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 SEPTEMBER 26, 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 October 31, 1999, there were approximately 100,245,000 shares of
the registrant's Class A voting Common Stock outstanding and approximately
8,846,000 shares of the registrant's Class B non-voting Common Stock
outstanding.
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PLANET HOLLYWOOD INTERNATIONAL, INC.
INDEX
Part I FINANCIAL INFORMATION
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 26, 1999
and December 27, 1998....................................................1
Condensed Consolidated Statements of Operations - Thirteen
Weeks and Thirty-nine Weeks ended September 26, 1999 and
September 27, 1998.......................................................2
Condensed Consolidated Statements of Cash Flows - Thirty-
Nine Weeks ended September 26, 1999 and September 27, 1998...............3
Condensed Consolidated Statements of Changes in Stockholders'
Equity (deficit) - Thirty-nine Weeks ended September 26,
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...............................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk................17
Part II OTHER INFORMATION
Item 5. Other Information.........................................................19
Item 6. Exhibits and Reports on Form 8-K..........................................19
SIGNATURES..................................................................................21
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PART I - FINANCIAL INFORMATION
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
STATED IN THOUSANDS OF U.S. DOLLARS
SEPTEMBER 26, DECEMBER 27,
1999 1998
(UNAUDITED)
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 24,046 $ 45,426
Accounts receivable, net ....................... 14,366 16,740
Taxes receivable ............................... -- 12,308
Inventories .................................... 17,180 19,186
Prepaid expenses and other assets .............. 7,304 6,271
--------- ---------
Total current assets ...................... 62,896 99,931
Restricted cash and cash equivalents ............... 7,355 16,265
Property and equipment, net ........................ 191,052 281,115
Goodwill, net ...................................... 13,632 27,057
Other assets, net .................................. 10,691 16,417
Investment in affiliated entities .................. 18,096 31,842
--------- ---------
Total assets .............................. $ 303,722 $ 472,627
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities ....... $ 74,104 $ 64,783
Notes payable - current ........................ 251,129 25,326
--------- ---------
Total current liabilities ................. 325,233 90,109
Deferred rentals ................................... 6,653 11,618
Notes payable ...................................... 4,324 254,420
Capital lease obligation ........................... 3,831 3,815
Deferred credits ................................... 9,838 6,350
--------- ---------
Total liabilities ......................... 349,879 366,312
Minority interest .................................. 4,471 --
Stockholders' equity (deficit):
Common stock - Class A ......................... 1,003 974
Common stock - Class B ......................... 89 118
Capital in excess of par value ................. 286,355 285,667
Deferred compensation .......................... (69) (225)
Accumulated deficit ............................ (336,204) (177,288)
Accumulated translation adjustment ............. (1,802) (2,931)
--------- ---------
Total stockholders' equity (deficit) ............... (50,628) 106,315
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 303,722 $ 472,627
========= =========
The accompanying notes are an integral part of these financial statements.
1
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PLANET HOLLYWOOD INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------- -----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ................................ $ 80,441 $ 110,261 $ 232,116 $ 311,905
Cost and expenses:
Cost of sales ....................... 22,634 29,284 63,595 78,241
Operating expenses .................. 56,731 62,123 169,799 174,769
General and administrative expenses . 9,315 17,181 33,490 35,481
Preopening costs .................... 1,320 5,879 1,623 10,554
Depreciation and amortization ....... 5,528 6,216 15,511 17,413
Restructuring charges ............... 1,028 -- 4,528 --
Impairment of long lived assets ..... 75,199 -- 79,797 --
--------- --------- --------- ---------
171,755 120,683 368,343 316,458
Loss from operations .................... (91,314) (10,422) (136,227) (4,553)
Non-operating expense (income):
Interest expense .................... 8,245 7,157 25,499 14,461
Interest income ..................... (207) (2,008) (981) (3,569)
Equity in loss of unconsolidated
affiliates ....................... 1,093 581 2,248 76
Net gain on sale of assets .......... (3,672) -- (3,672) --
Other ............................... (745) -- (405) --
--------- --------- --------- ---------
Loss before income taxes and
cumulative effect ................... (96,028) (16,152) (158,916) (15,521)
Benefit from income taxes ............... -- (6,057) -- (5,819)
--------- --------- --------- ---------
Loss before cumulative effect of
change in accounting principle ...... (96,028) (10,095) (158,916) (9,702)
Cumulative effect of change in accounting
principle ........................... -- -- -- 5,984
--------- --------- --------- ---------
Net loss ................................ $ (96,028) $ (10,095) $(158,916) $ (15,686)
========= ========= ========= =========
Loss per share:
BASIC
Loss before cumulative effect of
change in accounting principle ...... $ (0.88) $ (0.09) $ (1.46) $ (0.09)
Cumulative effect of change in accounting
principle ........................... -- -- -- (0.05)
========= ========= ========= =========
Net loss ................................ $ (0.88) $ (0.09) $ (1.46) $ (0.14)
========= ========= ========= =========
DILUTED
Loss before cumulative effect of
change in accounting principle ...... $ (0.88) $ (0.09) $ (1.46) $ (0.09)
Cumulative effect of change in accounting
principle ........................... -- -- -- (0.05)
========= ========= ========= =========
Net Loss ................................ $ (0.88) $ (0.09) $ (1.46) $ (0.14)
========= ========= ========= =========
BASIC Weighted Average Shares ........... 109,091 109,090 109,091 109,067
========= ========= ========= =========
DILUTED Weighted Average Shares ......... 109,091 109,113 109,091 109,562
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
2
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PLANET HOLLYWOOD INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS
THIRTY-NINE WEEKS ENDED
---------------------------
SEPTEMBER 26, SEPTEMBER 27,
1999 1998
----------- ------------
NET CASH USED IN OPERATING ACTIVITIES .............. $ (39,539) $ (3,550)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment ............ (4,118) (58,723)
Proceeds from sales of property and equipment .. 24,289 --
Purchase of restaurant from franchisee ......... -- (2,635)
Sale of joint venture interests ................ 17,385 --
Investment in affiliate ........................ -- (2,487)
Other .......................................... -- 1,286
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 37,556 (62,559)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable ........ -- 250,000
Change in restricted cash ...................... 4,904 --
Exercise of stock options ...................... -- 61
Deferred financing costs ....................... -- (10,751)
Repayment of notes payable ..................... (24,277) (62,858)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (19,373) 176,452
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH ................... (24) 211
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (21,380) 110,554
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 45,426 9,089
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 24,046 $ 119,643
========= =========
The accompanying notes are an integral part of these condensed
financial statements.
3
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PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
STATED IN THOUSANDS OF U.S. DOLLARS
COMMON COMMON
STOCK STOCK CAPITAL IN
CLASS A CLASS B EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
December 28, 1997 ....... 97,128 $ 972 11,765 $ 118 $ 279,372
Net loss ...................
Other comprehensive income:
Currency translation
adjustment ............
Comprehensive income .......
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
Net loss ...................
Other comprehensive income:
Currency translation
adjustment ..............
Comprehensive income .......
Conversion of Class B shares
to Class A shares ....... 2,919 29 (2,919) (29)
Celebrity restricted stock
options and awards ...... 688
Employee restricted
stock awards ............
--------- --------- --------- --------- ---------
Balance at
September 26, 1999
(unaudited) ............. 100,245 $ 1,003 8,846 $ 89 $ 286,355
========= ========= ========= ========= =========
ACCUMULATED TOTAL
COMPREHENSIVE RETAINED DEFERRED TRANSLATION STOCKHOLDERS'
INCOME EARNINGS COMPENSATION ADJUSTMENT EQUITY (DEFICIT)
------------- --------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at
December 28, 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 income ....... $(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 27, 1998 ....... (177,288) (225) (2,931) 106,315
Net loss ................... $(158,916) (158,916) (158,916)
Other comprehensive income:
Currency translation
adjustment .............. 1,129 1,129 1,129
---------
Comprehensive income ....... $(157,787)
---------
Conversion of Class B shares
to Class A shares .......
Celebrity restricted stock
options and awards ...... 688
Employee restricted
stock awards ............ 156 156
--------- --------- --------- ---------
Balance at
September 26, 1999
(unaudited) ............. $(336,204) $ (69) $ (1,802) $ (50,628)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PROPOSED REORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Planet Hollywood International, Inc. (the "Company") 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.
Subsequent to the end of the quarter, on October 12, 1999 (the
"Petition Date"), the Company and twenty-five of its operating subsidiaries (the
"Debtors") filed voluntary petitions commencing cases under Chapter 11 of the
United States Bankruptcy Code with the United States Bankruptcy Court for the
District of Delaware. An Official Committee of Unsecured Creditors (the
"Committee"), which represents the interests of all unsecured creditors of the
Debtors, has been appointed in the Chapter 11 cases. In a Chapter 11 filing,
substantially all liabilities as of the Petition Date are subject to compromise
or other treatment under a plan of reorganization. Generally, actions to enforce
or otherwise effect payment of all pre-chapter 11 liabilities are stayed while
the Company and its subsidiaries continue their business operations as
debtors-in-possession.
On November 8, 1999, the Debtors filed their Chapter 11 Plan of
Reorganization (the "Plan") and Disclosure Statement with the court. Prior to
the Petition Date, the Company had negotiated an agreement in principle with an
unofficial committee representing over two-thirds in amount of the holders of
its $250,000 12% senior subordinated notes payable. The terms of that agreement
have been included as an integral part of the Plan. The agreement provides for
the satisfaction of the Company's $250,000 12% senior subordinated notes payable
plus accrued interest of $32,000 through the issuance of a combination of
$47,500 in cash, $60,000 of new secured PIK notes payable, and shares of new
common stock equivalent to a 26.5% ownership of the reorganized company. An
investor group would invest $30,000 to purchase a 70% ownership of the
reorganized company and would assist in obtaining up to $25,000 in bridge
facility financing (the "New Senior Secured Notes"), which would be secured by
substantially all Company assets. It is intended that the remaining 3.5%
ownership interest in the reorganized company will be reserved for the holders
of the New Senior Secured Notes. The liens of the new secured PIK notes would be
subordinate to the New Senior
5
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Secured Notes and up to $15,000 of any new working capital facilities.
The Plan also calls for the cancellation of existing class A and B
common stock in exchange for 200,000 warrants in the reorganized Company. Each
warrant entitles the holder to purchase common stock in the reorganized Company
at $65.50 exercisable within three years.
The Plan also requires the Company to implement a new business plan,
which calls for a reduction in the number of operating locations worldwide, the
sale or other disposition of secondary business ventures, a renewed
concentration on management, and improvement of the core Planet Hollywood
concepts. The Company has also effected a number of lease terminations and
settlement agreements for the resolution of lease termination claims, or the
restructuring or other disposition of lease obligations. The Plan and Disclosure
Statement have been negotiated with and approved by the Committee, which
consists of a number of the members of the former unofficial noteholders'
committee. All provisions of the Plan are subject to court approval.
The accompanying financial statements have been prepared in conformity
with principles of accounting applicable to a going concern, which contemplate
the realization of assets and the satisfaction of liabilities in the normal
course of business. As a result of the Company's chapter 11 filing and
circumstances relating to this event, such realization of assets and
satisfaction of liabilities is subject to uncertainty. The Plan could materially
change the amounts reported in the accompanying financial statements, which do
not give effect to adjustments to the carrying values of assets and liabilities,
which may be necessary as a consequence of the Plan. The Company's ability to
continue as a going concern is contingent upon, among other things, the
confirmation of the Plan by the Bankruptcy Court, the Company's ability to
achieve satisfactory levels of profitability and cash flow from operations,
maintaining compliance with post-petition loan agreements and the ability to
obtain sufficient financing sources to meet future obligations.
2. IMPAIRMENT OF LONG LIVED ASSETS AND RESTRUCTURING CHARGES
In partial execution of the Plan, the Company closed nine Company owned
domestic Planet Hollywood locations on October 11, 1999. On October 11, 1999,
the Company also closed a Cool Planet unit and an Official All Star Cafe unit.
During the week of October 4th to October 10th, 1999, the Company franchised to
certain third parties, three Company owned Planet Hollywood units and closed
one unit in Canada. In the third quarter 1999, the Company recorded a $75,199
impairment of long lived asset expense representing the value of assets
abandoned or impaired as a result of the closing and franchising of units
described above and certain similar unit transactions planned for future
periods.
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. In addition, the Company recorded costs relating to
lease terminations and related costs during the third quarter.
3. ASSET SALES
6
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In May 1999, the Company sold a building and land related to a site
under development (see note 2) 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.
In August 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.
In August 1999, the Company sold its investment in the New York Sound
Republic project located at 1501 Broadway, New York. The loss on the sale was
approximately $2,100. The net book value of the investment at the time of the
sale was approximately $7,900.
4. 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 September 26, 1999 financial
statements. Approximately $9,500 of unit costs incurred by the joint venture
have been capitalized as property and equipment. Minority interest in the loss
was $1,033 for the third quarter, which is included in other income.
5. 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.
7
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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
confirmation of the Plan by the Bankruptcy Court; the Company's ability to
achieve satisfactory levels of profitability and cash flow from operations;
maintaining compliance with post-petition loan agreements and the ability to
obtain sufficient financing sources to meet future obligations; 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.
8
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RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 26, 1999 COMPARED TO THIRTEEN WEEKS
ENDED SEPTEMBER 27, 1998.
In summary, certain operating results of the Company expressed as a
percentage of total revenues (except where noted) were as follows.
THIRTEEN WEEKS ENDED
------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1999 1998
------------ ------------
REVENUES:
Food & Beverage 71.7% 66.3%
Merchandise 24.0% 29.3%
Royalty and other 4.3% 1.1%
Franchise fees -- % 3.3%
------ ------
100.0% 100.0%
CERTAIN COSTS AND EXPENSES:
Food and beverage cost of sales (a) 26.0% 24.3%
Merchandise cost of sales (b) 33.4% 35.7%
Total cost of sales (c) 28.6% 27.8%
Operating expenses (c) 71.7% 58.9%
- - --------------
(a) As a percentage of food and beverage revenues.
(b) As a percentage of merchandise revenues.
(c) As a percentage of direct revenues.
9
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REVENUES. Total revenues decreased from $110.3 million for the thirteen
weeks ended September 27, 1998 ("third quarter 1998") to $80.4 million for the
thirteen weeks ended September 26, 1999 ("third quarter 1999"), a decrease of
$29.9 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 25% from $105.4 million for third quarter 1998 to $79.1 million for
third quarter 1999. The decrease in Direct Revenues was primarily due to a $29.4
million decline in revenues in the units comprising the Company's same unit
base. The decline in same unit revenues was primarily due to declines in
customer traffic and a decline in the merchandise sales mix.
There were no franchise fees for third quarter 1999, while franchise
fees were $3.6 million for third quarter 1998. The decrease in franchise fees
was primarily due to the Company recognizing revenue for four franchises in
third quarter 1998 compared to none in third quarter 1999.
COSTS AND EXPENSES. Food and beverage costs increased from 24.3% of
food and beverage revenues in third quarter 1998 to 26.0% in third quarter 1999.
The increase was primarily a result of costs associated with the introduction of
a new menu during 1999 and reduced menu prices. Merchandise costs decreased from
35.7% of merchandise revenues in third quarter 1998 to 33.4% in third 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 $62.1 million in third quarter 1998 to $56.7 million in
third quarter 1999. As a percentage of Direct Revenues, these costs increased
from 58.9% of Direct Revenues in third quarter 1998 to 71.7% in third quarter
1999. This percentage increase was primarily due to the relatively fixed nature
of unit operating costs in relation to lower sales volumes.
General and administrative expenses decreased from $17.1 million in
third quarter 1998 to $9.3 million in third quarter 1999. The decrease was due
primarily to the restructuring and downsizing of the Company's corporate staff
and facilities during 1999.
PREOPENING COSTS. Preopening costs decreased from $5.9 million in third
quarter 1998 to $1.3 million in third quarter 1999 due to the Company opening
three units in third quarter 1998. One unit was opened in third quarter 1999.
RESTRUCTURING CHARGES. In the thirteen weeks ended September 26, 1999,
the Company recorded a charge of $1 million related to the estimated costs to
terminate leases for units closed during the fourth quarter 1999 and
professional fees incurred related to restructuring activities.
IMPAIRMENT OF LONG LIVED ASSETS. In the thirteen weeks ended September
26, 1999, the Company recorded a charge of $75.2 million to write off costs
associated with units which have been, or will be, abandoned as part of the
Company's plan of reorganization (see Note 1 to the Condensed Consolidated
Financial Statements).
INTEREST EXPENSE. Interest expense increased from $7.2 million in third
quarter 1998 to $8.2 million in third quarter 1999. The interest primarily
results from the Company's $250 million debt
10
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offering completed in March 1998.
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES. Equity in loss of
unconsolidated affiliates increased from $0.6 million in third quarter 1998 to
$1.1 million in third quarter 1999. The decline in equity in loss of
unconsolidated affiliates was principally caused by losses incurred by Planet
Hollywood (Asia) Pte. Ltd., an entity 50% owned by the Company.
NET GAIN ON SALE OF ASSETS. In the thirteen weeks ended September 26,
1999, the Company recorded a net gain on the sale of assets of $3.7 million
comprised of a gain of approximately $5.8 million related to the Company's sale
of its 20% ownership interest in the Hotel Pennsylvania offset by a loss on the
sale of the Company's New York Sound Republic project.
PROVISION FOR INCOME TAXES. The benefit for income taxes was $6.1
million or 37.5% of pretax income in the thirteen week period ended September
27, 1998. In the thirteen weeks ended September 26, 1999, no benefit for losses
incurred was recorded due to uncertainty surrounding the recovery of these
losses.
11
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THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1999 COMPARED TO THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 1998.
In summary, certain operating results of the Company expressed as a percentage
of total revenues (except where noted) were as follows:
THIRTY-NINE WEEKS ENDED
------------------------------
SEPTEMBER 26, SEPTEMBER 27
1999 1998
------------- -------------
REVENUES:
Food & Beverage 72.4% 65.1%
Merchandise 24.1% 28.1%
Royalty and other 3.3% 3.1%
Franchise fees 0.2% 3.7%
------- -------
100.0% 100.0%
COSTS AND EXPENSES:
Food and beverage cost of sales (a) 25.6% 23.2%
Merchandise cost of sales (b) 34.8% 35.5%
Total cost of sales (c) 28.2% 26.9%
Operating expenses (c) 74.5% 60.2%
- - ----------------
(a) As a percentage of food and beverage revenues.
(b) As a percentage of merchandise revenues.
(c) As a percentage of Direct Revenues
12
<PAGE>
REVENUES. Total revenues decreased from $311.9 million for the
thirty-nine weeks ended September 27, 1998 to $232.1 million for the thirty-nine
weeks ended September 26, 1999, a decrease of $79.8 million or 26%. The decrease
in total revenues was primarily attributable to a decline in same-unit revenues
and a decrease in franchise revenues.
Direct Revenues decreased 22% from $290.5 million for the thirty-nine
weeks ended September 27, 1998 to $226.2 million for the thirty-nine weeks ended
September 26, 1999. The decrease in Direct Revenues was primarily due to a $65.4
million decline in revenues in the units comprising the Company's same unit
base. The decline in same unit revenues was primarily due to declines in
customer traffic and a decline in the merchandise sales mix.
Franchise fees were $11.6 million for the thirty-nine weeks ended
September 27, 1998 compared to $0.5 million for the thirty-nine weeks ended
September 26, 1999. The decrease in franchise fees was primarily due to the
Company recognizing revenue for eleven franchises in the thirty-nine weeks ended
September 27, 1998 compared to one franchise in the thirty-nine weeks ended
September 26, 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 23.2% of
food and beverage revenues in the thirty-nine weeks ended September 27, 1998 to
25.6% in the thirty-nine weeks ended September 26, 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 decreased from
35.5% of merchandise revenues in the thirty-nine weeks ended September 27, 1998
to 34.8% in the thirty-nine weeks ended September 26, 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 $174.8
million in the thirty-nine weeks ended September 27, 1998 to $169.8 million in
the thirty-nine weeks ended September 26, 1999. As a percentage of Direct
Revenues, these costs increased from 60.2% of Direct Revenues in the thirty-nine
weeks ended September 27, 1998 to 74.5% in the thirty-nine weeks ended September
26, 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 decreased from $35.5 million in the
thirty-nine weeks ended September 27, 1998 to $33.5 million in thirty-nine weeks
ended September 26, 1999. The decrease was due primarily to the restructuring
and downsizing of the Company's corporate staff and facilities during 1999.
PREOPENING COSTS. Preopening costs decreased from $10.6 million in the
thirty-nine weeks ended September 27, 1998 to $1.6 million in the thirty-nine
weeks ended September 26, 1999 due to the Company opening eight units in the
thirty-nine weeks ended September 27, 1998. One unit was opened in the
thirty-nine weeks ended September 26, 1999.
RESTRUCTURING CHARGES. In the thirty-nine weeks ended September 26,
1999, the Company recorded a charge of $4.5 million related to the estimated
costs to terminate leases for units closed during the fourth quarter 1999 and
professional fees incurred related to restructuring activities.
IMPAIRMENT OF LONG LIVED ASSETS. In the thirty-nine weeks ended
September 26, 1999, the
13
<PAGE>
Company recorded a charge of $79.8 million consisting primarily of write off
costs associated with units which have been, or will be, abandoned as part of
the Company's plan of reorganization (see Note 1 to the Condensed Consolidated
Financial Statements).
INTEREST EXPENSE. Interest expense increased from $14.5 million in the
thirty-nine weeks ended September 27, 1998 to $25.5 million in the thirty-nine
weeks ended September 26, 1999. The increase is due to interest associated with
the Company's $250.0 million debt offering completed in March 1998.
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES. Equity in loss of
unconsolidated affiliates increased from a loss of $0.01 million in the
thirty-nine weeks ended September 27, 1998 to a loss of $2.3 million in the
thirty-nine weeks ended September 26, 1999. The decline in equity in loss of
unconsolidated affiliates was principally caused by losses incurred by Planet
Hollywood (Asia) Pte. Ltd., an entity 50% owned by the Company.
NET GAIN ON SALE OF ASSETS. In the thirty-nine weeks ended September
26, 1999, the Company recorded a net gain on the sale of assets of $3.7 million
comprised of a gain of approximately $5.8 million related to the Company's sale
of its 20% ownership interest in the Hotel Pennsylvania offset by a loss on the
sale of the Company's New York Sound Republic Project.
PROVISION FOR INCOME TAXES. The benefit for income taxes was $5.8
million or 37.4% of pretax income in the thirty-nine week period ended September
27, 1998. In the thirty-nine weeks ended September 26, 1999, no benefit for
losses incurred was recorded due to uncertainty surrounding the recovery of
these losses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in the thirty-nine weeks ended
September 27, 1998 and the thirty-nine weeks ended September 26, 1999 was $3.6
million and $39.5 million, respectively. In the thirty-nine weeks ended
September 27, 1998, the primary use of cash in operating activities was for the
reduction of $28.0 million in trade payables. In the thirty-nine weeks ended
September 26, 1999, losses from operations were the primary use of cash in
operating activities.
Net cash used in investing activities in the thirty-nine weeks ended
September 27, 1998 was $62.6 million and net cash provided by investing
activities in the thirty-nine week period ended September 26, 1999 was $37.5
million. The change was primarily the result of the Company decreasing
construction activity and receiving proceeds of $24.3 million from the sale of
property and equipment and $17.4 million from the sale of joint venture
interests in the thirty-nine weeks ended September 26, 1999. Capital
expenditures for thirty-nine weeks ended September 27, 1998 and thirty-nine
weeks ended September 26, 1999 were $58.7 million and $4.1 million,
respectively.
In the thirty-nine weeks ended September 27, 1998, net cash provided by
financing activities was $176.5 million. For the thirty-nine weeks ended
September 26, 1999, $19.3 million was used in financing activities. In the
thirty-nine weeks ended September 27, 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 thirty-nine
weeks ended September 26, 1999 the cash used in financing activities was
primarily the result of the repayment of
14
<PAGE>
$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.
OTHER
BANKRUPTCY. Subsequent to the end of the quarter, on October 12, 1999
(the "Petition Date"), the Company and twenty-five of its operating subsidiaries
(the "Debtors") filed voluntary petitions commencing cases under Chapter 11 of
the United States Bankruptcy Code with the United States Bankruptcy Court for
the District of Delaware. An Official Committee of Unsecured Creditors (the
"Committee"), which represents the interests of all unsecured creditors of the
Debtors, has been appointed in the Chapter 11 cases. In a Chapter 11 filing,
substantially all liabilities as of the Petition Date are subject to compromise
or other treatment under a plan of reorganization. Generally, actions to enforce
or otherwise effect payment of all pre-chapter 11 liabilities are stayed while
the Company and its subsidiaries continue their business operations as
debtors-in-possession.
On November 8, 1999, the Debtors filed their Chapter 11 Plan of
Reorganization (the "Plan") and Disclosure Statement with the court. Prior to
the Petition Date, the Company had negotiated an agreement in principle with an
unofficial committee representing over two-thirds in amount of the holders of
its $250,000 12% senior subordinated notes payable. The terms of that agreement
have been included as an integral part of the Plan. The agreement provides for
the satisfaction of the Company's $250,000 12% senior subordinated notes payable
plus accrued interest of $32,000 through the issuance of a combination of
$47,500 in cash, $60,000 of new secured PIK notes payable, and shares of new
common stock equivalent to a 26.5% ownership of the reorganized company. An
investor group would invest $30,000 to purchase a 70% ownership of the
reorganized company and would assist in obtaining up to $25,000 in bridge
facility financing (the "New Senior Secured Notes"), which would be secured by
substantially all Company assets. It is intended that the remaining 3.5%
ownership interest in the reorganized company will be reserved for the holders
of the New Senior Secured Notes. The liens of the new secured PIK notes would be
subordinate to the New Senior Secured Notes and up to $15,000 of any new working
capital facilities.
The Plan also calls for the cancellation of existing class A and B
common stock in exchange for 200,000 warrants in the reorganized Company. Each
warrant entitles the holder to purchase common stock in the reorganized Company
at $65.50 exercisable within three years.
The Plan also requires the Company to implement a new business plan,
which calls for a reduction in the number of operating locations worldwide, the
sale or other disposition of secondary business ventures, a renewed
concentration on management, and improvement of the core Planet Hollywood
concepts. The Company has also effected a number of lease terminations and
settlement agreements for the resolution of lease termination claims, or the
restructuring or other disposition of lease obligations. The Plan and Disclosure
Statement have been negotiated with and approved by the Committee, which
consists of a number of the members of the former unofficial noteholders'
committee. The Company expects to emerge from the Chapter 11 filing early in
fiscal 2000. The Company believes that cash flows are adequate to carry the
Company through the emergence from the filing, at which time, the financial
obligations of the Company will have been restructured according to the Plan.
The bar date on claims is expected to be December 13, 1999. All provisions of
the plan are subject to court approval.
15
<PAGE>
In partial execution of the Plan, the Company closed nine Company owned
domestic Planet Hollywood locations on October 11, 1999. On October 11, 1999,
the Company also closed a Cool Planet unit and an Official All Star Cafe unit.
During the week of October 4th to October 10th, 1999, the Company franchised to
certain third parties, three Company-owned Planet Hollywood units and closed
one unit in Canada. In the third quarter 1999, the Company recorded a $75,199
impairment of long lived asset expense representing the value of assets
abandoned or impaired as a result of the closing and franchising of units
described above and certain similar unit transactions planned for future
periods.
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 September 26, 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 was
completed in October 1999. The testing revealed no significant findings. The
Company is in the process of upgrading the point of sale system for Year 2000
compliance, which is expected to be completed by December 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 $.4 million was incurred through September 26, 1999,
with the remaining $.6 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 $2.2 million was incurred through September 26,
1999. The remaining $0.3 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 September 26, 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 December 1999.
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.
16
<PAGE>
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 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 three 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
17
<PAGE>
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 and the proposed plan of reorganization discussion
contains forward-looking statements. Actual results may differ materially from
this discussion based upon general market conditions, changes in domestic and
global financial markets and actions of the Bankruptcy Court.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In connection with the financial restructuring announced during third
quarter 1999, the following events took place subsequent to third quarter 1999:
* During the week of October 4th to October 10th, 1999, the Company
franchised to certain third parties, three Company-owned Planet Hollywood units,
and closed one unit, in Canada.
* On October 11, 1999, the Company closed nine Company owned domestic
Planet Hollywood locations. On October 11, 1999, the Company also closed a Cool
Planet unit and an Official All Star Cafe unit.
* On October 12, 1999, the Company and twenty-five of its operating
subsidiaries filed voluntary petitions commencing cases under Chapter 11 of the
United States Bankruptcy Code with the United States Bankruptcy Court for the
District of Delaware. The cases are being jointly administered under the case
name IN RE: PLANET HOLLYWOOD INTERNATIONAL, INC., et. al., Case No. 99-3612
(JJF). A copy of the voluntary petition for Planet Hollywood International, Inc.
is filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on
October 19, 1999. The Honorable Joseph J. Farnan, Jr., United States District
Judge, will preside over the cases.
* On November 8, 1999, the Company filed its Chapter 11 Plan of
Reorganization and Disclosure Statement with the United States Bankruptcy Court.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
19
<PAGE>
<TABLE>
<CAPTION>
The Company filed the following Current Reports on Form 8-K during the
thirteen weeks ended September 26, 1999:
DATE OF FILING
REPORT DATE REGARDING (see actual filing for complete description)
------------- ----------- ----------
<S> <C> <C>
6/25/99 6/29/99 Announcement of Mr. William H. Baumhauer's resignation as President and
Chief Operating Officer of the Company and from the Company's Board of
Directors.
8/5/99 8/12/99 Announcement of the Company's sale of its 20% equity interest in the joint
venture which was formed to develop the Official All Star Hotel in New York City.
8/17/99 8/18/99 Announcement that (i) the Company had entered into an agreement in
principle with a subcommittee representing holders of its Senior
Subordinated Notes due 2005 (the Notes) and with an investor group
organized by Robert Earl, the Company's founder and Chief Executive
Officer, to restructure the Company's financial position, (ii) the proposed
agreement was conditioned upon acceptance by holders of not less than $160
million of the Notes and (iii) that the restructuring would be effected
through a voluntary pre-negotiated or pre-packaged chapter 11 bankruptcy
filing. The Report also disclosed that prior to the Company's announcement
of the proposed agreement, trading in the Company's common stock was halted by the
New York Stock Exchange.
8/17/99 8/23/99 Additional description of terms of Noteholder agreement in principle,
including, (i) that the Company's $250 million Senior Subordinated Notes
due 2005 (the Notes) would be satisfied by issuing a combination of $47.5
million cash, $60 million of new Secured Payment-In-Kind Notes, and new
common stock, which would give holders of the Notes a 26.5% equity stake in
the reorganized Company and (ii) that the investor group organized by Mr.
Earl would invest $30 million to purchase a 70% equity stake in the
reorganized Company and will assist in obtaining a minimum $40 million
bridge facility, which will be secured by substantially all of the
Company's assets and will receive 3.5% of the new common stock. The Report
also disclosed that on August 18, 1999, the New York Stock Exchange issued
a press release stating that it would apply to the list the Company's common
stock.
8/24/99 8/24/99 Announcement that the Company had received notice of approval by holders of
at least $160 million in principal of itsSenior Subordinated Notes due 2005 of the
agreement in principle recently submittedto its Noteholders.
</TABLE>
20
<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: November 10, 1999 By: /s/ ROBERT EARL
---------------------------------------
Name: Robert Earl
Its: Chairman and Chief Executive Officer
DATE: November 10, 1999 By: /s/ THOMAS AVALLONE
---------------------------------------
Name: Thomas Avallone
Its: Chief Financial Officer
21
<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 THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1999
<PERIOD-END> SEP-26-1999
<CASH> 24,046
<SECURITIES> 0
<RECEIVABLES> 16,330
<ALLOWANCES> (1,964)
<INVENTORY> 17,180
<CURRENT-ASSETS> 62,896
<PP&E> 239,324
<DEPRECIATION> (61,771)
<TOTAL-ASSETS> 303,722
<CURRENT-LIABILITIES> 325,233
<BONDS> 251,129
0
0
<COMMON> 1,092
<OTHER-SE> (51,720)
<TOTAL-LIABILITY-AND-EQUITY> 303,722
<SALES> 226,286
<TOTAL-REVENUES> 232,116
<CGS> 63,595
<TOTAL-COSTS> 368,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,499
<INCOME-PRETAX> (158,916)
<INCOME-TAX> 0
<INCOME-CONTINUING> (158,916)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (158,916)
<EPS-BASIC> (1.46)
<EPS-DILUTED> (1.46)
</TABLE>
