UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to___________________
Commission File Number 00028230
PLANET HOLLYWOOD INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-3283783
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8669 COMMODITY CIRCLE
ORLANDO, FLORIDA 32819
-----------------------------------------------------------
(Address of principal executive office, including zip code)
(407) 363-7827
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 31, 2000 there were 3,000,001 shares of the registrant's
Class A voting Common Stock outstanding and 7,000,023 shares of the registrant's
Class B voting Common Stock outstanding.
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 24, 2000
and December 26, 1999........................................................1
Condensed Consolidated Statements of Operations - Thirteen
Weeks and Thirty-nine Weeks ended September 24, 2000 and
September 26, 1999...........................................................2
Condensed Consolidated Statements of Cash Flows - Thirty-
nine Weeks ended September 24, 2000 and September 26, 1999...................3
Condensed Consolidated Statements of Changes in Stockholders'
Equity (deficit) - Thirty-nine Weeks ended September 24, 2000 and
December 26, 1999............................................................4
Notes to Condensed Consolidated Financial Statements.........................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................17
Part II OTHER INFORMATION
Item 1. Legal Proceedings ..............................................................18
Item 5. Other Information..............................................................18
Item 6. Exhibits and Reports on Form 8-K...............................................18
SIGNATURES.......................................................................................19
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
STATED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
SEPTEMBER 24,
2000 DECEMBER 26,
(UNAUDITED) 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 11,359 $ 14,143
Accounts receivable, net ............................... 2,612 4,883
Inventories ............................................ 10,201 13,846
Prepaid expenses and other assets ...................... 6,074 7,642
Assets held for sale ................................... -- 30,000
--------- ---------
Total current assets .............................. 30,246 70,514
Restricted cash and cash equivalents ....................... 1,708 5,403
Property and equipment, net ................................ 95,115 129,639
Goodwill, net .............................................. 12,782 13,427
Other assets, net .......................................... 7,360 4,290
Investment in affiliated entities .......................... 11,809 11,668
--------- ---------
Total assets ...................................... $ 159,020 $ 234,941
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities not subject to compromise:
Accounts payable and accrued liabilities ............... $ 46,057 $ 28,522
Notes payable - current ................................ 280 214
--------- ---------
Total current liabilities not subject to compromise 46,337 28,736
Deferred rentals ........................................... 7,027 7,059
Notes payable .............................................. 41,015 1,648
Notes payable to affiliates ................................ 21,655 --
Deferred credits ........................................... 6,236 4,660
--------- ---------
Total liabilities not subject to compromise ....... 122,270 42,103
Liabilities subject to compromise .......................... -- 304,671
Minority interest .......................................... 1,912 3,212
Stockholders' equity (deficit):
Common stock - Class A ................................. 30 1,008
Common stock - Class B ................................. 70 84
Capital in excess of par value ......................... 332,218 286,886
Accumulated deficit .................................... (289,775) (398,358)
Accumulated translation adjustment ..................... (7,705) (4,665)
--------- ---------
Total stockholders' equity (deficit) ....................... 34,838 (115,045)
--------- ---------
Total liabilities and stockholders' equity (deficit) ....... $ 159,020 $ 234,941
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------- ---------------------------
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue .................................... $ 47,659 $ 80,441 $ 136,578 $ 232,116
Cost and expenses:
Cost of sales .......................... 13,624 22,634 37,268 63,595
Operating expenses ..................... 35,902 56,731 105,934 169,799
General and administrative expenses .... 6,237 9,315 17,458 33,490
Preopening costs ....................... -- 1,320 -- 1,623
Depreciation and amortization .......... 2,578 5,528 8,741 15,511
Restructuring and reorganization charges -- 1,028 8,396 4,528
Impairment of long lived assets ........ -- 75,199 24,165 79,797
--------- --------- --------- ---------
58,341 171,755 201,962 368,343
Loss from operations ....................... (10,682) (91,314) (65,384) (136,227)
Non-operating expense (income):
Interest expense ....................... 1,848 8,245 3,476 25,499
Interest income ........................ (286) (207) (780) (981)
Equity in Loss of unconsolidated
affiliates .......................... 560 1,093 723 2,248
Net gain on sale of assets ............. (816) (3,672) (816) (3,672)
Minority interest and other ............ (10) (745) (3,794) (405)
--------- --------- --------- ---------
Loss before extraordinary item ............. (11,978) (96,028) (64,193) (158,916)
Extraordinary gain on debt forgiveness ..... -- -- (172,776) --
--------- --------- --------- ---------
Net Income (loss) .......................... $ (11,978) $ (96,028) $ 108,583 $(158,916)
========= ========= ========= =========
Income (loss) per share:
BASIC AND DILUTED
Loss before extraordinary item ......... $ (1.20) $ (0.88) $ (.62) $ (1.46)
Extraordinary gain on debt forgiveness . -- -- 1.67 --
========= ========= ========= =========
Net Income (loss) .......................... $ (1.20) $ (0.88) $ 1.05 $ (1.46)
========= ========= ========= =========
BASIC AND DILUTED
Weighted Average Shares ................ 10,000 109,091 103,813 109,091
========= ========= ========= =========
</TABLE>
* Not Applicable
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIAIRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS
THIRTY-NINE WEEKS ENDED
----------------------------
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES ........... $(19,305) $(39,539)
-------- --------
Cash flows from investing activities:
Additions to property and equipment ......... (550) (4,118)
Proceeds from sales of property and equipment 30,800 24,289
Sales of joint venture interests ............ -- 17,385
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES ....... 30,250 37,556
-------- --------
Cash flows from financing activities:
Change in restricted cash .................. 3,695 4,904
Proceeds from issuance of common stock ...... 30,000 --
Repayment of notes payable .................. (47,362) (24,277)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES ........... (13,667) (19,373)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH ................ (62) (24)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ....... (2,784) (21,380)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,143 45,426
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... $ 11,359 $ 24,046
======== ========
The accompanying notes are an integral part of these condensed consolidated
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
CLASS A CLASS B CAPITAL IN
-------------------------- --------------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
------ --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 27, 1998 .......... 97,326 $ 974 $ 11,765 $ 118 $ 285,667
Net loss ...................... -- -- -- -- --
Other comprehensive income
(loss)
Currency translation
adjustment ............... -- -- -- -- --
Comprehensive income (loss) ... -- -- -- -- --
Conversion of Class B shares
to Class A shares ............ 3,449 34 (3,449) (34) --
Amortization of celebrity
restricted stock options
and awards ................. -- -- -- -- 1,219
Exercise of stock options
Employee restricted stock
awards ..................... -- -- -- -- --
--------- --------- --------- --------- ---------
Balance at
December 26, 1999 .......... 100,775 1,008 8,316 84 286,886
Net income .................... -- -- -- -- --
Other comprehensive income
(loss):
Currency translation
adjustment ................. -- -- -- -- --
Comprehensive income (loss) ... -- -- -- -- --
Cancellation of Class A
shares ..................... (100,775) (1,008) -- -- 1,008
Cancellation of Class B
shares ..................... -- -- (8,316) (84) 84
Issuance of warrants in
cancellation of Class A
and B shares ............... -- -- -- -- 1
Warrants issued for loan costs -- -- -- -- 325
Amortization of celebrity
restricted stock options and
awards ..................... -- -- -- -- 1,157
Issuance of Class A shares .... 3,000 30 -- -- 12,827
Issuance of Class B shares .... -- -- 7,000 70 29,930
Balance at
September 24, 2000
(unaudited) ............... 3,000 $ 30 7,000 $ 70 $ 332,218
========= ========= ========= ========= =========
<CAPTION>
TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS
INCOME ACCUMULATED DEFERRED TRANSLATION EQUITY
(LOSS) DEFICIT COMPENSATION ADJUSTMENT (DEFICIT)
-------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 27, 1998 .......... -- $(177,288) $ (225) $ (2,931) $ 106,315
Net loss ...................... $(221,070) (221,070) -- -- (221,070)
Other comprehensive income
(loss)
Currency translation
adjustment ............... (1,734) -- -- (1734) (1,734)
---------
Comprehensive income (loss) ... $(222,804) -- -- -- --
---------
Conversion of Class B shares
to Class A shares ............ -- -- -- -- --
Amortization of celebrity
restricted stock options
and awards ................. -- -- -- -- 1,219
Exercise of stock options
Employee restricted stock
awards ..................... -- -- 225 -- 225
--------- ------- ----- -------- -------
Balance at
December 26, 1999 .......... -- (398,358) -- (4,665) (115,045)
--------- --------- --------- --------- ---------
Net income .................... $ 108,583 108,583 -- -- 108,583
Other comprehensive income
(loss):
Currency translation
adjustment ................. (3,040) -- -- (3,040) (3,040)
---------
Comprehensive income (loss) ... $ 105,543 -- -- -- --
---------
Cancellation of Class A
shares ..................... -- -- -- -- --
Cancellation of Class B
shares ..................... -- -- -- -- --
Issuance of warrants in
cancellation of Class A
and B shares ............... -- -- -- -- 1
Warrants issued for loan costs -- -- -- -- 325
Amortization of celebrity
restricted stock options and
awards ..................... -- -- -- -- 1,157
Issuance of Class A shares .... -- -- -- -- 12,857
Issuance of Class B shares .... -- -- -- -- 30,000
--------- --------- --------- --------- ---------
Balance at
September 24, 2000
(unaudited) ............... -- $(289,775) $ -- $ (7,705) $ 34,838
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
1. REORGANIZATION AND 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 26, 1999. 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.
On October 12, 1999 (the "Petition Date"), the Company and twenty-five
of its domestic operating subsidiaries (the "Debtors") filed voluntary petitions
commencing cases under Chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). An Official Committee of Unsecured Creditors (the "Committee"), which
represented the interests of all unsecured creditors of the Debtors, was
appointed in the Chapter 11 cases. In a Chapter 11 filing, substantially all
liabilities as of the Petition Date are subject to compromise or other treatment
under a plan of reorganization. Generally, actions to enforce or otherwise
effect payment of all pre-Chapter 11 liabilities are stayed while the Company
and its subsidiaries continue their business operations as
debtors-in-possession. The Debtors' Chapter 11 cases resulted from a sequence of
events stemming primarily from significant operating losses experienced in
fiscal 1998 and fiscal 1999. These losses were primarily due to declines in same
unit sales, overall disappointing fiscal operating results, expenses due to the
development of the now discontinued other non-core concepts.
The Company attributes the decrease in prepetition revenues primarily
to a decline in customer traffic resulting from increased competition in the
theme dining industry and a decrease in tourism in several retail markets. There
had likewise been a decline of significant promotional and specialty retail
sales by the Company. The restaurant and retail merchandising industry has been
and continues to be affected by (a) intense competition; (b) changes in consumer
tastes; (c) international, national, regional and local economic conditions; and
(d) patterns in tourist travel, among other factors.
On November 8, 1999, the Debtors filed their Chapter 11 Plan of
Reorganization and Disclosure Statement with the Bankruptcy Court. Prior to the
Petition Date, the Company had negotiated an agreement in principle with an
unofficial creditors' committee representing over two-thirds of the holders of
its $250,000 12% senior subordinated notes payable. On December 13, 1999, the
First Amended Disclosure Statement and the First Amended Joint Plan of
Reorganization as of December 13, 1999 was filed with the Bankruptcy Court. The
amended plan, as modified by the Bankruptcy Court (the "Plan"), was confirmed by
the Bankruptcy Court on January 21, 2000, and became effective on May 9, 2000
(the "Effective Date").
As of the Effective Date, the Company's $250,000 12% senior
subordinated notes payable plus accrued interest of approximately $32,000 were
satisfied through the issuance of a combination of $47,500 in cash, $60,000 of
new secured PIK notes payable and approximately 3,000,000 shares of newly issued
Class A Common Stock. In addition, related deferred financing costs of
approximately
5
<PAGE>
$6,000 were written off. Other liabilities subject to compromise are paid
through the issuance of $5,700 of new secured PIK notes payable and the future
payment of approximately $9,500 of cash. The PIK notes payable, which are
recorded at their estimated fair market value of $60,200, bear interest at 10%
per annum, payable semi-annually, are collateralized by substantially all
Company assets and are due in full in May 2005. These transactions resulted in
the Company recording an extraordinary gain on debt forgiveness of $172,766 for
the second quarter of 2000. In addition, all existing common stock interests and
options to acquire such interests and all other equity securities were canceled
in exchange for 200,000 newly issued warrants in the reorganized Company. Each
warrant entitles the holder to purchase one share of the Company's New Class A
Common Stock at a price of $65.50 per share, exercisable within three years.
The Company also entered into two secured credit facility agreements
aggregating $25,000 as of the Effective Date. A revolving credit facility
agreement (the "Credit Facility") allows the Company to borrow up to $15,000,
under certain conditions, bearing interest at the Eurodollar rate plus 3.25%
annually. The Credit Facility expires in May 2002 and borrowings thereunder will
be collateralized by certain Company assets. A note purchase agreement (the
"Note Agreement") provides an additional $10,000 in financing, under certain
conditions, bearing interest at 14% annually. The Note Agreement expires May
2002 and borrowings thereunder will be collateralized by certain Company assets.
Borrowings under the Note Agreement will be convertible into Class A Common
Stock at $4.29 per share and the Company issued warrants to purchase 200,000
shares of New Class A Common Stock at $4.29 per share under the Note Agreement
which expires January 2003. The warrants have been valued at $325 and are
recorded as deferred loan costs in the accompanying consolidated balance sheet.
No borrowings have yet been made under either credit facility.
In accordance with the Plan, a group of investors organized by the
Company's Chairman and Chief Executive Officer (the "New Money Investors")
purchased approximately 7,000,000 shares of newly issued Class B common stock
("New Class B Common Stock") for $30,000.
The New Money Investors agreed that the Company would withhold up to an
aggregate 999,999 shares of their New Class B Common Stock in order to deliver
such shares to certain celebrities and other third parties in consideration for
their involvement with the Company, and the New Money Investors would not be
entitled to the return of any such shares. In accordance with the terms of the
Plan, the New Money Investors exercise control over the Company through their
ownership of approximately 60% of the company's outstanding common stock.
For tax purposes, the discharge of liabilities pursuant to the Chapter
11 proceeding resulted in income that is excluded from the Company's taxable
income. However, certain of the Company's tax attributes, including net
operating loss carryforwards and tax credits, are reduced by the amount of
cancellation of debt income. To the extent the amount excluded exceeds these tax
attributes, the tax basis in the Company's property has been reduced by the
amount of the excluded cancellation of debt income. The Company has
approximately $100,000 in net operating loss carryovers and $12,000 of credit
carryovers. The ability of the Company to use these carryovers may be subject to
limitations under section 382 of the Internal Revenue Code.
2. IMPAIRMENT OF LONG-LIVED ASSETS
During the quarter ended June 25, 2000, the Company recorded a non-cash
impairment charge of $24,165 related to the write-down of long-lived assets of
one foreign and five domestic restaurants 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
6
<PAGE>
Company's estimates of future discounted cash flows.
In the first quarter of 1999, the Company recorded a charge of $4,598
for long-lived assets which were impaired. Of that amount, $2,650 was for an
additional impairment of a site under development, which was sold during the
second quarter 1999. In partial execution of the Plan, the Company closed nine
Company owned domestic Planet Hollywood locations on October 11, 1999. On
October 11, 1999, the Company also closed certain non-core discontinued
concepts. During October 1999, the Company franchised to certain third parties,
three Company owned Planet Hollywood units and closed one unit in Canada. In the
third quarter of 1999, the Company recorded a $75,199 impairment of long lived
asset expense representing the value of assets abandoned or impaired as a result
of the closing and franchising of units described above and certain similar unit
transactions planned for future periods.
3. INVESTMENTS
In February 2000, PH Asia entered into a binding letter agreement
pursuant to which Star Performance Development Limited, an affiliate of Magnetic
Light Profits Limited (a Company shareholder), agreed to purchase one third of
PH Asia's outstanding capital stock for approximately $4.0 million. The
transaction closed in May, 2000, reducing the Company's equity interest in PH
Asia to 33%. Subsequent to the third quarter 2000, the Company entered into an
agreement with Leisure Ventures and Star East Holdings Limited, the parent
corporation to both Star Performance Development Limited and Magnetic Light
Profits Limited, whereby both Leisure Ventures and the Company's agreed to sell
its remaining equity interest in PH Asia to Star East in exchange for the
issuance of approximately 12% of Star East's issued ordinary share capital,
which is freely tradable on the Stock Exchange of Hong Kong Limited. The Company
received approximately 49,570,552 Star East shares representing approximately 6%
interest when the transaction closed in late October 2000.
4. SALE OF ASSETS
On April 25, 2000, the Company sold its New York Times Square Hotel
property for approximately $30,000, which approximated its carrying value at the
time of sale.
In August 2000, the Company sold its Dublin, Ireland Planet Hollywood
unit resulting in a gain of approximately $800.
5. NOTES PAYABLE TO AFFILIATES
As of September 24, 2000, the Company has $20,905, net of discounts, of
notes payable to holders of Class A common stock equivalent to a greater than
10% ownership interest in the Company.
6. JOINT VENTURES
During the quarter ended June 25 2000, the Company entered into a joint
venture arrangement with a third party for the development and operation of the
Company's website. Under the joint venture agreement, the Company contributed
intellectual property for its 80% interest and the joint venture partner has
contributed $2,000 for the remaining 20% interest in the venture. The venture is
consolidated in the Company's September 24, 2000 condensed consolidated
financial statements. Operations for the venture commenced in July 2000.
In June 2000, the Company entered into a joint venture agreement with a
related party for the purchase of the Planet Hollywood unit in Rome, Italy. The
Company forgave approximately $1,500 of receivables due from the related party
and issued a note payable for $750 in exchange for a 50%
7
<PAGE>
ownership interest in the venture. The venture is accounted for under the equity
method of accounting in the accompanying financial statements.
7. OTHER COMPREHENSIVE LOSS
In addition to net loss, comprehensive loss includes certain amounts
recorded directly in equity. The components of comprehensive income were as
follows:
THIRTEEN WEEKS ENDED
----------------------------
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
------------- -------------
Net loss ................................. $(11,978) $(96,028)
Foreign currency translation adjustment... (2,514) 1,223
-------- --------
Comprehensive loss ....................... $(14,492) $(94,805)
======== ========
Accumulated other comprehensive income is comprised solely of foreign
currency translation adjustment.
8. EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.
Options to purchase 1,000,000 shares of common stock and warrants to
purchase 400,000 shares of common stock were not included in the computation of
diluted earnings per common share in the thirteen and thirty-nine weeks ended
September 24, 2000 since the effect would be antidilutive.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-Q. All statements contained herein that are not
historical facts including, but not limited to, statements regarding the
Company's current business strategy, the Company's projected sources and uses of
cash, and the Company's plans for future development and operations, are based
upon current expectations. Such statements are forward-looking in nature and
involve a number of risks and uncertainties. Consequently, actual results may
differ materially from the forward-looking statements. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to service the Company's debt obligations and
to finance the Company's business plans on terms satisfactory to the Company;
the 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.
9
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 24, 2000 COMPARED TO THIRTEEN WEEKS
ENDED SEPTEMBER 26, 1999.
In summary, certain operating results of the Company expressed as a
percentage of total revenues (except where noted) were as follows.
THIRTEEN WEEKS ENDED
-----------------------------
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
------------- -------------
REVENUES:
Food & Beverage 73.2% 71.7%
Merchandise 20.4% 24.0%
Theatre, royalty, franchise fees and other 6.4% 4.3%
------ ------
100.0% 100.0%
CERTAIN COST AND EXPENSES:
Food and beverage cost of sales (a) 25.4% 26.0%
Merchandise cost of sales (b) 36.1% 33.4%
Total - Cost of sales (c) 29.0% 28.6%
Operating expenses (c) 76.5% 71.7%
--------------
(a) As a percentage of food and beverage sales.
(b) As a percentage of merchandise sales.
(c) As a percentage of sales.
10
<PAGE>
REVENUES. Total revenues decreased from $80.4 million for the thirteen
weeks ended September 26, 1999 ("third quarter 1999") to $47.7 million for the
thirteen weeks ended September 24, 2000 ("third quarter 2000"), a decrease of
$32.7 million or 41%. The decrease in total revenues was attributable to
approximately $13.7 million or 17% of declines in same-unit sales and
approximately $19.0 million of declines, net, related to the closing, sales,
franchising or licensing of 26 units during fiscal 1999, a majority of which
were completed in October 1999.
Food and beverage sales and merchandise sales derived from
Company-operated units, as well as merchandise sales from other retail channels,
are referred to herein collectively as "Sales". Sales decreased 41% from $79.1
million for third quarter 1999 to $46.9 million for third quarter 2000. The
decrease in Sales was primarily due to a decline in sales in the units
comprising the Company's same unit base and the closing, sales, franchising or
licensing of 26 company operated units during fiscal 1999, a majority of which
were completed in October 1999. The decline in the same unit sales was primarily
due to declines in merchandise sales and customer traffic.
COSTS AND EXPENSES. Food and beverage costs decreased from 26.0% of
food and beverage sales in third quarter 1999 to 25.4% in third quarter 2000.
Merchandise costs increased from 33.4% of merchandise sales in third quarter
1999 to 36.1% in third quarter 2000 primarily as a result of shifts in sales
composition. Operating expenses, which consist primarily of labor, occupancy and
other direct unit operating costs, decreased from $56.7 million in third quarter
1999 to $35.9 million in third quarter 2000. As a percentage of sales, these
costs increased from 71.7% of sales in third quarter 1999 to 76.5% in third
quarter 2000. This percentage increase was primarily due to the relatively fixed
nature of unit operating costs in relation to lower sales volumes.
General and administrative expenses decreased from $9.3 million in
third quarter 1999 to $6.2 million in third quarter 2000. The decrease was due
primarily to the restructuring and downsizing of the Company's corporate staff
and facilities during fiscal 1999 and first quarter 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased from $5.5 million in third quarter 1999 to $2.6 million in third
quarter 2000. The decrease of $2.9 million was primarily due to the Company's
closing, selling, franchising or licensing of 26 Company operated units during
fiscal 1999, a majority of which were completed in October.
RESTRUCTURING AND REORGANIZATION CHARGES. In third quarter 1999, the
Company recorded a charge of $1.0 million related to the estimated costs to
terminate leases for units closed during the fourth quarter 1999 and
professional fees incurred related to restructuring activities.
IMPAIRMENT OF LONG LIVED ASSETS. In third quarter 1999, the Company
recorded a charge of $75.2 million to write off costs associated with units
which have been abandoned as part of the Company's reorganization.
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INTEREST EXPENSE. Interest expense decreased from $8.2 million in third
quarter 1999 to $1.8 million in third quarter 2000. The interest expense for the
third quarter 1999 primarily resulted from the Company's $250 million debt
offering completed in March 1998. Interest expense in the third quarter 2000
consists primarily of interest associated with the Company's newly restructured
debt after its May 9, 2000 emergence from bankruptcy. As of May 9, 2000, the
Company's $250,000 12% senior subordinated notes payable plus accrued interest
of approximately $32,000 were satisfied through the issuance of a combination of
$47,500 in cash, $60,000 of new secured PIK notes payable and approximately
3,000,000 shares of newly issued Class A Common Stock.
INTEREST INCOME. Interest income increased from $0.2 million in the
third quarter 1999 to $0.3 million in the third quarter 2000. The increase
resulted from increased cash and investment balances resulting from an infusion
of capital and the forgiveness of debt under the plan of reorganization.
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES. Equity in loss of
unconsolidated affiliates was a loss of $1.1 million in third quarter 1999
compared to $0.6 million in third quarter 2000. These losses are a result of the
continued negative operating results of Planet Hollywood (Asia) Pte, Ltd for the
third quarter of each period.
NET GAIN ON SALE OF ASSETS. In third quarter 2000, the Company recorded
a gain on the sale of assets of $0.8 million primarily resulting from the
Company's sale of its Dublin, Ireland Planet Hollywood unit. In third quarter
1999, the Company recorded a net gain on the sale of assets of $3.7 million
comprised of a gain of approximately $5.8 million related to the Company's sale
of its 20% ownership interest in the Hotel Pennsylvania offset by a loss on the
sale of the Company's New York Sound Republic project.
MINORITY INTEREST AND OTHER. Minority interest and other decreased from
$0.7 million in the third quarter 1999 to $.01 million in third quarter 2000.
Minority interest and other consists primarily of minority interest related to
the Company's Planet Movies joint venture and Planet Hollywood.com website joint
venture.
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THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2000 COMPARED TO THIRTY-NINE WEEKS ENDED
SEPTEMBER 26, 1999.
In summary, certain operating results of the Company expressed as a percentage
of total revenues (except where noted) were as follows:
THIRTY-NINE WEEKS ENDED
----------------------------
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
------------- -------------
REVENUES:
Food & Beverage 72.4% 72.4%
Merchandise 19.0% 24.1%
Theatre, royalty, franchise fees and other 8.6% 3.5%
----- -----
100.0% 100.0%
COSTS AND EXPENSES:
Food and beverage cost of sales (a) 25.4% 25.6%
Merchandise cost of sales (b) 35.2% 34.8%
Total-Cost of sales (c) 28.5% 28.2%
Operating expenses (c) 81.1% 74.5%
----------------
(a) As a percentage of food and beverage sales.
(b) As a percentage of merchandise sales.
(c) As a percentage of Sales.
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REVENUES. Total revenues decreased from $232.1 million for the
thirty-nine weeks ended September 26, 1999 to $136.6 million for the thirty-nine
weeks ended September 24, 2000, a decrease of $95.5 million or 41%. The decrease
in total revenues was attributed to approximately $42.3 million or 18% of
declines in same unit sales and approximately $53.2 million of declines, net,
related to the closing, sale, franchising or licensing of 26 company operated
units during fiscal 1999, a majority of which were completed in October.
Sales decreased 42% from $226.7 million for the thirty-nine weeks ended
September 26, 1999 to $130.6 million for the thirty-nine weeks ended September
24, 2000. The decrease in Sales was primarily due to a decline in sales in the
units comprising the Company's same unit base and the closing, sale, franchising
or licensing of 26 company operated units during fiscal 1999, a majority of
which were completed in October 1999. The decline in same unit revenues was
primarily due to declines in merchandise sales and customer traffic.
COSTS AND EXPENSES. Food and beverage costs decreased from 25.6% of
food and beverage sales in the thirty-nine weeks ended September 26, 1999 to
25.4% in the thirty-nine weeks ended September 24, 2000. The decrease was
primarily a result of costs associated with the introduction of a new menu
during fiscal 1999. Merchandise costs increased from 34.8% of merchandise sales
in the thirty-nine weeks ended September 26, 1999 to 35.2% in the thirty-nine
weeks ended September 24, 2000 primarily as a result of shifts in sales
composition. Operating expenses, which consist primarily of labor, occupancy and
other direct unit operating costs, decreased from $169.8 million in the
thirty-nine weeks ended September 26, 1999 to $105.9 million in the thirty-nine
weeks ended September 24, 2000. As a percentage of Sales, these costs increased
from 74.5% of Sales in the thirty-nine weeks ended September 26, 1999 to 81.1%
in the thirty-nine weeks ended September 24, 2000. This increase was primarily
due to the relatively fixed nature of unit operating costs in relation to lower
sales volumes.
General and administrative expenses decreased from $33.5 million in the
thirty-nine weeks ended September 26, 1999 to $17.5 million in thirty-nine weeks
ended September 24, 2000. The decrease was due primarily to the restructuring
and downsizing of the Company's corporate staff and facilities during 1999 and
first quarter 2000.
PREOPENING COSTS. Preopening costs were $1.6 million in the thirty-nine
weeks ended September 26, 1999 related to the Company's opening of the Planet
Movies joint venture. There were no new unit openings in 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased from $15.5 million in the thirty-nine weeks ended September 26, 1999
to $8.7 million in the thirty-nine weeks ended September 24, 2000. The decrease
of $6.8 million was primarily due to the Company's closing, selling, franchising
or licensing of 26 company operated units during fiscal 1999, a majority of
which were completed in October 1999.
RESTRUCTURING CHARGES. In the thirty-nine weeks ended September 26, 1999,
the Company recorded a charge of $4.5 million related to the estimated costs to
terminate leases for units closed during the fourth quarter 1999 and
professional fees incurred related to restructuring activities. In the
thirty-nine weeks ended September 24, 2000, the Company recorded a charge
14
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of $8.4 million for the costs of legal and professional fees associated with the
Company's restructuring.
IMPAIRMENT OF LONG LIVED ASSETS. In the thirty-nine weeks ended
September 26, 1999, the Company recorded a charge of $79.8 million consisting
primarily of asset write offs associated with units which have been abandoned as
part of the Company's plan of reorganization. As a result of operating losses
incurred and projected future losses for certain of the Company's units, the
Company recorded an impairment charge of $24.2 million in the thirty-nine weeks
ended September 24, 2000.
INTEREST EXPENSE. Interest expense decreased from $25.5 million in the
thirty-nine weeks ended September 26, 1999 to $3.5 million in the thirty-nine
weeks ended September 24, 2000. The interest expense for the thirty-nine weeks
ended September 26, 1999 primarily resulted from the Company's $250 million debt
offering completed in March 1998. As a result of the Company's bankruptcy filing
in 1999 and through May 9, 2000, contractual interest expense of approximately
$25.8 million associated with the $250 million debt offering for the thirty-nine
weeks ended September 24, 2000 was not recorded. Interest expense for the
thirty-nine weeks ended September 24, 2000 consists primarily of interest
associated with the Company's newly restructured debt after its May 9, 2000
emergence from bankruptcy. As of May 9, 2000, the Company's $250,000 12% senior
subordinated notes payable plus accrued interest of approximately $32,000 were
satisfied through the issuance of a combination of $47,500 in cash, $60,000 of
new secured PIK notes payable and approximately 3,000,000 shares of newly issued
Class A Common Stock.
INTEREST INCOME. Interest income decreased from $1.0 million in the
thirty-nine weeks ended September 26, 1999 to $0.8 million in the thirty-nine
weeks ended September 24, 2000. The decrease resulted from $0.2 million of
interest income in the thirty-nine weeks ended September 24, 2000 being recorded
as an offset to restructuring and reorganization charges as a result of the
Company's bankruptcy filing.
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES. Equity in loss of
unconsolidated affiliates decreased from a loss of $2.3 million in the
thirty-nine weeks ended September 26, 1999 to a loss of $0.7 million in the
thirty-nine weeks ended September 24, 2000. In the thirty-nine weeks ended
September 24, 2000, the Company recognized $0.4 million of earnings reported by
ECE, an entity 20% owned by the Company, and a net loss of $1.1 million related
to Planet Hollywood (Asia) Pte. Ltd. ("PH Asia"). The PH Asia net loss is
comprised of $2.4 million of losses offset by a $1.3 million gain from PH Asia's
May 2000 sale of an equity interest to a third party. The Company owned 33% of
PH Asia subsequent to the May 2000 equity transaction. In the thirty-nine weeks
ended September 26, 1999, loss of unconsolidated affiliates was principally
comprised of losses incurred by Planet Hollywood (Asia) Pte. Ltd.
NET GAIN ON SALE OF ASSETS. In the thirty-nine weeks ended September
26, 1999, the Company recorded a net gain on the sale of assets of $3.7 million
comprised of a gain of approximately $5.8 million related to the Company's sale
of its 20% ownership interest in the Hotel Pennsylvania offset by a loss on the
sale of the Company's New York Sound Republic Project. In the thirty-nine weeks
ended September 24, 2000, the Company recorded a gain on the
15
<PAGE>
sale of assets of $0.8 million primarily resulting from the sale of its Dublin,
Ireland Planet Hollywood unit.
MINORITY INTEREST AND OTHER. Minority interest and other increased from
$0.4 million in the thirty-nine weeks ended September 26, 1999 to $3.8 million
in the thirty-nine weeks ended September 24, 2000. The increase is primarily the
result of losses incurred by the Company's Planet Movies joint venture that
opened in the third quarter 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in the thirty-nine weeks ended
September 26, 1999 and the thirty-nine weeks ended September 24, 2000 was $39.5
million and $19.3 million, respectively. The primary use of cash in operating
activities for each period was to fund losses from operations.
Net cash provided by investing activities in the thirty-nine weeks
ended September 26, 1999 and the thirty-nine weeks ended September 24, 2000 was
$37.6 million and $30.3 million respectively. The decrease was primarily the
result of lower proceeds from asset sales in the thirty-nine weeks ended
September 24, 2000 compared to the thirty-nine weeks ended September 26, 1999.
The Company also decreased its construction activity in the thirty-nine weeks
ended September 24, 2000. Capital expenditures for thirty-nine weeks ended
September 26, 1999 and thirty-nine weeks ended September 24, 2000 were $4.1
million and $0.6 million, respectively.
Net cash used in financing activities in the thirty-nine weeks ended
September 26, 1999 and the thirty-nine weeks ended September 24, 2000 was $19.4
million and $13.7 million respectively. In the thirty-nine weeks ended September
26, 1999 the cash used in financing activities was primarily the result of the
repayment of $24.2 million of notes payable offset by a reduction of restricted
cash of $4.9 million. The cash used in financing activities for the thirty-nine
weeks ended September 24, 2000 was primarily a result of the repayment of notes
payable of $47.4 million, offset by the issuance of common stock for $30.0
million and the reduction of restricted cash balances of $3.7 million.
In May 2000, the Company's Chapter 11 Plan of Reorganization became
effective. As a result, the Company's $250,000 12% senior subordinated notes
payable, related accrued interest and other liabilities subject to compromise
were satisfied through the issuance of a combination of cash, new PIK notes
payable, shares of newly issued Class A common stock and the future issuance of
approximately $9,500 of cash. As of September 24, 2000, the Company had paid
approximately $5,204 in satisfaction of the liabilities subject to compromise.
The new PIK notes bear interest at 10% per annum, payable semi-annually, and are
due in May 2005. The Company also entered into two credit facility agreements as
of the effective date, aggregating $25,000, that provide the Company with
working capital sources in the event future cash from operations is insufficient
to meet the Company's working capital requirements. The Company anticipates
utilizing its credit facilities to fund its operating and capital expenditure
activities. The Company expects that cash on hand, cash generated from
operations and funds available under its credit facilities will be sufficient to
meet its requirements.
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OTHER
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 26,
1999). Although these operations are geographically dispersed, which partially
mitigates the risks associated with operating in particular countries, the
Company is subject to the usual risks associated with international operations.
These risks include local political and economic environments and relations
between foreign and U.S. governments.
CURRENCY EXCHANGE RISK. The Company's international operations expose
it to fluctuations in exchange rates when translating foreign currency to U.S.
dollars for financial reporting purposes. The Company is not able to project the
effect of future exchange rate fluctuations on its operating results. Currency
fluctuations did not have a material effect on the Company's results in the
first three quarters of 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in commodity prices.
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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are potential and named defendants in
several lawsuits and claims arising in the ordinary course of business. While
the outcome of such claims, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that such liability, to
the extent not provided for through issuance or otherwise, will not have
material adverse effect on the consolidated financial statements of the Company.
As a result of the Company's Chapter 11 proceedings, which were
completed in May 2000, all actions under its litigation matters were stayed and
jurisdiction over the resolution of these matters was transferred to the
Bankruptcy Court. Claimants against the Company in these matters were treated as
unsecured creditors. See Item 2 of this Form 10-Q - "Management's discussion and
analysis of financial condition and result of operations - Other" for a
description of the Company's Chapter 11 proceedings.
ITEM 5. OTHER INFORMATION
In February 2000, PH Asia entered into a binding letter agreement
pursuant to which Star Performance Development Limited, an affiliate of Magnetic
Light Profits Limited (a Company shareholder), agreed to purchase one third of
PH Asia's outstanding capital stock for approximately $4.0 million. The
transaction closed in May, 2000, reducing the Company's equity interest in PH
Asia to 33%. Subsequent to the third quarter 2000, the Company entered into an
agreement with Leisure Ventures and Star East Holdings Limited, the parent
corporation to both Star Performance Development Limited and Magnetic Light
Profits Limited, whereby both Leisure Ventures and the Company's agreed to sell
its remaining equity interest in PH Asia to Star East in exchange for the
issuance of approximately 12% of Star East's issued ordinary share capital,
which is freely tradable on the Stock Exchange of Hong Kong Limited. the
Company'sreceived approximately 49,570,552 Star East shares representing
approximately 6% interest when the transaction closed in late October 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
There were no reports on form 8-K filed during the thirteen
weeks ended September 24, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PLANET HOLLYWOOD INTERNATIONAL, INC.
DATE: November 8, 2000 By: /s/ ROBERT EARL
--------------------------
Name: Robert Earl
Its: Chairman and Chief Executive Officer
DATE: November 8, 2000 By: /s/ CHRISTOPHER R. THOMAS
---------------------------
Name: Christopher R. Thomas
Its: President, Chief Financial Officer
19
