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 26, 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 April 28, 2000, there were approximately 100,775,096 shares of
the registrant's Class A voting Common Stock outstanding and approximately
8,314,848 shares of the registrant's Class B non-voting Common Stock
outstanding.
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
INDEX
<TABLE>
Part I FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 26, 2000
and December 26, 1999........................................................................1
Condensed Consolidated Statements of Operations - Thirteen
Weeks ended March 26, 2000 and March 28, 1999................................................2
Condensed Consolidated Statements of Cash Flows - Thirteen
Weeks ended March 26, 2000 and March 28, 1999................................................3
Condensed Consolidated Statements of Changes in
Stockholders' Deficit - Thirteen Weeks ended March 26, 2000
and fiscal year ended 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...................................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................19
Part II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................20
Item 3. Default Upon Senior Securities.................................................................20
Item 6. Exhibits and Reports on Form 8-K...............................................................20
SIGNATURES.......................................................................................................21
</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>
MARCH 26,
2000 DECEMBER 26,
(UNAUDITED) 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 10,396 $ 14,143
Accounts receivable, net............................................... 3,219 4,883
Inventories............................................................ 12,775 13,846
Prepaid expenses and other assets...................................... 8,662 7,642
Assets held for sale................................................... 30,000 30,000
-------- --------
Total current assets.............................................. 65,052 70,514
Restricted cash and cash equivalents....................................... 3,910 5,403
Property and equipment, net................................................ 126,651 129,639
Goodwill, net.............................................................. 13,192 13,427
Other assets, net.......................................................... 4,183 4,290
Investment in affiliated entities.......................................... 10,766 11,668
------- ---------
Total assets...................................................... $223,754 $234,941
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities not subject to compromise:
Accounts payable and accrued liabilities............................... $ 30,002 $28,522
Notes payable - current................................................ 280 214
---------- ---------
Total current liabilities not subject to compromise............... 30,282 28,736
Deferred rentals........................................................... 7,089 7,059
Notes payable.............................................................. 1,648 1,648
Deferred credits........................................................... 6,074 4,660
--------- ---------
Total liabilities not subject to compromise....................... 45,093 42,103
Liabilities subject to compromise.......................................... 304,977 304,671
Minority interest.......................................................... 2,567 3,212
Stockholders' deficit:
Common stock - Class A................................................. 1,008 1,008
Common stock - Class B................................................. 84 84
Capital in excess of par value......................................... 287,036 286,886
Accumulated deficit.................................................... (411,672) (398,358)
Accumulated translation adjustment..................................... (5,339) (4,665)
----------- -----------
Total stockholders' deficit................................................ (128,883) (115,045)
--------- ---------
Total liabilities and stockholders' deficit................................ $223,754 $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
--------------------------------
March 26, March 28,
2000 1999
<S> <C> <C>
Revenues.......................................................... $43,508 $75,028
Cost and expenses:
Cost of sales................................................. 11,293 20,233
Operating expenses............................................ 34,928 55,809
General and administrative expenses........................... 6,234 11,795
Depreciation and amortization................................. 2,895 5,092
Restructuring and reorganization charges...................... 670 3,500
Impairment of long lived assets............................... -- 4,598
----------- ---------
56,020 101,027
Loss from operations.............................................. (12,512) (25,999)
Non-operating expense (income):
Interest expense.............................................. 397 8,118
Interest income before reorganization......................... -- (492)
Equity in losses of unconsolidated affiliates................. 900 1,097
Minority interest and other................................... (495) --
-------- --------
Net loss.......................................................... $(13,314) $(34,722)
========= =========
Loss per share:
BASIC and DILUTED Net Loss........................................ $ (0.12) $ (0.32)
========= =========
BASIC and DILUTED Weighted Average Shares......................... 109,091 109,090
======= =======
</TABLE>
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
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------
March 26, March 28,
2000 1999
---------- ---------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES................................................. $(5,206) $(19,883)
-------- ---------
Cash flows from investing activities:
Additions to property and equipment............................................... -- (4,881)
Investment in affiliate........................................................... -- (365)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES................................................. -- (5,246)
---------- ---------
Cash flows from financing activities:
Change in restricted cash......................................................... 1,493 4,975
Repayment of notes payable........................................................ -- (203)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................................. 1,493 4,772
----- -------
EFFECT OF EXCHANGE RATES ON CASH...................................................... (34) (21)
-------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................................. (3,747) (20,378)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................................... 14,143 45,426
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................ $10,396 $25,048
======= =======
</TABLE>
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' DEFICIT
STATED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
Common Common
Stock Stock Capital in Comprehensive Accumulated Total
Class A Class B Excess of Income Accumulated Deferred Translation Stockholders'
Shares Amount Shares Amount Par Value (loss) Deficit Compensation Adjustment Deficit
------- ------ ------ ----- --------- ------ ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 27, 1998......... 97,326 $974 11,765 $118 $285,667 $(177,288) $(225) $(2,931) $106,315
Net loss..................... $(221,070) (221,070) (221,070)
Other comprehensive income
(loss):
Currency translation
adjustment.............. (1,734) (1,734) (1,734)
----------
Comprehensive income (loss).. $(222,804)
==========
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 1,219
Employee restricted
stock awards.............. 225 225
------ ------ ------ ------ ------- ------ --- ------ ---
Balance at
December 26, 1999......... 100,775 1,008 8,316 84 286,886 (398,358) -- (4,665) (115,045)
Net loss..................... $(13,314) (13,314) (13,314)
Other comprehensive income
(loss):
Currency translation
adjustment................ (674) (674) (674)
---------
Comprehensive income (loss).. $(13,988)
=========
Amortization of celebrity
restricted stock options
and awards................ 150 150
-------- ------ ------ ---- -------- -------------- ------ ----------- -----------
Balance at
March 26, 2000 (unaudited) 100,775 $1,008 8,316 $84 $287,036 $(411,672) -- $(5,339) $(128,883)
======= ====== ===== === ======== ========== ===== ======== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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 revenues, overall disappointing fiscal operating results, expenses due to
the development of the now discontinued Sound Republic concept, and losses from
major concepts such as Official All Star Cafe and Cool Planet.
The Company attributes the decrease in revenues primarily to a decline
in customer traffic resulting from increased competition in the theme dining
industry and tourism in several retail markets. There has likewise been a
decline of significant promotional and specialty retail sales by the Company.
The restaurant and retail merchandising industry has been and continues
5
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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 Plan calls for the satisfaction of the Company's $250,000 12%
senior subordinated notes payable (the "Old Notes") plus accrued interest of
$32,000 through the issuance of a combination of $47,500 in cash, $60,000 of new
secured notes payable (the "PIK Notes"), and shares of newly issued Class A
Common Stock ("New Class A Common Stock") equivalent to a 26.5% ownership of the
reorganized Company. Other general and unsecured creditors whose claims are
deemed impaired by the Plan will receive a combination of cash and PIK Notes
with an aggregate value approximately equal to that received by the holders of
the Old Notes. The Plan also includes a $30,000 infusion of new equity by a
group of investors organized by the Company's Chairman and Chief Executive
Officer in exchange for approximately 70% of the equity of the reorganized
Company in the form of Class B common stock ("New Class B Common Stock") and up
to $25,000 in secured credit facilities.
The Plan also calls for the cancellation of all existing common stock
interests and options to acquire such interests and all other equity securities
in exchange for 200,000 newly issued warrants in the reorganized Company to be
provided to holders of existing common stock, provided that no distribution will
be made to a holder of less than 5,450 shares. 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. In addition, one of the credit
facilities totaling $10,000 is convertible into common stock at $4.29 per share
and includes warrants to purchase 200,000 shares of New Class A Common Stock at
$4.29 per share.
For tax purposes, the discharge of liabilities pursuant to a Chapter 11
proceeding will result 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, must be 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 must be reduced by the
6
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
amount of the excluded cancellation of debt income. It is estimated that after
the reorganization, the Company will have approximately $100 million in net
operating loss carryovers and $12 million of credit carryovers.
In connection with its reorganization, it is anticipated that the
Company will undergo an ownership change within the meaning of Section 382 of
the Internal Revenue Code. Consequently, the ability of the Company to use its
net operating losses and credits will be subject to an annual limitation based
on the product of the fair value of the Company immediately after reorganization
multiplied by the federal long-term tax exempt bond rate.
The reorganization, however, should not result in a change in ownership
as defined by Statement of Position 90-7; accordingly, the Company will continue
to recognize its historical basis of accounting. The following unaudited pro
forma consolidated balance sheet as of March 26, 2000 was prepared to illustrate
the estimated effects of the Plan and related financings as if they have
occurred as of March 26, 2000.
7
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 26, 2000
--------------------------------------------------------
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Current assets $ 65,052 $ 30,000 (1) $ 40,052
(47,500) (2)
(7,500) (3)
Restricted cash and cash equivalents 3,910 3,910
Property and equipment, net 126,651 126,651
Goodwill, net 13,192 13,192
Other assets, net 4,183 130 (4) 4,313
Investment in affiliated entities 10,766 10,766
---------- ------------ --------
Total assets $223,754 $(24,870) $198,884
======== ========= ========
Liabilities not subject to compromise $ 45,093 $ 45,093
Liabilities subject to compromise 304,977 (275,720) (2) --
(29,257) (3)
Notes payable -- 62,153
55,000 (2)
5,200 (3)
1,953 (3)
-------------- ---------- -------
Total liabilities 350,070 (242,824) 107,246
------- --------- -------
Minority interest 2,567 2,567
Common stock 1,092 70 (1) 97
27 (2)
(1,092) (4)
Capital in excess of par value 287,036 29,930 (1) 329,387
11,330 (2)
1,091 (4)
Warrants 131 (4) 131
Accumulated deficit (411,672) 161,863 (2) (235,205)
14,604 (3)
Cumulative currency translation
adjustments (5,339) (5,339)
----------- ------------- ---------
Stockholders' equity (deficit) (128,883) 217,824 89,071
--------- ------- -------
Total liabilities and stockholders'
equity (deficit) $223,754 $ (24,870) $198,884
======== =========== ========
</TABLE>
Changes from the historical financial statements in the pro forma consolidated
balance sheet consist of the following adjustments:
8
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(1) Cash of $30,000 is generated through the issuance of 7,000,000 shares of
New Class B common stock in exchange for approximately 70% ownership of
the reorganized Company.
(2) The Old Notes plus accrued interest totaling $275,700, net of deferred
financing costs of $6,100, are paid through the issuance of a combination
of $47,500 in cash, $60,000 of PIK Notes, and 2,650,000 shares of New
Class A Common Stock equivalent to a 26.5% ownership of the reorganized
Company, resulting in a gain on the forgiveness of indebtedness of
$161,900. The PIK Notes are recorded at their estimated fair market value
of $55,000. A portion of the cash generated from the Company's sale of its
New York Times Square Hotel retail unit will be utilized for the cash
payment (see Note 4)
(3) Remaining liabilities subject to compromise are paid through the issuance
of $7,500 of cash, $2,000 of unsecured notes payable and $5,700 of PIK
Notes, resulting in a gain on the forgiveness of indebtedness of $14,600.
The PIK Notes are recorded at their estimated fair market value of $5,200.
(4) The existing shares of Class A and B Common Stock of the Company are
cancelled in exchange for 200,000 newly issued warrants valued at $1. The
common stock and capital in excess of par balances as of March 26, 2000 are
reclassified to reflect the par value of newly issued common stock and the
fair value of the warrants. In addition, 200,000 warrants are issued in
connetion with a new credit facility. The warrants are valued at $130.
2. IMPAIRMENT OF LONG LIVED ASSETS
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.
3. INVESTMENTS
The Company owns a 50% equity interest in PH Asia, which operates and
franchises Planet Hollywood and Official All Star Cafe units in the Pacific Rim.
The remaining interest in PH Asia is owned and controlled by a company in which
a director and shareholder of the Company is a major shareholder. 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,
one of the proposed purchasers of the New Class B Common Stock under the Plan,
agreed to purchase one third of PH Asia's outstanding stock from PH Asia for
approximately $4.0 million. It is anticipated that this transaction will be
completed in May 2000.
4. SUBSEQUENT EVENT
On April 25, 2000, the Company sold its New York Times Square Hotel
retail unit property for approximately $30,000, which approximated its carrying
value at the time of sale.
9
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.
10
<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 Condensed 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 ability
of the Company to consummate asset dispositions and/or to obtain financing as
necessary in order to carry out the terms of the Plan and the terms and
conditions of any such dispositions and financing; difficulties or delays in
realizing improved results from operating consolidations or the sale of certain
facilities or assets held for sale or franchise; difficulties or delays in the
Company's implementation of initiatives and strategies, including the
introduction of a new menu and new merchandising and marketing strategies;
acceptance by new guests of the Company's brands and concepts; 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 franchisees and licensees and the manner in which they promote,
operate or develop the Company's brands; actions taken by competitors, including
business combinations, pricing strategies, new product offerings and marketing
and promotions successes; changes in labor, equipment, food and capital costs;
changes in, or the failure to comply with, regulations affecting the Company's
business; 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.
11
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 26, 2000 COMPARED TO THIRTEEN WEEKS ENDED
MARCH 28, 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
-------------------------
MARCH 26, MARCH 28,
2000 1999
--------- ---------
REVENUES:
Food & Beverage 72.8% 74.3%
Merchandise 16.4% 23.2%
Theatre 3.7% -- %
Royalty and other 7.1% 1.8%
Franchise fees --% 0.7%
--------- --------
100.0% 100.0%
CERTAIN COST AND EXPENSES:
Food and beverage cost of sales (a) 24.9% 24.9%
Merchandise cost of sales (b) 36.8% 36.4%
Total - Cost of sales (c) 27.9% 27.7%
Operating expenses (c) 86.4% 76.3%
- - - --------------
(a) As a percentage of food and beverage revenues.
(b) As a percentage of merchandise revenues.
(c) As a percentage of direct revenues.
12
<PAGE>
REVENUES. Total revenues decreased from $75.0 million for the thirteen
weeks ended March 28, 1999 ("first quarter 1999") to $43.5 million for the
thirteen weeks ended March 26, 2000 ("first quarter 2000"), a decrease of $31.5
million or 42%. The decrease in total revenues was primarily attributable to
continued declines in same-unit revenues and the closing, sale, franchising or
licensing of 26 units during fiscal 1999, a majority of which were completed in
October.
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 44.7% from $73.2 million for first quarter 1999 to $40.5 million for
first quarter 2000. The decrease in Direct Revenues was primarily due to a
decline in revenues in the units comprising the Company's same unit base and the
closing, sale, franchising or licensing of 26 units during fiscal 1999, a
majority of which were completed in October. The decline in same unit revenues
was primarily due to declines in customer traffic and a decline in the
merchandise sales mix.
COSTS AND EXPENSES. Food and beverage costs were 24.9% of food and
beverage revenues in first quarter 1999 and the first quarter 2000. Merchandise
costs increased from 36.4% of merchandise revenues in first quarter 1999 to
36.8% in first 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 $55.8 million in first quarter
1999 to $34.9 million in first quarter 2000. As a percentage of Direct Revenues,
these costs increased from 76.3% of Direct Revenues in first quarter 1999 to
86.4% in first 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 $11.8 million in
first quarter 1999 to $6.2 million in first 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 $5.1 million in first quarter 1999 to $2.9 million in first
quarter 2000. The decrease of $2.2 million was primarily due to the Company's
closing, selling, franchising or licensing of 26 units during fiscal 1999, a
majority of which were completed in October.
RESTRUCTURING AND REORGANIZATION CHARGES. Restructuring and
reorganization charges decreased from $3.5 million in first quarter 1999 to $0.7
million in first quarter 2000. In first quarter 1999, the Company recorded a
charge of $3.5 million for the estimated costs to terminate a lease for a unit.
In the first quarter 2000 the Company recorded additional professional and other
fees and costs relating to its Chapter 11 reorganization. Restructuring accrual
activity for the first quarter 2000 was as follows:
13
<PAGE>
<TABLE>
<CAPTION>
Accrued at Accrued at
December 26, Paid Expensed March 26,
1999 2000 2000 2000
---- ---- ---- ----
<S> <C> <C>
Restructuring Costs:
Lease termination costs for units
closed or not to be opened $6,945 -- -- $6,945
------ -------- -------- ------
$6,945 $ -- $ -- $6,945
====== ======== ======== ======
</TABLE>
IMPAIRMENT OF LONG LIVED ASSETS. In the first quarter 1999, the Company
recorded a charge of $4.6 million to write-off costs associated with sites,
which were abandoned, and to record an additional charge for a site which was
sold in 1999.
INTEREST EXPENSE. Interest expense decreased from $8.1 million in first
quarter 1999 to $0.4 million in first quarter 2000. The interest for first
quarter 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,
contractual interest expense of approximately $8.6 million associated with the
$250 million debt offering for the first quarter 2000 has not been recorded.
Interest expense in the first quarter 2000 consists primarily of the
amortization of debt issuance costs which will continue until the effective date
of the Company's bankruptcy filing.
INTEREST INCOME. Interest income was $0.5 million in first quarter
1999. Interest income of $0.2 million in the first quarter of 2000 has been
recorded as an offset to restructuring and reorganization charges as a result of
the Company's bankruptcy filing.
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES. Equity in losses of
unconsolidated affiliates decreased from $1.1 million in first quarter 1999 to
$0.9 million in first quarter 2000. The equity in losses of unconsolidated
affiliates is principally comprised of losses incurred by Planet Hollywood
(Asia) Pte. Ltd., an entity 50% owned by the Company and ECE, an entity 20%
owned by the Company.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in the thirteen weeks ended March
28, 1999 and the thirteen weeks ended March 26, 2000 was $19.9 million and $5.2
million, respectively. The primary use of cash in operating activities was for
losses from operations.
Net cash used in investing activities in the thirteen weeks ended March
28, 1999 was $5.3 million. No cash was used in investing activities in the
thirteen weeks ended March 26, 2000. The decrease was primarily the result of
the Company ceasing construction and development activities in fiscal 2000.
Capital expenditures for thirteen weeks ended March 28, 1999 were $4.9 million.
No capital expenditures were made during the thirteen weeks ended March 26,
2000.
Net cash provided by financing activities in the thirteen weeks ended
March 28, 1999 and the thirteen weeks ended March 26, 2000 was $4.8 million and
$1.5 million, respectively. The primary source of cash provided by financing
activities was the reduction of restricted cash balances.
The Company's plan of reorganization, which became effective May 9,
2000, provides for resolution of the liabilities subject to compromise through a
combination of cash, PIK Notes, and new common stock. The plan of reorganization
includes the infusion of $30.0 million in new equity and up to $25.0 million in
credit facilities which, in the opinion of management, will result in adequate
financial resources to sustain operations and capital expenditures (estimated at
$6.0 million in fiscal 2000) beyond fiscal 2000. See Item 2 of this Form 10Q -
"Management's discussion and analysis of financial condition and results of
operations - Other" for a description of the Company's Chapter 11 proceedings.
15
<PAGE>
OTHER
BANKRUPTCY. 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 revenues, overall disappointing fiscal operating results, expenses due to
the development of the now discontinued Sound Republic concept, and losses from
major concepts such as Official All Star Cafe and Cool Planet.
The Company attributes the decrease in revenues primarily to a decline
in customer traffic resulting from increased competition in the theme dining
industry and tourism in several retail markets. There has 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 Plan calls for the satisfaction of the Company's $250,000 12%
senior subordinated notes payable (the "Old Notes") plus accrued interest of
$32,000 through the issuance of a combination of $47,500 in cash, $60,000 of new
secured notes payable (the "PIK Notes"), and shares of newly issued Class A
Common Stock ("New Class A Common Stock") equivalent to a 26.5% ownership of the
reorganized Company. Other general and unsecured creditors whose claims are
deemed impaired by the Plan will receive a combination of cash and PIK Notes
with an aggregate value approximately equal to that received by the holders of
the Old Notes. The Plan also includes a $30,000 infusion of new equity by a
group of investors organized by the Company's Chairman and Chief Executive
Officer in exchange for approximately 70% of the equity of the reorganized
Company in the form of Class B common stock ("New Class B Common Stock") and up
to $25,000 secured credit facilities.
16
<PAGE>
The Plan also calls for the cancellation of all existing common stock
interests and options to acquire such interests and all other equity securities
in exchange for 200,000 newly issued warrants in the reorganized Company to be
provided to holders of existing common stock, provided that no distribution will
be made to a holder of less than 5,450 shares. 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. In addition, one of the credit
facilities totaling $10,000 is convertible into common stock at $4.29 per share
and includes warrants to purchase 200,000 shares of New Class A Common Stock at
$4.29 per share.
For tax purposes, the discharge of liabilities pursuant to a Chapter 11
proceeding will result 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, must be 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 must be reduced by the
amount of the excluded cancellation of debt income. It is estimated that after
the reorganization, the Company will have approximately $100 million in net
operating loss carryovers and $12 million of credit carryovers.
In connection with its reorganization, it is anticipated that the
Company will undergo an ownership change within the meaning of Section 382 of
the Internal Revenue Code. Consequently, the ability of the Company to use the
net operating losses and credits will be subject to an annual limitation based
on the product of the fair value of the Company immediately after reorganization
multiplied by the federal long-term tax exempt bond rate.
YEAR 2000 COMPLIANCE. The Year 2000 could have a broad impact on the
business environment in which the Company operates due to the possibility that
many computerized systems across all industries could be unable to process
information containing dates beginning in the Year 2000. The Company established
an enterprise-wide program to prepare its computer systems and applications for
the Year 2000 utilizing both internal and external resources to identify,
correct and test the Company's systems for Year 2000 compliance.
As of December 26, 1999, the Company had completed an inventory of all
information technology equipment and addressed the Year 2000 readiness of such
equipment. The Company completed most of its domestic reprogramming in fiscal
1998 and completed the testing of the program modifications during fiscal 1999.
In addition to the reprogramming of existing applications, the Company
implemented a new enterprise information system. The system is Year 2000
compliant. The Company also upgraded the point of sale system for Year 2000
compliance and completed a comprehensive review of non-information technology
equipment for all of its units.
As of March 26, 2000, the Company had spent approximately $4.3 million
implementing its new enterprise information system and addressing the Year 2000
issue. In assessing the risks presented by the Year 2000 compliance issues, the
Company identified potential worst case scenarios involving failure of the
information technology and non-information technology systems. As of April 2000,
the Company has not experienced material disruption or other
17
<PAGE>
significant problems in its information technology and non-information
technology systems. In addition, as of the same date, the Company is not aware
of any material Year 2000 compliance issues relating to information technology
and non-information technology systems of third party business partners with
which the Company maintains material relationships. The Company continues to
monitor systems and maintains contact with third party businesses with which the
Company has material relationships with respect to Year 2000 compliance and any
Year 2000 issues that may arise at a later date. Contingency plans relating to
ongoing Year 2000 issues will be developed at the time such issues are
identified and such plans are deemed necessary. Based on the upgrades and the
normal functioning to date of the information technology and non-information
technology systems, management does not foresee significant risks associated
with its Year 2000 compliance efforts. However, there can be no assurance that
the Company or any third party business partners will not have ongoing Year 2000
compliance issues that may have an adverse effect on the Company.
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.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates on
debt and changes in commodity prices. A discussion of the Company's accounting
policies for derivative instruments is included in the "Summary of Significant
Accounting Policies" in Note 1 to the consolidated financial statements
contained in the Company's Form 10-K for the fiscal year ended December 26,
1999.
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.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiariaries 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 insurance 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, 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
10Q - "Management's discussion and analysis of financial condition and results
of operations - Other" for a description of the company's Chapter 11
proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Prior to initiating its bankruptcy proceedings, and as a result of
filing for bankruptcy, the Company was in default of certain obligations,
including its financial obligations relating to its $250,000 12% senior
subordinated notes payable. Upon filing bankruptcy all such defaults were
stayed. At the effective date of the Plan all outstanding and/or pending
defaults were discharged and/or cured by the Company in accordance with the
terms of the Plan.
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 Report on Form 8-K
during the thirteen weeks ended March 26, 2000:
Date of Report Filing Date Regarding
1/21/00 2/04/00 Announcement of the Bankruptcy Court's
confirmation of the Company's First Amended
Joint Plan of Reorganization on January 21,
2000 and discussion of the change in the
Company's equity ownership upon the
Effective Date of the Reorganization
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PLANET HOLLYWOOD INTERNATIONAL, INC.
DATE: May 10, 2000 By: /s/ Robert Earl
--------------------
Name: Robert Earl
Its: Chairman and Chief Executive Officer
DATE: May 10, 2000 By: /s/ Thomas Avallone
------------------------
Name: Thomas Avallone
Its: Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PLANET HOLLYWOOD
INTERNATIONAL, INC. FOR THE THIRTEEN WEEKS ENDED MARCH 26, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 10,396
<SECURITIES> 0
<RECEIVABLES> 6,979
<ALLOWANCES> (3,760)
<INVENTORY> 12,775
<CURRENT-ASSETS> 65,052
<PP&E> 199,878
<DEPRECIATION> (43,227)
<TOTAL-ASSETS> 223,754
<CURRENT-LIABILITIES> 30,282
<BONDS> 1,928
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<COMMON> 1,092
<OTHER-SE> (129,975)
<TOTAL-LIABILITY-AND-EQUITY> 223,754
<SALES> 40,448
<TOTAL-REVENUES> 43,508
<CGS> 11,293
<TOTAL-COSTS> 56,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 397
<INCOME-PRETAX> (13,314)
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