - - - - 6,925
Accelerated compensation expense - - - - 6,191
Impairment of long-lived assets - - - 48,699 125,843
-------- -------- --------- -------- ---------
TOTAL COSTS AND EXPENSES 130,847 235,506 298,045 470,140 587,719
-------- -------- --------- -------- ---------
INCOME (LOSS) FROM OPERATIONS (4,915) 35,100 75,319 4,985 (200,745)
Interest income 592 598 2,121 1,327 4,847
Interest expense (4,646) (11,827) (4,995) - (25,822)
Equity in income (loss) of unconsolidated affiliates - 848 4,308 6,900 (11,022)
Gain on sale of subsidiary interests - 611 - - -
Minority interests (299) (3,728) (1,037) - -
Provision for income taxes - (875) (27,636) (4,954) (5,206)
-------- -------- --------- -------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CHANGE
IN ACCOUNTING $ (9,268) $ 20,727 $ 48,080 $ 8,258 $(237,948)
-------- -------- --------- -------- ---------
FINANCIAL POSITION:
Working capital $ 3,925 $ 15,528 $ 60,551 $ 31,518 $ 9,822
Total assets 144,923 240,185 401,260 505,559 472,627
Long-term debt 82,819 122,745 7,529 70,491 258,235
Minority interests 8,959 10,466 - - -
Redeemable warrants - 15,000 - - -
Stockholder's equity 7,459 28,145 312,131 338,541 106,315
-------- -------- --------- -------- ---------
OTHER STATISTICS:
Cash flow from operations $ (3,146) $ 33,370 $ 48,830 $ 31,273 $ (38,010)
Capital expenditures 52,131 80,291 81,675 120,033 105,819
Units open at fiscal year end:
Company-owned 15 23 37 53 60
Franchised 3 6 21 34 35
-------- -------- --------- -------- ---------
TOTAL 18 29 58 87 95
-------- -------- --------- -------- ---------
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-K. All statements contained herein that are not
historical facts including, but not limited to, statements regarding the
Company's current business strategy, the Company's projected sources and uses of
cash, and the Company's plans for future development and operations, are based
upon current expectations. Such statements are forward-looking in nature and
involve a number of risks and uncertainties. Consequently, actual results may
differ materially from the forward-looking statements. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to service the Company's debt obligations and
to finance the Company's business plans on terms satisfactory to the Company;
the impact of competitive products and pricing; changes in labor, equipment,
food and capital costs; changes in, or the failure to comply with, regulations
affecting the Company's business; future acquisitions or strategic partnerships;
the availability, locations and terms of sites for development; the timing and
costs associated with new location openings; acceptance of new guests of the
Company's brands and concepts; success of the Company's franchisees and
licensees and the manner in which they promote, operate and develop the
Company's brands; general business and economic conditions; and factors
described from time to time in the Company's reports filed with the Securities
and Exchange Commission. The Company cautions readers not to place undue
reliance on any such forward-looking statements, which statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.
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 1998, food
and beverage revenues were approximately 70.7% of Direct Revenues and
merchandise revenues were approximately 29.3% of Direct Revenues.
Franchisees are typically required to pay an initial franchise fee of up
to $2.0 million, which is recognized when all the Company's pre-opening
obligations with respect to the unit are fulfilled. Thereafter, the franchisee
is required to pay royalties based on its gross revenues from food, beverage and
merchandise sales. These royalties typically range from 3% to 10% of the
franchisee's food and beverage revenues and 5% to 15% of the franchisee's
merchandise revenues. While the Company has historically received payments for
franchise fees and royalties, the Company has experienced significant delays in
collecting other amounts due from several franchisees, including cost
reimbursements and memorabilia lease payments. The Company intends to more
aggressively pursue collection of such amounts in the future.
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 such 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 first sixth months of its operations (the comparable year ago period). In
fiscal 1998, only 25 of the 60 Company-owned units were included in the same
unit analysis.
In 1998, the Company experienced declines in same unit revenues and
disappointing operating results at its restaurants. As a result, the Company
re-evaluated its long term growth strategy. This re-evaluation led to the
Company deciding to perform the following steps in order to refocus its
resources on the PLANET HOLLYWOOD brand:
15
<PAGE>
o Cease the development of its SOUND REPUBLIC unit in New York City.
o Joint venture, franchise, sell or otherwise dispose of its SOUND REPUBLIC,
OFFICIAL ALL STAR Cafe and COOL PLANET locations.
o Identify franchise opportunities for selected international Company-owned
PLANET HOLLYWOOD locations.
o Explore opportunities to raise capital through the sale of certain assets.
o Refocus on its core PLANET HOLLYWOOD operations by introducing a new menu,
updating the look and appearance of the restaurants, launching a new
merchandise strategy aimed at providing more fashion-oriented merchandise
through the introduction of seasonal lines, and initiating a new marketing
and public relations strategy aimed at delivering a fresh, exciting and
consistent message to consumers.
In conjunction with these changes and other initiatives, the Company
recorded charges totaling $139.0 million relating to the impairment of long
lived assets, restructuring and severance costs and accelerated compensation
costs. A summary of the charges is as follows (amounts in thousands of dollars):
<TABLE>
<CAPTION>
OFFICIAL
PLANET ALL STAR SOUND COOL
FISCAL 1998 HOLLYWOOD CAFE REPUBLIC PLANET CORPORATE TOTAL
- ------------------------ --------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Impairment of long lived
assets $ 33,492 $ 47,284 $ 37,133 $ 3,748 $ 4,186 $125,843
Celebrity stock option
expense -- 4,746 1,445 -- -- 6,191
-------- -------- -------- -------- -------- --------
$ 33,492 $ 52,030 $ 38,578 $ 3,748 $ 4,186 $132,034
======== ======== ======== ======== ======== ========
Restructuring costs:
Employee severence $ -- $ -- $ -- $ -- $ 2,940 $ 2,940
Lease termination costs
for units closed or not
to be opened 700 300 2,480 -- 505 3,985
-------- -------- -------- -------- -------- --------
Total restructuring costs $ 700 $ 300 $ 2,480 $ -- $ 3,445 $ 6,925
======== ======== ======== ======== ======== ========
Total Fiscal 1998 Charges $ 34,192 $ 52,330 $ 41,058 $ 3,748 $ 7,631 $138,959
======== ======== ======== ======== ======== ========
FISCAL 1997
- -------------------------
Impairment of long lived
assets $ 25,200 $ 21,194 $ -- $ -- $ 2,305 $ 48,699
-------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
FISCAL ACCRUED
1998 PAID IN DECEMBER 27,
EXPENSE FISCAL 1998 1998
------- ----------- ------------
<S> <C> <C> <C>
Restructuring costs:
Employee Severance $ 2,940 $(1,445) $ 1,495
Lease termination costs for units closed
or not to be opened 3,985 -- 3,985
------- ------- -------
Total Restructuring Costs $ 6,925 $(1,445) $ 5,480
======= ======= =======
</TABLE>
As a result of operating losses incurred in fiscal 1998, projected
future losses for certain of the Company's restaurant units and the Company's
decision to focus its resources on the PLANET HOLLYWOOD concept, the Company
recorded an impairment charge of $125.8 million relating to certain
under-performing domestic and foreign PLANET HOLLYWOOD units as well as certain
assets associated with the Company's OFFICIAL ALL STAR CAFE, COOL PLANET and
SOUND REPUBLIC concepts. The Company considers continued and projected operating
losses to be its primary indicators of potential impairment. An impairment was
recognized as the future undiscounted cash flows or appraised values were
estimated to be insufficient to recover the related carrying value of the long
lived assets. As a result, the carrying values of these assets were written down
to their estimated fair values based on these criteria.
16
<PAGE>
PLANET HOLLYWOOD UNITS. An impairment of $33.5 million for PLANET
HOLLYWOOD units was recorded as the future undiscounted cash flows for these
units were estimated to be insufficient to recover the related carrying values
of these assets. The units written down are primarily located in European or
Canadian markets and the Company is exploring various opportunities to franchise
or otherwise dispose of these units. Lease termination costs totaling $0.7
million were recorded for two locations which the Company is closing. Also
included in this amount was a charge for the Company's PLANET HOLLYWOOD Boston
unit for the anticipated loss which will be incurred on the sale of the assets
currently under construction at that site.
OFFICIAL ALL STAR CAFE UNITS. The OFFICIAL ALL STAR CAFE units were
deemed impaired due to the future undiscounted cash flows being insufficient to
recover the related carrying values of these assets. The Company has decided to
discontinue the expansion of this concept and is exploring various opportunities
to joint venture, franchise, sell or otherwise dispose of these units. Lease
termination costs of $0.3 million were recorded for a site which will not be
developed. As a result of the Company's decision to discontinue the expansion of
this concept, the Company also recorded a $0.5 million charge for the write-down
of OFFICIAL ALL STAR CAFE trademark costs and a $4.7 million charge was recorded
to expense options granted to celebrities associated with the OFFICIAL ALL STAR
CAFE units. These options were previously being amortized over the life of the
agreement; however, given the Company's plans to dispose of this concept, all
remaining amounts were expensed in 1998.
SOUND REPUBLIC UNITS. The Company opened its first SOUND REPUBLIC in the
fall of fiscal 1998 in London, England, and commenced construction of a second
unit in New York City which was scheduled to open in the Summer of 1999. As part
of its decision to focus on the core PLANET HOLLYWOOD concept, the Company has
decided to discontinue the expansion of this concept and explore opportunities
to joint venture, franchise, sell or otherwise dispose of the existing unit in
London and the unit under construction in New York City. A $27.9 million charge
was recorded for the impairment of the London unit based on continued and
projected operating losses for the unit. An impairment charge of $9.0 million
was recorded for the New York SOUND REPUBLIC site based on estimated proceeds
from the sale of the assets under construction. The total carrying value of the
New York project is $16.0 million, of which $13.3 million was spent at December
27, 1998. The Company has also written off trademark costs of $0.2 million
associated with this brand and $1.4 million was recorded to expense options
granted to celebrities associated with SOUND REPUBLIC. These options were
previously being amortized over the life of the agreement; however, given the
Company's plans to dispose of this concept, all remaining amounts were expensed
in 1998. A reserve of $2.5 million was recorded by the Company for estimated
lease termination costs for two other SOUND REPUBLIC sites which will not be
developed. The Company is negotiating with landlords and potential tenants in an
attempt to have these leases terminated or assigned.
COOL PLANET UNITS. During the summer and fall of 1998, the Company
opened its first three COOL PLANET units in California. These ice cream and
dessert units feature COOL PLANET ice cream products and a decor derived from
the PLANET HOLLYWOOD units. The Company plans to joint venture, franchise, sell
or otherwise dispose of its COOL PLANET locations. A charge of $1.9 million was
recorded to write-down the assets associated with these units. Additionally, the
Company recorded an impairment charge of $1.8 million for a celebrity
promotional agreement associated with the COOL PLANET concept. The agreement was
being amortized over a five year period; however, due to the Company's plans to
no longer operate these units, the unamortized amount was written off in the
fourth quarter of 1998.
CORPORATE. In the fourth quarter of 1998, the Company's credit facility
with SunTrust Bank, Central Florida, N.A. and other lenders was amended. The
amendment required the Company to commence marketing its headquarters property
in Orlando, Florida and its New York restaurant condominium unit. An impairment
charge of $2.8 million was recorded on the headquarters property for the excess
of the carrying value of the property over its appraised value. The Company is
currently in the process of negotiating a sale-leaseback on its headquarters
property and anticipates the sale to be completed by summer 1999. In addition,
the Company is negotiating a sale-leaseback or a sale of its New York restaurant
condominium unit and expects
17
<PAGE>
to complete this by fall 1999. In conjunction with the Company's decision to
postpone further development of certain concepts, an impairment charge of $1.3
million was recorded for costs incurred for sites that will not be developed and
for various memorabilia items.
As part of its restructuring in the fourth quarter of fiscal 1998, the
Company identified 93 positions which would be eliminated. Sixty of these
positions were eliminated in fiscal 1998 and the remaining 33 positions were
eliminated in the first quarter of fiscal 1999. Total costs paid to terminated
employees in fiscal 1998 were approximately $1.4 million. Approximately $1.5
million was accrued at December 27, 1998 for future severance payments and
outplacement services to be provided to these employees. As a result of the
terminations, the Company closed several satellite offices. Approximately $0.5
million has been recorded as a reserve for lease termination costs associated
with these offices.
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 1996, 1997 and 1998. The table also sets forth
certain relevant operating data for the periods presented.
<TABLE>
<CAPTION>
FISCAL
----------------------------
INCOME STATEMENT DATA 1996 1997 1998
<S> <C> <C> <C>
Revenues:
Food and beverage ...................................... 59.6% 57.5% 67.1%
Merchandise ............................................ 33.5 36.6 27.8
Royalties .............................................. 1.2 2.5 2.1
Franchise fees ......................................... 5.7 3.4 3.0
----- ----- -----
Total revenues ...................................... 100.0% 100.0% 100.0%
===== ===== =====
Costs and expenses:
Food and beverage cost of sales (a) .................... 22.6% 22.7% 23.7%
Merchandise cost of sales (b) .......................... 32.5 33.1 45.9
Operating expenses (c) ................................. 45.2 46.6 64.8
General and administrative expenses .................... 6.2 11.5 16.7
Preopening expenses .................................... 3.8 4.0 2.7
Depreciation and amortization .......................... 3.5 4.2 6.5
Total costs and expenses ............................... 79.8 99.0 151.9
Equity in (earnings) losses of unconsolidated affiliates (1.2) (1.5) 2.8
Restructuring and asset impairment charges (d) ......... -- 10.3 35.9
Income (loss) from operations .......................... 20.2 1.0 (51.9)
Interest expense ....................................... 1.3 -- 6.7
Interest income ........................................ (0.6) (0.3) 1.3
Minority interest ...................................... 0.3 -- --
Provision for income taxes ............................. 7.4 1.0 1.3
Net income (loss) ...................................... 10.1 1.7 (63.0)
OPERATING DATA:
Food and beverage sales (c) ............................ 64.0% 61.1% 70.7%
Merchandise sales (c) .................................. 36.0 38.9 29.3
Total Direct Revenues .................................. 100.0% 100.0% 100.0%
Units in operation at fiscal year end:
Company-owned units .................................... 37 53 60
Franchised units ....................................... 21 34 35
Total ............................................... 58 87 95
<FN>
- -----------
(a) As a percentage of food and beverage revenues.
18
<PAGE>
(b) As a percentage of merchandise revenues.
(c) As a percentage of Direct Revenues.
(d) Represents a $139.0 million charge for restructuring, celebrity option
expense and asset impairments in fiscal 1998 and $48.7 million of asset
impairments in fiscal 1997.
</FN>
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES. Total revenues decreased to $387.0 million for fiscal 1998 from
$475.1 million for fiscal 1997, a decrease of $88.1 million or 18.5%. The
decrease in total revenues was primarily attributable to continued declines in
same unit revenues and a decrease in promotional and specialty retail sales.
These declines were partially offset by the opening of eight Company-owned units
in fiscal 1998.
Direct Revenues decreased 17.9% from $447.3 million in fiscal 1997 to
$367.3 million in fiscal 1998. The decrease in Direct Revenues was primarily due
to a $51.2 million (18%) decline in revenues in the units comprising the
Company's same unit base and a decrease in direct promotional and specialty
retail sales. These decreases were partially offset by an $18.7 million
incremental increase in revenues from units opened in fiscal 1997 and fiscal
1998. The decline in same unit revenues was primarily due to declines in
customer traffic resulting from increased competition in the theme-dining
industry and declines in tourism in several of the Company's major markets.
Overall, restaurant average spends were relatively consistent from fiscal 1997
to fiscal 1998; however, merchandise revenues were adversely impacted by a
decline in retail average spends due to changes in merchandise sales mix. The
decline in direct merchandise revenues was due to the absence of significant
promotional and specialty retail sales in fiscal 1998. In the near term, the
Company anticipates continued declines in same unit revenues as a result of
decreased customer traffic, continued declines in retail revenues, and the
inclusion of additional secondary market units in the comparable unit base.
As a percentage of Direct Revenues, merchandise sales decreased from
38.9% in fiscal 1997 to 29.3% in fiscal 1998. The decline in merchandise sales
as a percentage of Direct Revenues in fiscal 1998 compared to fiscal 1997 was
primarily attributable to the absence of significant promotional and specialty
retail sales in fiscal 1998, the Company's decision to sell through existing
merchandise and not introduce any new merchandise lines, the Company's expansion
into secondary markets, and the OFFICIAL ALL STAR CAFE concept, which has a
lower merchandise sales mix than PLANET HOLLYWOOD units.
Franchise fees were $11.6 million in fiscal 1998 compared to $16.1
million in fiscal 1997. The Company recognized fees for 11 franchises in fiscal
1998 compared to 13 franchises in fiscal 1997. The Company expects to receive
diminished franchise fees per unit in the future as franchisees expand into more
secondary markets. Franchise royalty revenues decreased from $4.5 million in
fiscal 1997 to $3.3 million in fiscal 1998. The decrease was primarily due to
same unit revenue declines among franchised units. Non-franchise royalties and
other revenues decreased from $7.2 million in fiscal 1997 to $4.8 million in
fiscal 1998. The decrease was mainly attributable to a decrease in other
revenues from license agreements in fiscal 1998.
COSTS AND EXPENSES. Food and beverage costs increased from 22.7% of food
and beverage revenues in fiscal 1997 to 23.7% in fiscal 1998. This increase was
mainly a result of a decline in higher margin liquor sales as a percentage of
total sales, increases in commodity prices and menu specification changes.
Merchandise costs increased from 33.1% of merchandise revenues in fiscal 1997 to
45.9% in fiscal 1998. The increase was primarily due to the write off of certain
discontinued and obsolete inventory items. These costs totaled $6.0 in fiscal
1998 versus $3.0 million in fiscal 1997. These write-downs were necessitated by
the Company's decision to launch a new merchandising strategy. Items identified
as discontinued will be replaced by new merchandise as the lines are introduced
in the Spring of fiscal 1999. Operating expenses, which consist primarily of
labor, occupancy and other direct unit operating costs, increased from 46.6% of
direct revenues in fiscal 1997 to 64.8% in fiscal 1998 principally due to
relatively fixed unit operating costs in relation to lower sales volumes and
increased labor and public relations costs associated with the Company's current
promotional and service initiatives. These initiatives included increased
celebrity appearances at the
19
<PAGE>
units, sponsorship of major events in cities with restaurants and improvement of
service in order to enhance the overall guest experience.
General and administrative expense increased from $54.7 million in fiscal
1997 to $64.5 million in fiscal 1998. The increase was primarily due to the
following:
o Labor and related expenses increasing due to higher payroll associated
with employees hired in the second half of fiscal 1997 and in fiscal
1998.
o Public relations and promotional costs increasing in fiscal 1998 due to
the Company increasing the frequency of celebrity promotions in its
restaurants.
o Various professional fees increasing in fiscal 1998 as a result of the
new ventures.
The above increases were partially offset by a decrease in bad debt
expense in fiscal 1998 from fiscal 1997. In fiscal 1997, the Company recorded
approximately $13.5 million of bad debt expense as a result of the change in the
Company's business strategy and financial uncertainties facing certain
franchisees. In fiscal 1998, the Company recorded approximately $3.9 million of
bad debt expense due to financial difficulties of certain franchises.
PREOPENING COSTS. With the adoption of SOP 98-5 in fiscal 1998, the
Company now expenses preopening costs as they are incurred. This change resulted
in the Company recording $10.4 million in preopening costs in fiscal 1998,
primarily for its London SOUND REPUBLIC unit, the Baltimore and Montreal PLANET
HOLLYWOOD units, and the Honolulu and Orlando OFFICIAL ALL STAR CAFE units. In
fiscal 1997, preopening costs were $18.9 million and reflected the amortization
of preopening costs during a unit's first year of operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $20.0 million in fiscal 1997 to $25.0 million in fiscal 1998. The
increase of $5.0 million was primarily due to the Company's continued expansion
of restaurant units sixteen units were added in fiscal 1997 and eight units in
fiscal 1998 and the construction of the Company's corporate headquarters, which
was completed in fiscal 1998.
RESTRUCTURING CHARGES. In the fourth quarter of 1998, the Company
recorded restructuring charges of $6.9 million. These charges consisted of $2.9
million of severance related costs and $4.0 million of lease termination costs
for units and offices closed or for units which will not be opened.
CELEBRITY OPTION EXPENSE. Concurrent with its decision to joint venture,
franchise, sell or otherwise dispose of units operating under the OFFICIAL ALL
STAR CAFE and SOUND REPUBLIC concepts, the Company recorded a $6.2 million
expense for the remaining unamortized value of stock options granted to certain
celebrities associated with the OFFICIAL ALL STAR CAFE and SOUND REPUBLIC
concepts. These options were previously being amortized over the life of the
option agreements and recorded in general and administrative expense.
IMPAIRMENT OF LONG LIVED ASSETS. As a result of operating losses incurred
in fiscal 1998 and fiscal 1997, projected future losses for certain of the
Company's assets and management's plans to sell certain assets, the Company
recorded an impairment charge of $125.8 million compared to a charge of $48.7
million in fiscal 1997.
INTEREST EXPENSE. Interest expense for fiscal 1998 increased to $25.8
million as a result of the Company's $250.0 million debt offering in March 1998
and the write off of $2.3 million of costs associated with its Credit Facility
which was amended in December 1998. All interest in fiscal 1997 was capitalized
to construction in progress.
20
<PAGE>
INTEREST INCOME. Interest income increased from $1.3 million in fiscal
1997 to $4.8 million in fiscal 1998. The increase was due to the investment of
funds received from the Company's $250.0 million debt offering in March 1998.
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATES. Equity in income
(losses) of unconsolidated affiliates decreased from $6.9 million in income for
fiscal 1997 to ($11.0) million in losses for fiscal 1998. The decline was
primarily the result of losses incurred by Planet Hollywood (Asia) Pte, Ltd.
("PH Asia"), an entity which is owned 50% by the Company, and ECE, an entity in
which the Company owns a 20% interest. The losses for PH Asia were due to
downturns in tourism throughout Asia, which resulted in significant declines in
revenue for the units owned and operated by PH Asia. The losses relating to the
Company's investment in ECE were due to costs recorded in the fourth quarter of
1998 by ECE for the abandonment and closure of certain sites and a charge for
obsolete/discontinued inventory.
PROVISION FOR INCOME TAXES. The provision for income taxes was $5.0
million or 37.5% of pretax income in fiscal 1997. In fiscal 1998, the Company
recorded a provision for income taxes of $5.2 million which primarily represents
income taxes on foreign operations.
SEASONALITY AND QUARTERLY COMPARISONS. The Company's revenues have
generally 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.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES. Total revenues increased 27.2% from $373.4 million in
fiscal 1996 to $475.1 million in fiscal 1997. The increase in revenues was 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.
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.
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
21
<PAGE>
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 33.1% from 32.5% 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 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 $54.7 million in
fiscal 1997 from $23.0 million in fiscal 1996. Approximately $19.0 million of
the $31.7 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 franchises 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 3.5% of total revenues in fiscal 1996 to 4.2% 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 considered 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 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 (OFFICIAL ALL STAR HOTEL).
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 pre-taxable 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
22
<PAGE>
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 $6.0 million in taxes, as a result
of the early extinguishment of long-term notes payable.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
fiscal 1996, 1997 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL
-------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ 48,830 $ 31,273 $ (38,010)
Net cash used in investing activities (73,870) (151,952) (110,105)
Net cash provided by financing activities 59,948 81,153 184,439
Net effect of exchange rates on cash -- (1,216) (13)
Net increase (decrease) in cash and cash equivalents 34,908 (40,742) 36,337
</TABLE>
The Company's cash and cash equivalents increased to $45.4 million at
December 27, 1998, from $9.1 million at December 28, 1997. The increase in cash
and cash equivalents was primarily due to proceeds from the Company's issuance
of $250.0 million of Senior Subordinated Notes in March 1998. These proceeds
were used to repay borrowings under the Company's $100 million revolving credit
facility and term loan, and to fund development activities in fiscal 1998.
Net cash provided by financing activities in fiscal 1996, 1997 and 1998
was $59.9 million, $81.2 million and $184.4 million, respectively. 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 agreement and proceeds from a private sale of
the Company's common stock. In fiscal 1998, the primary source of financing was
the issuance of $250.0 million of Senior Subordinated Notes.
Net cash provided by (used in) operating activities in fiscal 1996, 1997
and 1998 was $48.8 million, $31.3 million and ($38.0) million, respectively. 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. The decrease in cash provided by operating activities
from fiscal 1997 to fiscal 1998 was primarily due to losses from operations.
Expenditures for pre-opening expenses, which were capitalized and amortized over
a 12-month period following the opening of a unit were $13.9 million in fiscal
1996 and $18.8 million in fiscal 1997. In fiscal 1998, the Company adopted SOP
98-5 and now expenses pre-opening costs as they are incurred. This change
resulted in the Company recording $10.4 million of pre-opening expense in fiscal
1998.
Net cash used in investing activities in fiscal 1996, 1997 and 1998 was
$73.9 million, $152.0 million and $110.1 million, respectively. The increase in
net cash used in investing activities from fiscal 1996 to fiscal 1997 was
primarily the result of increased development and construction of new units and
the construction of the Company's corporate headquarters. In fiscal 1998,
investing activities decreased as the Company completed its corporate
headquarters and opened fewer units than in fiscal 1997. Capital expenditures
for fiscal 1996, 1997 and 1998 were $81.7 million, $120.0 million and $105.8
million, respectively.
23
<PAGE>
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 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 provided 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 carried
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 were
variable, with either prime or LIBOR indexes. At fiscal 1997 year end, the
Company's weighted average borrowing rate under the Credit Agreement was 6.96%.
The revolving credit facility matured in September 2000, the term loan facility
matured in 1999 and the LIBOR-based leveraged lease facility had a base lease
term of three years that could be extended up to 21 years. During 1997, the
Company borrowed an aggregate of $42.0 million under the Credit Agreement.
Under the terms of the Credit Agreement, the Company was 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 agreed to amend various provisions of the Credit Agreement at or prior
to the consummation of the Company's 1998 $250.0 million debt offering.
On March 25, 1998, the Company issued $250.0 million of 12% Senior
Subordinated Notes (the "Notes") due in 2005. Interest on the Notes is payable
semi-annually in arrears on April 1 and October 1 of each year, commencing on
October 1, 1998. The documents governing the Notes contain certain covenants
which, among other things, limit (i) the issuance of additional debt and stock
by the Company, (ii) the payment of dividends, and (iii) the sale of assets.
Concurrent with the Notes offering, the Company replaced its Credit
Agreement with a $65.0 million multi-currency revolving credit facility and a
$35.0 million LIBOR-based leveraged lease facility (the "Credit Facility"). As a
result of operating losses experienced in the third quarter of fiscal 1998, the
Company was not in compliance with certain financial covenants of the Credit
Facility (specifically, EBITDA and Fixed Charge Ratios, as such terms are
defined in the Credit Facility documents). Effective December 8, 1998, the
Company amended the Credit Facility with SunTrust Bank, Central Florida, N.A.
and other lenders (as amended, the "New Credit Facility"). The revolving credit
portion of the old Credit Facility was terminated and the New Credit Facility
now provides for a $35.0 million LIBOR-based leveraged lease facility and up to
$2.0 million coverage under an interest rate swap arrangement which provides
hedging against interest rate movements under the leveraged lease facility.
Interest rates are variable, with either prime or LIBOR indexes. The New Credit
Facility matures on June 30, 1999. Principal payments under the leveraged lease
facility were revised to require the following payments: (a) $10 million by
December 8, 1998. (b) $12.5 million by March 31, 1999 and (c) the balance by
June 30, 1999. The Company was also required to commence marketing both its
headquarters property and the New York property underlying the leveraged lease
and if such properties are sold, the proceeds will be applied as additional
principal payments. The Company's obligations under the New Credit Facility are
guaranteed by each of its material subsidiaries and are secured by a pledge of
its stock in its subsidiaries and a mortgage of its headquarters property.
24
<PAGE>
The Company anticipates total capital expenditures to approximate $23.6
million in fiscal 1999. The Company's new strategic ventures are estimated to
require $11.0 million, including $9.0 million for the PLANET MOVIES BY AMC
venture and $2.0 million for the PLANET HOLLYWOOD HOTEL. The remaining $12.6
million is expected to be utilized mainly for restaurant refurbishments and
computer system upgrades. Actual capital expenditures in 1999 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 has never paid, and does not anticipate paying in the
foreseeable future, any dividends on its common stock. The Company intends to
retain its available cash to finance the development and growth of the Company.
Furthermore, even if the Company desired to declare a dividend or other
distribution on the Company's common stock, certain terms of the Company's
revolving credit arrangements and the 1998 $250.0 million debt offering would
limit the amount of any such dividend or distribution. Because the Company has
never paid any dividends, and does not anticipate paying any in the foreseeable
future, such restrictive terms should not have an impact on the Company's
ability to meet its cash obligations.
As reflected in the foregoing discussion, the Company has historically
relied upon financing initiatives to fund capital expenditures and for working
capital. The Company anticipates that it will continue to incur negative cash
flows from the operation of the OFFICIAL ALL STAR CAFE, SOUND REPUBLIC and COOL
PLANET units. Although the Company has implemented certain strategies in
connection with the refocus of its core PLANET HOLLYWOOD operations, as
discussed above, the Company currently expects continued underperformance from
its PLANET HOLLYWOOD operations due to an expected continuing decline in same
unit sales and margins in the near term. The Company also expects to incur some
cash expenditures in connection with the disposition of assets. Consequently,
the Company is discussing with bank representatives an extension of the $12.5
million payment due March 31, 1999, under the New Credit Facility, and the
Company anticipates that it will delay the $15.0 million interest payment
required under the senior subordinated notes due on April 1, 1999. While the
Company expects to offset some of these obligations from the proceeds of the
sale of assets, unless the sales can be completed on a timely basis and the
Company realizes an improvement in its PLANET HOLLYWOOD operations, the
Company's ability to meet its obligations will be dependant upon an infusion of
capital, additional financing and/or a restructuring of its existing
indebtedness. The Company is actively marketing certain assets and pursuing a
variety of financing alternatives. There can be no assurance, however, that the
Company will be able to effect any of these strategies on satisfactory terms, if
at all.
OTHER INFORMATION
YEAR 2000 COMPLIANCE. The Year 2000 will have a broad impact on the
business environment in which the Company operates due to the possibility that
many computerized systems across all industries will be unable to process
information containing dates beginning in the Year 2000. The Company has
established an enterprise-wide program to prepare its computer systems and
applications for the Year 2000 and is utilizing both internal and external
resources to identify, correct and test the Company's systems for Year 2000
compliance. The Company completed most of its domestic reprogramming in fiscal
1998, and testing efforts are expected to be substantially concluded by March
31, 1999. Further validation through testing will be conducted throughout
calendar year 1999. In addition to the reprogramming of existing applications,
the Company is in the process of implementing a new enterprise information
system and a new point of sale system. Both systems will be Year 2000 compliant,
with testing and implementation of the enterprise information system expected to
be completed by April 1999 domestically and July 1999 internationally. The
testing and implementation of the new point of sale system is expected to be
completed by October 1999 domestically and November 1999 internationally.
The nature of the Company's business is such that the business risks
associated with the Year 2000 can be reduced by assessing the vendors supplying
the Company's restaurants with food and related products and also assessing the
Company's franchise and joint venture business partners to ensure that they are
aware of the Year 2000 business risks and are appropriately addressing them.
25
<PAGE>
Because third party failures could have a material impact on the
Company's ability to conduct business, the Company will be sending
questionnaires to substantially all of the Company's vendors and business
partners to obtain reasonable assurance that plans are being developed to
address the Year 2000 issue. The returned questionnaires will be assessed by the
Company, categorized based upon readiness for the Year 2000 issues, and
prioritized in order of significance to the business of the Company. To the
extent that vendors and business partners do not provide the Company with
satisfactory evidence of their readiness to handle Year 2000 issues, contingency
plans will be developed.
As of December 27, 1998, the Company had substantially completed an
inventory of all information technology equipment and has begun addressing the
Year 2000 readiness of such equipment. Non-information technology equipment will
be inventoried by June 1999 at which time the Company will begin addressing the
Year 2000 readiness of such equipment.
The enterprise-wide program, including testing and remediation of all of
the Company's systems and applications, is expected to cost approximately $1.0
million from inception in fiscal 1997 through completion in fiscal 1999. Of
these costs, approximately $0.3 million was incurred through December 27, 1998,
with the remaining $0.7 million expected to be incurred in fiscal 1999. The
Company's new enterprise information system is estimated to cost $4.0 million,
of which $1.3 million was incurred through December 27, 1998. The remaining $2.7
million is expected to be incurred in fiscal 1999. The Company's new
point-of-sale system is estimated to cost $6.5 million, and is expected to be
financed through a five year lease.
The Company does not believe the costs related to the Year 2000
readiness project will be material to its financial position or results of
operations. However, the cost of the project and the date on which the Company
plans to complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans, and other factors. Unanticipated failures by critical
vendors and franchise partners, as well as the failure by the Company to execute
its own remediation efforts, could have a material adverse effect on the cost of
the project and its completion date. Furthermore, any such unforeseen
occurrences, if combined with failures of other third parties or in the public
infrastructure, could have a material adverse effect on the Company's results of
operations, financial condition, and/or cash flows. Consequently, there can be
no assurance that the forward-looking estimates contained herein will be
achieved and the actual cost could differ materially from the projections
contained herein.
NEW ACCOUNTING STANDARDS. In April 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 requires companies to
expense as incurred all start-up and preopening costs that are not otherwise
capitalizable as long lived assets. The Company previously capitalized unit
preopening expenses and amortized such amounts over the unit's first year of
operation. The Company elected to implement SOP 98-5 during the third quarter of
fiscal 1998, effective as of the beginning of fiscal 1998. The cumulative effect
of this accounting change was a charge to operations of $6.0 million, net of
$3.6 million of related tax benefit, for the unamortized balance of preopening
costs as of December 28, 1997.
26
<PAGE>
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation of the hedge exposure. Depending on how the hedge is used and the
designation, the gain or loss due to changes in the fair value is reported
either in earnings or in other comprehensive income. Adoption of the statement,
which is required for the Company's fiscal 2000 financial statements will have
no significant impact on the accounting treatment related to the hedging
programs the Company has undertaken.
The American Institute of Certified Public Accountants adopted Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" in March 1998. The SOP provides that software
development costs, including external direct costs, internal payroll and related
costs, and interest costs be capitalized and amortized over their useful lives.
The financial statement impact of adopting the SOP was not material.
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," respectively. Both of these new standards
related to the display of financial information rather than impacting the
computation of net income or earnings per share, and both are effective for the
Company beginning in 1998. SFAS 130 requires that companies display
"comprehensive income," which in addition to the current definition of net
income, includes certain amounts recorded directly in equity. For the Company,
the only such item is foreign currency translation adjustments. The new standard
has been adopted by adding a column, which shows 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. In adopting this standard, the Company has defined the
three regions in which it operates to be its business segments. Since this
information was already displayed as geographic information in the Company's
prior years' financial statements, and the information included in management's
discussion and analysis of results of operations was also organized in this
manner, adoption of this standard did not have a significant impact on the
Company's financial statements.
IMPACT OF INFLATION AND INTERNATIONAL RISKS. 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 14 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
1998.
27
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
debt and changes in commodity prices. A discussion of the Company's accounting
policies for derivative instruments is included in the Summary of Significant
Accounting Policies in Note 1 to the Company's Consolidated Financial
Statements.
The Company's net exposure to interest rate risk consists of exposure
for interest rate swaps which are utilized to manage overall borrowing costs and
reduce exposure to adverse fluctuations in interest rates. The Company does not
use derivative instruments for trading purposes. At December 27, 1998 the
Company had exposure of $0.4 million for an interest rate swap agreement on its
$35 million credit facility. The impact on the Company's results of operations
of a one-point interest rate change on the outstanding balance of the variable
rate debt as of December 27, 1998 would not be material.
The Company purchases certain commodities such as beef, chicken, flour
and cooking oil. These commodities are generally purchased based upon market
prices established with vendors. These purchase arrangements may contain
contractual features that limit the price paid by establishing certain price
floors or caps. The Company does not use financial instruments to hedge
commodity prices because these purchase arrangements help control the ultimate
cost paid and any commodity price aberrations are generally short term in
nature.
This market risk discussion contains forward-looking statements. Actual
results may differ materially from this discussion based upon general market
conditions and changes in domestic and global financial markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: PAGE
-------------------- ----
<S> <C>
Report of Independent Certified Public Accountants.......................... 29
Consolidated Balance Sheets at December 28, 1997 and December 27, 1998...... 30
Consolidated Statements of Operations for the
three years ended December 27, 1998......................................... 31
Consolidated Statements of Changes in Stockholders'
Equity for the three years ended December 27, 1998.......................... 32
Consolidated Statements of Cash Flows for the
three years ended December 27, 1998......................................... 33
Notes to the Consolidated Financial Statements.............................. 34
</TABLE>
FINANCIAL STATEMENT SCHEDULES:
------------------------------
For the year ended December 27, 1998
II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
Financial statements of two 50% owned companies have been omitted because
the registrant's proportionate share of the income from continuing operations
before income taxes is less than 20% of the respective consolidated amount, and
the investment in and advances to each company is less than 20% of consolidated
total assets.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Planet Hollywood International,
Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Planet
Hollywood International, Inc. and its subsidiaries at December 28, 1997 and
December 27, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 27, 1998, 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.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered significant losses in fiscal 1998
and the Company's revolving line of credit facility was terminated in December
1998 which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
March 26, 1999
Orlando, Florida
29
<PAGE>
<TABLE>
<CAPTION>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
DECEMBER 27, 1998
DECEMBER 28, DECEMBER 27,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,089 $ 45,426
Accounts receivable, less allowance of $1,500 and $2,122 25,084 16,740
Inventories 42,612 19,186
Deferred taxes 10,427 --
Income taxes receivable -- 12,308
Pre-opening cost, net 7,803 --
Prepaid expenses and other assets 7,082 6,271
--------- ---------
Total current assets 102,097 99,931
Restricted cash and cash equivalents -- 16,265
Property and equipment, net 318,456 281,115
Goodwill 29,922 27,057
Deferred taxes 6,015 --
Other assets, net 8,665 16,417
Investment in affiliated entities 40,404 31,842
--------- ---------
Total assets $ 505,559 $ 472,627
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,100 35,111
Accrued expenses 15,215 29,672
Notes payable - current 1,264 25,326
--------- ---------
Total current liabilities 70,579 90,109
Deferred rentals 10,798 11,618
Notes payable 66,628 254,420
Capital lease obligation 3,863 3,815
Deferred credits 15,150 6,350
--------- ---------
Total liabilities 167,018 366,312
--------- ---------
Commitments and contingencies (Note 12)
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; 97,127,526 and 97,325,796 issued and outstanding, respectively 972 974
Common stock - Class B non-voting, $.01 par value, 25,000,000
shares authorized; 11,545,706 issued and outstanding 118 118
Capital in excess of par value 279,372 285,667
Deferred compensation (4,125) (225)
Retained earnings (accumulated deficit) 66,644 (177,288)
Cumulative currency translation adjustments (4,440) (2,931)
--------- ---------
Total stockholders' equity 338,541 106,315
--------- ---------
Total liabilities and stockholders' equity $ 505,559 $ 472,627
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000'S OMITTED)
DECEMBER 27, 1998
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Direct $ 347,436 $ 447,310 $ 367,296
Royalty 4,528 11,715 8,078
Franchise 21,400 16,100 11,600
--------- --------- ---------
373,364 475,125 386,974
--------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 90,816 119,449 110,874
Operating 156,893 208,484 237,930
General and administative 23,041 54,683 64,548
Preopening expenses 14,257 18,868 10,384
Depreciation and amortization 13,038 19,957 25,024
Restructuring charges -- -- 6,925
Accelerated compensation expense -- -- 6,191
Impairment of long lived assets -- 48,699 125,843
--------- --------- ---------
298,045 470,140 587,719
--------- --------- ---------
Income (loss) from operations 75,319 4,985 (200,745)
--------- --------- ---------
NON-OPERATING (INCOME) EXPENSE
Interest income (2,121) (1,327) (4,847)
Interest expense 4,995 -- 25,822
Equity in (income) loss of unconsolidated affiliates (4,308) (6,900) 11,022
--------- --------- ---------
(1,434) (8,227) 31,997
Income before minority interests 76,753 13,212 (232,742)
Minority interests 1,037 -- --
--------- --------- ---------
Income before provision for income taxes 75,716 13,212 (232,742)
Provision for income taxes 27,636 4,954 5,206
--------- --------- ---------
Income (loss) before extraordinary item 48,080 8,258 (237,948)
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $5,991) 10,421 -- --
Cumulative effect of change in accounting for preopening
costs (net of income taxes of $3,590) -- -- 5,984
--------- --------- ---------
Net income (loss) $ 37,659 $ 8,258 $(243,932)
========= ========= =========
EARNINGS PER SHARE:
BASIC:
Income (loss) before extraordinary item $ .47 $ .08 $ (2.18)
Extraordinary items (.10) -- --
Cumulative effect of accounting change -- -- (.06)
--------- --------- ---------
Net income (loss) $ .37 $ .08 $ (2.24)
========= ========= =========
DILUTED:
Income (loss) before extraordinary item $ .47 $ .08 $ (2.17)
Extraordinary item (.10) -- --
Cumulative effect of accounting change -- -- (.06)
--------- --------- ---------
Net income (loss) $ .37 $ .08 $ (2.23)
========= ========= =========
</TABLE>
The accompaning notes are an integral part of these financial statements.
31
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B CAPITAL IN
------------------------ ---------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
---------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 80,100 $ 801 $ -- $ -- $ 7,807
Net Income
Other Comprehensive income:
Currency translation
adjustment
Comprehensive income
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
--------- --------- --------- --------- ---------
Balance at December 31, 1996 95,973 960 11,547 115 252,695
Net Income
Other Comprehensive income:
Currency translation
adjustment
Comprehensive income
Celebrity restricted stock
options and awards 218 3 5,959
Proceeds from sale of stock 1,087 11 19,555
Exercise of stock options 108 1 1,163
Employee restricted stock
awards
Retirement of employee
restricted stock (40)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 97,128 972 11,765 118 279,372
Net Loss
Other Comprehensive income:
Currency translation
adjustment
Comprehensive loss
Stock issuance 190 2 1,198
Celebrity restricted stock
options and awards 5,036
Exercise of stock options 8 -- 61
Employee restricted stock
awards
--------- --------- --------- --------- ---------
Balance at December 31, 1998 $ 97,326 $ 974 $ 11,765 $ 118 $ 285,667
--------- --------- --------- --------- ---------
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RETAINED DEFERRED COMPREHENSIVE STOCKHOLDERS'
INCOME EARNINGS COMPENSATION INCOME EQUITY
-------------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 20,727 $ (770) $ (420) $ 28,145
Net Income $ 37,659 37,659 37,659
Other Comprehensive income:
Currency translation
adjustment 920 920 920
---------
Comprehensive income $ 38,579
=========
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 245 245
--------- --------- --------- ---------
Balance at December 31, 1996 58,386 (525) 500 312,131
Net Income $ 8,258 8,258 8,258
Other Comprehensive income:
Currency translation
adjustment (4,940) (4,940) (4,940)
---------
Comprehensive income $ 3,318
=========
Celebrity restricted stock
options and awards (3,800) 2,162
Proceeds from sale of stock 19,566
Exercise of stock options 1,164
Employee restricted stock
awards 200 200
Retirement of employee
restricted stock
--------- --------- --------- ---------
Balance at December 31, 1997 66,644 (4,125) (4,440) 338,541
Net Loss $(243,932) (243,932) (243,932)
Other Comprehensive income:
Currency translation
adjustment 1,509 1,509 1,509
--------- --------- --------
Comprehensive loss $(242,423)
=========
Stock issuance 1,200
Celebrity restricted stock
options and awards 3,700 8,736
Exercise of stock options 61
Employee restricted stock
awards 200 200
--------- --------- --------- ---------
Balance at December 31, 1998 $(177,288) $ (225) $ (2,931) $ 106,315
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 37,659 $ 8,258 $(243,932)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 11,620 18,173 22,129
Amortization 15,676 20,652 2,895
Extraordinary item 10,421 -- --
Impairment of long lived assets -- 48,699 125,843
Cumulative effect of change in accounting principle -- -- 5,984
Amortization of discount on senior subordinated notes, debt issue
costs and line of credit costs 1,167 -- 3,954
Amortization of celebrity restricted stock options and awards 1,268 2,864 8,736
Minority interests 1,037 -- --
Equity in income of unconsolidated affiliates (4,308) (6,900) 11,022
Changes in assets and liabilities:
Accounts receivable (15,604) (4,959) 9,015
Income taxes receivable -- -- (12,308)
Inventories (7,747) (22,008) 23,426
Prepaid expenses and other assets (1,778) (3,604) 811
Preopening costs (13,916) (19,869) --
Deferred income taxes 5,711 (10,125) 20,032
Accounts payable and accrued expenses 3,230 4,780 (3,558)
Deferred rentals 3,827 469 820
Deferred credits 100 (1,950) (8,800)
Other, net 467 (3,207) (4,079)
--------- --------- ---------
Net cash provided by (used in) operating activities 48,830 31,273 (38,010)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (81,675) (120,033) (105,819)
Proceeds from sale of subsidiary interests -- -- 2,250
Proceeds from sale of transportation equipment 7,936 -- --
Purchase of restaurant from franchisee -- (8,083) (2,521)
Investment in affiliated entities (131) (22,721) (2,749)
Other -- (1,115) (1,253)
--------- --------- ---------
Net cash used in investing activities (73,870) (151,952) (110,105)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash and investments 610 -- (16,265)
Proceeds from issuance of senior subordinated notes -- -- 250,000
Distributions to minority interests (271) -- --
Proceeds from issuance of common stock 196,581 19,137 --
Proceeds from exercise of options -- 891 61
Proceeds from issuance of notes payable 3,360 63,028 34,809
IPO costs and financing costs capitalized (3,445) -- --
Deferred financing costs (698) (1,020) (11,163)
Repayment of stockholder notes payable (70,750) -- --
Repayment of notes payable (65,439) (883) (73,003)
--------- --------- ---------
Net cash provided by financing activities 59,948 81,153 184,439
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (1,216) (13)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,908 (40,742) 36,337
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,923 49,831 9,089
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,831 $ 9,089 $ 45,426
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<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. ("PHI") 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 29, 1996 ,
December 28, 1997 and December 27, 1998 are herein referred to as
"fiscal 1996", "fiscal 1997" and "fiscal 1998", respectively. All years
presented herein are 52 week years.
DESCRIPTION OF BUSINESS
The Company's primary business is to operate distinctive
entertainment-oriented restaurants along with merchandise shops. The
Company currently operates under the PLANET HOLLYWOOD, OFFICIAL ALL STAR
CAFE, SOUND REPUBLIC, and COOL PLANET 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, certificates of deposit and commercial paper. At
December 27, 1998, the Company had $9,200 of cash restricted as to use
as collateral for letters of credit and $7,000 of cash escrowed for the
construction of Company's New York Hotel project.
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
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires expensing as incurred all pre-opening
costs that are not otherwise capitalizable as long-lived assets. As a
result of the Company's adoption of SOP 98-5, the Company recognized a
$6,000 charge for the cumulative effect of the change in accounting
principle, net of the related income tax effect of $3,600. The Company
previously capitalized unit pre-opening expenses and amortized such
amounts over the units' first year of operation.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided
34
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
for by using the straight-line method over the following useful lives:
YEARS
-----
Furniture and equipment 5-10
Memorabilia 20
Leasehold improvements 5-30
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.
In the event that facts and circumstances indicate that the carrying
value of a long-lived asset, including associated intangibles, may be
impaired, an evaluation of recoverability is performed by comparing the
estimated future undiscounted cash flows associated with the asset to
the asset's carrying amount to determine if a write-down to market value
or discounted cash flow is required.
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 28, 1997 and December 27, 1998 was
$2,400 and $4,100, 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. 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
1996, 1997 and 1998 totaled $2,800, $6,300 and $7,500, respectively.
35
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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. An assessment is made as to
whether or not a valuation allowance is required to offset deferred tax
assets.
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.
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 are recorded at their estimated fair value at the date of
grant and the expense recognized over the periods benefited, generally 5
years.
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.
36
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A reconciliation of weighted average number of common shares to weighted
average number of common shares plus common stock equivalents is as
follows:
1996 1997 1998
------- ------- -------
Weighted average number of
common shares 100,741 108,465 109,073
Stock options and awards 1,849 1,340 391
------- ------- -------
Weighted average number of common
shares plus common stock equivalents 102,590 109,805 109,464
------- ------- -------
Options to purchase 3 million and 9 million shares of common stock were
not included in the computation of diluted earnings per common share in
fiscal 1997 and 1998 because the option exercise price was greater that
the average market price of the stock.
COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income," which
established standards for the reporting and displaying of comprehensive
income and its components. All items required to be recognized as
components of comprehensive income must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 became effective for financial statements with
fiscal years beginning after December 15, 1997. All prior period
information presented has been restated to conform to this
pronouncement. The Company's "Other comprehensive income" consists
solely of currency translation adjustments.
LEASES
The Company has various non-cancelable 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. The fair value
of the $250,000 12% Senior Subordinated Notes approximated $93,000 at
December 27, 1998, based on recent market trades.
37
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONCENTRATION OF CREDIT RISK
Franchisee receivables subject the Company to credit risk. The Company's
franchisee receivables are derived primarily from royalties on
franchisee sales, sales of merchandise to franchisees and the
reimbursement of various costs incurred on behalf of franchisees.
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 1998
presentation.
2. GOING CONCERN
The Company incurred significant losses in 1998 and the Company's
revolving credit facility was terminated in December 1998. Further, the
Company anticipates that it will continue to incur negative cash flows
from the operation of the OFFICIAL ALL STAR CAFE, SOUND REPUBLIC and
COOL PLANET units. Although the Company has implemented certain
strategies in connection with the refocus of its core PLANET HOLLYWOOD
operations, the Company currently expects continued under-performance
from its PLANET HOLLYWOOD operations due to an expected continuing
decline in same unit sales and margins in the near term. Consequently,
the Company is discussing with bank representatives an extension of the
$12,500 payment due March 31, 1999 under the Company's bank credit
facility, and the Company anticipates that it will delay the $15,000
interest payment required under the Senior Subordinated Notes due on
April 1, 1999. While the Company expects to offset some of these
obligations from the proceeds of the planned sale of assets, unless the
sales can be completed on a timely basis and the Company realizes an
improvement in its PLANET HOLLYWOOD operations, the Company's ability to
meet its obligations will be dependant upon an infusion of capital,
additional financing and/or a restructuring of its existing
indebtedness. The Company is actively marketing certain assets and
pursuing a variety of financing alternatives. There can be no assurance,
however, that the Company would be able to effect any of these
strategies on satisfactory terms, if at all. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
3. IMPAIRMENT OF LONG LIVED ASSETS AND RESTRUCTURING CHARGES
In 1998, the Company experienced declines in same unit revenues and
disappointing operating results at its restaurants. As a result, the
Company re-evaluated its long term growth strategy. This re-evaluation
led to the Company's decision to perform the following steps in order to
refocus its resources on the PLANET HOLLYWOOD brand:
38
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
o Ceased the development of its SOUND REPUBLIC unit in New York City.
o Joint venture, franchise, sell or otherwise dispose of its SOUND
Republic, OFFICIAL ALL STAR CAFE and COOL PLANET locations.
o Identify franchise opportunities for selected international Company-
owned PLANET HOLLYWOOD locations.
o Explore opportunities to raise capital through the sale of certain
assets.
o Refocus on its core PLANET HOLLYWOOD operations by introducing a
new menu, updating the look and appearance of the restaurants,
launching a new merchandise strategy aimed at providing more
fashion-oriented merchandise through the introduction of seasonal
lines, and initiating a new marketing and public relations strategy
aimed at delivering a fresh, exciting and consistent message to
consumers.
In conjunction with these changes, the Company recorded charges totaling
$139,000 relating to the write-down of long lived assets, restructuring
and severance costs and accelerated celebrity compensation costs. The
charge was recorded as follow:
<TABLE>
<CAPTION>
OFFICIAL
PLANET ALL STAR SOUND COOL
FISCAL 1998 HOLLYWOOD CAFE REPUBLIC PLANET CORPORATE TOTAL
- ------------------------------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Impairment of long lived assets $ 33,492 $ 47,284 $ 37,133 $ 3,748 $ 4,186 $125,843
Celebrity stock option
expense -- 4,746 1,445 -- -- 6,191
-------- -------- -------- -------- -------- --------
$ 33,492 $ 52,030 $ 38,578 $ 3,748 $ 4,186 $132,034
======== ======== ======== ======== ======== ========
Restructuring costs:
Employee severance $ -- $ -- $ -- $ -- $ 2,940 $ 2,940
Lease termination costs for units
closed or not be opened 700 300 2,480 -- 505 3,985
-------- -------- -------- -------- -------- --------
Total restructuring costs $ 700 $ 300 $ 2,480 $ -- $ 3,445 $ 6,925
======== ======== ======== ======== ======== ========
Total fiscal 1998 Charges $ 34,192 $ 52,330 $ 41,058 $ 3,748 $ 7,631 $138,959
======== ======== ======== ======== ======== ========
FISCAL 1997
- -------------------------------
Impairment of long lived assets $ 25,200 $ 21,194 $ -- $ -- $ 2,305 $ 48,699
-------- -------- -------- -------- -------- --------
</TABLE>
39
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As a result of operating losses incurred in fiscal 1998, projected
future losses for certain of the Company's restaurant units and the
Company's decision to focus its resources on the PLANET HOLLYWOOD
concept only, the Company recorded an impairment charge of $125,800
relating to certain non-performing domestic and foreign PLANET HOLLYWOOD
units as well as all assets associated with the Company's OFFICIAL ALL
STAR CAFE, COOL PLANET and SOUND REPUBLIC concepts. The Company
considers continued and projected operating losses to be its primary
indicators of potential impairment. An impairment was recognized as the
future undiscounted cash flows or appraised values were estimated to be
insufficient to recover the related carrying value of the long-lived
assets. As a result, the carrying values of these assets were written
down to their estimated fair values based on these criteria.
PLANET HOLLYWOOD UNITS. An impairment of $33,500 for PLANET HOLLYWOOD
units was recorded as the future undiscounted cash flows for these units
were estimated to be insufficient to recover the related carrying values
of these assets. The units written down are primarily located in
European or Canadian markets and the Company is exploring various
opportunities to franchise, or otherwise dispose of these units. Lease
termination costs totaling $700 were recorded for two locations which
the Company is closing. Also included in this amount was a charge for
the Company's PLANET HOLLYWOOD Boston unit for the anticipated loss
which will be incurred on the sale of the assets currently under
construction at this site.
OFFICIAL ALL STAR CAFE UNITS. The OFFICIAL ALL STAR CAFE units were
deemed impaired due to the future undiscounted cash flows being
insufficient to recover the related carrying values of these assets. The
Company has discontinued the expansion of this concept and is exploring
various opportunities to joint venture, franchise, sell or otherwise
dispose of these units. Lease termination costs of $300 were recorded
for a site which will not be developed. As a result of the Company's
decision to discontinue the expansion of this concept, the Company also
recorded a $500 charge for the write-down of OFFICIAL ALL STAR CAFE
trademark costs and a $4,700 charge was recorded to expense options
granted to celebrities associated with the OFFICIAL ALL STAR CAFE units.
These options were previously being amortized over the life of the
celebrity agreements; however, given the Company's plans to discontinue
expansion of this concept, all remaining amounts were expensed in 1998.
SOUND REPUBLIC UNITS. The Company opened its first SOUND REPUBLIC in the
fall of fiscal 1998 in London, England and was constructing a second
unit in New York City which was scheduled to open in the summer of 1999.
As part of its decision to focus on the core PLANET HOLLYWOOD concept,
the Company has stopped the expansion of this concept and is exploring
opportunities to joint venture, franchise, sell or otherwise dispose of
the unit in London and the unit under construction in New York City. A
$27,900 charge was recorded for the impairment of the London unit based
on continued and projected operating losses for the unit. An impairment
charge of $9,000 was recorded for the New York SOUND REPUBLIC site based
on estimated proceeds from the sale of the assets under construction.
The total carrying value of the New York project is $16,000, of which
$13,300 was spent at December 27, 1998. The Company has also written off
the trademark costs of $200 associated with this brand due to
management's decision to exit the sites associated with this concept and
$1,400 was recorded to expense options granted to celebrities associated
with the SOUND REPUBLIC. A reserve of $2,500 was recorded by the Company
for estimated lease termination costs for certain SOUND REPUBLIC sites
which will not be developed. The Company is negotiating with landlords
and potential tenants in an attempt to have these leases terminated or
assigned.
40
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COOL PLANET UNITS. During the summer and fall of 1998, the Company
opened its first three COOL PLANET units in California. These ice cream
and dessert units feature COOL PLANET ice cream products and a decor
derived from the PLANET HOLLYWOOD units. The Company plans to joint
venture, franchise, sell or otherwise dispose of these units. A charge
of $1,900 was recorded to write-down the assets associated with these
units. Additionally, the Company recorded an impairment of $1,800 for a
prepaid celebrity promotional agreement associated with the COOL PLANET
concept. The agreement was being amortized over a five year period;
however, due to the Company's plans to no longer operate these units,
the unamortized amount was written off in the fourth quarter of 1998.
CORPORATE. In the fourth quarter of 1998, the Company's credit facility
with SunTrust Bank, Central Florida, N.A. and other lenders was amended.
The amendment required the Company to commence marketing its
headquarters property in Orlando, Florida and its New York Hotel
property. An impairment of $2,800 was recorded on the headquarters
property for the excess of the carrying value of the property over its
fair value. The Company is currently in the process of negotiating a
sale-leaseback on the property and anticipates the sale to be completed
in the spring of 1999. In conjunction with the Company's decision to
postpone any further development of its concepts, an impairment of
$1,400 was recorded for costs incurred for sites that will not be
developed and for various memorabilia items.
In November 1999, the Company terminated 60 employees from its corporate
staff. Total costs paid to terminated employees in 1998 were $1,400.
Approximately $1,500 was accrued at December 27, 1998 for future
severance payments and outplacement services to be provided to these
employees. As a result of the terminations, the Company closed several
satellite offices. Approximately $500 has been recorded as a reserve for
lease terminations costs associated with these offices.
In fiscal 1997, the Company recorded a non-cash impairment charge of
$48,700 related to a write-down of long lived assets relating to certain
non-performing domestic and foreign restaurant units. 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.
4. 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 $600 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").
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
41
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
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 $23,100 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 fiscal 1996 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 1996. 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 1996, nor to
project results for any future period:
Revenues $373,364
Income before extraordinary item 48,500
Net income 38,079
Basic earnings per share before extraordinary item .48
Basic earnings per share - net income .38
Diluted earnings per share before extraordinary item .47
Diluted earnings per share - net income .37
In November 1996, the Company entered into an agreement to purchase the
net assets of a domestic franchise unit for $8,000. The acquisition was
completed in January 1997.
5. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
DECEMBER 28, DECEMBER 27,
1997 1998
---- ----
Leasehold improvements $211,030 $179,309
Furniture and equipment 59,990 52,940
Memorabilia 33,274 33,062
Land 5,051 --
Capital lease 3,900 3,900
Construction in progress 42,878 2,426
Assets held for sale -- 60,729
-------- --------
356,123 332,366
Less - accumulated depreciation (37,667) (51,251)
-------- --------
$318,456 $281,115
======== ========
42
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. 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. These
affiliated companies and the percentage interest held by the Company
consist of PH Asia (50%), ECE (20%), Hotel Pennsylvania (20%) and Planet
Zurich (50%).
The Company owns a 50% equity interest in PH Asia, which operates and
franchises PLANET Hollywood and OFFICIAL ALL STAR CAFE 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
shareholder.
The Company owns a 20% equity interest in ECE, a Mexican company, which
operates themed restaurant/retail units in Mexico, South America and the
Caribbean (see Note 10). In January 1997, ECE issued 21,587,145 shares
of common stock. The Company purchased 4,317,429 shares for $6,100 in
order to retain its 20% equity interest in ECE. At December 28, 1997,
the Company's share of the underlying net assets of ECE exceeded the
investment by $2,400. The excess is being amortized over 20 years.
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 $9,600 and estimates that total funding
requirements for its 20% equity investment in the venture to be $20,000.
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 joint venture to construct
a 50 story, 550 room movie themed hotel in New York City. The Company
has funded $5,000 of its anticipated initial investment of $7,000. In
addition to participation in the hotel's profits through its equity
interest in the joint venture, the Company will receive a license fee
for the use of the PLANET HOLLYWOOD name and logo. The Company entered
into a $35,000 LIBOR-based leveraged operating lease for the
construction of a restaurant in the hotel (see Note 8).
Condensed financial information for affiliated companies accounted for
by the equity method is as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------------- -------------------------------
BALANCE SHEET DATA: PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL
------------------- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 17,370 $ 206,142 $ 223,512 $ 12,387 $ 32,114 $ 44,501
Non-current assets 24,578 89,767 114,345 22,090 132,292 154,382
-------- --------- --------- -------- --------- ---------
Total assets $ 41,948 $ 295,909 $ 337,857 $ 34,477 $ 164,406 $ 198,883
======== ========= ========= ======== ========= =========
Current liabilities $ 9,255 $ 13,300 $ 22,555 $ 9,695 $ 16,291 $ 25,986
Other liabilities 25,219 139,804 165,023 25,695 79,544 105,240
Stockholders' equity 7,474 142,805 150,279 (913) 68,571 67,657
-------- --------- --------- ------- --------- ---------
Total liabilities and stockholders'
equity $ 41,948 $ 295,909 $ 337,857 $ 34,477 $ 164,406 $ 198,883
======= ========= ========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
------------------------- -------------------------- ---------------------------
OPERATING DATA: PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL
- --------------- ------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $27,993 $55,126 $83,119 $43,332 $72,606 $115,938 $44,626 $122,251 $166,877
Operating income 3,073 19,194 22,267 7,073 25,893 32,996 (9,858) 26,679 16,821
Net income (loss) 2,530 6,818 9,348 6,196 15,296 21,492 (12,251) (15,792) (28,048)
Company's interest in net income
(loss) 1,200 3,108 4,308 3,250 3,650 6,900 (4,875) (3,199) (8,074)
</TABLE>
43
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. ACCRUED EXPENSES
Accrued expenses are summarized as follows:
DECEMBER 28, DECEMBER 27,
1997 1998
---- ----
Accrued interest $ 319 $ 7,690
Accrued rent 3,318 4,328
Accrued payroll & related benefits 3,776 3,797
Accrued restructuring costs -- 5,524
Accrued insurance 2,447 4,845
Accrued taxes 1,820 --
Other 3,535 3,488
--------- ---------
$ 15,215 $ 29,672
========= =========
8. NOTES PAYABLE
Notes payable are summarized as follows:
DECEMBER 28, DECEMBER 27,
1997 1998
---- ----
12% Senior Subordinated
Notes due 2005 $ -- $ 250,000
Lease facility note -- 25,000
Revolving line of credit 42,000 --
Term loan 20,000 --
Capital lease payable 3,872 3,845
Other notes payable 5,883 4,907
--------- ---------
71,755 283,752
Less current portion (1,264) (25,517)
--------- ---------
$ 70,491 $ 258,235
========= =========
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 9). A portion of the proceeds from the 1995 Notes were
used to repay $21,600 to the principal stockholders or their affiliates
for amounts previously borrowed. During fiscal 1996, approximately
$2,200 was charged to interest expense for these loans. 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 $10,400, net of $5,900 in
taxes, as a result of the early extinguishment of the 1995 Notes.
In fiscal 1996, notes due to stockholders totaling $70,800 were repaid
from the proceeds of the initial public offering of stock.
44
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In September 1997, the Company replaced its existing $50,000 credit
facility with a $155,000 multi-currency, long-term credit facility with
a consortium of financial institutions. The facility consisted of a
$100,000 revolving credit facility and a $20,000 long-term loan
facility. In March 1998, this was replaced, concurrent with the notes
offering, with a $65,000 multi-currency revolving credit facility and a
$35,000 LIBOR-based leveraged lease facility. Interest rates were
variable, with either prime or LIBOR indexes.
In March 1998, the Company issued $250,000 12% Senior Subordinated Notes
due in 2005. Interest on the notes will be payable semi-annually in
arrears on April 1 and October 1 of each year, commencing October 1998.
The notes mature on April 1, 2005. The documents governing the notes
contain certain covenants, which, among other things, restrict the (i)
issuance of additional debt and preferred stock (ii), payment or
dividends and (iii) sale of assets.
In December 1998, the Company amended the existing $65,000
multi-currency revolving credit facility and $35,000 LIBOR-based
leveraged lease facility with SunTrust Bank, Central Florida, N.A. and
other lenders. The revolving credit portion of the old credit facility
has been terminated and the credit facility now provides for a $35,000
LIBOR-based leveraged lease facility and up to $2,000 coverage under an
interest rate swap arrangement, which provides hedging against interest
rate movements under the leveraged lease facility. Interest rates are
variable, with either prime or LIBOR indexes. The credit facility
matures on June 30, 1999. Principal payments under the leveraged lease
facility were or are required in the amounts of (a) $10,000 by December
8, 1998, (b) $12,500 by March 31, 1999 and (c) the balance by June 30,
1999. The Company is also required to commence marketing both the
headquarters property and the New York movie themed hotel property
underlying the leveraged lease and, if such properties are sold, the
proceeds will be applied as principal payments. The obligations under
the credit facility are guaranteed by each of the material subsidiaries
and secured by the mortgage of the headquarters property.
At year-end, the Company's weighted average rate on outstanding
borrowings under the facility was 8.25% while the term loan facility
matures in 1999. The credit facility also provides for the Company to
have up to $10,000 in letters of credit. At December 27, 1998, the
Company had outstanding letters of credit totaling $9,200 (see Note 1).
In connection with the lease facility note, the Company entered into an
interest rate swap agreement. The swap agreement effectively converts
this note from floating-rate debt to fixed rate debt with interest at
5.83%. The differential in the rates is accrued as interest rates change
and is recorded as an adjustment to interest expense. The swap agreement
matures in November 2000. The estimated fair value of the swap agreement
was a loss of $400 at December 27, 1998.
During fiscal 1996, 1997 and 1998, approximately $6,100 and $2,600, and
$30,000 respectively, was charged to interest expense and approximately
$1,100, $2,600 and $4,900 in fiscal 1996, 1997 and 1998, respectively,
of interest was capitalized.
45
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Aggregate principal amounts maturing in each of the five fiscal years
subsequent to fiscal 1998 and thereafter are summarized as follows:
FISCAL
------
1999 $25,517
2000 512
2001 555
2002 601
2003 652
Thereafter 255,915
9. STOCKHOLDERS' EQUITY AND REDEEMABLE WARRANTS
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 $193,100.
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 $19,600 was received for the
shares issued.
In January 1997, the Company issued 218,438 shares of restricted Class B
Common Stock to certain celebrities. The shares were valued at their
estimated market value totaling $4,000. Deferred compensation expense
has been reflected as a reduction of stockholders' equity and is being
amortized over the period benefited. The deferred compensation expense
was accelerated for certain celebrities associated with the OFFICIAL ALL
STAR CAFE concept (see Note 3.)
In April 1998, the Company issued 190,476 unregistered shares of Class A
Common Stock to consultants retained to assist the Company with
relations and promotions in the entertainment industry. The shares were
valued at their estimated discounted market value totaling $1,200 and
recorded as prepaid promotional services. These prepaid services are
being amortized over one year.
46
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REDEEMABLE WARRANTS
In connection with the issuance of the 1995 Notes (see Note 8), 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 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 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 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 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 1998 Stock Plan
was amended to provide for 6,000,000 shares of Class A common stock to
be available. In October 1998, the 1995 stock Plan was amended to
provide for 7,000,000 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 1996, 1997 and 1998, options to purchase 3,051,161, 839,800 and
8,157,379 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. In December 1998,
the Company canceled options to purchase 5,104,694 shares with an
average exercise price of $11.80 and granted new options to the same
individuals with an exercise price of $2.50.
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 1996, 1997, and 1998, options to purchase
3,051,161, 1,895,000 and 951,166 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. In February 1998, the Company reset
the exercise price of options to purchase 400,000 shares with an average
exercise price of $16.14 to $7.50. In December 1998, the company
cancelled options to purchase 48,333 options with an average exercise
price of $12.54 and granted new options to the same celebrities with an
exercise price of $2.50. These options vest and are exercisable over a
period of four years and expire five years from the date of grant.
During fiscal 1996, 1997, and 1998, approximately $1,300, $2,100 and
$3,000 respectively, was charged to expense relating to the grants.
47
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EMPLOYEE PLAN CELEBRITY PLAN
-------------------------- ---------------------------
NUMBER WEIGHTED AVG. NUMBER WEIGHTED AVG.
OF SHARES OPTION PRICE OF SHARES OPTION PRICE
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
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
Cancelled (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
Granted during 1998 8,157,379 5.33 951,166 8.62
Cancelled (7,255,076) 11.00 (48,999) 12.54
Exercised (7,794) 7.86 --
----------- -----------
Outstanding at December 27, 1998 4,748,984 5.73 4,350,167 9.35
Exercisable at December 27, 1998 216,689 2,227,992
Available for grant at December 27, 1998 1,725,346 1,619,167
</TABLE>
The following tables summarize the stock options outstanding at December
28, 1998:
<TABLE>
<CAPTION>
WEIGHTED
EMPLOYEES NUMBER WEIGHTED-AVERAGE AVERAGE
RANGE OF EXERCISE OUTSTANDING AT REMAINING EXERCISE
PRICES DECEMBER 27, 1998 CONTRACTUAL LIFE PRICE
------------------ ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
$ 2.50 3,140,920 4.96 $ 2.50
$ 7.50 7.94 939,509 3.15 7.62
14.00 15.00 68,555 2.28 14.73
17.00 160,000 3.20 17.00
19.00 21.63 440,000 1.19 19.25
<CAPTION>
WEIGHTED
CELEBRITIES NUMBER WEIGHTED-AVERAGE AVERAGE
RANGE OF EXERCISE OUTSTANDING AT REMAINING EXERCISE
PRICES DECEMBER 27, 1998 CONTRACTUAL LIFE PRICE
------------------ ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
$ 2.50 48,333 4.96 $ 2.50
$ 7.50 7.88 2,891,334 2.11 7.79
9.00 502,500 4.13 9.00
14.00 15.00 838,000 2.24 14.23
19.00 24.00 70,000 3.24 22.57
</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 options granted under the 1995
Stock Plan been determined based on the fair value at the date of grant
for awards consistent with the provisions of SFAS 123, the Company's net
income (loss) and earnings (loss) per share would approximate the
following pro forma amounts:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
------- ------ ----------
<S> <C> <C> <C>
Net income (loss) - as reported $37,659 $8,258 $(243,932)
Net income (loss) - pro forma 36,987 4,852 (247,667)
Basic earnings (loss) per share - as reported .37 .08 (2.24)
Basic earnings (loss) per share - pro forma .37 .04 (2.27)
Diluted earnings (loss) per share - as reported .37 .08 (2.23)
Diluted earnings (loss) per share - pro forma .36 .04 (2.26)
</TABLE>
48
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The fair value of each options is estimated on the date of grant using
the Black Scholes option pricing model with the following weighted
average assumptions: no dividend yield, expected volatility of 35% of
fiscal 1996 and fiscal 1997 and 60% in fiscal 1998; risk free interest
rates of 5.95%, 5.70% and 5.06% in fiscal 1996, fiscal 1997 and fiscal
1998, respectively; and expected lives of 4 years for fiscal 1996 and
fiscal 1997 and 5 years for fiscal 1998. The weighted-average fair value
of options granted during the year were $6.83 for fiscal 1996, $6.32 for
fiscal 1997 and $1.73 for fiscal 1998.
10. 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. The agreement
provided that PH Asia would pay continuing royalty fees and, for certain
territories, PH Asia and the Company would share initial franchise fees.
In 1996, PH Asia opened four franchise units, and the Company received
the initial franchise fee revenue for three of the units opened. In
1997, PH Asia opened eight units and the Company received the initial
franchise fee revenue for five of the units opened. No units were opened
by PH Asia in 1998.
During 1995, the Company entered into a franchise agreement with ECE, an
affiliated company, 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 franchise restaurant units. No
restaurant units were opened in 1997 or 1998. ECE pays continuing
royalty fees as defined in the agreement.
In December 1995, the Company terminated a 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 the four sites.
During 1997, the Company recognized non-refundable franchise fees for
two of the sites as no consideration was required to be paid to the
seller under the terms of the purchase agreement. The remaining 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 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 $8,000 for six sites. Additional franchise
fees may be payable to the Company under the terms of the 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 $19,600.
The number of franchised units opened in fiscal 1996, 1997 and 1998 were
21, 34, and 38 respectively.
49
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. INCOME TAXES
The sources of income (loss) before income taxes are presented as
follows:
FISCAL FISCAL FISCAL
1996 1997 1998
--------- --------- --------
United States $ 47,370 $ 15,529 $(157,929)
Foreign 28,346 (2,317) (74,813)
--------- --------- ---------
Income (loss) before taxes $ 75,716 $ 13,212 $(232,742)
========= ========= =========
The income tax provision (benefit) consists of the following:
FISCAL FISCAL FISCAL
1996 1997 1998
Current: --------- --------- ---------
Federal $ 12,616 $ 9,927 $ (16,153)
State and local 1,472 1,777 (432)
Foreign 3,168 3,375 1,759
--------- --------- ---------
17,256 15,079 (14,826)
--------- --------- ---------
Deferred:
Federal 2,941 (7,499) 14,026
State and local 1,448 (337) 127
Foreign -- (2,289) 2,289
--------- --------- ---------
4,389 (10,125) 16,442
--------- --------- ---------
$ 21,645 $ 4,954 $ 1,616
========= ========= =========
In 1997 and 1998, the Company recognized $800 and $200, respectively, of
benefits for deductions from the exercise of employee stock options and
the vesting of certain celebrity restricted stock awards. The
50
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
benefits were recorded directly to capital in excess of par value and
are not reflected in the provision for income taxes.
Income tax expense included in the financial statements is as follows:
FISCAL FISCAL FISCAL
1996 1997 1998
-------- -------- --------
Continuing operations $ 27,636 $ 4,954 $ 5,206
Extraordinary item (5,991) -- --
Change in accounting principle -- -- (3,590)
-------- -------- --------
$ 21,645 $ 4,954 $ 1,616
======== ======== ========
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 29, 1996, December 28, 1997 and December 27,
1998.
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
------------ -----------
<S> <C> <C>
Deferred tax assets:
Preopening costs $ 4,712 $ 10,752
Fixed assets -- 33,889
Deferred credits 6,104 3,186
Accrued expenses & reserves 5,177 6,514
Inventory -- 3,500
Deferred rental expense 4,157 4,419
Deferred compensation -- 3,088
Net operating loss carryforwards 4,884 11,375
Tax credits carryforwards 1,047 11,190
Other 809 125
--------- --------
26,890 88,038
Valuation Allowance (1,925) (88,038)
--------- --------
24,965 --
--------- --------
Deferred tax liabilities:
Fixed assets (8,473) --
Other (50) --
--------- --------
(8,523) --
--------- --------
Net deferred tax asset $ 16,442 $ --
========= ========
</TABLE>
A valuation allowance of $88,000 was established in fiscal 1998 for all
deferred tax assets due to the uncertainty of sufficient taxable income
in the future to utilize the deductible temporary differences and
carryforwards. A valuation allowance of $1,900 was established during
fiscal 1997 for the deferred tax asset 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.
51
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Reconciliation of the income tax provision to the tax provision computed
by applying the federal statutory rate is as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax $26,501 $ 4,624 $(81,460)
Nondeductible expenses 481 252 225
Tax (benefit) of foreign operations (1,336) (772) 3,808
State and local income taxes, net of
federal tax benefit 2,410 936 (198)
Valuation allowance -- -- 82,831
Tax credits (964) (857) --
Other 544 771 --
------- ------- --------
Total tax expense $27,636 $ 4,954 $ 5,206
======= ======= ========
</TABLE>
The amount of domestic net operating loss carryforwards at December 27,
1998 was $5,500. Of this amount, $4,300 was generated by certain
subsidiaries prior to their acquisition and have 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 remaining net operating loss of $1,200 will expire in 2018.
The amount of foreign tax credit carryforwards at December 27, 1998
total $4,800 which expire between 2001 and 2003. General business tax
credit carryforwards total $4,400 and expire between 2010 and 2018.
Alternative minimum tax credit carryforwards total $1,900 and carry
forward indefinitely.
The amount of foreign net operating loss carryforwards at December 27,
1998 was $24,700, of which $20,500 have no expiration date and $4,200
expire between 2002 and 2008.
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.
52
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum lease payments under the terms of operating and capital
lease agreements at December 27, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
1999 $ 41,015 $ 400
2000 41,634 400
2001 41,867 400
2002 41,821 400
2003 41,672 400
Thereafter 671,985 9,000
Less: amount representing interest (7,149)
------
Present value of net minimum lease payments $3,851
======
</TABLE>
Rent expense approximated $34,500, $44,600 and $49,200 for fiscal 1996,
1997 and 1998, respectively. Included in fiscal 1996, 1997 and 1998 rent
expense is approximately $8,600, $8,600 and $7,300, respectively, of
contingent rental payments.
OTHER
In connection with the construction and development of future
restaurants, the Company has entered into various construction
contracts. As of December 27, 1998, these outstanding contract
commitments totaled approximately $13,400.
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 $10 million to the joint venture in fiscal 1999 for
the purposes of developing and operating a "Planet Movies By AMC"
complex in Columbus, Ohio.
The Company and MTV entered into a memorandum of understanding whereby
MTV would assist the Company in the promotion and development the SOUND
REPUBLIC concept. Under the terms of the memorandum, it was anticipated
that the Company would pay MTV a royalty, based on the gross revenues of
SOUND REPUBLIC, for ten years, with a minimum annual guarantee of $1,000
per year. As a result of the Company's decision to cease development of
SOUND REPUBLIC and exit its London unit, the Company is negotiating the
termination of its relationship with MTV.
In February 1998, the Company entered into a five year agreement with
consultants retained to assist the Company with relations and promotions
in the entertainment industry. The Company is required to annually issue
the consultants shares of Class A Common Stock with an aggregate value
of $1,500 over the term of the agreement in return for such services
(see Note 9).
53
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
13. RELATED PARTY TRANSACTIONS
During 1995, a company that is controlled by a director and stockholder
of the Company bought the franchise rights to develop one PLANET
HOLLYWOOD unit in the Philippines for $2,000. This site opened in 1997
and the franchise fee was recognized by the Company.
In fiscal 1997, the Company paid approximately $1,000 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.
During fiscal 1998, the Company entered into three arrangements with a
franchisee and Company shareholder relating to the formation and
operation of three corporations to be owned equally by the Company and
franchisee/shareholder. The corporations will own and operate Planet
Hollywood units in Tokyo and Zurich and an Official All Star Cafe unit
in London. The Company received $4,300 in cash and a note receivable for
$1,000 from the sale of the Company's 50% interests in the corporations.
The Company may have difficulty in meeting its obligations with respect
to the development of the restaurants in Tokyo and London.
CELEBRITY NOTES RECEIVABLE
The Company has notes receivable from certain celebrity stockholders in
the aggregate gross amount of $5,900. The Company had previously
guaranteed $4,900 of loans made by a bank to certain of the Company's
celebrity stockholders. The Company assumed these generally non-recourse
loans, which are secured by pledges of the celebrities stock in the
Company and certain other assets, from the bank upon maturity. Due to
declines in the market price of Company shares, the collateral
underlying these notes was insufficient and the Company provided $2,000
to mark the loans to their fair market value.
14. 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 1998 $280,325 $ 92,459 $14,190 $ -- $ 386,974
1997 355,641 103,083 16,401 -- 475,125
1996 305,221 67,824 319 -- 373,364
54
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating Income (Loss) 1998 (150,551) (44,110) (6,084) -- (200,745)
1997 11,272 (6,834) 547 -- 4,985
1996 71,282 3,972 65 -- 75,319
Identifiable Assets 1998 340,606 92,344 7,835 31,842 472,627
1997 363,682 90,851 10,622 40,404 505,559
1996 335,061 53,212 2,974 10,013 401,260
<FN>
(1) Includes Mexico and Canada
(2) Corporate assets include investments in unconsolidated affiliates.
</FN>
</TABLE>
DIRECT REVENUES AND COST OF SALES
Direct revenues and cost of sales are summarized as follows:
FISCAL FISCAL FISCAL
1996 1997 1998
---- ---- ----
Direct revenues:
Food and beverage $222,481 $273,345 $259,644
Merchandise 124,955 173,965 107,652
-------- -------- --------
$347,436 $447,310 $367,296
======== ======== ========
Cost of sales:
Food and beverage $ 50,190 $ 61,930 $ 61,474
Merchandise 40,626 57,519 49,400
-------- --------- --------
$ 90,816 $119,449 $110,874
======== ======== ========
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
---- ---- ----
<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 12,538 9,459 1,314
Capital lease 3,900 -- --
Purchase of franchise for assumption of
franchisee liabilities 3,181 -- --
Receivable exchanged for stock in an affiliate -- 770 329
</TABLE>
55
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash paid for interest,
net of amount capitalized 10,132 -- 18,464
Cash paid for income taxes 13,398 14,848 1,903
</TABLE>
16. QUARTERLY DATA (UNAUDITED)
Summarized quarterly data for 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL 1997 - QUARTERS ENDED
------------------------------------------------------
MAR. 30 JUNE 29 SEP. 28 DEC. 28 TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Revenues $101,647 $121,892 $149,598 $101,988 $475,125
Income (loss) from operations 13,296 23,150 39,111 (70,572) 4,985
Income (loss) before provision
for income taxes 16,858 26,059 40,167 (69,872) 13,212
Net income (loss) 10,536 16,287 25,245 (43,810) 8,258
Basic EPS - net income (loss) $ 0.10 $ 0.15 $ 0.23 $ (0.40) $ 0.08
Diluted EPS - net income (loss) $ 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 ($44,500 after tax). The charge was primarily
related to the writedown of impaired assets ($48,700); the writeoff of
accounts receivable, due to the Company's change in business strategy
and financial difficulties of a franchisee ($13,500); and other costs
associated with the Company's change in business strategy.
<TABLE>
<CAPTION>
FISCAL 1998 - QUARTERS ENDED
---------------------------------------------------------
MAR. 29 JUNE 28 SEP. 27 DEC. 27 TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Revenues $96,532 $105,112 $110,261 $ 75,069 $386,974
Income (loss) from operations 2,390 3,478 (10,422) (196,191) (200,745)
Income (loss) before provision
for income taxes 2,608 (1,978) (16,152) (217,220) (232,742)
Income (loss) before
cumulative effect 1,630 (1,236) (10,095) (228,247) (237,948)
Net (loss) (4,354) (1,236) (10,095) (228,247) (243,932)
Basic EPS - net income (loss)
before cumulative effect $ 0.02 $ (0.01) $ (0.09) ($2.09) ($2.18)
Diluted EPS - net income (loss)
before cumulative effect $ 0.02 $ (0.01) $ (0.09) ($2.09) ($2.17)
Basic EPS-net income (loss) $ (0.04) $ (0.01) $ (0.09) ($2.09) ($2.24)
Diluted EPS-net income (loss) $ (0.04) $ (0.01) $ (0.09) ($2.09) ($2.23)
</TABLE>
In the fourth quarter of fiscal 1998, the Company recorded charges
totaling $139,000 for asset impairments, restructuring and severance
costs, and accelerated celebrity options expense (see Note 3). In
addition to these charges, the Company recorded a $3,800 reserve for
franchisee receivables due to
56
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
continued financial difficulties of certain of the Company's
franchisees. The Company also recorded a $6,000 reserve for discontinued
and obsolete inventory items as a result of the Company's launch of a
new merchandising strategy. The Company also recorded losses of $8,600
from its equity investment in unconsolidated affiliates in the fourth
quarter of fiscal 1998 as a result of asset impairments and operating
losses recorded by these entities in the fourth quarter.
57
<PAGE>
Planet Hollywood International, Inc.
Financial Statement Schedule II -- Valuation and qualifying accounts
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO CHARGED TO BALANCE
DESCRIPTION 12/28/97 COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS 12/27/98
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible
accounts receivable $1,500,000 $ 3,756,000 $ -- $ 3,134,000 (1) $ 2,122,000
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the writeoff of specific accounts receivable in 1998.
</FN>
</TABLE>
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As provided in General Instruction G(3), the information
contained in the Company's definitive proxy statement to be filed
pursuant to SEC Regulation 14A with respect to the upcoming
Annual Meeting of Stockholders to be held on May 27, 1999, is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
As provided in General Instruction G(3), the information
contained in the Company's definitive proxy statement to be filed
pursuant to SEC Regulation 14A with respect to the upcoming
Annual Meeting of Stockholders to be held on May 27, 1999, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As provided in General Instruction G(3), the information
contained in the Company's definitive proxy statement to be filed
pursuant to SEC Regulation 14A with respect to the upcoming
Annual Meeting of Stockholders to be held on May 27, 1999, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As provided in General Instruction G(3), the information
contained in the Company's definitive proxy statement to be filed
pursuant to SEC Regulation 14A with respect to the upcoming
Annual Meeting of Stockholders to be held on May 27, 1999, is
incorporated herein by reference.
59
<PAGE>
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(A) 1. FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets at December 28, 1997 and December 27, 1998
Consolidated Statements of Operations for the three years ended December
27, 1998
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended December 27, 1998
Consolidated Statements of Cash Flows for the three years ended December
27, 1998
Notes to the Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
For the year ended December 27, 1998 II - Valuation and Qualifying
Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
Financial statements of two 50% owned companies have been omitted
because the registrant's proportionate share of the income from
continuing operations before income taxes is less than 20% of the
respective consolidated amount, and the investment in and advances to
each company is less than 20% of consolidated total assets.
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
3.1(1) Restated Certificate of Incorporation of the Registrant
3.2(2) Third Amended and Restated Bylaws of the Registrant
4.1(2) First Amendment to Amended and Restated Revolving Credit
Agreement, dated as of December 8, 1998, among the
Registrant, SunTrust Bank and certain other banks
4.5(3) Amended and Restated Credit Agreement, dated as of March
25, 1998, among the Registrant, SunTrust Bank and certain
other banks
4.6(3) Indenture dated as of March 25, 1998, between the Company
and United States Trust Company of New York, as Trustee,
relating to the Company's 12% Senior Subordinated Notes
due 2005
4.7(3) Initial Global Notes, dated March 25, 1998
10.1(1) Form of Master Franchise Agreement
10.2(1) Form of Memorabilia Lease
10.3(1) Form of License Agreement
60
<PAGE>
10.5(1) Ground Lease Agreement between Lake Buena Vista
Communications, Inc. And Planet Hollywood (Orlando), Inc.
10.6(1) License Agreement dated as of December 4, 1992, by and
between the Registrant and Planet Hollywood (Asia) Pte.
Ltd.
10.7(1) First Amendment to the License Agreement dated as of July
1, 1995, by and between the Registrant and Planet
Hollywood (Asia) Pte. Ltd.
10.7A(3) Second Amendment to the License Agreement, dated as of
October 1, 1995, by and between the Registrant and Planet
Hollywood (Asia) Pte. Ltd.
10.7B(3) Third Amendment to the License Agreement, dated as of
November 6, 1997, by and between the Registrant and
Planet Hollywood (Asia) Pte. Ltd.
10.8(1) Form of Master Franchise Agreement for All Star Cafe,
Inc.
10.12(4) First Amended and Restated 1995 Celebrity Stock Award and
Incentive Plan
10.13(5) First Amended and Restated 1995 Stock Award and Incentive
Plan
10.14(1) Form of Stock Option Award Agreement for options granted
under the 1995 Celebrity Stock Award and Incentive Plan
10.15(1) Form of Stock Option Award Agreement for options granted
under the 1995 Stock Award and Incentive Plan
10.16(1) Employment Agreement dated August 8, 1995, between the
Registrant and Robert Earl
10.17(6) Employment Agreement dated June 26, 1998, between the
Registrant and William H. Baumhauer
10.19(7) Limited Partnership Agreement of Planet Movies Company,
L.P., dated October 17, 1997
10.20(7) Master Agreement, dated as of December 2, 1997, relating
to the Planet Hollywood Hotel joint venture between
Planet Hospitality Holdings, Inc., Times Square Partners
LLC and others
10.21(8) Registration Rights Agreement dated as of October 30,
1998, by and between the Registrant, Leisure Ventures
Pte. Ltd. and Kingdom Planet Hollywood, Ltd.
10.22(9) Letter Agreement, including annexes thereto (which
include the form of the Registration Rights Agreement),
between the Registrant and Keith Barish, regarding Mr.
Barish's resignation as Chairman of the Board of
Directors, as amended on December 14, 1998
10.23(10) Amendments to the Letter Agreement between the Registrant
and Mr. Barish, dated as of January 19, 1999
10.24(11) Amendment to the Registration Rights Agreement dated
November 6, 1998, as amended January 19, 1999 and
February 23, 1999 between the Registrant and Mr. Barish
10.25(12) Amendment to the Lock-up Letter dated November 6, 1998,
as amended December 14, 1998, January 19, 1999 and
February 23, 1999 between the Registrant and Mr. Barish
21.1(6) Subsidiaries
23.1(6) Consent of PricewaterhouseCoopers LLP
24.1(6) Powers of Attorney (included in signature page)
27.1(6) Financial Data Schedule
- ----------
(1) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form S-1, as
amended, previously filed by the Registrant (file no. 333-01490)
61
<PAGE>
(2) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form S-3, as
amended, previously filed by the Registrant (file no. 333-67101)
(3) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form S-4, as
amended, previously filed by the Registrant (file no. 333-51655)
(4) Incorporated by reference to Exhibit 99.1 in the Registration
Statement on Form S-8, as amended, previously filed by the
Registrant (file no. 333-31683)
(5) Incorporated by reference to Exhibit 99.1 in the Registration
Statement on Form S-8, as amended, previously filed by the
Registrant (file no. 333-66659)
(6) Filed herewith
(7) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Annual Report on Form 10-K for the year
ended December 28, 1997, as amended, previously filed by the
Registrant
(8) Incorporated by reference to Exhibit 10.2 in the Registration
Statement on Form S-3, as amended, previously filed by the
Registrant (file no. 333-67101)
(9) Incorporated by reference to Exhibit 10.1 in the Registration
Statement on Form S-3, as amended, previously filed by the
Registrant (file no. 333-67467)
(10) Incorporated by reference to Exhibit 10.2 in the Registration
Statement on Form S-3, as amended, previously filed by the
Registrant (file no. 333-67467)
(11) Incorporated by reference to Exhibit 99.1 in the Current Report on
Form 8-K dated February 23, 1999, previously filed by the
Registrant on February 23, 1999
(12) Incorporated by reference to Exhibit 99.2 in the Current Report on
Form 8-K dated February 23, 1999, previously filed by the
Registrant on February 23, 1999
(B) REPORTS ON FORM 8-K.
During the last quarter of the period covered by this Form 10-K,
the Company filed one report on Form 8-K. On November 12, 1998,
the Company filed a Current Report on Form 8-K (dated November
10, 1998) relating to the resignation of Keith Barish as the
Company's Chairman of the Board of Directors. Said report cited
the appointment of William H. Baumhauer to the positions of
President and Chief Operating Officer as reasons for Mr. Barish's
resignation. The report included, as exhibits, (i) a letter
agreement between the Company and Mr. Barish outlining the terms
of Mr. Barish's resignation, which include certain registration
rights with respect to a portion of Mr. Barish's shares of the
Company's common stock and (ii) the press release issued by the
Company on November 10, 1998 announcing the resignation of Mr.
Barish and the election of Robert Earl as Chairman of the Board
of Directors.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 25th day of
March, 1999.
PLANET HOLLYWOOD INTERNATIONAL, INC.
By: /s/ ROBERT I. EARL
-----------------------------------------
Robert I. Earl
Chairman and Chief Executive Officer
By: /s/ THOMAS AVALLONE
-----------------------------------------
Thomas Avallone
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
on the following page constitutes and appoints Robert I. Earl, William H.
Baumhauer, Thomas Avallone and/or Scott Johnson to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 25th day of March, 1999.
/s/ WILLIAM H. BAUMHAUER /s/ ROBERT I. EARL
-------------------------------------- ----------------------------------
William H. Baumhauer Robert I. Earl
PRESIDENT CHAIRMAN OF THE BOARD OF DIRECTORS
CHIEF OPERATING OFFICER CHIEF EXECUTIVE OFFICER
DIRECTOR DIRECTOR
/s/ THOMAS AVALLONE /s/ MARK MCCORMACK
-------------------------------------- ----------------------------------
Thomas Avallone Mark McCormack
EXECUTIVE VICE PRESIDENT DIRECTOR
CHIEF FINANCIAL OFFICER
DIRECTOR
/s/ CLAUDIO GONZALEZ /s/ ONG BENG SENG
-------------------------------------- ----------------------------------
Claudio Gonzalez Ong Beng Seng
DIRECTOR DIRECTOR
/s/ MICHAEL MONTAGUE /s/ MICHAEL L. TARNOPOL
-------------------------------------- ----------------------------------
Michael Montague Michael L. Tarnopol
DIRECTOR DIRECTOR
/s/ ISADORE SHARP
--------------------------------------
Isadore Sharp
DIRECTOR
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.17 Employment Agreement dated June 26, 1998, between the
Registrant and William H. Baumhauer
21.1 Subsidiaries
23.1 Consent of PriceWaterhouseCoopers LLP
27.1 Financial Data Schedule
Planet Hollywood International, Inc.
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 26th day of June, 1998, by
and between PLANET HOLLYWOOD INTERNATIONAL, INC., a Delaware corporation,
hereinafter referred to as the "Company," and WILLIAM H. BAUMHAUER, hereinafter
referred to as the "Employee."
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the monies to be paid hereunder, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby employs Employee and Employee
hereby accepts employment with the Company for a period of three (3) years
commencing on that date which Employee reports to work at the Company, which
date is anticipated to be within sixty (60) days from the date hereof; provided,
however, that this Agreement may be terminated earlier as hereinafter set forth.
2. DUTIES OF EMPLOYEE; EXCLUSIVITY. Employee is hereby hired and
employed by the Company as its President and Chief Operating Officer, to perform
the duties and accept the responsibilities as are assigned to him by the
Company's Chief Executive Officer and the Company's Board of Directors.
Employee's duties will include such duties as are normally performed by an
executive officer of similar rank as a president and chief operating officer in
the restaurant and hospitality industry, including responsibility for the
day-to-day operations of the Company. Employee will report to the Company's
Chief Executive Officer and the Company's Board of Directors. The Company's
Chief Executive Officer shall nominate Employee for election to the Company's
Board of Directors subject to the approval of the Company's entire Board of
Directors, and if so confirmed by the entire Board of Directors (subject to
shareholder approval, as applicable), Employee agrees to serve on the Company's
Board of Directors. Employee shall devote substantially all of his productive
time, ability and attention to the business of the Company during the term of
this Agreement. During the term of this Agreement, Employee will not engage in
any other business activity during business hours without the written consent of
the Company.
3. COMPENSATION. As compensation for services rendered under this
Agreement, Employee shall be entitled to receive from the Company a base salary
of Five Hundred Twenty-Five Thousand Dollars ($525,000.00) per year, payable in
accordance with the normal payroll practices of the Company. In addition to his
base salary, the Company may pay Employee bonuses from time to time as
determined by the Company's Board of Directors. Employee's compensation shall be
reviewed not less than annually by the Company's Board of Directors.
<PAGE>
4. EMPLOYEE BENEFITS.
(a) Employee shall be entitled to receive all benefits generally
made available to the senior executives of the Company.
(b) Employee shall be entitled to participate in the Company's
stock option plan for its employees and executive officers. Pursuant to a
separate stock option agreement entered into after the Company's stock option
committee has had an opportunity to meet, but in no event later than ninety (90)
days of the date hereof, Employee shall be granted options to purchase seven
hundred fifty thousand (750,000) shares of the Company's common stock (the
"Employee Options"). As more fully described in said separate stock option
agreement, the Employee Options shall be exercisable at a price equal to the
fair market value of the Company's common stock on the date of the granting of
the Employee Options. Except as otherwise expressly described herein, the
Employee Options shall "vest" to Employee, and therefore become non-forfeitable,
in accordance with the terms and provisions of the separate stock option
agreement; provided that the Company's standard vesting schedule shall be
modified as follows:
(i) On that date which is one (1) year after the date of
this Agreement, Employee shall vest in two hundred fifty thousand (250,000)
Employee Options;
(ii) On that date which is two (2) years after the date of
this Agreement, Employee shall vest in an additional two hundred fifty thousand
(250,000) Employee Options; and
(iii) On that date which is three (3) years after the date
of this Agreement, Employee shall vest in the remaining two hundred fifty
thousand (250,000) Employee Options.
(c) The Company shall reimburse Employee, on a grossed up basis
(taking into account the federal income tax liability resulting to Employee from
such payments), for his reasonable out-of-pocket moving expenses incurred in
relocating to the Orlando, Florida area. Such expenses shall include, but not be
limited to, those relating to the relocation of Employee's family and Employee's
personal property.
(d) During the transition of Employee's residence to the Orlando,
Florida area, the Company shall pay Employee's reasonable housing and other
living expenses incurred in connection therewith, for a period not to exceed
twelve (12) months. These monies shall be in addition to those moving expenses
described in Section 4(c) above.
2
<PAGE>
(e) The Company will pay Employee a reasonable automobile
allowance for the use of Employee's automobile for business purposes of the
Company. Employee agrees to keep his own automobile maintained and repaired in
good driving condition. Employee agrees to maintain insurance, at his own
expense, on his automobile in amounts acceptable to the Company. A certification
of Employee's insurance showing such coverage shall be filed with the Company.
5. VACATION. Employee shall be entitled to annual vacation at full pay
in accordance with the Company's vacation and leave policies for its senior
executives in effect from time to time. Subject to such policies, the time and
duration for such vacation shall be selected by Employee at his discretion.
6. REIMBURSEMENT OF EMPLOYEE EXPENSES. Employee shall be expected to
incur various business expenses customarily incurred by persons holding like
positions, including, but not limited to, traveling, entertainment and similar
expenses, all of which are to be incurred by Employee for the benefit of the
Company. Subject to the Company's policy regarding the reimbursement of such
expenses, the Company shall promptly reimburse Employee for such expenses at
Employee's request, and Employee shall account to Company for such expenses.
7. NON-DISCLOSURE OF INFORMATION CONCERNING BUSINESS; NON-INTERFERENCE.
(a) Employee will not at any time, in any fashion, form or
manner, either directly or indirectly, divulge, disclose, or communicate to any
person, firm, or corporation, or other entity or utilize for his own benefit, in
any manner whatsoever, any trade secrets or any confidential information of any
kind, nature, or description concerning any matters affecting or relating to the
business of the Company and its affiliates or their manner of operation, or
their confidential plans, processes or other data of any kind, nature or
description.
(b) All tangible confidential information and other confidential
documentation, either directly or indirectly coming into the possession of
Employee in the course of his employment, including all copies thereof or
reproductions or drawings made therefrom, shall remain the property of the
Company and shall be returned immediately upon any termination of Employee's
employment. Thereafter, Employee shall not reduce to writing or otherwise record
any of the proprietary or confidential information disclosed to him during his
employment.
(c) Employee shall not purposefully interfere with the Company's
suppliers, customers or other business relations by using the Company's internal
data in a damaging or derogatory manner that would potentially damage the
Company's relationships with such parties.
(d) The Company and Employee hereby stipulate that, as between
them, the foregoing matters are important, material, and confidential, and
gravely affect the effectiveness and successful conduct of the business of the
Company, and its goodwill, and that any breach of the terms of this Section is a
material breach of this Agreement.
3
<PAGE>
(e) The obligations of Employee pursuant to this Section shall
survive any termination of Employee's employment with the Company and shall
remain in effect for one (1) year following the date of termination.
8. NON-COMPETITION BY EMPLOYEE. During the term of this Agreement and
for one (1) year following the termination of this Agreement for any reason
other than pursuant to Section 11 or Section 12(a), Employee shall not, directly
or indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder (other than owning fewer than one percent (1%) of the
outstanding shares of a public corporation), corporate officer, director, or any
other individual or representative capacity, engage or participate in any
business that is in the business of owning, operating or franchising, either
directly or indirectly, a "Themed Establishment". For purposes of this Section,
a "Themed Establishment" shall mean any chain of themed (whether movie, sports,
music or otherwise) restaurants, bars, casinos, or lodging or entertainment
complexes that serve either food or beverages for onsite consumption) anywhere
in the world.
9. INJUNCTIVE RELIEF. It is acknowledged and agreed that, in the event
the provisions of this Agreement are breached by Employee, the extent of actual
damages sustained by the Company or its assignee will be difficult of
ascertainment, though great and irreparable, for which any remedy at law would
be inadequate. Therefore, the parties hereto expressly agree that the Company
shall have a right to seek injunctive relief for breach of any of the terms
hereof, plus damages for such breach to the maximum extent permitted by law.
10. TERMINATION BY THE COMPANY FOR CAUSE. The Company may, at its
option, without prejudice to any other remedy to which the Company may be
entitled either at law or in equity under this Agreement, terminate this
Agreement by giving written notice of termination to Employee in the event that:
(a) Employee is convicted of, pleads guilty to, or pleads NOLO
CONTENDRE to a felony crime involving moral turpitude;
(b) Employee is found guilty of or pleads no contest to fraud,
conversion, embezzlement, falsifying records or reports, or a similar crime
involving the Company's property; or
(c) Employee willfully breaches this Agreement.
In the event Employee's termination shall be effective under this
Section, Employee shall not be entitled to receive any further compensation or
benefits under the terms hereof.
4
<PAGE>
11. TERMINATION BY THE COMPANY WITHOUT CAUSE. If the Company terminates
Employee "without cause," which shall mean for any reason other than as set
forth in Section 10, Employee shall: (a) be paid an amount equal to his base
salary in effect at the time of termination for thirty-six (36) months after the
date of termination and (b) become fully "vested" under the terms of the stock
option agreement executed and delivered along with this Agreement.
12. TERMINATION BY EMPLOYEE.
(a) Employee may, at his option, after complying with this
Section, terminate this Agreement in the event of a material breach of the terms
of this Agreement by the Company. A "material breach" by the Company shall
include, but shall not be limited to, a change in control of the Company.
Employee shall be required to give written notice to the Company setting forth
with PARTICULARITY the nature of the material breach. The Company shall have
thirty (30) days following its receipt of Employee's written notice in which to
cure its breach before Employee's termination of this Agreement shall be
effective. In the event Employee's termination shall be effective under this
Section 12(a), Employee shall: (i) be entitled to receive his base salary in
effect at the time of termination for thirty-six (36) months after the date of
termination and (ii) become fully "vested" under the terms of the stock option
agreement executed and delivered along with this Agreement.
(b) If Employee terminates this Agreement for any reason other
than a material breach, he shall not be entitled to receive any further
compensation or benefits under the terms hereof.
13. ATTORNEYS' FEES. In the event any litigation or controversy arises
out of or in connection with this Agreement between the parties hereto, the
prevailing party in such litigation or controversy shall be entitled to recover
from the other party or parties all reasonable attorneys' fees, expenses and
suit costs, including those associated with any appellate or post judgment
collection proceedings.
14. TIME OF ESSENCE. Time is of the essence of this Agreement and each
covenant and condition contained herein.
15. NOTICES AND DEMANDS. Any notice or demand which, by any provision of
this Agreement or any agreement, document, or instrument executed pursuant
hereto, except as otherwise provided therein, is required or provided to be
given shall be deemed to have been sufficiently given or served for all purposes
if sent by certified or registered mail, postage and charges prepaid, to the
following addresses: IF TO THE COMPANY, 8669 Commodity Circle, Orlando, Florida
32819, Attention: General Counsel, with a copy to Byrd F. Marshall, Jr.,
Esquire, Gray, Harris & Robinson, 201 E. Pine Street, Suite 1200, Orlando,
Florida 32801, or at any other address designated by the Company to Employee in
writing, and IF TO EMPLOYEE, 34 Chandler Road, Boxford, Massachusetts 01921, or
at any other address designated by Employee to the Company in writing.
5
<PAGE>
16. SEVERABILITY. In case any covenant, condition, term or provision
contained in this Agreement shall be held to be invalid, illegal, or
unenforceable in any respect, in whole or in part, by judgment, order or decree
of any court or other judicial tribunal of competent jurisdiction, from which
judgment, order or decree no further appeal or petition for review is available,
the validity of the remaining covenants, conditions, terms and provisions
contained in this Agreement, and the validity of the remaining part of any term
or provision held to be partially invalid, illegal or unenforceable, shall in no
way be affected, prejudiced, or disturbed thereby.
17. WAIVER OR MODIFICATION. No waiver or modification of this Agreement
or of any covenant, condition or limitation herein contained shall be valid
unless in writing and duly executed by the party to be charged therewith.
Furthermore, no evidence of any waiver or modification shall be offered or
received in evidence in any proceeding, arbitration or litigation between the
parties arising out of or affecting this Agreement, or the rights or obligations
of any party hereunder, unless such waiver or modification is in writing and
duly executed as aforesaid. The provisions of this Section may not be waived
except as herein set forth.
18. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter of this Agreement and
supersedes any and all previous agreements between the parties, whether written
or oral, with respect to such subject matter.
19. APPLICABLE LAW, BINDING EFFECT AND VENUE. This Agreement shall be
construed and regulated under and by the laws of the State of Florida, and shall
inure to the benefit of and be binding upon the parties hereto and their heirs,
personal representatives, successors and assigns. Venue for any action related
to or arising out of this Agreement shall lie in Orange County, Florida.
20. SECTION AND PARAGRAPH HEADINGS. Section and paragraph headings used
throughout this Agreement are for reference and convenience and in no way
define, limit or describe the scope or intent of this Agreement or affect its
provisions.
21. MULTIPLE COPIES OR COUNTERPARTS OF AGREEMENT. The original and one
or more copies of this Agreement may be executed by one or more of the parties
hereto. In such event, all of such executed copies shall have the same force and
effect as the executed original and all of such counterparts taken together
shall have the effect of a fully executed original.
22. NUMBER AND GENDER. Whenever used herein, singular numbers shall
include the plural, the plural the singular, and the use of any gender shall
include all genders.
6
<PAGE>
23. FURTHER ASSURANCES. Each of the parties hereto agree that they shall
sign such additional and supplemental documents as may be necessary to implement
the transactions contemplated pursuant to this Agreement when requested to do so
by any party to this Agreement.
Signed as of the day first written above with the intent to be legally
bound.
COMPANY:
PLANET HOLLYWOOD INTERNATIONAL, INC.,
a Delaware corporation
By:____________________________________
Robert I. Earl, President
EMPLOYEE:
---------------------------------------
William H. Baumhauer
Planet Hollywood International, Inc.
Exhibit 21.1
SUBSIDIARIES
JURISDICTION OF
NAME AND ADDRESS ORGANIZATION
- ---------------- ----------------
308 Aviation, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
308-III Aviation, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
All Star Cafe (Region V), Inc. Texas
8669 Commodity Circle
Orlando, FL 32819
All Star Cafe International, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
All Star Cafe (LP), Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
All Star Cafe (New York), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
All Star Cafe (Region VII), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Coast Licensing, Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
Cool Planet, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Cool Planet I, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Cool Planet II, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
EBCO Management, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
1
<PAGE>
JURISDICTION OF
NAME AND ADDRESS ORGANIZATION
- ---------------- ----------------
Karmalanne, Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
Meant 2 Be, Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
Movie Restaurant GmbH Germany
& Co., K.G.
8669 Commodity Circle
Orlando, FL 32819
Movie Restaurant Verwaltungs, GmbH Germany
8669 Commodity Circle
Orlando, FL 32819
Official All Star Cafe (U.K.), Ltd. United Kingdom
8669 Commodity Circle
Orlando, FL 32819
Official All Star Cafe, Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
PH Amsterdam B.V. Netherlands
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Aspen), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Chefs), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Atlantic City), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood Czech, A.S. Czech
8669 Commodity Circle Republic
Orlando, FL 32819
Planet Hollywood (Europe), Limited United Kingdom
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood Canada, Inc. Canada
8669 Commodity Circle
Orlando, FL 32819
2
<PAGE>
JURISDICTION OF
NAME AND ADDRESS ORGANIZATION
- ---------------- ----------------
Planet Hollywood (Chicago), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Costa Mesa), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Mail Order), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Gaming), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Honolulu), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (London), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (LP), Inc. Nevada
8669 Commodity Circle,
Orlando, FL 32819
Planet Hollywood (Swiss Centre London) Ltd. United Kingdom
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (New York City), Inc. Florida
8669 Commodity Circle,
Orlando, FL 32819
Planet Hollywood (Orlando), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Orlando Florida
Distribution), Inc.
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Paris), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Phoenix), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
3
<PAGE>
JURISDICTION OF
NAME AND ADDRESS ORGANIZATION
- ---------------- ----------------
Planet Hollywood (Puerto Rico), Inc. Puerto Rico
8660 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Region I), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Region II), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Region III), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Region IV), Inc. Minnesota
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Region V), Inc. Texas
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Region VI), Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Region VII), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood Restaurant OY Finland
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood Restaurant Austria
Betriebsgesellschaft Gmbh
8669 Commodity Circle
Orlando, FL 32819
Planet Hospitality Holdings, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Tel Aviv), Inc. Florida
8669 Commodity Circle,
Orlando, FL 32819
Planet Hollywood (Theatres), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood Transportation, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
4
<PAGE>
JURISDICTION OF
NAME AND ADDRESS ORGANIZATION
- ---------------- ----------------
Planet Hollywood (Warehouse), Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood New York, Ltd. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Texas), Ltd. Texas
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Israel), L.C. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (France), L.C. Florida
8669 Commodity Circle
Orlando, FL 32819
Planet Hollywood (Trocadero), L.C. Florida
8669 Commodity Circle
Orlando, FL 32819
Rivermist Limited Ireland
8669 Commodity Circle
Orlando, FL 32819
RM 46 Restaurant Vermogensverwaltungs Germany
GmbH
8669 Commodity Circle
Orlando, FL 32819
Rocky Pit, Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
Silver Bracelets, Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
Sound Republic, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
Sound Republic I, Inc. Florida
8669 Commodity Circle
Orlando, FL 32819
5
<PAGE>
JURISDICTION OF
NAME AND ADDRESS ORGANIZATION
- ---------------- ----------------
Ten Alps Inc. Nevada
8669 Commodity Circle
Orlando, FL 32819
6
PLANET HOLLYWOOD INTERNATIONAL, INC.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-31683, No. 333-31685 and No. 333-66659)
and on Form S-3 (No. 333-67101 and No. 333-67467) of Planet Hollywood
International, Inc. of our report dated March 26, 1999 which is
incorporated in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PLANET HOLLYWOOD INTERNATIONAL, INC. FOR THE FISCAL YEAR
ENDED DECEMBER 27, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 45,426
<SECURITIES> 0
<RECEIVABLES> 18,862
<ALLOWANCES> (2,122)
<INVENTORY> 0
<CURRENT-ASSETS> 99,931
<PP&E> 332,366
<DEPRECIATION> (51,251)
<TOTAL-ASSETS> 472,627
<CURRENT-LIABILITIES> 90,109
<BONDS> 254,420
0
0
<COMMON> 1,092
<OTHER-SE> 103,468
<TOTAL-LIABILITY-AND-EQUITY> 472,627
<SALES> 367,296
<TOTAL-REVENUES> 386,974
<CGS> 110,874
<TOTAL-COSTS> 587,719
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,822
<INCOME-PRETAX> (232,742)
<INCOME-TAX> 5,206
<INCOME-CONTINUING> (237,948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 5,984
<NET-INCOME> (243,932)
<EPS-PRIMARY> (2.24)
<EPS-DILUTED> (2.23)
</TABLE>
