UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to____________
Commission File 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)
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 [ ]
As of July 31, 1999, there were approximately 100,405,857 shares of the
registrant's Class A voting Common Stock outstanding and approximately 8,579,920
shares of the registrant's Class B non-voting Common Stock outstanding.
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
INDEX
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 27, 1999
and December 27, 1998...................................... 1
Condensed Consolidated Statements of Operations - Thirteen
Weeks and Twenty-six Weeks ended June 27, 1999 and
June 28, 1998.............................................. 2
Condensed Consolidated Statements of Cash Flows - Twenty-
Six Weeks ended June 27, 1999 and June 28, 1998............ 3
Condensed Consolidated Statements of Changes in Stockholders'
Equity - Twenty-six Weeks ended June 27, 1999 and
December 27, 1998.......................................... 4
Notes to Condensed Consolidated Financial Statements....... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 16
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......... 18
Item 5. Other Information............................................ 18
Item 6. Exhibits and Reports on Form 8-K............................. 18
SIGNATURES................................................................... 20
<PAGE>
PART I - FINANCIAL INFORMATION
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
STATED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
JUNE 27, DECEMBER 27,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................. $ 21,702 $ 45,426
Accounts receivable, net ................... 12,835 16,740
Taxes receivable ........................... -- 12,308
Inventories ................................ 15,329 19,186
Prepaid expenses and other assets .......... 8,047 6,271
--------- ---------
Total current assets .................. 57,913 99,931
Restricted cash and cash equivalents .......... 9,155 16,265
Property and equipment, net ................... 264,362 281,115
Goodwill, net ................................. 26,212 27,057
Other assets, net ............................. 16,934 16,417
Investment in affiliated entities ............. 30,080 31,842
--------- ---------
Total assets .......................... $ 404,656 $ 472,627
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ... $ 70,191 $ 64,783
Notes payable - current .................... 257,722 25,326
--------- ---------
Total current liabilities ............. 327,913 90,109
Deferred rentals .............................. 11,442 11,618
Notes payable ................................. 4,324 254,420
Capital lease obligation ...................... 3,876 3,815
Deferred credits .............................. 7,464 6,350
--------- ---------
Total liabilities ..................... 355,019 366,312
Minority interest ............................. 5,504 --
Stockholders' equity:
Common stock - Class A ..................... 1,003 974
Common stock - Class B ..................... 89 118
Capital in excess of par value ............. 286,367 285,667
Deferred compensation ...................... (125) (225)
Accumulated deficit ........................ (240,176) (177,288)
Accumulated other comprehensive income ..... (3,025) (2,931)
--------- ---------
Total stockholders' equity .................... 44,133 106,315
--------- ---------
Total liabilities and stockholders' equity .... $ 404,656 $ 472,627
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------- ---------------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues .................................. $ 76,647 $ 105,112 $ 151,675 $ 201,644
Cost and expenses:
Cost of sales .......................... 20,728 25,328 40,961 48,957
Operating expenses ..................... 57,259 57,973 113,068 112,646
General and administrative expenses .... 12,380 9,932 24,175 18,300
Preopening costs ....................... 303 2,559 303 4,675
Depreciation and amortization .......... 4,891 5,842 9,983 11,197
Restructuring charges .................. -- -- 3,500 --
Impairment of long lived assets ........ -- -- 4,598 --
--------- --------- --------- ---------
95,561 101,634 196,588 195,775
Income (loss) from operations ............. (18,914) 3,478 (44,913) 5,869
Non-operating expense (income):
Interest expense ....................... 9,136 6,888 17,254 7,304
Interest income ........................ (282) (1,332) (774) (1,561)
Equity in (income) loss of
unconsolidated affiliates............. 58 (100) 1,155 (505)
Other .................................. 340 -- 340 --
--------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect ....................... (28,166) (1,978) (62,888) 631
Provision for (benefit from) income taxes.. -- (742) -- 238
--------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle .......... (28,166) (1,236) (62,888) 393
Cumulative effect of change in accounting
principal ............................... -- -- -- (5,984)
--------- --------- --------- ---------
Net loss .................................. $ (28,166) $ (1,236) $ (62,888) $ (5,591)
========= ========= ========= =========
Loss per share:
BASIC
Income (loss) before cumulative effect
of change in accounting principal ...... $ (0.26) $ (0.01) $ (0.58) $ 0.00
========= ========= ========= =========
Cumulative effect of change in accounting
principle ............................... -- -- -- (0.05)
========= ========= ========= =========
Net loss .................................. $ (0.26) $ (0.01) $ (0.58) $ (0.05)
========= ========= ========= =========
DILUTED
Income (loss) before cumulative effect
of change in accounting principal ...... $ (0.26) $ (0.01) $ (0.58) $ 0.00
========= ========= ========= =========
Cumulative effect of change in accounting
principle ............................... -- -- -- (0.05)
========= ========= ========= =========
Net loss .................................. $ (0.26) $ (0.01) $ (0.58) $ (0.05)
========= ========= ========= =========
BASIC Weighted Average Shares ............. 109,091 109,089 109,091 109,056
========= ========= ========= =========
DILUTED Weighted Average Shares ........... 109,091 109,692 109,091 109,787
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
2
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 27, JUNE 28,
1999 1998
-------- --------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES ................. $ (27,724) $ (20,926)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment ................ (4,281) (39,384)
Proceeds from sales of property and equipment ...... 20,540 --
Purchase of restaurant from franchisee ............. -- (2,635)
Sale of joint venture interests .................... -- 2,250
Investment in affiliate ............................ 107 (461)
Other .............................................. -- (767)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 16,366 (40,997)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable ............ 2,370 250,000
Change in restricted cash .......................... 3,104 --
Exercise of stock options .......................... -- 61
Deferred financing costs ........................... -- (10,455)
Repayment of notes payable ......................... (17,851) (63,106)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (12,377) 176,500
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH ................... 11 (160)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (23,724) 114,417
--------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 45,426 9,089
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 21,702 $ 123,506
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
3
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
STATED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK CAPITAL IN
CLASS A CLASS B EXCESS OF COMPREHENSIVE RETAINED
SHARES AMOUNT SHARES AMOUNT PAR VALUE INCOME EARNINGS
-------- ------- ------- ------ --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 28, 1997 ........... 97,128 $ 972 11,765 $ 118 $ 279,372 $ 66,644
Net loss ....................... $(243,932) (243,932)
Other comprehensive income:
Currency translation
adjustment ............... 1,509
---------
Comprehensive income ........... $(242,423)
---------
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 27, 1998 ... 97,326 974 11,765 118 285,667 (177,288)
Net loss ....................... $ (62,888) (62,888)
Other comprehensive income:
Currency translation adjustment (94)
---------
Comprehensive income ........... $ (62,982)
---------
Conversion of Class B shares
to Class A shares ............ 2,919 29 (2,919) (29)
Celebrity restricted stock
options and awards .......... 700
Employee restricted
stock awards ................
------- --------- ------- ---- --------- ---------
Balance at
June 27, 1999 (unaudited) ... 100,245 $ 1,003 8,846 $ 89 $ 286,367 $(240,176)
======= ========= ======= ===== ========= =========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
DEFERRED COMPREHENSIVE STOCKHOLDERS'
COMPENSATION INCOME EQUITY
------------ ------------- -------------
<S> <C> <C> <C>
Balance at
December 28, 1997 ........... $ (4,125) $ (4,440) $ 338,541
Net loss ....................... (243,932)
Other comprehensive income:
Currency translation
adjustment ............... 1,509 1,509
Comprehensive income ...........
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 27, 1998 ... (225) (2,931) 106,315
--------- ---------- ---------
Net loss ...................... (62,888)
Other comprehensive income:
Currency translation adjustment (94) (94)
Comprehensive income ...........
Conversion of Class B shares
to Class A shares ............
Celebrity restricted stock
options and awards .......... 700
Employee restricted
stock awards ................ 100 100
--------- --------- --------
Balance at
June 27, 1999 (unaudited) ... $ (125) $ (3,025) $ 44,133
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Planet Hollywood International, Inc. have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
The information furnished herein reflects all adjustments (consisting
of only normal recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly state the operating results for the respective
periods. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The notes to the condensed consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements contained in
the Company's Form 10-K for the fiscal year ended December 27, 1998. All amounts
herein, except per share amounts, are in thousands unless otherwise stated.
The results for interim periods are not necessarily indicative of
trends or results to be expected for a full year. Certain prior year amounts in
the accompanying condensed consolidated financial statements have been
reclassified to conform with current year presentation.
2. GOING CONCERN
The Company incurred significant losses in fiscal 1998 and the first
two quarters of fiscal 1999. Additionally, the Company's revolving credit
facility was terminated in December 1998. Further, the Company anticipates 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 continuing declines in same unit
sales and margins. The Company has not paid a $15,000 interest payment required
under its Senior Subordinated Notes agreement, which was due April 1, 1999. The
Company is in default under the terms of the agreement for its failure to make
the interest payment when due. As a result, $250,000 of long-term notes payable
have been reclassified to notes payable-current. In addition, the Company did
not pay its bank credit facility when due and is in default under the terms of
the agreement. During the second quarter 1999, the Company sold its Orlando,
Florida corporate office facilities to a third party for approximately $17,000.
Of the net proceeds from the sale, the Company utilized $16,600 to pay a portion
of the indebtedness under the Company's bank credit facility. While the Company
expects to offset some of its remaining obligations from the proceeds of planned
sales 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
5
<PAGE>
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. 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 the first quarter of 1999, the Company recorded a charge of $4,598
for long lived assets which were impaired. Of that amount, $2,650 was for an
additional impairment of a site under development, which was sold during the
second quarter 1999.
4. ASSET SALES
In May 1999, the Company sold a building and land related to a site
under development (see note 3) for approximately $7,000.
In June 1999, the Company sold its Orlando, Florida corporate office,
land and warehouse facility for approximately $17,000. Immediately following the
sale, the Company entered into a lease arrangement for the facilities with the
purchaser for an annual lease payment of approximately $2,676 through 2014.
Subsequent to June 27, 1999, the Company sold its 20% ownership
interest in the Hotel Pennsylvania for approximately $18,000 and cancelled the
related license agreement. The net book value of the investment at the time of
the sale was approximately $12,000.
5. JOINT VENTURE
At the end of the second quarter 1999, the Company completed the
development of a combination theatre and multi-concept restaurant unit called
Planet Movies, under a joint venture arrangement with AMC Entertainment, Inc.
("AMC"). This unit is consolidated in the Company's June 27, 1999 financial
statements. Approximately $11,000 of unit development costs incurred by the
joint venture have been capitalized as property and equipment and minority
interest of approximately $5,504 has been recorded, representing AMC's ownership
interest.
6. EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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-Q. 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 success of the Company's marketing of certain assets and pursuit of
financing alternatives; 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.
7
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 27, 1999 COMPARED TO THIRTEEN WEEKS ENDED
JUNE 28, 1998.
In summary, the operating results of the Company expressed as a
percentage of total revenues (except where noted) were as follows.
THIRTEEN WEEKS ENDED
----------------------
JUNE 27, JUNE 28,
1999 1998
-------- ---------
REVENUES:
Food & Beverage 72.1% 62.9%
Merchandise 25.0% 27.6%
Royalty and other 2.9% 6.6%
Franchise fees -- % 2.9%
----- -----
100.0% 100.0%
COST AND EXPENSES:
Food and beverage cost of sales (a) 25.6% 23.4%
Merchandise cost of sales (b) 34.3% 33.9%
Subtotal - Cost of sales (c) 27.9% 26.6%
Operating expenses (c) 77.0% 60.9%
General and administrative expenses 16.2% 9.4%
Preopening costs 0.4% 2.4%
Depreciation and amortization 6.4% 5.6%
----- -----
124.7% 96.7%
Income (loss) from operations (24.7)% 3.3%
NON-OPERATING EXPENSE (INCOME):
Interest expense 11.9% 6.6%
Interest income (0.4)% (1.3)%
Equity in (income) losses of
unconsolidated affiliates 0.1% (0.1)%
Other 0.4% -- %
----- -----
12.0% 5.2%
Loss before income taxes (36.7)% (1.9)%
Benefit from income taxes 0.0% 0.7%
----- -----
Net loss (36.7)% (1.2)%
===== =====
- ---------------
(a) As a percentage of food and beverage revenues.
(b) As a percentage of merchandise revenues.
(c) As a percentage of direct revenues.
8
<PAGE>
REVENUES. Total revenues decreased from $105.1 million for the thirteen
weeks ended June 28, 1998 ("second quarter 1998") to $76.6 million for the
thirteen weeks ended June 27, 1999 ("second quarter 1999"), a decrease of $28.5
million or 27%. The decrease in total revenues was primarily attributable to a
decline in same-unit revenues and a decrease in franchise revenues.
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." Direct Revenues
decreased 22% from $95.2 million for second quarter 1998 to $74.4 million for
second quarter 1999. The decrease in Direct Revenues was primarily due to a
$20.6 million (22%) decline in revenues in the units comprising the Company's
same unit base. These decreases were partially offset by a $1.9 million
incremental increase in revenues from units opened subsequent to second quarter
1998. The decline in same unit revenues was primarily due to declines in
customer traffic and a decline in the merchandise sales mix. Overall, restaurant
average spends on a same unit basis decreased 3% from second quarter 1998 to
second quarter 1999, and restaurant covers on a same unit basis decreased 18%.
Merchandise average spends declined 7%, while merchandise transactions decreased
31%. The decline in merchandise spends was primarily due to the impact of
promotional discount programs in second quarter 1999. Merchandise transactions
decreased primarily due to declines in customer traffic. The Company has begun
introducing new merchandise lines in an effort to improve its merchandise sales
and average spends.
There were no franchise fees for second quarter 1999, while franchise
fees were $3.0 million for second quarter 1998. The decrease in franchise fees
was primarily due to the Company recognizing revenue for four franchises in
second quarter 1998 compared to none in second quarter 1999.
COSTS AND EXPENSES. Food and beverage costs increased from 23.4% of
food and beverage revenues in second quarter 1998 to 25.6% in second quarter
1999. The increase was primarily a result of costs associated with the
introduction of a new menu during first and second quarters in 1999 and reduced
menu prices. Merchandise costs increased from 33.9% of merchandise revenues in
second quarter 1998 to 34.3% in second quarter 1999 primarily as a result of
shifts in sales composition. Operating expenses, which consist primarily of
labor, occupancy and other direct unit operating costs, decreased from $57.9
million in second quarter 1998 to $57.2 million in second quarter 1999. As a
percentage of Direct Revenues, these costs increased from 60.9% of Direct
Revenues in second quarter 1998 to 77.0% in second quarter 1999. This percentage
increase was primarily due to the relatively fixed nature of unit operating
costs in relation to lower sales volumes and expenses incurred to update the
look of certain existing PLANET HOLLYWOOD locations.
General and administrative expenses increased from $9.9 million in
second quarter 1998 to $12.4 million in second quarter 1999. The increase was
due primarily to: (i) an increase in professional fees for consultants assisting
the Company with issues arising from its current financial condition, (ii)
increased costs associated with the refurbishment of certain PLANET HOLLYWOOD
units in conjunction with the introduction of a new menu.
9
<PAGE>
PREOPENING COSTS. Preopening costs decreased from $2.6 million in
second quarter 1998 to $0.3 million in second quarter 1999 due to the Company
opening four units in second quarter 1998. One unit was opened on June 30, 1999.
INTEREST EXPENSE. Interest expense increased from $6.9 million in
second quarter 1998 to $9.1 million in second quarter 1999. The interest
primarily results from the Company's $250 million debt offering completed in
March 1998. During the second quarter 1998, interest of approximately $1.2
million was capitalized.
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATES. Equity in
income of unconsolidated affiliates decreased from income of $0.1 million in
second quarter 1998 to a loss of $0.1 million in second quarter 1999. The
decline in equity in income of unconsolidated affiliates was principally caused
by losses incurred by Planet Hollywood (Asia) Pte. Ltd., an entity 50% owned by
the Company, partially offset by earnings reported by ECE, an entity 20% owned
by the Company.
10
<PAGE>
TWENTY-SIX WEEKS ENDED JUNE 27, 1999 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 28,
1998.
In summary, the operating results of the Company expressed as a percentage of
total revenues (except where noted) were as follows:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 27, JUNE 28,
1999 1998
--------- ----------
<S> <C> <C>
REVENUES:
Food & Beverage 73.2% 63.8%
Merchandise 24.1% 28.0%
Royalty and other 2.4% 4.2%
Franchise fees 0.3% 4.0%
------ ------
100.0% 100.0%
COST AND EXPENSES:
Food and beverage cost of sales (a) 25.3% 22.8%
Merchandise cost of sales (b) 35.3% 34.7%
Subtotal - Cost of sales (c) 27.8% 26.4%
Operating expenses (c) 76.6% 60.8%
General and administrative expenses 15.9% 9.1%
Preopening costs 0.2% 2.3%
Depreciation and amortization 6.6% 5.6%
Other changes (d) 5.3% -- %
------ ------
129.6% 97.1%
Income (loss) from operations (29.6)% 2.9%
NON-OPERATING EXPENSE (INCOME):
Interest expense 11.4% 3.6%
Interest income (0.5)% (0.8)%
Equity in (income) losses of
unconsolidated affiliates 0.8% (0.3)%
Other 0.2% -- %
------ ------
11.9% 2.5%
Income (loss) before income taxes
and cumulative effect of
change in accounting principal (41.5)% 0.3%
Provision for income taxes -- % (0.1)%
------ ------
Income (loss) before cumulative
effect of change in
accounting principal (41.5)% 0.2%
Cumulative effect of change in
accounting principal -- % (3.0)%
------ ------
Net loss (41.5)% (2.8)%
====== ======
</TABLE>
- -----------------
(a) As a percentage of food and beverage revenues.
(b) As a percentage of merchandise revenues.
(c) As a percentage of Direct Revenues
(d) Represents a $3.5 million charge for lease termination costs and
$4.6 million of asset impairment charges
11
<PAGE>
REVENUES. Total revenues decreased from $201.6 million for the
twenty-six weeks ended June 28, 1998 to $151.7 million for the twenty-six weeks
ended June 27, 1999, a decrease of $49.9 million or 25%. The decrease in total
revenues was primarily attributable to a decline in same-unit revenues and a
decrease in franchise revenues.
Direct Revenues decreased 20% from $185.1 million for the twenty-six
weeks ended June 28, 1998 to $147.6 million for the twenty-six weeks ended June
27, 1999. The decrease in Direct Revenues was primarily due to a $38 million
(22%) decline in revenues in the units comprising the Company's same unit base.
These decreases were partially offset by a $3.7 million incremental increase in
revenues from units opened subsequent to second quarter 1998. The decline in
same unit revenues was primarily due to declines in customer traffic and a
decline in the merchandise sales mix. Overall, restaurant average spends on a
same unit basis remained constant from the twenty-six weeks ended June 28, 1998
to the twenty-six weeks ended June 27, 1999; however, restaurant covers on a
same unit basis decreased 19%. Merchandise average spends declined 6%, while
merchandise transactions decreased 31%. The decline in merchandise spends was
primarily due to the impact of promotional discount programs in the twenty-six
weeks ended June 27, 1999. Merchandise transactions decreased primarily due to
declines in customer traffic. The Company has begun introducing new merchandise
lines in an effort to improve its merchandise sales and average spends.
Franchise fees were $8.0 million for the twenty-six weeks ended June
28, 1998 compared to $.5 million for the twenty-six weeks ended June 27, 1999.
The decrease in franchi se fees was primarily due to the Company recognizing
revenue for eight franchises in the twenty-six weeks ended June 28, 1998
compared to one franchise in the twenty-six weeks ended June 27, 1999. The
Company anticipates franchise revenues will continue to fluctuate due to the
timing of franchise unit openings.
COSTS AND EXPENSES. Food and beverage costs increased from 22.8% of
food and beverage revenues in the twenty-six weeks ended June 28, 1998 to 25.3%
in the twenty-six weeks ended June 27, 1999. The increase was primarily a result
of costs associated with the introduction of a new menu during fiscal 1999 and
reduced menu prices. Merchandise costs increased from 34.7% of merchandise
revenues in the twenty-six weeks ended June 28, 1998 to 35.3% in the twenty-six
weeks ended June 27, 1999 primarily as a result of shifts in sales composition.
Operating expenses, which consist primarily of labor, occupancy and other direct
unit operating costs, increased from $112.6 million in the twenty-six weeks
ended June 28, 1998 to $113.1 million in the twenty-six weeks ended June 27,
1999. As a percentage of Direct Revenues, these costs increased from 60.8% of
Direct Revenues in the twenty-six weeks ended June 28, 1998 to 76.6% in the
twenty-six weeks ended June 27, 1999. This increase was primarily due to the
relatively fixed nature of unit operating costs in relation to lower sales
volumes and expenses incurred to update the look of certain existing PLANET
HOLLYWOOD locations.
General and administrative expenses increased from $18.3 million in the
twenty-six weeks ended June 28, 1998 to $24.1 million in twenty-six weeks ended
June 27, 1999. The increase was due primarily to: (i) an increase in insurance
costs resulting from unfavorable claims experience and an increase in claims
handling fees, (ii) an increase in professional fees for consultants assisting
the Company with issues arising from its current financial condition, (iii)
increased costs associated with the refurbishment of certain PLANET HOLLYWOOD
units in conjunction with the introduction of a new
12
<PAGE>
menu, and (iv) increases in certain non-cash celebrity related costs.
PREOPENING COSTS. Preopening costs decreased from $4.7 million in the
twenty-six weeks ended June 28, 1998 to $.3 million in the twenty-six weeks
ended June 27, 1999 due to the Company opening five units in the twenty-six
weeks ended June 28, 1998. One unit was opened on June 30, 1999.
RESTRUCTURING CHARGES. In the twenty-six weeks ended June 27, 1999, the
Company recorded a charge of $3.5 million for the estimated costs to terminate a
lease for a unit which will not be opened. Restructuring activity through second
quarter 1999 was as follows:
<TABLE>
<CAPTION>
ACCRUED ACCRUED
DEC. 27 PAID IN EXPENSE JUNE 27,
1998 1999 1999 1999
------- -------- ------- -------
<S> <C> <C> <C> <C>
RESTRUCTURING COSTS:
Employee Severance ........................ $1,495 $1,186 $ -- $ 309
Lease termination costs for units closed or
not to be opened ...................... 3,985 2,211 3,500 5,274
------ ------ ------ ------
Total Restructuring Costs ................. $5,480 $3,397 $3,500 $5,583
====== ====== ====== ======
</TABLE>
IMPAIRMENT OF LONG LIVED ASSETS. In the twenty-six weeks ended June 27,
1999, the Company recorded a charge of $4.6 million to write off costs
associated with sites which have been abandoned and to record an additional
charge for a site under development which was being held for sale.
INTEREST EXPENSE. Interest expense increased from $7.3 million in the
twenty-six weeks ended June 28, 1998 to $17.3 million in the twenty-six weeks
ended June 27, 1999. The increase is due to interest associated with the
Company's $250.0 million debt offering completed in March 1998. During the
twenty-six weeks ended June 28, 1998, interest of approximately $1.2 million was
capitalized as a unit construction cost.
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATES. Equity in
income of unconsolidated affiliates decreased from income of $0.5 million in the
twenty-six weeks ended June 28, 1998 to a loss of $1.2 million in the twenty-six
weeks ended June 27, 1999. The decline in equity in income of unconsolidated
affiliates was principally caused by losses incurred by Planet Hollywood (Asia)
Pte. Ltd., an entity 50% owned by the Company and lower earnings by ECE, an
entity 20% owned by the Company.
PROVISION FOR INCOME TAXES. The provision for income taxes was $0.2
million or 37.5% of pretax income in the twenty-six week period ended June 28,
1998. In the twenty-six weeks ended June 27, 1999, no benefit for losses
incurred was recorded due to uncertainty surrounding the recovery of these
losses.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in the twenty-six weeks ended
June 28, 1998 and the twenty-six weeks ended June 27, 1999 was $21.0 million and
$27.7 million, respectively. In the twenty-six weeks ended June 28, 1998, the
primary use of cash in operating activities was for the reduction of $28.0
million in trade payables. In the twenty-six weeks ended June 27, 1999, losses
from operations were the primary use of cash in operating activities.
Net cash used in investing activities in the twenty-six weeks ended
June 28, 1998 was $40.1 million and net cash provided by investing activities in
the twenty-six week period ended June 27, 1999 was $16.4 million. The decrease
was primarily the result of the Company decreasing construction activity and
receiving proceeds of $20.5 million from the sale of property and equipment in
the twenty-six weeks ended June 27, 1999. Capital expenditures for twenty-six
weeks ended June 28, 1998 and twenty-six weeks ended June 27, 1999 were $39.3
million and $4.3 million, respectively.
In the twenty-six weeks ended June 28, 1998, net cash provided by
financing activities was $176.5 million. For the twenty-six weeks ended June 27,
1999, $12.4 million was used in financing activities. In the twenty-six weeks
ended June 28, 1998, the Company issued $250.0 million of 12% Senior
Subordinated Notes due 2005 with a portion of the net proceeds used to repay
borrowings under the Company's old credit facility. In the twenty-six weeks
ended June 27, 1999 the cash used in financing activities was primarily the
result of the repayment of $17.9 million of notes payable offset by a reduction
of restricted cash of $3.1 million and the issuance of $2.4 million of notes
payable.
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, 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. The Company also expects to incur
some cash expenditures in connection with the disposition of assets. The Company
has not paid a $15.0 million interest payment required under the Senior
Subordinated Notes, which was due on April 1, 1999. The Company is in default
under the terms of the agreement for its failure to make the interest payment
when due. As a result, $250,000 of long-term notes payable have been
reclassified to notes payable-current. In addition, the Company did not pay its
bank credit facility when due and is in default under the terms of the
agreement. During the second quarter 1999, the Company sold its Orlando, Florida
corporate office facilities to a third party for approximately $17 million. Of
the net proceeds from the sale, the Company utilized $16.6 million to pay a
portion of the indebtedness under the Company's bank credit facility. 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.
14
<PAGE>
OTHER
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.
As of June 27, 1999, the Company had substantially completed an
inventory of all information technology equipment and is continuing to address
the Year 2000 readiness of such equipment. The Company completed most of its
domestic reprogramming in fiscal 1998, and substantially completed the testing
of the program modifications in first quarter 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. The system is Year 2000
compliant. Final compliance testing of the enterprise information system is
expected to be completed by October 1999. The Company is in the process of
upgrading the point of sale system for Year 2000 compliance, which is expected
to be completed by November 1999.
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 $0.5 million was incurred through June 27, 1999, with
the remaining $0.5 million expected to be incurred in the remainder of fiscal
1999. The Company's new enterprise information system is estimated to cost $2.5
million, of which $2.1 million was incurred through June 27, 1999. The remaining
$0.4 million is expected to be incurred in the remainder of fiscal 1999. The
point of sale system upgrade is estimated at $0.8 million dollars
As of June 27, 1999, the Company had completed a preliminary review of
non-information technology equipment at five units and did not identify any
significant issues associated with the Year 2000 readiness of this equipment. A
comprehensive review of all non-information technology equipment for all units
is scheduled to be completed by September 1999 at which time any Year 2000
readiness issues will be addressed.
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.
Because third party failures could have a material impact on the Company's
ability to conduct business, the Company has been 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 are being assessed by the Company,
categorized based upon readiness for the Year 2000 issues, and prioritized in
order of
15
<PAGE>
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.
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.
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
contained in the Company's Form 10-K for the fiscal year ended December 27,
1998). 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 the
first two quarters of 1999.
ITEM 3. 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 consolidated financial statements
contained in the Company's Form 10-K for the fiscal year ended December 27,
1998.
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
16
<PAGE>
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.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 27, 1999, in
Orlando, Florida. At this meeting, William H. Baumhauer, Robert Earl and Michael
Tarnopol were re-elected as directors of the Company to serve three-year terms.
The voting was as follows:
Election of directors:
AGAINST OR
WITHHOLD
FOR AUTHORITY
William Baumhauer (1) 73,121,181 11,111,039
Robert Earl 73,121,918 11,110,302
Michael Tarnopol 73,121,681 11,110,539
(1) Mr. Baumhauer resigned as a director and officer of the Company June, 1999
ITEM 5. OTHER INFORMATION
The Company has not made the $15.0 million interest payment due on the
Company's 12% Senior Subordinated Notes on April 1, 1999, and has been in
discussions with certain representatives of the bondholders concerning the
timing of that payment and or restructuring of the debt. Accordingly, the
Company is in default under the terms of this obligation.
During the second quarter 1999, the Company sold its Orlando, Florida
corporate office building to a third party for approximately $17 million. From
the proceeds of the sale, the Company utilized $16.6 million to pay existing
indebtedness under the Company's bank credit facility. The Company is in default
under the terms of the agreement.
On June 25, 1999, the Company announced the resignation of William H.
Baumhauer from the position of President and Chief Operating Officer of the
Company and the resignation of Mr. Baumhauer from the Company's Board of
Directors. In addition to his role as Chief Executive Officer, Robert Earl has
reassumed his position as the Company's President.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
thirteen weeks ended June 27, 1999:
DATE OF REPORT FILING DATE REGARDING
- -------------- ----------- ---------
4/20/99 4/21/99 The announcement of Mr. Isadore Sharp's
resignation from the Company's Board of
Directors.
18
<PAGE>
The Company filed the following Current Reports on Form 8-K subsequent
to the thirteen weeks ended June 27, 1999, relating to items occurring during
the thirteen weeks ended June 27, 1999:
DATE OF REPORT FILING DATE REGARDING
- -------------- ----------- ---------
6/25/99 6/29/99 The announcement of William H. Baumhauer's
resignation as President and Chief Operating
Officer of the Company and from the Company's
Board of Directors.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PLANET HOLLYWOOD INTERNATIONAL, INC.
DATE: August 11, 1999 By: /s/ ROBERT EARL
------------------------------------
Name: Robert Earl
Its: Chairman and Chief Executive
Officer
DATE: August 11, 1999 By: /s/ THOMAS AVALLONE
------------------------------------
Name: Thomas Avallone
Its: Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PLANET HOLLYWOOD
INTERNATIONAL, INC. FOR THE TWENTY-SIX WEEKS ENDED JUNE 27, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1999
<PERIOD-END> JUN-27-1999
<CASH> 21,702
<SECURITIES> 0
<RECEIVABLES> 14,885
<ALLOWANCES> (2,050)
<INVENTORY> 15,329
<CURRENT-ASSETS> 57,913
<PP&E> 326,133
<DEPRECIATION> (61,771)
<TOTAL-ASSETS> 404,656
<CURRENT-LIABILITIES> 327,913
<BONDS> 257,722
0
0
<COMMON> 1,092
<OTHER-SE> 43,041
<TOTAL-LIABILITY-AND-EQUITY> 404,656
<SALES> 147,557
<TOTAL-REVENUES> 151,674
<CGS> 40,960
<TOTAL-COSTS> 196,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,254
<INCOME-PRETAX> (62,888)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,888)
<EPS-BASIC> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
