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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________.
COMMISSION FILE NUMBER 00028230
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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 OFFICES, INCLUDING ZIP CODE)
(407) 363-7827
---------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of April 30, 1999, there were approximately 100,140,781 shares of the
registrant's Class A voting Common Stock outstanding and approximately
8,844,996 shares of the registrant's Class B non-voting Common Stock
outstanding.
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<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements .................................................. 1
Condensed Consolidated Balance Sheets --
March 28, 1999 and December 27, 1998 .................................. 1
Condensed Consolidated Statements of Operations --
Thirteen weeks ended March 28, 1999 and March 29, 1998 ................ 2
Condensed Consolidated Statements of Cash Flows --
Thirteen weeks ended March 28, 1999 and March 29, 1998 ................ 3
Condensed Consolidated Statements of Changes in Stockholders' Equity --
Thirteen weeks ended March 28, 1999 and March 29, 1998 ................ 4
Notes to Condensed Consolidated Financial Statements .................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............ 13
PART II. OTHER INFORMATION
Item 5. Other Information ..................................................... 15
Item 6. Exhibits and Reports on Form 8-K ...................................... 15
SIGNATURES ...................................................................... 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 27,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 25,048 $ 45,426
Accounts receivable, net .......................... 14,360 16,740
Taxes receivable .................................. 12,308 12,308
Inventories ....................................... 15,850 19,186
Prepaid expenses and other assets ................. 6,420 6,271
---------- ----------
Total current assets ............................ 73,986 99,931
Restricted cash and cash equivalents ............... 11,290 16,265
Property and equipment, net ........................ 274,397 281,115
Goodwill, net ...................................... 26,528 27,057
Other assets, net .................................. 16,277 16,417
Investment in affiliated entities .................. 30,610 31,842
---------- ----------
Total assets .................................... $ 433,088 $ 472,627
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .......... $ 60,561 $ 64,783
Notes payable -- current .......................... 25,517 25,326
---------- ----------
Total current liabilities ....................... 86,078 90,109
Deferred rentals ................................... 11,712 11,618
Notes payable ...................................... 253,733 254,420
Capital lease obligation ........................... 3,808 3,815
Deferred credits ................................... 6,350 6,350
---------- ----------
Total liabilities ............................... 361,681 366,312
Stockholders' equity:
Common stock -- Class A ........................... 974 974
Common stock -- Class B ........................... 118 118
Capital in excess of par value .................... 286,017 285,667
Deferred compensation ............................. (175) (225)
Accumulated deficit ............................... (212,010) (177,288)
Accumulated other comprehensive income ............ (3,517) (2,931)
---------- ----------
Total stockholders' equity ......................... 71,407 106,315
---------- ----------
Total liabilities and stockholders' equity ......... $ 433,088 $ 472,627
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------
MARCH 28, 1999 MARCH 29, 1998
---------------- ---------------
<S> <C> <C>
Revenues ............................................................... $ 75,028 $ 96,532
--------- --------
Costs and expenses:
Cost of sales ......................................................... 20,233 23,629
Operating expenses .................................................... 55,809 53,076
General and administrative expenses ................................... 11,795 9,966
Preopening costs ...................................................... -- 2,116
Depreciation and amortization ......................................... 5,092 5,355
Restructuring charges ................................................. 3,500 --
Impairment of long lived assets ....................................... 4,598 --
--------- --------
101,027 94,142
--------- --------
Income (loss) from operations .......................................... (25,999) 2,390
Non-operating expense (income):
Interest expense ...................................................... 8,118 416
Interest income ....................................................... (492) (229)
Equity in income of unconsolidated affiliates ......................... 1,097 (405)
--------- --------
Income (loss) before income taxes and cumulative effect ................ (34,722) 2,608
Provision for income taxes ............................................. -- 978
--------- --------
Income (loss) before cumulative effect of change in accounting ......... (34,722) 1,630
Cumulative effect of change in accounting principle .................... -- (5,984)
--------- --------
Net loss ............................................................... $ (34,722) $ (4,354)
========= ========
Earnings per share:
BASIC
Income (loss) before cumulative effect of change
in accounting principle .............................................. $ (0.32) $ 0.02
========= ========
Cumulative effect of change in accounting principle .................... -- $ (0.06)
========= ========
Net loss ............................................................... $ (0.32) $ (0.04)
========= ========
DILUTED
Income (loss) before cumulative effect of change
in accounting principle .............................................. $ (0.32) $ 0.02
========= ========
Cumulative effect of change in accounting principle .................... -- $ (0.06)
========= ========
Net iloss .............................................................. $ (0.32) $ (0.04)
========= ========
BASIC Weighted Average Shares .......................................... 109,090 109,022
========= ========
DILUTED Weighted Average Shares ........................................ 109,090 109,881
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------
MARCH 28, 1999 MARCH 29, 1998
---------------- ---------------
<S> <C> <C>
Net cash used in operating activities ........................ $ (19,883) $ (21,001)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment ........................ (4,881) (22,874)
Investment in affiliate .................................... (365) (321)
Other ...................................................... -- (361)
--------- ---------
Net cash used in investing activities ........................ (5,246) (23,556)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of options .......................... -- 41
Decrease in restricted cash ................................ 4,975 --
Proceeds from issuance of notes payable .................... -- 250,000
Deferred financing costs ................................... -- (10,258)
Repayment of notes payable ................................. (203) (63,009)
--------- ---------
Net cash provided by financing activities .................... 4,772 176,774
Effect of exchange rate on cash .............................. (21) (487)
--------- ---------
Net (decrease) increase in cash and cash equivalents ......... (20,378) 131,730
Cash and cash equivalents at beginning of period ............. 45,426 9,089
--------- ---------
Cash and cash equivalents at end of period ................... $ 25,048 $ 140,819
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK CAPITAL IN
CLASS A CLASS B EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
--------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 28, 1997 ........... 97,128 $972 11,765 $118 $279,372
Net loss .....................
Other comprehensive
income:
Currency translation
adjustment .................
Comprehensive income .........
Stock issuance ............... 190 2 1,198
Celebrity restricted stock
options and awards .......... 5,036
Exercise of stock
options ..................... 8 61
Employee restricted stock
awards ......................
------- ---- ------ ---- --------
Balance at
December 27, 1998 ........... 97,326 974 11,765 118 285,667
Net loss .....................
Other comprehensive
income:
Currency translation
adjustment .................
Comprehensive income .........
Stock issuance ...............
Celebrity restricted stock
options and awards .......... 350
Exercise of stock
options .....................
Employee restricted
stock awards ................
------- ---- ------ ---- --------
Balance at
March 28, 1999 .............. $97,326 $974 11,765 $118 $286,017
======= ==== ====== ==== ========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RETAINED DEFERRED COMPREHENSIVE STOCKHOLDERS'
INCOME EARNINGS COMPENSATION INCOME EQUITY
--------------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at
December 28, 1997 ........... $ 66,644 $ (4,125) $ (4,440) $ 338,541
Net loss ..................... $ (243,932) (243,932) (243,932)
Other comprehensive
income:
Currency translation
adjustment ................. 1,509 1,509 1,509
----------
Comprehensive income ......... $ (242,423)
----------
Stock issuance ............... 1,200
Celebrity restricted stock
options and awards .......... 3,700 8,736
Exercise of stock
options ..................... 61
Employee restricted stock
awards ...................... 200 200
-------- -------- -----------
Balance at
December 27, 1998 ........... (177,288) (225) (2,931) 106,315
Net loss ..................... $ (34,722) (34,722) (34,722)
Other comprehensive
income:
Currency translation
adjustment ................. (586) (586) (586)
----------
Comprehensive income ......... $ (35,308)
----------
Stock issuance ...............
Celebrity restricted stock
options and awards .......... 350
Exercise of stock
options .....................
Employee restricted
stock awards ................ 50 50
---------- -------- -------- -----------
Balance at
March 28, 1999 .............. $ (212,010) $ (175) $ (3,517) $ 71,407
========== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Planet Hollywood International, Inc. have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission.
The information furnished herein reflects all adjustments (consisting of
only normal recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly state the operating results for the respective
periods. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The notes to the condensed consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements contained
in the Company's Form 10-K for the fiscal year ended December 27, 1998. All
amounts herein, except per share amounts, are in thousands unless otherwise
stated.
The results for interim periods are not necessarily indicative of trends
or results to be expected for a full year. Certain prior year amounts in the
accompanying condensed consolidated financial statements have been reclassified
to conform with current year presentation.
2. GOING CONCERN
The Company incurred significant losses in fiscal 1998 and the first
quarter of fiscal 1999. Additionally, the Company's revolving credit facility
was terminated in December 1998. Further, the Company anticipates it will
continue to incur negative cash flows from the operation of the OFFICIAL ALL
STAR CAFE, SOUND REPUBLIC and COOL PLANET units. Although the Company has
implemented certain strategies in connection with the refocus of its core
PLANET HOLLYWOOD operations, the Company currently expects continued
under-performance from its PLANET HOLLYWOOD operations due to continuing
declines in same unit sales and margins. Consequently, the Company has been
discussing with bank representatives an extension of the $12.5 million payment
which was due March 31, 1999 under the Company's bank credit facility. The
Company has also delayed the $15 million interest payment required under the
Senior Subordinated Notes agreement, which was due April 1, 1999. As a result,
subsequent to first quarter 1999, the Company was and is presently in default
under the terms of both of those agreements for its failure to make principal
and interest payments when due. 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 dependent upon
5
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
an infusion of capital, additional financing and/or a restructuring of its
existing indebtedness. The Company is actively marketing certain assets and
pursuing a variety of financing alternatives. There can be no assurance,
however, that the Company will be able to effect any of these strategies on
satisfactory terms, if at all. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
3. IMPAIRMENT OF LONG LIVED ASSETS AND RESTRUCTURING CHARGES
In the first quarter of fiscal 1999, the Company recorded a charge of
$4,598 for long lived assets which were impaired. Of that amount, $2,650 was
for an additional impairment of a site under development which is held for
sale. The impairment was necessitated by a reduction in the estimated proceeds
to the Company when the site is sold. The remaining $1,948 of impairments were
for sites which were abandoned.
Restructuring charges of $3,500 were recorded in the first quarter of
fiscal 1999 to accrue for the estimated cost to terminate a lease for a planned
unit which will not be opened.
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Outstanding stock options
issued by the Company represent the only dilutive effect reflected in diluted
weighted average shares.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-Q. All statements contained herein that are not
historical facts including, but not limited to, statements regarding the
Company's current business strategy, the Company's projected sources and uses
of cash, and the Company's plans for future development and operations, are
based upon current expectations. Such statements are forward-looking in nature
and involve a number of risks and uncertainties. Consequently, actual results
may differ materially from the forward-looking statements. Among the factors
that could cause actual results to differ materially are the following: the
availability of sufficient capital to service the Company's debt obligations
and to finance the Company's business plans on terms satisfactory to the
Company; the success of the Company's marketing of certain assets and pursuit
of financing alternatives; the impact of competitive products and pricing;
changes in labor, equipment, food and capital costs; changes in, or the failure
to comply with, regulations affecting the Company's business; future
acquisitions or strategic partnerships; the availability, locations and terms
of sites for development; the timing and costs associated with new location
openings; acceptance of new guests of the Company's brands and concepts;
success of the Company's franchisees and licensees and the manner in which they
promote, operate and develop the Company's brands; general business and
economic conditions; and factors described from time to time in the Company's
reports filed with the Securities and Exchange Commission. The Company cautions
readers not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995.
7
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 28, 1999 COMPARED TO THIRTEEN WEEKS
ENDED MARCH 29, 1998.
In summary, the operating results of the Company expressed as a percentage
of total revenues (except where noted) were as follows.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
MARCH 28, MARCH 29,
1999 1998
----------- ----------
<S> <C> <C>
REVENUES:
Food & Beverage ........................................................ 74.3% 64.8%
Merchandise ............................................................ 23.2% 28.3%
Royalty and other ...................................................... 1.8% 1.7%
Franchise fees ......................................................... 0.7% 5.2%
---- ----
100.0% 100.0%
COSTS AND EXPENSES:
Food and beverage cost of sales(a) ..................................... 24.9% 22.2%
Merchandise cost of sales(b) ........................................... 36.4% 35.6%
Subtotal -- Cost of sales(c) ........................................... 27.7% 26.3%
Operating expenses(c) .................................................. 76.3% 59.0%
General and administrative expenses .................................... 15.7% 10.3%
Depreciation and amortization .......................................... 6.8% 5.5%
Preopening costs ....................................................... -- 2.2%
Restructuring charges(d) ............................................... 4.7% --
Impairment of long-lived assets(d) ..................................... 6.1% --
Income (loss) from operations ........................................... (34.7)% 2.5%
NON-OPERATING EXPENSE (INCOME):
Interest expense ....................................................... 10.8% 0.4%
Interest income ........................................................ (0.7)% (0.2)%
Equity in (income) losses of unconsolidated affiliates ................. 1.5% (0.4)%
Income (loss) before income taxes and cumulative effect of change in
accounting principle .................................................. (46.3)% 2.7%
Provision for income taxes .............................................. -- 1.0%
Income (loss) before cumulative effect of change in accounting principle (46.3)% 1.7%
Cumulative effect of change in accounting principle(e) .................. -- (6.2)%
----- -----
Net loss ................................................................ (46.3)% (4.5)%
===== =====
<FN>
- ----------------
(a) As a percentage of food and beverage revenues.
(b) As a percentage of merchandise revenues.
(c) As a percentage of Direct Revenues.
(d) Represents a $3.5 million charge for lease termination costs and $4.6
million of asset impairment charges.
(e) Represents the effect of adopting SOP 98-5 in fiscal 1998.
</FN>
</TABLE>
8
<PAGE>
REVENUES. Total revenues decreased from $96.5 million for the thirteen
weeks ended March 29, 1998 ("first quarter 1998") to $75.0 million for the
thirteen weeks ended March 28, 1999 ("first quarter 1999"), a decrease of $21.5
million or 22%. The decrease in total revenues was primarily attributable to a
decline in same-unit revenues and a decrease in franchise revenues.
Food and beverage revenues and merchandise revenues derived from
Company-owned units, as well as merchandise revenues from other retail channels,
are referred to herein collectively as "Direct Revenues." Direct Revenues
decreased 19% from $89.9 million for first quarter 1998 to $73.2 million for
first quarter 1999. The decrease in Direct Revenues was primarily due to a $17.0
million (22%) decline in revenues in the units comprising the Company's same
unit base. These decreases were partially offset by a $3.9 million incremental
increase in revenues from units opened subsequent to first quarter 1998. The
decline in same unit revenues was primarily due to declines in customer traffic
and a decline in the merchandise sales mix. Overall, restaurant average spends
on a same unit basis increased 3% from first quarter 1998 to first quarter 1999;
however, restaurant covers on a same unit basis decreased 19%. Merchandise
average spends declined 6%, while merchandise transactions decreased 31%. The
decline in merchandise spends was primarily due to the impact of promotions and
discount programs in first quarter 1999. Merchandise transactions decreased
primarily due to the absence of any new merchandise lines in the majority of the
Company's units and was also impacted by declines in customer traffic. The
Company is in the process of introducing new merchandise in an effort to improve
its merchandise sales and average spends.
Franchise fees were $5.0 million for first quarter 1998 compared to $0.5
million for first quarter 1999. The decrease in franchise fees was primarily
due to the Company recognizing revenue for five franchises in first quarter
1998 compared to one franchise in first quarter 1999. The Company anticipates
franchise revenues will continue to fluctuate on a quarterly basis due to the
timing of franchise unit openings.
COSTS AND EXPENSES. Food and beverage costs increased from 22.2% of food
and beverage revenues in first quarter 1998 to 24.9% in first quarter 1999. The
increase was primarily a result of menu modifications made during first quarter
1999 and reduced menu prices. Merchandise costs increased from 35.6% of
merchandise revenues in first quarter 1998 to 36.4% in first quarter 1999
primarily as a result of shifts in sales composition. Operating expenses, which
consist primarily of labor, occupancy and other direct unit operating costs,
increased from $53.1 million in first quarter 1998 to $55.8 million in first
quarter 1999. As a percentage of Direct Revenues, these costs increased from
59.0% of Direct Revenues in first quarter 1998 to 76.3% in first quarter 1999.
This increase was primarily due to the relatively fixed nature of unit
operating costs in relation to lower sales volumes and expenses incurred to
update the look of certain existing PLANET HOLLYWOOD locations.
General and administrative expenses increased from $10.0 million in first
quarter 1998 to $11.8 million in first quarter 1999. The increase was due
primarily to (i) an increase in
9
<PAGE>
insurance costs resulting from unfavorable claims experience and an increase in
claims handling fees, (ii) an increase in professional fees for consultants
assisting the Company with issues arising from its current financial condition,
(iii) increased product development costs associated with the refurbishment of
certain PLANET HOLLYWOOD units, and (iv) increases in certain non-cash
celebrity related costs.
PREOPENING COSTS. Preopening costs for first quarter 1998 were $2.1
million due to the Company opening two units in first quarter 1998. There were
no preopening costs in first quarter 1999 because the Company did not open any
units in first quarter 1999.
RESTRUCTURING CHARGES. In first quarter 1999, the Company recorded a
charge of $3.5 million for the estimated costs to terminate a lease for a unit
which will not be opened. First quarter 1999 restructuring activity was as
follows:
<TABLE>
<CAPTION>
ACCRUED PAID IN EXPENSE ACCRUED
DECEMBER 27, FIRST QUARTER FIRST QUARTER MARCH 28,
1998 1999 1999 1999
-------------- --------------- --------------- ----------
RESTRUCTURING COSTS:
<S> <C> <C> <C> <C>
Employee Severance ........................ $ 1,495 $ 598 $ -- $ 897
Lease termination costs for units closed or
not to be opened ........................ 3,985 1,375 3,500 6,110
------- ------ ------ -------
Total Restructuring Costs .................. $ 5,480 $1,973 $3,500 $ 7,007
======= ====== ====== =======
</TABLE>
IMPAIRMENT OF LONG LIVED ASSETS. In first quarter 1999, the Company
recorded a charge of $4.6 million for long lived assets which were impaired. Of
that amount, $2.7 million was for an additiional impairment of a site under
development which is held for sale. The impairment was necessitated by a
reduction in the estimated proceeds to the Company when the site is sold. The
remaining $1.9 million of impairments were for sites which were abandoned.
INTEREST EXPENSE. Interest expense increased from $0.4 million in first
quarter 1998 to $8.1 million in first quarter 1999. The increase is due to
interest associated with the Company's $250.0 million debt offering completed
in March 1998.
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATES. Equity in income
of unconsolidated affiliates decreased from $0.4 million in first quarter 1998
to a loss of $1.1 million in first quarter 1999. The decline in equity in
income of unconsolidated affiliates was principally caused by losses incurred
by Planet Hollywood (Asia) Pte. Ltd., an entity 50% owned by the Company.
PROVISION FOR INCOME TAXES. The provision for income taxes was $1.0
million or 37.5% of pretax income in first quarter 1998. In first quarter 1999,
no benefit for losses incurred was recorded due to uncertainty surrounding the
recovery of these losses.
CHANGE IN ACCOUNTING PRINCIPLE. In third quarter 1998 the Company adopted
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("SOP 98-5") which required the Company to expense as incurred all pre-opening
costs that were not otherwise
10
<PAGE>
capitablzable as long-lived assets. As a result of the adoption of SOP 98-5, the
Company has restated first quarter 1998 to recognize a $6.0 million charge for
the cumulative effect of the change in accounting principle, net of the related
income tax effect of $3.4 million, and expense all preopening costs as incurred.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in first quarter 1998 and first
quarter 1999 was $21.0 million and $19.9 million, respectively. In first
quarter 1998, the primary use of cash in operating activities was for the
reduction of $28.0 million in trade payables. In first quarter 1999, losses
from operations were the primary use of cash in operating activities.
Net cash used in investing activities in first quarter 1998 and first
quarter 1999 was $23.6 million and $5.2 million, respectively. The decrease was
primarily the result of the Company decreasing construction activity in first
quarter 1999. Capital expenditures for first quarter 1998 and first quarter
1999 were $22.9 million and $4.9 million, respectively.
In first quarter 1998, net cash provided by financing activities was
$176.8 million. For first quarter 1999, $4.8 million was provided by financing
activities. In first quarter 1998, the Company issued $250.0 million of 12%
Senior Subordinated Notes due 2005 with a portion of the net proceeds used to
repay borrowings under the Company's old credit facility. In first quarter 1999
the cash provided by financing activities was primarily the result of a
reduction of restricted cash of $5.0 million.
The Company has historically relied upon financing initiatives to fund
capital expenditures and for working capital. The Company anticipates that it
will continue to incur negative cash flows from the operation of the OFFICIAL
ALL STAR CAFE, SOUND REPUBLIC and COOL PLANET units. Although the Company has
implemented certain strategies in connection with the refocus of its core
PLANET HOLLYWOOD operations, the Company currently expects continued
underperformance from its PLANET HOLLYWOOD operations due to an expected
continuing decline in same unit sales and margins in the near term. The Company
also expects to incur some cash expenditures in connection with the disposition
of assets. Consequently, the Company has been discussing with bank
representatives an extension of the $12.5 million payment which was due March
31, 1999, under the Company's bank credit facility, and the Company has delayed
the $15.0 million interest payment required under the Senior Subordinated Notes
which was due on April 1, 1999. As a result, subsequent to first quarter 1999,
the Company was and is presently in default under the terms of both of these
agreements for its failure to make principal and interest payments when due.
While the Company expects to offset some of these obligations from the proceeds
of the sale of assets, unless the sales can be completed on a timely basis and
the Company realizes an improvement in its PLANET HOLLYWOOD operations, the
Company's ability to meet its obligations will be dependent upon an infusion of
capital, additional financing and/or a restructuring of its existing
indebtedness. The Company is actively marketing certain assets and pursuing a
variety of financing alternatives. There can be no assurance, however, that the
Company will be able to effect any of these strategies on satisfactory terms,
if at all.
11
<PAGE>
OTHER
YEAR 2000 COMPLIANCE. The Year 2000 will have a broad impact on the
business environment in which the Company operates due to the possibility that
many computerized systems across all industries will be unable to process
information containing dates beginning in the Year 2000. The Company has
established an enterprise-wide program to prepare its computer systems and
applications for the Year 2000 and is utilizing both internal and external
resources to identify, correct and test the Company's systems for Year 2000
compliance.
As of March 28, 1999, the Company had substantially completed an inventory
of all information technology equipment and is continuing to address the Year
2000 readiness of such equipment. The Company completed most of its domestic
reprogramming in fiscal 1998, and substantially completed the testing of the
program modifications in first quarter 1999. Further validation through testing
will be conducted throughout calendar year 1999. In addition to the
reprogramming of existing applications, the Company is in the process of
implementing a new enterprise information system. The system will be Year 2000
compliant, with testing and implementation of the enterprise information system
expected to be completed by August 1999. The Company is in the process of
upgrading the point of sale system for Year 2000 compliance, which is expected
to be completed by August 1999.
The enterprise-wide program, including testing and remediation of all of
the Company's systems and applications, is expected to cost approximately $1.0
million from inception in fiscal 1997 through completion in fiscal 1999. Of
these costs, approximately $0.5 million was incurred through March 28, 1999,
with the remaining $0.5 million expected to be incurred in the remainder of
fiscal 1999. The Company's new enterprise information system is estimated to
cost $2.5 million, of which $1.6 million was incurred through March 28, 1999.
The remaining $0.9 million is expected to be incurred in the remainder of
fiscal 1999. The cost of the point of sale system upgrade is estimated at $0.5
million dollars.
As of March 28, 1999, the Company had completed a preliminary review of
non-information technology equipment at five units and did not identify any
significant issues associated with the Year 2000 readiness of that equipment. A
comprehensive review of all non-information technology equipment for all units
is scheduled to be completed by September 1999 at which time any Year 2000
readiness issues will be addressed.
The nature of the Company's business is such that the business risks
associated with the Year 2000 can be reduced by assessing the vendors supplying
the Company's restaurants with food and related products and also assessing the
Company's franchise and joint venture business partners to ensure that they are
aware of the Year 2000 business risks and are appropriately addressing them.
Because third party failures could have a material impact on the Company's
ability to conduct business, the Company has been sending questionnaires to
substantially all of the Company's vendors and business partners to obtain
reasonable assurance that plans are being developed to address the Year 2000
issue. The returned questionnaires are being assessed by the Company,
categorized based
12
<PAGE>
upon readiness for the Year 2000 issues, and prioritized in order of
significance to the business of the Company. To the extent that vendors and
business partners do not provide the Company with satisfactory evidence of
their readiness to handle Year 2000 issues, contingency plans will be
developed.
The Company does not believe the costs related to the Year 2000 readiness
project will be material to its financial position or results of operations.
However, the cost of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party modification
plans, and other factors. Unanticipated failures by critical vendors and
franchise partners, as well as the failure by the Company to execute its own
remediation efforts, could have a material adverse effect on the cost of the
project and its completion date. Furthermore, any such unforeseen occurrences,
if combined with failures of other third parties or in the public
infrastructure, could have a material adverse effect on the Company's results
of operations, financial condition, and/or cash flows. Consequently, there can
be no assurance that the forward-looking estimates contained herein will be
achieved and the actual cost could differ materially from the projections
contained herein.
IMPACT OF INFLATION AND INTERNATIONAL RISKS. Inflation as measured by
consumer price indices has continued at a low level in most of the countries in
which the Company operates. A portion of the Company's sales comes from its
international operations (See Note 14 to the consolidated financial statements
contained in the Company's Form 10-K for the fiscal year ended December 27,
1998). Although these operations are geographically dispersed, which partially
mitigates the risks associated with operating in particular countries, the
Company is subject to the usual risks associated with international operations.
These risks include local political and economic environments and relations
between foreign and U.S. governments.
CURRENCY EXCHANGE RISK. The Company's international operations expose it
to fluctuations in exchange rates when translating foreign currency to U.S.
dollars for financial reporting purposes. The Company is not able to project
the effect of future exchange rate fluctuations on its operating results.
Currency fluctuations did not have a material effect on the Company's results
in first quarter 1999.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates on
debt and changes in commodity prices. A discussion of the Company's accounting
policies for derivative instruments is included in the "Summary of Significant
Accounting Policies" in Note 1 to the consolidated financial statements
contained in the Company's Form 10-K for the fiscal year ended December 27,
1998.
The Company's net exposure to interest rate risk consists of exposure for
interest rate swaps which are utilized to manage overall borrowing costs and
reduce exposure to
13
<PAGE>
adverse fluctuations in interest rates. The Company does not use derivative
instruments for trading purposes. At March 28, 1999 the Company had exposure
of $0.3 million for an interest rate swap agreement on its $35 million credit
facility. The impact on the Company's results of operations of a one-point
interest rate change on the outstanding balance of the variable rate debt as of
March 28, 1999 would not be material. On April 2, 1999 the Company unwound
$11.5 million of the amount covered by the swap agreement at a cost of $0.2
million.
The Company purchases certain commodities such as beef, chicken, flour and
cooking oil. These commodities are generally purchased based upon market prices
established with vendors. These purchase arrangements may contain contractual
features that limit the price paid by establishing certain price floors or
caps. The Company does not use financial instruments to hedge commodity prices
because these purchase arrangements help control the ultimate cost paid and any
commodity price aberrations are generally short term in nature.
This market risk discussion contains forward-looking statements. Actual
results may differ materially from this discussion based upon general market
conditions and changes in domestic and global financial markets.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has not made the $12.5 million payment due to its secured
lender on March 31, 1999, and has been in continuing discussions with the
lender concerning the timing of that payment. The Company has also not made the
$15.0 million interest payment due on the Company's 12% Senior Subordinated
Notes on April 1, 1999, and has been in discussions with certain
representatives of the bondholders concerning the timing of that payment.
Accordingly, subsequent to first quarter 1999, the Company was and is presently
in default under the terms of both of these obligations because of its failure
to make principal and interest payments when due.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
thirteen weeks ended March 28, 1999:
<TABLE>
<CAPTION>
DATE OF FILING
REPORT DATE REGARDING
- --------- --------- ---------------------------------------------------------------------------------
<S> <C> <C>
1/14/99 1/19/99 The announcement of the Company's plans for a fresh look, new menu and
more fashion-oriented merchandise for its theme restaurants.
2/05/99 2/11/99 The completion of a stock purchase transaction between two of the Company's
stockholders -- Leisure Ventures Pte Ltd. and Kingdom Planet Hollywood Ltd.
2/23/99 2/23/99 The amendment of certain agreements with Keith Barish to reflect a revised
plan of distribution for shares of the Company to be sold by Mr. Barish pursuant
to either an effective Form S-3 Registration Statement or Rule 144 under the
Securities Act of 1933.
3/24/99 3/26/99 The resignation of Keith Barish from the Company's Board of Directors.
</TABLE>
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PLANET HOLLYWOOD INTERNATIONAL, INC.
DATE: May 11, 1999 By: /s/ WILLIAM H. BAUMHAUER
------------------------
Name: William H. Baumhauer
Its: President and Chief Operating Officer
DATE: May 11, 1999 By: /s/ THOMAS AVALLONE
-------------------------
Name: Thomas Avallone
Its: Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PLANET HOLLYWOOD INTERNATIONAL,
INC. FOR THE THIRTEEN WEEKS ENDED MARCH 28, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> MAR-28-1998
<CASH> 25,048
<SECURITIES> 0
<RECEIVABLES> 16,482
<ALLOWANCES> (2,122)
<INVENTORY> 15,850
<CURRENT-ASSETS> 73,986
<PP&E> 329,943
<DEPRECIATION> (55,546)
<TOTAL-ASSETS> 433,088
<CURRENT-LIABILITIES> 86,078
<BONDS> 253,733
0
0
<COMMON> 1,092
<OTHER-SE> 70,315
<TOTAL-LIABILITY-AND-EQUITY> 433,088
<SALES> 73,158
<TOTAL-REVENUES> 75,028
<CGS> 20,233
<TOTAL-COSTS> 101,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,118
<INCOME-PRETAX> (34,722)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,722)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,722)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
