UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
TO
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________________
Commission File Number 00028230
PLANET HOLLYWOOD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-3283783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8669 Commodity Circle
Orlando, Florida 32819
(Address of principal executive office, including zip code)
(407) 363-7827
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
None
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter) period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 28, 1999, there were approximately 97,221,632 shares of the
registrant's Class A voting common stock and 11,764,144 shares of the
registrant's Class B non-voting common stock outstanding.
The approximate aggregate market value of the registrant's Class A voting common
stock held by non-affiliates of the registrant, as of the close of business on
February 28, 1999, based on the closing price of $2.375 per share as reported on
the New York Stock Exchange on Friday, February 26, 1999 was $79,848,004. The
approximate aggregate market value of the registrant's non-voting common stock
held by non-affiliates of the registrant, based on the assumption that such
stock on a per share basis should be valued at 80% of the value per share of the
registrant's voting common stock, as of the close of business on February 28,
1999 was $19,059,525. Such assumption is based in part on the convertibility
restrictions imposed upon, and the lack of public trading in, the registrant's
Class B non-voting common stock.
The Registrant's Definitive Proxy Statement to be filed in connection with the
registrant's annual stockholders meeting to be held on May 27, 1999, is
incorporated by reference into Part III hereof.
EXPLANATORY STATEMENT
This Amendment No. 1 to the Annual Report on Form 10-K for Planet Hollywood
International, Inc. (the "Company") for the fiscal year ended December 27, 1998
is being filed to amend (1) Item - 8 Financial Statements and Supplementary Data
- - in order to correct certain typographical errors and (2) Item 14 - Exhibits,
Financial Schedules, and Reports on Form 8-K - by including an updated consent
of the Company's independent accountants.
Specifically, the changes to the Company's Annual Report on Form 10-K filed
on March 29, 1999 reflected in this Amendment No. 1 are as follows:
<TABLE>
<CAPTION>
Page
No. Document Change
- ---- ---------------------- ------
<S> <C> <C>
33 Consolidated Statement of Cash Flows Cash Flows From Investing Activities - Other
Fiscal 1998 figure changed from (1,253) to (1,240)
Cash Flows From Investing Activities - Net cash used in
investing activities Fiscal 1998 figure changed from
(110,105) to (110,079)
43 Note 6 to the Consolidated Financial Statements Tables regarding Balance Sheet Data and Operating Data
Several 1998 figures changed
48 Note 9 to the Consolidated Financial Statements A typographical error was corrected
61 Exhibit list Added Exhibit 23.2(13) Consent of
PricewaterhouseCoopers LLP
62 Footnotes to Exhibit list Revised footnotes to reflect filing of updated
accountants consent
</TABLE>
The Company's Annual Report to Stockholders which will be mailed to all
stockholders in connection with the Company's proxy solicitation will reflect
the corrections made in this Amendment No. 1.
2
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: PAGE
-------------------- ----
<S> <C>
Report of Independent Accountants........................................... 29
Consolidated Balance Sheets at December 28, 1997 and December 27, 1998...... 30
Consolidated Statements of Operations for the
three years ended December 27, 1998......................................... 31
Consolidated Statements of Changes in Stockholders'
Equity for the three years ended December 27, 1998.......................... 32
Consolidated Statements of Cash Flows for the
three years ended December 27, 1998......................................... 33
Notes to the Consolidated Financial Statements.............................. 34
</TABLE>
FINANCIAL STATEMENT SCHEDULES:
------------------------------
For the year ended December 27, 1998
II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
Financial statements of two 50% owned companies have been omitted because
the registrant's proportionate share of the income from continuing operations
before income taxes is less than 20% of the respective consolidated amount, and
the investment in and advances to each company is less than 20% of consolidated
total assets.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Planet Hollywood International,
Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Planet
Hollywood International, Inc. and its subsidiaries at December 28, 1997 and
December 27, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 27, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered significant losses in fiscal 1998
and the Company's revolving line of credit facility was terminated in December
1998 which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
March 26, 1999
Orlando, Florida
29
<PAGE>
<TABLE>
<CAPTION>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
DECEMBER 27, 1998
DECEMBER 28, DECEMBER 27,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,089 $ 45,426
Accounts receivable, less allowance of $1,500 and $2,122 25,084 16,740
Inventories 42,612 19,186
Deferred taxes 10,427 --
Income taxes receivable -- 12,308
Pre-opening cost, net 7,803 --
Prepaid expenses and other assets 7,082 6,271
--------- ---------
Total current assets 102,097 99,931
Restricted cash and cash equivalents -- 16,265
Property and equipment, net 318,456 281,115
Goodwill 29,922 27,057
Deferred taxes 6,015 --
Other assets, net 8,665 16,417
Investment in affiliated entities 40,404 31,842
--------- ---------
Total assets $ 505,559 $ 472,627
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,100 35,111
Accrued expenses 15,215 29,672
Notes payable - current 1,264 25,326
--------- ---------
Total current liabilities 70,579 90,109
Deferred rentals 10,798 11,618
Notes payable 66,628 254,420
Capital lease obligation 3,863 3,815
Deferred credits 15,150 6,350
--------- ---------
Total liabilities 167,018 366,312
--------- ---------
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.01 par value; 25,000,000 shares authorized; none
issued; preferences, limitations and rights to be established
by the Board of Directors -- --
Common stock - Class A voting, $.01 par value; 250,000,000 shares
authorized; 97,127,526 and 97,325,796 issued and outstanding, respectively 972 974
Common stock - Class B non-voting, $.01 par value, 25,000,000
shares authorized; 11,545,706 issued and outstanding 118 118
Capital in excess of par value 279,372 285,667
Deferred compensation (4,125) (225)
Retained earnings (accumulated deficit) 66,644 (177,288)
Cumulative currency translation adjustments (4,440) (2,931)
--------- ---------
Total stockholders' equity 338,541 106,315
--------- ---------
Total liabilities and stockholders' equity $ 505,559 $ 472,627
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000'S OMITTED)
DECEMBER 27, 1998
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Direct $ 347,436 $ 447,310 $ 367,296
Royalty 4,528 11,715 8,078
Franchise 21,400 16,100 11,600
--------- --------- ---------
373,364 475,125 386,974
--------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 90,816 119,449 110,874
Operating 156,893 208,484 237,930
General and administative 23,041 54,683 64,548
Preopening expenses 14,257 18,868 10,384
Depreciation and amortization 13,038 19,957 25,024
Restructuring charges -- -- 6,925
Accelerated compensation expense -- -- 6,191
Impairment of long lived assets -- 48,699 125,843
--------- --------- ---------
298,045 470,140 587,719
--------- --------- ---------
Income (loss) from operations 75,319 4,985 (200,745)
--------- --------- ---------
NON-OPERATING (INCOME) EXPENSE
Interest income (2,121) (1,327) (4,847)
Interest expense 4,995 -- 25,822
Equity in (income) loss of unconsolidated affiliates (4,308) (6,900) 11,022
--------- --------- ---------
(1,434) (8,227) 31,997
Income before minority interests 76,753 13,212 (232,742)
Minority interests 1,037 -- --
--------- --------- ---------
Income before provision for income taxes 75,716 13,212 (232,742)
Provision for income taxes 27,636 4,954 5,206
--------- --------- ---------
Income (loss) before extraordinary item 48,080 8,258 (237,948)
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $5,991) 10,421 -- --
Cumulative effect of change in accounting for preopening
costs (net of income taxes of $3,590) -- -- 5,984
--------- --------- ---------
Net income (loss) $ 37,659 $ 8,258 $(243,932)
========= ========= =========
EARNINGS PER SHARE:
BASIC:
Income (loss) before extraordinary item $ .47 $ .08 $ (2.18)
Extraordinary items (.10) -- --
Cumulative effect of accounting change -- -- (.06)
--------- --------- ---------
Net income (loss) $ .37 $ .08 $ (2.24)
========= ========= =========
DILUTED:
Income (loss) before extraordinary item $ .47 $ .08 $ (2.17)
Extraordinary item (.10) -- --
Cumulative effect of accounting change -- -- (.06)
--------- --------- ---------
Net income (loss) $ .37 $ .08 $ (2.23)
========= ========= =========
</TABLE>
The accompaning notes are an integral part of these financial statements.
31
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B CAPITAL IN
------------------------ ---------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
---------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 80,100 $ 801 $ -- $ -- $ 7,807
Net Income
Other Comprehensive income:
Currency translation
adjustment
Comprehensive income
Proceeds from public offering 11,609 116 193,020
Shares issued for All-Star
acquisition 11,547 115
Shares issued for acquisition
of minority interests 1,709 17 35,167
Conversion of redeemable
warrants 2,555 26 14,974
Celebrity restricted stock
options and awards 1,727
Employee restricted stock
awards
--------- --------- --------- --------- ---------
Balance at December 31, 1996 95,973 960 11,547 115 252,695
Net Income
Other Comprehensive income:
Currency translation
adjustment
Comprehensive income
Celebrity restricted stock
options and awards 218 3 5,959
Proceeds from sale of stock 1,087 11 19,555
Exercise of stock options 108 1 1,163
Employee restricted stock
awards
Retirement of employee
restricted stock (40)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 97,128 972 11,765 118 279,372
Net Loss
Other Comprehensive income:
Currency translation
adjustment
Comprehensive loss
Stock issuance 190 2 1,198
Celebrity restricted stock
options and awards 5,036
Exercise of stock options 8 -- 61
Employee restricted stock
awards
--------- --------- --------- --------- ---------
Balance at December 31, 1998 $ 97,326 $ 974 $ 11,765 $ 118 $ 285,667
--------- --------- --------- --------- ---------
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RETAINED DEFERRED COMPREHENSIVE STOCKHOLDERS'
INCOME EARNINGS COMPENSATION INCOME EQUITY
-------------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 20,727 $ (770) $ (420) $ 28,145
Net Income $ 37,659 37,659 37,659
Other Comprehensive income:
Currency translation
adjustment 920 920 920
---------
Comprehensive income $ 38,579
=========
Proceeds from public offering 193,136
Shares issued for All-Star
acquisition 115
Shares issued for acquisition
of minority interests 35,184
Conversion of redeemable
warrants 15,000
Celebrity restricted stock
options and awards 1,727
Employee restricted stock
awards 245 245
--------- --------- --------- ---------
Balance at December 31, 1996 58,386 (525) 500 312,131
Net Income $ 8,258 8,258 8,258
Other Comprehensive income:
Currency translation
adjustment (4,940) (4,940) (4,940)
---------
Comprehensive income $ 3,318
=========
Celebrity restricted stock
options and awards (3,800) 2,162
Proceeds from sale of stock 19,566
Exercise of stock options 1,164
Employee restricted stock
awards 200 200
Retirement of employee
restricted stock
--------- --------- --------- ---------
Balance at December 31, 1997 66,644 (4,125) (4,440) 338,541
Net Loss $(243,932) (243,932) (243,932)
Other Comprehensive income:
Currency translation
adjustment 1,509 1,509 1,509
--------- --------- --------
Comprehensive loss $(242,423)
=========
Stock issuance 1,200
Celebrity restricted stock
options and awards 3,700 8,736
Exercise of stock options 61
Employee restricted stock
awards 200 200
--------- --------- --------- ---------
Balance at December 31, 1998 $(177,288) $ (225) $ (2,931) $ 106,315
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 37,659 $ 8,258 $(243,932)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 11,620 18,173 22,129
Amortization 15,676 20,652 2,895
Extraordinary item 10,421 -- --
Impairment of long lived assets -- 48,699 125,843
Cumulative effect of change in accounting principle -- -- 5,984
Amortization of discount on senior subordinated notes, debt issue
costs and line of credit costs 1,167 -- 3,954
Amortization of celebrity restricted stock options and awards 1,268 2,864 8,736
Minority interests 1,037 -- --
Equity in income of unconsolidated affiliates (4,308) (6,900) 11,022
Changes in assets and liabilities:
Accounts receivable (15,604) (4,959) 9,015
Income taxes receivable -- -- (12,308)
Inventories (7,747) (22,008) 23,426
Prepaid expenses and other assets (1,778) (3,604) 811
Preopening costs (13,916) (19,869) --
Deferred income taxes 5,711 (10,125) 20,032
Accounts payable and accrued expenses 3,230 4,780 (3,558)
Deferred rentals 3,827 469 820
Deferred credits 100 (1,950) (8,800)
Other, net 467 (3,207) (4,079)
--------- --------- ---------
Net cash provided by (used in) operating activities 48,830 31,273 (38,010)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (81,675) (120,033) (105,819)
Proceeds from sale of subsidiary interests -- -- 2,250
Proceeds from sale of transportation equipment 7,936 -- --
Purchase of restaurant from franchisee -- (8,083) (2,521)
Investment in affiliated entities (131) (22,721) (2,749)
Other -- (1,115) (1,240)
--------- --------- ---------
Net cash used in investing activities (73,870) (151,952) (110,079)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash and investments 610 -- (16,265)
Proceeds from issuance of senior subordinated notes -- -- 250,000
Distributions to minority interests (271) -- --
Proceeds from issuance of common stock 196,581 19,137 --
Proceeds from exercise of options -- 891 61
Proceeds from issuance of notes payable 3,360 63,028 34,809
IPO costs and financing costs capitalized (3,445) -- --
Deferred financing costs (698) (1,020) (11,163)
Repayment of stockholder notes payable (70,750) -- --
Repayment of notes payable (65,439) (883) (73,003)
--------- --------- ---------
Net cash provided by financing activities 59,948 81,153 184,439
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (1,216) (13)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,908 (40,742) 36,337
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,923 49,831 9,089
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,831 $ 9,089 $ 45,426
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of PLANET
HOLLYWOOD International, Inc. ("PHI") and its wholly and majority owned
subsidiaries (collectively, the "Company"). All material intercompany
transactions and accounts have been eliminated in consolidation. The
Company has interests in various entities which are not majority owned
or controlled. The Company uses the equity method to account for these
interests.
The Company's fiscal year is the 52 or 53 weeks ending the Sunday
closest to December 31. The fiscal years ended December 29, 1996 ,
December 28, 1997 and December 27, 1998 are herein referred to as
"fiscal 1996", "fiscal 1997" and "fiscal 1998", respectively. All years
presented herein are 52 week years.
DESCRIPTION OF BUSINESS
The Company's primary business is to operate distinctive
entertainment-oriented restaurants along with merchandise shops. The
Company currently operates under the PLANET HOLLYWOOD, OFFICIAL ALL STAR
CAFE, SOUND REPUBLIC, and COOL PLANET brands. Direct revenues in the
accompanying financial statements include sales of food, beverage and
merchandise.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid investments with
original maturities of three months or less and consist of amounts held
as bank deposits, certificates of deposit and commercial paper. At
December 27, 1998, the Company had $9,200 of cash restricted as to use
as collateral for letters of credit and $7,000 of cash escrowed for the
construction of Company's New York Hotel project.
INVENTORIES
Inventories, consisting primarily of merchandise, are valued at the
lower of cost (determined by the first-in, first-out method) or market.
PREOPENING COSTS
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires expensing as incurred all pre-opening
costs that are not otherwise capitalizable as long-lived assets. As a
result of the Company's adoption of SOP 98-5, the Company recognized a
$6,000 charge for the cumulative effect of the change in accounting
principle, net of the related income tax effect of $3,600. The Company
previously capitalized unit pre-opening expenses and amortized such
amounts over the units' first year of operation.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided
34
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
for by using the straight-line method over the following useful lives:
YEARS
-----
Furniture and equipment 5-10
Memorabilia 20
Leasehold improvements 5-30
Expenditures for additions and improvements which extend the life of the
assets are capitalized. Expenditures for normal repairs and maintenance
are charged to expense as incurred. Depreciation of memorabilia
commences when it is placed in service upon its installation at a unit
location.
In the event that facts and circumstances indicate that the carrying
value of a long-lived asset, including associated intangibles, may be
impaired, an evaluation of recoverability is performed by comparing the
estimated future undiscounted cash flows associated with the asset to
the asset's carrying amount to determine if a write-down to market value
or discounted cash flow is required.
GOODWILL
The excess of purchase price over the fair value of assets acquired is
amortized on a straight-line basis over 20 years. Accumulated
amortization of goodwill at December 28, 1997 and December 27, 1998 was
$2,400 and $4,100, respectively.
DEBT ISSUANCE COSTS
Costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the term of
the related debt.
MINORITY INTERESTS
Minority interests represent third parties' equity in the earnings or
losses in the entities which are majority owned by the Company.
FOOD, BEVERAGE AND MERCHANDISE REVENUES
Food, beverage and merchandise revenues are recognized as the products
are sold to customers.
FRANCHISE AND ROYALTY REVENUES
Revenues from the sale of franchises are deferred until the Company
fulfills its obligations under the franchise agreement. The franchise
agreements provide for continuing royalty fees based on a percentage of
gross receipts.
ADVERTISING AND PROMOTIONAL COSTS
All costs associated with advertising and promoting the Company's brands
are expensed in the period incurred. Advertising expense for fiscal
1996, 1997 and 1998 totaled $2,800, $6,300 and $7,500, respectively.
35
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME TAXES
Deferred taxes are provided for the tax effects of the differences
between the carrying value of assets and liabilities for tax and
financial reporting purposes. These differences relate primarily to
differences in depreciable lives and amortization periods for property
and equipment and preopening costs, deferred rentals, the timing of
franchise revenue recognition, net operating losses, certain accrued
expenses and reserves. Deferred tax assets and liabilities represent the
future tax consequence of those differences. An assessment is made as to
whether or not a valuation allowance is required to offset deferred tax
assets.
No provision is made for United States income taxes applicable to
undistributed earnings of foreign subsidiaries or affiliates that are
indefinitely reinvested in the foreign operations.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated into United
States dollars at the year-end rate of exchange. Revenue and expense
accounts are translated at the average rate of exchange. Resulting
translation adjustments are included in the caption "Cumulative currency
translation adjustment" as a separate component of stockholders' equity.
Gains and losses from foreign currency transactions which are included
in the consolidated statements of operations were not material.
STOCK-BASED COMPENSATION
The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board Opinion
25 ("APB 25"). APB 25 requires compensation costs for stock-based
compensation plans to be recognized based on the difference, if any,
between the fair market value of the stock on the date of grant and the
option exercise price. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"). SFAS 123
established a fair value-based method of accounting for compensation
costs related to stock options and other forms of stock-based
compensation plans. However, SFAS 123 allows an entity to continue to
measure compensation costs using the principles of APB 25 if certain pro
forma disclosures are made. The Company adopted the provisions for pro
forma disclosure requirements of SFAS 123. Options granted to
celebrities are recorded at their estimated fair value at the date of
grant and the expense recognized over the periods benefited, generally 5
years.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding plus common stock
equivalents related to stock options for each period.
36
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A reconciliation of weighted average number of common shares to weighted
average number of common shares plus common stock equivalents is as
follows:
1996 1997 1998
------- ------- -------
Weighted average number of
common shares 100,741 108,465 109,073
Stock options and awards 1,849 1,340 391
------- ------- -------
Weighted average number of common
shares plus common stock equivalents 102,590 109,805 109,464
------- ------- -------
Options to purchase 3 million and 9 million shares of common stock were
not included in the computation of diluted earnings per common share in
fiscal 1997 and 1998 because the option exercise price was greater that
the average market price of the stock.
COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income," which
established standards for the reporting and displaying of comprehensive
income and its components. All items required to be recognized as
components of comprehensive income must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 became effective for financial statements with
fiscal years beginning after December 15, 1997. All prior period
information presented has been restated to conform to this
pronouncement. The Company's "Other comprehensive income" consists
solely of currency translation adjustments.
LEASES
The Company has various non-cancelable operating and capital lease
agreements, primarily unit sites. Unit leases are established using a
base amount and/or a percentage of sales. Certain of these leases
provide for escalating lease payments over the terms of the leases. For
financial statement purposes, the total amount of base rentals over the
terms of the leases is charged to expense on the straight-line method
over the lease terms. Rental expense in excess of lease payments is
recorded as a deferred rental liability.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, receivables and accounts
payable approximate the fair value because of the short maturity of
these instruments. The carrying value of notes payable approximate fair
value as interest rates vary with market interest rates. The fair value
of the $250,000 12% Senior Subordinated Notes approximated $93,000 at
December 27, 1998, based on recent market trades.
37
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONCENTRATION OF CREDIT RISK
Franchisee receivables subject the Company to credit risk. The Company's
franchisee receivables are derived primarily from royalties on
franchisee sales, sales of merchandise to franchisees and the
reimbursement of various costs incurred on behalf of franchisees.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Estimates are used in the determination of
allowances for doubtful accounts, impairment of long-lived assets,
depreciation and amortization, and taxes, among others. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years'
consolidated financial statements to conform with the fiscal 1998
presentation.
2. GOING CONCERN
The Company incurred significant losses in 1998 and the Company's
revolving credit facility was terminated in December 1998. Further, the
Company anticipates that it will continue to incur negative cash flows
from the operation of the OFFICIAL ALL STAR CAFE, SOUND REPUBLIC and
COOL PLANET units. Although the Company has implemented certain
strategies in connection with the refocus of its core PLANET HOLLYWOOD
operations, the Company currently expects continued under-performance
from its PLANET HOLLYWOOD operations due to an expected continuing
decline in same unit sales and margins in the near term. Consequently,
the Company is discussing with bank representatives an extension of the
$12,500 payment due March 31, 1999 under the Company's bank credit
facility, and the Company anticipates that it will delay the $15,000
interest payment required under the Senior Subordinated Notes due on
April 1, 1999. While the Company expects to offset some of these
obligations from the proceeds of the planned sale of assets, unless the
sales can be completed on a timely basis and the Company realizes an
improvement in its PLANET HOLLYWOOD operations, the Company's ability to
meet its obligations will be dependant upon an infusion of capital,
additional financing and/or a restructuring of its existing
indebtedness. The Company is actively marketing certain assets and
pursuing a variety of financing alternatives. There can be no assurance,
however, that the Company would be able to effect any of these
strategies on satisfactory terms, if at all. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
3. IMPAIRMENT OF LONG LIVED ASSETS AND RESTRUCTURING CHARGES
In 1998, the Company experienced declines in same unit revenues and
disappointing operating results at its restaurants. As a result, the
Company re-evaluated its long term growth strategy. This re-evaluation
led to the Company's decision to perform the following steps in order to
refocus its resources on the PLANET HOLLYWOOD brand:
38
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
o Ceased the development of its SOUND REPUBLIC unit in New York City.
o Joint venture, franchise, sell or otherwise dispose of its SOUND
Republic, OFFICIAL ALL STAR CAFE and COOL PLANET locations.
o Identify franchise opportunities for selected international Company-
owned PLANET HOLLYWOOD locations.
o Explore opportunities to raise capital through the sale of certain
assets.
o Refocus on its core PLANET HOLLYWOOD operations by introducing a
new menu, updating the look and appearance of the restaurants,
launching a new merchandise strategy aimed at providing more
fashion-oriented merchandise through the introduction of seasonal
lines, and initiating a new marketing and public relations strategy
aimed at delivering a fresh, exciting and consistent message to
consumers.
In conjunction with these changes, the Company recorded charges totaling
$139,000 relating to the write-down of long lived assets, restructuring
and severance costs and accelerated celebrity compensation costs. The
charge was recorded as follow:
<TABLE>
<CAPTION>
OFFICIAL
PLANET ALL STAR SOUND COOL
FISCAL 1998 HOLLYWOOD CAFE REPUBLIC PLANET CORPORATE TOTAL
- ------------------------------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Impairment of long lived assets $ 33,492 $ 47,284 $ 37,133 $ 3,748 $ 4,186 $125,843
Celebrity stock option
expense -- 4,746 1,445 -- -- 6,191
-------- -------- -------- -------- -------- --------
$ 33,492 $ 52,030 $ 38,578 $ 3,748 $ 4,186 $132,034
======== ======== ======== ======== ======== ========
Restructuring costs:
Employee severance $ -- $ -- $ -- $ -- $ 2,940 $ 2,940
Lease termination costs for units
closed or not be opened 700 300 2,480 -- 505 3,985
-------- -------- -------- -------- -------- --------
Total restructuring costs $ 700 $ 300 $ 2,480 $ -- $ 3,445 $ 6,925
======== ======== ======== ======== ======== ========
Total fiscal 1998 Charges $ 34,192 $ 52,330 $ 41,058 $ 3,748 $ 7,631 $138,959
======== ======== ======== ======== ======== ========
FISCAL 1997
- -------------------------------
Impairment of long lived assets $ 25,200 $ 21,194 $ -- $ -- $ 2,305 $ 48,699
-------- -------- -------- -------- -------- --------
</TABLE>
39
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As a result of operating losses incurred in fiscal 1998, projected
future losses for certain of the Company's restaurant units and the
Company's decision to focus its resources on the PLANET HOLLYWOOD
concept only, the Company recorded an impairment charge of $125,800
relating to certain non-performing domestic and foreign PLANET HOLLYWOOD
units as well as all assets associated with the Company's OFFICIAL ALL
STAR CAFE, COOL PLANET and SOUND REPUBLIC concepts. The Company
considers continued and projected operating losses to be its primary
indicators of potential impairment. An impairment was recognized as the
future undiscounted cash flows or appraised values were estimated to be
insufficient to recover the related carrying value of the long-lived
assets. As a result, the carrying values of these assets were written
down to their estimated fair values based on these criteria.
PLANET HOLLYWOOD UNITS. An impairment of $33,500 for PLANET HOLLYWOOD
units was recorded as the future undiscounted cash flows for these units
were estimated to be insufficient to recover the related carrying values
of these assets. The units written down are primarily located in
European or Canadian markets and the Company is exploring various
opportunities to franchise, or otherwise dispose of these units. Lease
termination costs totaling $700 were recorded for two locations which
the Company is closing. Also included in this amount was a charge for
the Company's PLANET HOLLYWOOD Boston unit for the anticipated loss
which will be incurred on the sale of the assets currently under
construction at this site.
OFFICIAL ALL STAR CAFE UNITS. The OFFICIAL ALL STAR CAFE units were
deemed impaired due to the future undiscounted cash flows being
insufficient to recover the related carrying values of these assets. The
Company has discontinued the expansion of this concept and is exploring
various opportunities to joint venture, franchise, sell or otherwise
dispose of these units. Lease termination costs of $300 were recorded
for a site which will not be developed. As a result of the Company's
decision to discontinue the expansion of this concept, the Company also
recorded a $500 charge for the write-down of OFFICIAL ALL STAR CAFE
trademark costs and a $4,700 charge was recorded to expense options
granted to celebrities associated with the OFFICIAL ALL STAR CAFE units.
These options were previously being amortized over the life of the
celebrity agreements; however, given the Company's plans to discontinue
expansion of this concept, all remaining amounts were expensed in 1998.
SOUND REPUBLIC UNITS. The Company opened its first SOUND REPUBLIC in the
fall of fiscal 1998 in London, England and was constructing a second
unit in New York City which was scheduled to open in the summer of 1999.
As part of its decision to focus on the core PLANET HOLLYWOOD concept,
the Company has stopped the expansion of this concept and is exploring
opportunities to joint venture, franchise, sell or otherwise dispose of
the unit in London and the unit under construction in New York City. A
$27,900 charge was recorded for the impairment of the London unit based
on continued and projected operating losses for the unit. An impairment
charge of $9,000 was recorded for the New York SOUND REPUBLIC site based
on estimated proceeds from the sale of the assets under construction.
The total carrying value of the New York project is $16,000, of which
$13,300 was spent at December 27, 1998. The Company has also written off
the trademark costs of $200 associated with this brand due to
management's decision to exit the sites associated with this concept and
$1,400 was recorded to expense options granted to celebrities associated
with the SOUND REPUBLIC. A reserve of $2,500 was recorded by the Company
for estimated lease termination costs for certain SOUND REPUBLIC sites
which will not be developed. The Company is negotiating with landlords
and potential tenants in an attempt to have these leases terminated or
assigned.
40
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COOL PLANET UNITS. During the summer and fall of 1998, the Company
opened its first three COOL PLANET units in California. These ice cream
and dessert units feature COOL PLANET ice cream products and a decor
derived from the PLANET HOLLYWOOD units. The Company plans to joint
venture, franchise, sell or otherwise dispose of these units. A charge
of $1,900 was recorded to write-down the assets associated with these
units. Additionally, the Company recorded an impairment of $1,800 for a
prepaid celebrity promotional agreement associated with the COOL PLANET
concept. The agreement was being amortized over a five year period;
however, due to the Company's plans to no longer operate these units,
the unamortized amount was written off in the fourth quarter of 1998.
CORPORATE. In the fourth quarter of 1998, the Company's credit facility
with SunTrust Bank, Central Florida, N.A. and other lenders was amended.
The amendment required the Company to commence marketing its
headquarters property in Orlando, Florida and its New York Hotel
property. An impairment of $2,800 was recorded on the headquarters
property for the excess of the carrying value of the property over its
fair value. The Company is currently in the process of negotiating a
sale-leaseback on the property and anticipates the sale to be completed
in the spring of 1999. In conjunction with the Company's decision to
postpone any further development of its concepts, an impairment of
$1,400 was recorded for costs incurred for sites that will not be
developed and for various memorabilia items.
In November 1999, the Company terminated 60 employees from its corporate
staff. Total costs paid to terminated employees in 1998 were $1,400.
Approximately $1,500 was accrued at December 27, 1998 for future
severance payments and outplacement services to be provided to these
employees. As a result of the terminations, the Company closed several
satellite offices. Approximately $500 has been recorded as a reserve for
lease terminations costs associated with these offices.
In fiscal 1997, the Company recorded a non-cash impairment charge of
$48,700 related to a write-down of long lived assets relating to certain
non-performing domestic and foreign restaurant units. An impairment was
recognized as the future undiscounted cash flows for these units were
estimated to be insufficient to recover the related carrying value of
the long-lived assets relating to the units. As a result, the carrying
values of these assets were written down to their estimated fair values,
based on the Company's estimates of future discounted cash flows.
4. ACQUISITIONS AND DIVESTITURES
In August 1995, the Company entered into an agreement whereby the
Company purchased a 57.9% interest in All Star Cafe, Inc. ("All Star")
for $600 from the Company's President, who is a stockholder of All Star,
and the All Star Cafe Trust (the "Trust"), a trust established for the
benefit of the President's children (collectively the "Sellers").
In February 1996, the Company entered into an agreement to acquire the
remaining minority interests in All Star. Under the terms of the
agreement, the Company issued 11,545,706 shares of Class B non-voting
stock in exchange for all of the minority interests in All Star. Due to
the high degree of common
41
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
control between the Company and All Star and the lack of an exchange of
monetary consideration, the acquisition was accounted for as a
reorganization of entities under common control. Accordingly, the bases
of All Star's assets and liabilities are carried at historical cost.
During 1996, the Company acquired the remaining minority interests in PH
London and the minority interests in the Company's subsidiaries that
operate PLANET HOLLYWOOD units in Maui, Washington D.C. and New York.
These acquisitions were accounted for using the purchase method of
accounting and the purchase price was allocated to the assets purchased
and the liabilities assumed based on their fair values at the date of
acquisition. The excess of the purchase price over the fair value of the
net assets acquired was $23,100 and has been recorded as goodwill which
is being amortized on a straight line basis over twenty years.
The results of operations for All Star, PH London and the minority
interests in Maui, Washington D.C. and New York after their respective
acquisition dates are included in the fiscal 1996 consolidated statement
of operations.
The following unaudited pro forma information has been prepared assuming
that the acquisitions of the minority interests took place at the
beginning of fiscal 1996. The unaudited pro forma financial information
does not purport to be indicative of the results of operations had the
transaction been effected at the beginning of fiscal 1996, nor to
project results for any future period:
Revenues $373,364
Income before extraordinary item 48,500
Net income 38,079
Basic earnings per share before extraordinary item .48
Basic earnings per share - net income .38
Diluted earnings per share before extraordinary item .47
Diluted earnings per share - net income .37
In November 1996, the Company entered into an agreement to purchase the
net assets of a domestic franchise unit for $8,000. The acquisition was
completed in January 1997.
5. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
DECEMBER 28, DECEMBER 27,
1997 1998
---- ----
Leasehold improvements $211,030 $179,309
Furniture and equipment 59,990 52,940
Memorabilia 33,274 33,062
Land 5,051 --
Capital lease 3,900 3,900
Construction in progress 42,878 2,426
Assets held for sale -- 60,729
-------- --------
356,123 332,366
Less - accumulated depreciation (37,667) (51,251)
-------- --------
$318,456 $281,115
======== ========
42
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. INVESTMENT IN UNCONSOLIDATED AFFILIATES
The Company's investments in affiliated companies which are not majority
owned or controlled are accounted for using the equity method. These
affiliated companies and the percentage interest held by the Company
consist of PH Asia (50%), ECE (20%), Hotel Pennsylvania (20%) and Planet
Zurich (50%).
The Company owns a 50% equity interest in PH Asia, which operates and
franchises PLANET Hollywood and OFFICIAL ALL STAR CAFE units in the
Pacific Rim. The remaining interest in PH Asia is owned by an entity
controlled by a company in which a director of the Company is a major
shareholder.
The Company owns a 20% equity interest in ECE, a Mexican company, which
operates themed restaurant/retail units in Mexico, South America and the
Caribbean (see Note 10). In January 1997, ECE issued 21,587,145 shares
of common stock. The Company purchased 4,317,429 shares for $6,100 in
order to retain its 20% equity interest in ECE. At December 28, 1997,
the Company's share of the underlying net assets of ECE exceeded the
investment by $2,400. The excess is being amortized over 20 years.
In September 1997, the Company entered into a venture to remodel and
renovate the Hotel Pennsylvania in New York City. During 1997, the
Company advanced the venture $9,600 and estimates that total funding
requirements for its 20% equity investment in the venture to be $20,000.
The renovated hotel will be branded the Official All-Star Hotel, and the
Company will receive royalties for the use of its "Official All Star
Hotel" trademark.
In December 1997, the Company entered into a joint venture to construct
a 50 story, 550 room movie themed hotel in New York City. The Company
has funded $5,000 of its anticipated initial investment of $7,000. In
addition to participation in the hotel's profits through its equity
interest in the joint venture, the Company will receive a license fee
for the use of the PLANET HOLLYWOOD name and logo. The Company entered
into a $35,000 LIBOR-based leveraged operating lease for the
construction of a restaurant in the hotel (see Note 8).
Condensed financial information for affiliated companies accounted for
by the equity method is as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------------- -------------------------------
BALANCE SHEET DATA: PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL
------------------- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 17,370 $ 206,142 $ 223,512 $ 12,387 $ 32,114 $ 44,501
Non-current assets 24,578 89,767 114,345 22,090 125,892 147,982
-------- --------- --------- -------- --------- ---------
Total assets $ 41,948 $ 295,909 $ 337,857 $ 34,477 $ 158,006 $ 192,483
======== ========= ========= ======== ========= =========
Current liabilities $ 9,255 $ 13,300 $ 22,555 $ 9,695 $ 16,291 $ 25,986
Other liabilities 25,219 139,804 165,023 25,695 79,544 105,239
Stockholders' equity 7,474 142,805 150,279 (913) 62,171 61,258
-------- --------- --------- ------- --------- ---------
Total liabilities and stockholders'
equity $ 41,948 $ 295,909 $ 337,857 $ 34,477 $ 158,006 $ 192,483
======= ========= ========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
------------------------- -------------------------- ---------------------------
OPERATING DATA: PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL PH ASIA OTHER TOTAL
- --------------- ------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $27,993 $55,126 $83,119 $43,332 $72,606 $115,938 $27,025 $127,436 $154,461
Operating income 3,073 19,194 22,267 7,073 25,893 32,966 (5,970) 27,214 21,244
Net income (loss) 2,530 6,818 9,348 6,196 15,296 21,492 (7,419) (19,865) (27,284)
Company's interest in net income
(loss) 1,200 3,108 4,308 3,250 3,650 6,900 (4,875) (6,147) (11,022)
</TABLE>
43
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. ACCRUED EXPENSES
Accrued expenses are summarized as follows:
DECEMBER 28, DECEMBER 27,
1997 1998
---- ----
Accrued interest $ 319 $ 7,690
Accrued rent 3,318 4,328
Accrued payroll & related benefits 3,776 3,797
Accrued restructuring costs -- 5,524
Accrued insurance 2,447 4,845
Accrued taxes 1,820 --
Other 3,535 3,488
--------- ---------
$ 15,215 $ 29,672
========= =========
8. NOTES PAYABLE
Notes payable are summarized as follows:
DECEMBER 28, DECEMBER 27,
1997 1998
---- ----
12% Senior Subordinated
Notes due 2005 $ -- $ 250,000
Lease facility note -- 25,000
Revolving line of credit 42,000 --
Term loan 20,000 --
Capital lease payable 3,872 3,845
Other notes payable 5,883 4,907
--------- ---------
71,755 283,752
Less current portion (1,264) (25,517)
--------- ---------
$ 70,491 $ 258,235
========= =========
In August 1995, the Company issued $60,000 10% Senior Subordinated Notes
(the "1995 Notes") due in 2000 with warrants to purchase Class A common
stock (see Note 9). A portion of the proceeds from the 1995 Notes were
used to repay $21,600 to the principal stockholders or their affiliates
for amounts previously borrowed. During fiscal 1996, approximately
$2,200 was charged to interest expense for these loans. In connection
with the 1996 initial public offering of stock, the Company repaid the
1995 Notes from a portion of the offering's proceeds. The Company
incurred a one-time extraordinary charge of $10,400, net of $5,900 in
taxes, as a result of the early extinguishment of the 1995 Notes.
In fiscal 1996, notes due to stockholders totaling $70,800 were repaid
from the proceeds of the initial public offering of stock.
44
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In September 1997, the Company replaced its existing $50,000 credit
facility with a $155,000 multi-currency, long-term credit facility with
a consortium of financial institutions. The facility consisted of a
$100,000 revolving credit facility and a $20,000 long-term loan
facility. In March 1998, this was replaced, concurrent with the notes
offering, with a $65,000 multi-currency revolving credit facility and a
$35,000 LIBOR-based leveraged lease facility. Interest rates were
variable, with either prime or LIBOR indexes.
In March 1998, the Company issued $250,000 12% Senior Subordinated Notes
due in 2005. Interest on the notes will be payable semi-annually in
arrears on April 1 and October 1 of each year, commencing October 1998.
The notes mature on April 1, 2005. The documents governing the notes
contain certain covenants, which, among other things, restrict the (i)
issuance of additional debt and preferred stock (ii), payment or
dividends and (iii) sale of assets.
In December 1998, the Company amended the existing $65,000
multi-currency revolving credit facility and $35,000 LIBOR-based
leveraged lease facility with SunTrust Bank, Central Florida, N.A. and
other lenders. The revolving credit portion of the old credit facility
has been terminated and the credit facility now provides for a $35,000
LIBOR-based leveraged lease facility and up to $2,000 coverage under an
interest rate swap arrangement, which provides hedging against interest
rate movements under the leveraged lease facility. Interest rates are
variable, with either prime or LIBOR indexes. The credit facility
matures on June 30, 1999. Principal payments under the leveraged lease
facility were or are required in the amounts of (a) $10,000 by December
8, 1998, (b) $12,500 by March 31, 1999 and (c) the balance by June 30,
1999. The Company is also required to commence marketing both the
headquarters property and the New York movie themed hotel property
underlying the leveraged lease and, if such properties are sold, the
proceeds will be applied as principal payments. The obligations under
the credit facility are guaranteed by each of the material subsidiaries
and secured by the mortgage of the headquarters property.
At year-end, the Company's weighted average rate on outstanding
borrowings under the facility was 8.25% while the term loan facility
matures in 1999. The credit facility also provides for the Company to
have up to $10,000 in letters of credit. At December 27, 1998, the
Company had outstanding letters of credit totaling $9,200 (see Note 1).
In connection with the lease facility note, the Company entered into an
interest rate swap agreement. The swap agreement effectively converts
this note from floating-rate debt to fixed rate debt with interest at
5.83%. The differential in the rates is accrued as interest rates change
and is recorded as an adjustment to interest expense. The swap agreement
matures in November 2000. The estimated fair value of the swap agreement
was a loss of $400 at December 27, 1998.
During fiscal 1996, 1997 and 1998, approximately $6,100 and $2,600, and
$30,000 respectively, was charged to interest expense and approximately
$1,100, $2,600 and $4,900 in fiscal 1996, 1997 and 1998, respectively,
of interest was capitalized.
45
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Aggregate principal amounts maturing in each of the five fiscal years
subsequent to fiscal 1998 and thereafter are summarized as follows:
FISCAL
------
1999 $25,517
2000 512
2001 555
2002 601
2003 652
Thereafter 255,915
9. STOCKHOLDERS' EQUITY AND REDEEMABLE WARRANTS
STOCKHOLDERS' EQUITY
In April 1996, the Company completed an initial public offering of
12,406,452 shares of common stock at an offering price of $18.00 per
share, including 1,618,233 shares from the exercise of the Underwriters'
over allotment option. The Company received net proceeds of
approximately $193,100.
In April 1997, the Company issued 1,087,000 shares of Class A Common
Stock to an investor in conjunction with the consummation of a franchise
agreement with the investor. Approximately $19,600 was received for the
shares issued.
In January 1997, the Company issued 218,438 shares of restricted Class B
Common Stock to certain celebrities. The shares were valued at their
estimated market value totaling $4,000. Deferred compensation expense
has been reflected as a reduction of stockholders' equity and is being
amortized over the period benefited. The deferred compensation expense
was accelerated for certain celebrities associated with the OFFICIAL ALL
STAR CAFE concept (see Note 3.)
In April 1998, the Company issued 190,476 unregistered shares of Class A
Common Stock to consultants retained to assist the Company with
relations and promotions in the entertainment industry. The shares were
valued at their estimated discounted market value totaling $1,200 and
recorded as prepaid promotional services. These prepaid services are
being amortized over one year.
46
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REDEEMABLE WARRANTS
In connection with the issuance of the 1995 Notes (see Note 8), the
Company issued warrants to purchase up to 5,112,765 shares of common
stock at an exercise price of $0.01 per share. The proceeds of the
offering were allocated between the Notes and warrants based upon their
fair values at the date of issuance. The number of shares which may be
purchased upon exercise of the warrants were subject to increase or
decrease by up to 50% based upon the total rate of return to the holders
upon repayment of the Notes, including the fair value of the warrants at
the date they become exercisable or are deemed exercised. The warrants
became exercisable upon the repayment of the Notes. The number of
warrants which may be exercised were reduced by 50% to 2,556,383 based
upon the total rate of return to the holders at the date of repayment of
the Notes. In connection with the initial public offering of stock in
fiscal 1996, warrants to purchase 788,219 shares were exercised. In
1996, the Company registered the shares issued upon the exercise of the
remaining warrants.
STOCK OPTIONS
During 1995, the Board of Directors adopted the 1995 Stock Option Award
and Incentive Plan ("1995 Stock Plan"). The 1995 Stock Plan calls for up
to 4,000,000 shares of Class A common stock to be available for issuance
upon the exercise of options and stock appreciation rights. In October
1996, the 1995 Stock Plan was amended to provide for 5,000,000 shares of
Class A common stock to be available. In May 1997, the 1998 Stock Plan
was amended to provide for 6,000,000 shares of Class A common stock to
be available. In October 1998, the 1995 stock Plan was amended to
provide for 7,000,000 shares of Class A common stock to be available.
Under the 1995 Stock Plan, options and/or stock appreciation rights may
be granted to officers and employees of the Company, and certain of the
Company's independent contractors, to purchase Class A common stock.
During 1996, 1997 and 1998, options to purchase 3,051,161, 839,800 and
8,157,379 shares, respectively, of Class A common stock were granted
under the 1995 Stock Plan at the estimated fair market value at the date
of grant. These options vest and are exercisable over a period of four
years and expire five years from the date of grant. In December 1998,
the Company canceled options to purchase 5,104,694 shares with an
average exercise price of $11.80 and granted new options to the same
individuals with an exercise price of $2.50.
During 1995, the Board of Directors adopted the 1995 Celebrity Stock
Option Award and Incentive Plan ("1995 Celebrity Plan"). The 1995
Celebrity Plan calls for up to 4,000,000 shares of the Class A common
stock to be available for issuance upon the exercise of options and
stock appreciation rights. In October 1996, the 1995 Celebrity Plan was
amended to provide for 6,000,000 shares of Class A Common Stock to be
available. During fiscal 1996, 1997, and 1998, options to purchase
3,051,161, 1,895,000 and 951,166 shares, respectively, of Class A common
stock were granted under the 1995 Celebrity Plan at the estimated fair
market value at the date of grant. In February 1998, the Company reset
the exercise price of options to purchase 400,000 shares with an average
exercise price of $16.14 to $7.50. In December 1998, the company
cancelled options to purchase 48,333 options with an average exercise
price of $12.54 and granted new options to the same celebrities with an
exercise price of $2.50. These options vest and are exercisable over a
period of four years and expire five years from the date of grant.
During fiscal 1996, 1997, and 1998, approximately $1,300, $2,100 and
$3,000 respectively, was charged to expense relating to the grants.
47
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EMPLOYEE PLAN CELEBRITY PLAN
-------------------------- ---------------------------
NUMBER WEIGHTED AVG. NUMBER WEIGHTED AVG.
OF SHARES OPTION PRICE OF SHARES OPTION PRICE
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Outstanding at December 29, 1996 $ 3,741,315 $ 16.34 $ 4,095,000 $ 12.40
Exercisable at December 29, 1996 -- --
Available for grant at December 29, 1996 1,258,685 1,905,000
Granted during 1997 839,800 18.11 180,000 16.28
Cancelled (649,343) 17.00 (796,334) 17.64
Exercised (77,297) 8.40 (30,666) 7.88
----------- -----------
Outstanding at December 28, 1997 3,854,475 16.76 3,448,000 10.55
Exercisable at December 28, 1997 237,801 1,082,655
Granted during 1998 8,157,379 5.33 951,166 8.62
Cancelled (7,255,076) 11.00 (48,999) 12.54
Exercised (7,794) 7.86 --
----------- -----------
Outstanding at December 27, 1998 4,748,984 5.73 4,350,167 9.35
Exercisable at December 27, 1998 216,689 2,227,992
Available for grant at December 27, 1998 1,725,346 1,619,167
</TABLE>
The following tables summarize the stock options outstanding at December
27, 1998:
<TABLE>
<CAPTION>
WEIGHTED
EMPLOYEES NUMBER WEIGHTED-AVERAGE AVERAGE
RANGE OF EXERCISE OUTSTANDING AT REMAINING EXERCISE
PRICES DECEMBER 27, 1998 CONTRACTUAL LIFE PRICE
------------------ ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
$ 2.50 3,140,920 4.96 $ 2.50
$ 7.50 7.94 939,509 3.15 7.62
14.00 15.00 68,555 2.28 14.73
17.00 160,000 3.20 17.00
19.00 21.63 440,000 1.19 19.25
<CAPTION>
WEIGHTED
CELEBRITIES NUMBER WEIGHTED-AVERAGE AVERAGE
RANGE OF EXERCISE OUTSTANDING AT REMAINING EXERCISE
PRICES DECEMBER 27, 1998 CONTRACTUAL LIFE PRICE
------------------ ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
$ 2.50 48,333 4.96 $ 2.50
$ 7.50 7.88 2,891,334 2.11 7.79
9.00 502,500 4.13 9.00
14.00 15.00 838,000 2.24 14.23
19.00 24.00 70,000 3.24 22.57
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation expense has been recognized for the 1995
Stock Plan. Had compensation cost for options granted under the 1995
Stock Plan been determined based on the fair value at the date of grant
for awards consistent with the provisions of SFAS 123, the Company's net
income (loss) and earnings (loss) per share would approximate the
following pro forma amounts:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
------- ------ ----------
<S> <C> <C> <C>
Net income (loss) - as reported $37,659 $8,258 $(243,932)
Net income (loss) - pro forma 36,987 4,852 (247,667)
Basic earnings (loss) per share - as reported .37 .08 (2.24)
Basic earnings (loss) per share - pro forma .37 .04 (2.27)
Diluted earnings (loss) per share - as reported .37 .08 (2.23)
Diluted earnings (loss) per share - pro forma .36 .04 (2.26)
</TABLE>
48
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The fair value of each options is estimated on the date of grant using
the Black Scholes option pricing model with the following weighted
average assumptions: no dividend yield, expected volatility of 35% of
fiscal 1996 and fiscal 1997 and 60% in fiscal 1998; risk free interest
rates of 5.95%, 5.70% and 5.06% in fiscal 1996, fiscal 1997 and fiscal
1998, respectively; and expected lives of 4 years for fiscal 1996 and
fiscal 1997 and 5 years for fiscal 1998. The weighted-average fair value
of options granted during the year were $6.83 for fiscal 1996, $6.32 for
fiscal 1997 and $1.73 for fiscal 1998.
10. FRANCHISE REVENUES
The Company has an agreement with PH Asia, whereby PH Asia was granted
the right to license the PLANET HOLLYWOOD name and rights within a
number of countries, primarily in the Pacific Rim. The agreement
provided that PH Asia would pay continuing royalty fees and, for certain
territories, PH Asia and the Company would share initial franchise fees.
In 1996, PH Asia opened four franchise units, and the Company received
the initial franchise fee revenue for three of the units opened. In
1997, PH Asia opened eight units and the Company received the initial
franchise fee revenue for five of the units opened. No units were opened
by PH Asia in 1998.
During 1995, the Company entered into a franchise agreement with ECE, an
affiliated company, which allows ECE to develop and operate up to five
PLANET HOLLYWOOD units and up to ten OFFICIAL ALL STAR CAFE units in
Mexico. Upon Company approval, ECE may open an additional five PLANET
HOLLYWOOD units. In 1996, ECE opened 5 franchise restaurant units. No
restaurant units were opened in 1997 or 1998. ECE pays continuing
royalty fees as defined in the agreement.
In December 1995, the Company terminated a site franchise agreement of
an existing franchisee and purchased the franchise rights to four
undeveloped locations. The Company assumed certain liabilities and lease
obligations relating to the four undeveloped locations. In consideration
for the franchise rights, the Company will pay the seller an amount
equal to a multiple of each unit's first year profits less the costs to
develop and open the site, as defined. The franchisee forfeited the
nonrefundable initial franchise fees of $2,000 each for the four sites.
During 1997, the Company recognized non-refundable franchise fees for
two of the sites as no consideration was required to be paid to the
seller under the terms of the purchase agreement. The remaining unearned
franchise fees are included in deferred credits and any consideration
paid for the sites will be offset against each site's related unearned
franchise fee.
In March 1997, the Company entered into a franchise agreement which
provides for the development of up to 34 PLANET HOLLYWOOD
restaurant-merchandise units in 23 countries throughout the Middle East
and Europe. The franchise agreement provided for and the investor made a
payment to the Company of $8,000 for six sites. Additional franchise
fees may be payable to the Company under the terms of the franchise
agreement for the additional sites. In connection with the agreement,
the investor purchased 1% of the Company's total common stock
outstanding directly from the Company for approximately $19,600.
The number of franchised units opened in fiscal 1996, 1997 and 1998 were
21, 34, and 38 respectively.
49
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. INCOME TAXES
The sources of income (loss) before income taxes are presented as
follows:
FISCAL FISCAL FISCAL
1996 1997 1998
--------- --------- --------
United States $ 47,370 $ 15,529 $(157,929)
Foreign 28,346 (2,317) (74,813)
--------- --------- ---------
Income (loss) before taxes $ 75,716 $ 13,212 $(232,742)
========= ========= =========
The income tax provision (benefit) consists of the following:
FISCAL FISCAL FISCAL
1996 1997 1998
Current: --------- --------- ---------
Federal $ 12,616 $ 9,927 $ (16,153)
State and local 1,472 1,777 (432)
Foreign 3,168 3,375 1,759
--------- --------- ---------
17,256 15,079 (14,826)
--------- --------- ---------
Deferred:
Federal 2,941 (7,499) 14,026
State and local 1,448 (337) 127
Foreign -- (2,289) 2,289
--------- --------- ---------
4,389 (10,125) 16,442
--------- --------- ---------
$ 21,645 $ 4,954 $ 1,616
========= ========= =========
In 1997 and 1998, the Company recognized $800 and $200, respectively, of
benefits for deductions from the exercise of employee stock options and
the vesting of certain celebrity restricted stock awards. The
50
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
benefits were recorded directly to capital in excess of par value and
are not reflected in the provision for income taxes.
Income tax expense included in the financial statements is as follows:
FISCAL FISCAL FISCAL
1996 1997 1998
-------- -------- --------
Continuing operations $ 27,636 $ 4,954 $ 5,206
Extraordinary item (5,991) -- --
Change in accounting principle -- -- (3,590)
-------- -------- --------
$ 21,645 $ 4,954 $ 1,616
======== ======== ========
Deferred income taxes were recorded to reflect the tax effects of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts for income
tax purposes for December 29, 1996, December 28, 1997 and December 27,
1998.
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
------------ -----------
<S> <C> <C>
Deferred tax assets:
Preopening costs $ 4,712 $ 10,752
Fixed assets -- 33,889
Deferred credits 6,104 3,186
Accrued expenses & reserves 5,177 6,514
Inventory -- 3,500
Deferred rental expense 4,157 4,419
Deferred compensation -- 3,088
Net operating loss carryforwards 4,884 11,375
Tax credits carryforwards 1,047 11,190
Other 809 125
--------- --------
26,890 88,038
Valuation Allowance (1,925) (88,038)
--------- --------
24,965 --
--------- --------
Deferred tax liabilities:
Fixed assets (8,473) --
Other (50) --
--------- --------
(8,523) --
--------- --------
Net deferred tax asset $ 16,442 $ --
========= ========
</TABLE>
A valuation allowance of $88,000 was established in fiscal 1998 for all
deferred tax assets due to the uncertainty of sufficient taxable income
in the future to utilize the deductible temporary differences and
carryforwards. A valuation allowance of $1,900 was established during
fiscal 1997 for the deferred tax asset relating to foreign operations.
SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
51
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Reconciliation of the income tax provision to the tax provision computed
by applying the federal statutory rate is as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax $26,501 $ 4,624 $(81,460)
Nondeductible expenses 481 252 225
Tax (benefit) of foreign operations (1,336) (772) 3,808
State and local income taxes, net of
federal tax benefit 2,410 936 (198)
Valuation allowance -- -- 82,831
Tax credits (964) (857) --
Other 544 771 --
------- ------- --------
Total tax expense $27,636 $ 4,954 $ 5,206
======= ======= ========
</TABLE>
The amount of domestic net operating loss carryforwards at December 27,
1998 was $5,500. Of this amount, $4,300 was generated by certain
subsidiaries prior to their acquisition and have expiration dates
through the fiscal year 2011. The use of pre-acquisition operating loss
carryforwards is subject to limitations imposed by the Internal Revenue
Code. The remaining net operating loss of $1,200 will expire in 2018.
The amount of foreign tax credit carryforwards at December 27, 1998
total $4,800 which expire between 2001 and 2003. General business tax
credit carryforwards total $4,400 and expire between 2010 and 2018.
Alternative minimum tax credit carryforwards total $1,900 and carry
forward indefinitely.
The amount of foreign net operating loss carryforwards at December 27,
1998 was $24,700, of which $20,500 have no expiration date and $4,200
expire between 2002 and 2008.
Provision has not been made for United States or foreign taxes on the
undistributed earnings of foreign affiliates, as those earnings are
considered to be permanently invested. It is not practicable to estimate
the amount of the tax on such earnings. Such earnings would become
taxable upon the sale or liquidation of the investment in these foreign
affiliates or upon the remittance of dividends. Upon remittance, certain
foreign countries impose withholding taxes that are then available,
subject to certain limitations, for use as credits against the Company's
United States tax liability.
52
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum lease payments under the terms of operating and capital
lease agreements at December 27, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
1999 $ 41,015 $ 400
2000 41,634 400
2001 41,867 400
2002 41,821 400
2003 41,672 400
Thereafter 671,985 9,000
Less: amount representing interest (7,149)
------
Present value of net minimum lease payments $3,851
======
</TABLE>
Rent expense approximated $34,500, $44,600 and $49,200 for fiscal 1996,
1997 and 1998, respectively. Included in fiscal 1996, 1997 and 1998 rent
expense is approximately $8,600, $8,600 and $7,300, respectively, of
contingent rental payments.
OTHER
In connection with the construction and development of future
restaurants, the Company has entered into various construction
contracts. As of December 27, 1998, these outstanding contract
commitments totaled approximately $13,400.
In July 1997, the Company entered into a venture with AMC Entertainment,
Inc. ("AMC") to develop, own and operate "Planet Movies By AMC", an
integrated moviegoing dining and retail concept worldwide. The Company
anticipates funding $10 million to the joint venture in fiscal 1999 for
the purposes of developing and operating a "Planet Movies By AMC"
complex in Columbus, Ohio.
The Company and MTV entered into a memorandum of understanding whereby
MTV would assist the Company in the promotion and development the SOUND
REPUBLIC concept. Under the terms of the memorandum, it was anticipated
that the Company would pay MTV a royalty, based on the gross revenues of
SOUND REPUBLIC, for ten years, with a minimum annual guarantee of $1,000
per year. As a result of the Company's decision to cease development of
SOUND REPUBLIC and exit its London unit, the Company is negotiating the
termination of its relationship with MTV.
In February 1998, the Company entered into a five year agreement with
consultants retained to assist the Company with relations and promotions
in the entertainment industry. The Company is required to annually issue
the consultants shares of Class A Common Stock with an aggregate value
of $1,500 over the term of the agreement in return for such services
(see Note 9).
53
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LITIGATION
The Company is a defendant in certain lawsuits for which counsel has
been retained. In the opinion of management, the ultimate outcome of
these matters will not have a material adverse effect upon the financial
condition, results of operations, or cash flows of the Company.
13. RELATED PARTY TRANSACTIONS
During 1995, a company that is controlled by a director and stockholder
of the Company bought the franchise rights to develop one PLANET
HOLLYWOOD unit in the Philippines for $2,000. This site opened in 1997
and the franchise fee was recognized by the Company.
In fiscal 1997, the Company paid approximately $1,000 in investment
banking fees for services rendered by a firm in which a director of the
Company is also a member of that firm's board of directors.
During fiscal 1998, the Company entered into three arrangements with a
franchisee and Company shareholder relating to the formation and
operation of three corporations to be owned equally by the Company and
franchisee/shareholder. The corporations will own and operate Planet
Hollywood units in Tokyo and Zurich and an Official All Star Cafe unit
in London. The Company received $4,300 in cash and a note receivable for
$1,000 from the sale of the Company's 50% interests in the corporations.
The Company may have difficulty in meeting its obligations with respect
to the development of the restaurants in Tokyo and London.
CELEBRITY NOTES RECEIVABLE
The Company has notes receivable from certain celebrity stockholders in
the aggregate gross amount of $5,900. The Company had previously
guaranteed $4,900 of loans made by a bank to certain of the Company's
celebrity stockholders. The Company assumed these generally non-recourse
loans, which are secured by pledges of the celebrities stock in the
Company and certain other assets, from the bank upon maturity. Due to
declines in the market price of Company shares, the collateral
underlying these notes was insufficient and the Company provided $2,000
to mark the loans to their fair market value.
14. OTHER FINANCIAL DATA
GEOGRAPHIC SEGMENT DATA
Condensed financial information, summarized by geographic area, is as
follows:
<TABLE>
<CAPTION>
UNITED OTHER
STATES EUROPE AREAS(1) CORPORATE(2) TOTAL
-------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues 1998 $280,325 $ 92,459 $14,190 $ -- $ 386,974
1997 355,641 103,083 16,401 -- 475,125
1996 305,221 67,824 319 -- 373,364
54
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating Income (Loss) 1998 (150,551) (44,110) (6,084) -- (200,745)
1997 11,272 (6,834) 547 -- 4,985
1996 71,282 3,972 65 -- 75,319
Identifiable Assets 1998 340,606 92,344 7,835 31,842 472,627
1997 363,682 90,851 10,622 40,404 505,559
1996 335,061 53,212 2,974 10,013 401,260
<FN>
(1) Includes Mexico and Canada
(2) Corporate assets include investments in unconsolidated affiliates.
</FN>
</TABLE>
DIRECT REVENUES AND COST OF SALES
Direct revenues and cost of sales are summarized as follows:
FISCAL FISCAL FISCAL
1996 1997 1998
---- ---- ----
Direct revenues:
Food and beverage $222,481 $273,345 $259,644
Merchandise 124,955 173,965 107,652
-------- -------- --------
$347,436 $447,310 $367,296
======== ======== ========
Cost of sales:
Food and beverage $ 50,190 $ 61,930 $ 61,474
Merchandise 40,626 57,519 49,400
-------- --------- --------
$ 90,816 $119,449 $110,874
======== ======== ========
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
AND INVESTING ACTIVITIES:
Issuance of common stock for the purchase
of minority interests $35,185 -- --
Additions to property and equipment,
construction in process and other assets
included in accounts payable and accrued
expenses 12,538 9,459 1,314
Capital lease 3,900 -- --
Purchase of franchise for assumption of
franchisee liabilities 3,181 -- --
Receivable exchanged for stock in an affiliate -- 770 329
</TABLE>
55
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash paid for interest,
net of amount capitalized 10,132 -- 18,464
Cash paid for income taxes 13,398 14,848 1,903
</TABLE>
16. QUARTERLY DATA (UNAUDITED)
Summarized quarterly data for 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL 1997 - QUARTERS ENDED
------------------------------------------------------
MAR. 30 JUNE 29 SEP. 28 DEC. 28 TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Revenues $101,647 $121,892 $149,598 $101,988 $475,125
Income (loss) from operations 13,296 23,150 39,111 (70,572) 4,985
Income (loss) before provision
for income taxes 16,858 26,059 40,167 (69,872) 13,212
Net income (loss) 10,536 16,287 25,245 (43,810) 8,258
Basic EPS - net income (loss) $ 0.10 $ 0.15 $ 0.23 $ (0.40) $ 0.08
Diluted EPS - net income (loss) $ 0.10 $ 0.15 $ 0.23 $ (0.40) $ 0.08
</TABLE>
In the fourth quarter of fiscal 1997, the Company recorded a pre-tax
charge of $71.2 million ($44,500 after tax). The charge was primarily
related to the writedown of impaired assets ($48,700); the writeoff of
accounts receivable, due to the Company's change in business strategy
and financial difficulties of a franchisee ($13,500); and other costs
associated with the Company's change in business strategy.
<TABLE>
<CAPTION>
FISCAL 1998 - QUARTERS ENDED
---------------------------------------------------------
MAR. 29 JUNE 28 SEP. 27 DEC. 27 TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Revenues $96,532 $105,112 $110,261 $ 75,069 $386,974
Income (loss) from operations 2,390 3,478 (10,422) (196,191) (200,745)
Income (loss) before provision
for income taxes 2,608 (1,978) (16,152) (217,220) (232,742)
Income (loss) before
cumulative effect 1,630 (1,236) (10,095) (228,247) (237,948)
Net (loss) (4,354) (1,236) (10,095) (228,247) (243,932)
Basic EPS - net income (loss)
before cumulative effect $ 0.02 $ (0.01) $ (0.09) ($2.09) ($2.18)
Diluted EPS - net income (loss)
before cumulative effect $ 0.02 $ (0.01) $ (0.09) ($2.09) ($2.17)
Basic EPS-net income (loss) $ (0.04) $ (0.01) $ (0.09) ($2.09) ($2.24)
Diluted EPS-net income (loss) $ (0.04) $ (0.01) $ (0.09) ($2.09) ($2.23)
</TABLE>
In the fourth quarter of fiscal 1998, the Company recorded charges
totaling $139,000 for asset impairments, restructuring and severance
costs, and accelerated celebrity options expense (see Note 3). In
addition to these charges, the Company recorded a $3,800 reserve for
franchisee receivables due to
56
<PAGE>
Planet Hollywood International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
continued financial difficulties of certain of the Company's
franchisees. The Company also recorded a $6,000 reserve for discontinued
and obsolete inventory items as a result of the Company's launch of a
new merchandising strategy. The Company also recorded losses of $8,600
from its equity investment in unconsolidated affiliates in the fourth
quarter of fiscal 1998 as a result of asset impairments and operating
losses recorded by these entities in the fourth quarter.
57
<PAGE>
Planet Hollywood International, Inc.
Financial Statement Schedule II -- Valuation and qualifying accounts
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO CHARGED TO BALANCE
DESCRIPTION 12/28/97 COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS 12/27/98
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible
accounts receivable $1,500,000 $ 3,756,000 $ -- $ 3,134,000 (1) $ 2,122,000
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the writeoff of specific accounts receivable in 1998.
</FN>
</TABLE>
58
<PAGE>
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(A) 1. FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets at December 28, 1997 and December 27, 1998
Consolidated Statements of Operations for the three years ended December
27, 1998
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended December 27, 1998
Consolidated Statements of Cash Flows for the three years ended December
27, 1998
Notes to the Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
For the year ended December 27, 1998 II - Valuation and Qualifying
Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
Financial statements of two 50% owned companies have been omitted
because the registrant's proportionate share of the income from
continuing operations before income taxes is less than 20% of the
respective consolidated amount, and the investment in and advances to
each company is less than 20% of consolidated total assets.
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
3.1(1) Restated Certificate of Incorporation of the Registrant
3.2(2) Third Amended and Restated Bylaws of the Registrant
4.1(2) First Amendment to Amended and Restated Revolving Credit
Agreement, dated as of December 8, 1998, among the
Registrant, SunTrust Bank and certain other banks
4.5(3) Amended and Restated Credit Agreement, dated as of March
25, 1998, among the Registrant, SunTrust Bank and certain
other banks
4.6(3) Indenture dated as of March 25, 1998, between the Company
and United States Trust Company of New York, as Trustee,
relating to the Company's 12% Senior Subordinated Notes
due 2005
4.7(3) Initial Global Notes, dated March 25, 1998
10.1(1) Form of Master Franchise Agreement
10.2(1) Form of Memorabilia Lease
10.3(1) Form of License Agreement
60
<PAGE>
10.5(1) Ground Lease Agreement between Lake Buena Vista
Communications, Inc. And Planet Hollywood (Orlando), Inc.
10.6(1) License Agreement dated as of December 4, 1992, by and
between the Registrant and Planet Hollywood (Asia) Pte.
Ltd.
10.7(1) First Amendment to the License Agreement dated as of July
1, 1995, by and between the Registrant and Planet
Hollywood (Asia) Pte. Ltd.
10.7A(3) Second Amendment to the License Agreement, dated as of
October 1, 1995, by and between the Registrant and Planet
Hollywood (Asia) Pte. Ltd.
10.7B(3) Third Amendment to the License Agreement, dated as of
November 6, 1997, by and between the Registrant and
Planet Hollywood (Asia) Pte. Ltd.
10.8(1) Form of Master Franchise Agreement for All Star Cafe,
Inc.
10.12(4) First Amended and Restated 1995 Celebrity Stock Award and
Incentive Plan
10.13(5) First Amended and Restated 1995 Stock Award and Incentive
Plan
10.14(1) Form of Stock Option Award Agreement for options granted
under the 1995 Celebrity Stock Award and Incentive Plan
10.15(1) Form of Stock Option Award Agreement for options granted
under the 1995 Stock Award and Incentive Plan
10.16(1) Employment Agreement dated August 8, 1995, between the
Registrant and Robert Earl
10.17(6) Employment Agreement dated June 26, 1998, between the
Registrant and William H. Baumhauer
10.19(7) Limited Partnership Agreement of Planet Movies Company,
L.P., dated October 17, 1997
10.20(7) Master Agreement, dated as of December 2, 1997, relating
to the Planet Hollywood Hotel joint venture between
Planet Hospitality Holdings, Inc., Times Square Partners
LLC and others
10.21(8) Registration Rights Agreement dated as of October 30,
1998, by and between the Registrant, Leisure Ventures
Pte. Ltd. and Kingdom Planet Hollywood, Ltd.
10.22(9) Letter Agreement, including annexes thereto (which
include the form of the Registration Rights Agreement),
between the Registrant and Keith Barish, regarding Mr.
Barish's resignation as Chairman of the Board of
Directors, as amended on December 14, 1998
10.23(10) Amendments to the Letter Agreement between the Registrant
and Mr. Barish, dated as of January 19, 1999
10.24(11) Amendment to the Registration Rights Agreement dated
November 6, 1998, as amended January 19, 1999 and
February 23, 1999 between the Registrant and Mr. Barish
10.25(12) Amendment to the Lock-up Letter dated November 6, 1998,
as amended December 14, 1998, January 19, 1999 and
February 23, 1999 between the Registrant and Mr. Barish
21.1(6) Subsidiaries
23.1(6) Consent of PricewaterhouseCoopers LLP
23.2(13) Consent of PricewaterhouseCoopers LLP
24.1(6) Powers of Attorney (included in signature page)
27.1(6) Financial Data Schedule
- ----------
(1) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form S-1, as
amended, previously filed by the Registrant (file no. 333-01490)
61
<PAGE>
(2) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form S-3, as
amended, previously filed by the Registrant (file no. 333-67101)
(3) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form S-4, as
amended, previously filed by the Registrant (file no. 333-51655)
(4) Incorporated by reference to Exhibit 99.1 in the Registration
Statement on Form S-8, as amended, previously filed by the
Registrant (file no. 333-31683)
(5) Incorporated by reference to Exhibit 99.1 in the Registration
Statement on Form S-8, as amended, previously filed by the
Registrant (file no. 333-66659)
(6) Previously filed as part of the Registrant's initial Annual Report
on Form 10-K filed with the Commission on March 29, 1999.
(7) Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Annual Report on Form 10-K for the year
ended December 28, 1997, as amended, previously filed by the
Registrant
(8) Incorporated by reference to Exhibit 10.2 in the Registration
Statement on Form S-3, as amended, previously filed by the
Registrant (file no. 333-67101)
(9) Incorporated by reference to Exhibit 10.1 in the Registration
Statement on Form S-3, as amended, previously filed by the
Registrant (file no. 333-67467)
(10) Incorporated by reference to Exhibit 10.2 in the Registration
Statement on Form S-3, as amended, previously filed by the
Registrant (file no. 333-67467)
(11) Incorporated by reference to Exhibit 99.1 in the Current Report on
Form 8-K dated February 23, 1999, previously filed by the
Registrant on February 23, 1999
(12) Incorporated by reference to Exhibit 99.2 in the Current Report on
Form 8-K dated February 23, 1999, previously filed by the
Registrant on February 23, 1999
(13) Filed herewith
(B) REPORTS ON FORM 8-K.
During the last quarter of the period covered by this Form 10-K,
the Company filed one report on Form 8-K. On November 12, 1998,
the Company filed a Current Report on Form 8-K (dated November
10, 1998) relating to the resignation of Keith Barish as the
Company's Chairman of the Board of Directors. Said report cited
the appointment of William H. Baumhauer to the positions of
President and Chief Operating Officer as reasons for Mr. Barish's
resignation. The report included, as exhibits, (i) a letter
agreement between the Company and Mr. Barish outlining the terms
of Mr. Barish's resignation, which include certain registration
rights with respect to a portion of Mr. Barish's shares of the
Company's common stock and (ii) the press release issued by the
Company on November 10, 1998 announcing the resignation of Mr.
Barish and the election of Robert Earl as Chairman of the Board
of Directors.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 8th day of
April, 1999.
By: /s/ THOMAS AVALLONE
-----------------------------------------
Thomas Avallone
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
PLANET HOLLYWOOD INTERNATIONAL, INC.
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-31683, No. 333-31685 and No. 333-66659)
and on Form S-3 (No. 333-67101 and No. 333-67467) of Planet Hollywood
International, Inc. of our report dated March 26, 1999 which is
incorporated in this Annual Report on Form 10-K, as amended.
PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
April 8, 1999
