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 JUNE 25, 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 July 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 non-voting Common Stock outstanding.
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets - June 25, 2000
and December 26, 1999........................................................1
Condensed Consolidated Statements of Operations - Thirteen
Weeks and Twenty-six Weeks ended June 25, 2000 and
June 27, 1999................................................................2
Condensed Consolidated Statements of Cash Flow - Twenty-six
Weeks ended June 25, 2000 and June 27, 1999..................................3
Condensed Consolidated Statements of Changes in Stockholders'
Equity - Twenty-six Weeks ended June 25, 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.....................16
Part II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................17
Item 2. Changes in Securities and Use of Proceeds......................................17
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>
JUNE 25,
2000 DECEMBER 26,
(UNAUDITED) 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 17,668 $ 14,143
Accounts receivable, net ............................... 5,767 4,883
Inventories ............................................ 9,795 13,846
Prepaid expenses and other assets ...................... 7,058 7,642
Assets held for sale ................................... -- 30,000
--------- ---------
Total current assets .............................. 40,288 70,514
Restricted cash and cash equivalents ....................... 1,708 5,403
Property and equipment, net ................................ 100,529 129,639
Goodwill, net .............................................. 12,987 13,427
Other assets, net .......................................... 5,897 4,290
Investment in affiliated entities .......................... 13,807 11,668
--------- ---------
Total assets ...................................... $ 175,216 $ 234,941
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities not subject to compromise:
Accounts payable and accrued liabilities ............... $ 47,719 $ 28,522
Notes payable - current ................................ 280 214
--------- ---------
Total current liabilities not subject to compromise 47,999 28,736
Deferred rentals ........................................... 7,121 7,059
Notes payable .............................................. 6,794 1,648
Notes payable to related parties ........................... 55,750 --
Deferred credits ........................................... 6,379 4,660
--------- ---------
Total liabilities not subject to compromise ....... 124,043 42,103
Liabilities subject to compromise .......................... -- 304,671
Minority interest .......................................... 2,000 3,212
Stockholders' equity (deficit):
Common stock - Class A ................................. 30 1,008
Common stock - Class B ................................. 70 84
Capital in excess of par value ......................... 332,061 286,886
Accumulated deficit .................................... (277,797) (398,358)
Accumulated translation adjustment ..................... (5,191) (4,665)
--------- ---------
Total stockholders' equity (deficit) ....................... 49,173 (115,045)
--------- ---------
Total liabilities and stockholders' equity (deficit) ....... $ 175,216 $ 234,941
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL INC. AND SUBSIDIAIRES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JUNE 25, JUNE 27, JUNE 25, JUNE 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues......................................................... $45,418 $ 76,647 $ 88,919 $ 151,675
Cost and expenses:
Cost of sales ............................................... 12,351 20,728 23,644 40,961
Operating expenses .......................................... 35,104 57,259 70,032 113,068
General and administrative expenses ......................... 4,987 12,380 11,221 24,175
Depreciation and amortization ............................... 3,268 4,891 6,163 9,983
Restructuring and reorganization
charges ................................................ 7,726 303 8,396 3,803
Impairment of long-lived assets ............................. 24,165 -- 24,165 4,598
--------- --------- --------- ---------
87,601 95,561 143,621 196,588
Loss from operations ............................................ (42,183) (18,914) (54,702) (44,913)
Non-operating expense (income):
Interest expense ............................................ 1,231 9,136 1,628 17,254
Interest income ............................................. (494) (282) (494) (774)
Equity in (income) loss of unconsolidated
affiliates ............................................... (737) 58 163 1,155
Minority interest and other ................................. (3,289) 340 (3,784) 340
--------- --------- --------- ---------
Loss before extraordinary item .................................. (38,894) (28,166) (52,215) (62,888)
Extraordinary gain on debt forgiveness .......................... (172,776) -- (172,776) --
--------- ---------
Net Income (loss) ............................................... $ 133,882 $ (28,166) $ 120,561 $ (62,888)
========= ========= ========= =========
Income (loss) per share:
BASIC AND DILUTED
Loss before extraordinary item .................................. $ (3.89) $ * $ (5.22) $ *
--------- --------- --------- ---------
Extraordinary gain on debt forgiveness .......................... 17.28 * 17.28 *
--------- --------- ---------
Net Income (loss) ............................................... $ 13.39 $ * $ 12.06 $ *
========= ========= ========= =========
BASIC AND DILUTED Weighted
Average Shares .............................................. 10,000 * 10,000 *
========= ========= ========= =========
</TABLE>
* Not Applicable
The accompanying notes are an integral part of thesecondensed consolidated
financial statements.
2
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL INC. AND SUBSIDIAIRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
STATED IN THOUSANDS OF U.S. DOLLARS
TWENTY-SIX WEEKS ENDED
----------------------
June 25, June 27,
2000 1999
-------- --------
NET CASH USED IN OPERATING ACTIVITIES .............. $(11,944) $(27,724)
-------- --------
Cash flows from investing activities:
Additions to property and equipment ............ (715) (4,281)
Proceeds from sales of property and equipment .. 30,000 20,540
Investment in affiliate ........................ -- 107
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES .......... 29,285 16,366
-------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable ........ -- 2,370
Change in restricted cash ...................... 3,695 3,104
Issuance of common stock ....................... 30,000 --
Repayment of notes payable ..................... (47,488) (17,851)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES .............. (13,793) (12,377)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH ................... (23) 11
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 3,525 (23,724)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 14,143 45,426
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... 17,668 $ 21,702
======== ========
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
Amortization of celebrity 325
restricted stock options and
awards prior to cancellation 1,000
Issuance of Class A shares .... 3,000 30 12,857
Issuance of class B shares .... 7,000 70 29,930
--------- --------- --------- --------- ---------
Balance at
June 25, 2000 (unaudited) . 3,000 $ 30 7,000 $ 70 $ 332,061
========= ========= ========= ========= =========
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) (1,734) (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 225 225
awards ..................... --------- --------- --------- --------- ---------
Balance at
December 26, 1999 .......... (398,358) -- (4,665) (115,045)
Net income .................... $120,561 120,561 120,561
-- -- -- -- 1
Other comprehensive income
(loss):
Currency translation
adjustment ................. (526) (526) (526)
---------
Comprehensive income (loss) ... $ 120,035
---------
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 prior to cancellation 1,000
Issuance of Class A shares .... 12,857
Issuance of class B shares .... 30,000
--------- --------- --------- ---------
Balance at
June 25, 2000 (unaudited) . $(277,797) $ -- $ (5,191) $ 49,173
========= ========= ========= =========
</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 sales, overall disappointing fiscal operating results, expenses due to the
development of the now discontinued Sound Republic concept, and losses from
concepts such as Official All Star Cafe and Cool Planet.
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.
5
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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 $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 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.
6
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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 second quarter 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 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.
3. INVESTMENTS
The Company previously owned 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 was owned and controlled by
Leisure Ventures Pte, Ltd., one of the New Money Investors. 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 New Money
Investor, agreed to purchase one third of PH Asia's outstanding stock from PH
Asia for approximately $4.0 million. The transaction was completed in May 2000
reducing the Company's equity interest in PH Asia to 33% and resulting in the
Company recording $1,300 of income.
7
<PAGE>
PLANET HOLLYWOOD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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.
5. JOINT VENTURE
At the end of the second quarter 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
agreed to contribute $2,000 for the remaining 20% interest in the venture. The
venture is consolidated in the Company's June 25, 2000 condensed consolidated
financial statements. As of June 25, 2000 the Company recorded $2,000 of
minority interest related to the venture. Operations for the venture commenced
in July 2000.
6. 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.
The weighted average shares outstanding for the thirteen and twenty-six
weeks ended June 25, 2000 reflect the New Class A and B shares issued in
connection with the Plan assuming they were outstanding as of December 27, 1999.
In management's opinion, per share information for the thirteen weeks and the
twenty-six weeks ended June 27, 1999 is not relevant given the significant
change in the Company's capital structure which occurred as a result of the
Company's reorganization pursuant to the Plan.
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 twenty-six weeks ended
June 25, 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 JUNE 25, 2000 COMPARED TO THIRTEEN WEEKS ENDED
JUNE 27, 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
------------------------
JUNE 25, JUNE 27,
2000 1999
------- --------
REVENUES:
Food & Beverage 71.2% 72.0%
Merchandise 19.9% 25.0%
Theatre 4.1% --%
Royalty, franchise fees and other 4.8% 3.0%
------ -----
100.0% 100.0%
CERTAIN COST AND EXPENSES:
Food and beverage cost of sales (a) 25.8% 25.6%
Merchandise cost of sales (b) 33.0% 34.3%
Total - Cost of sales (c) 28.6% 27.9%
Operating expenses (c) 81.3% 77.0%
--------------
(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 $76.6 million for the thirteen
weeks ended June 27, 1999 ("second quarter 1999") to $45.4 million for the
thirteen weeks ended June 25, 2000 ("second quarter 2000"), a decrease of $31.2
million or 41%. The decrease in total revenues was attributable to approximately
$15.0 million of declines in same-unit sales and approximately $19.0 million of
declines related to the closing, sale, franchising or licensing of 26 units
during fiscal 1999, a majority of which were completed in October. These
declines were partially offset by approximately $3.0 million of revenues from
Easton Planet Movies which began operations in July 1999.
Food and beverage sales and merchandise sales derived from
Company-owned units, as well as merchandise sales from other retail channels,
are referred to herein collectively as "Sales." Sales decreased 42% from $74.4
million for second quarter 1999 to $43.2 million for second 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, sale, franchising or
licensing of 26 Company operated units during fiscal 1999, a majority of which
were completed in October. The decline in same unit sales was primarily due to
declines in customer traffic and a decline in the merchandise sales mix.
COSTS AND EXPENSES. Food and beverage costs decreased from 25.6% of
food and beverage sales in second quarter 1999 to 25.8% in second quarter 2000.
The decrease was due primarily to the absence of costs associated with the
introduction of a new menu during first and second quarters in 1999 and lower
menu prices. Merchandise costs decreased from 34.3% of merchandise sales in
second quarter 1999 to 33.0% in second quarter 2000 primarily as a result of
shifts in sales composition. Operating expenses, which consist primarily of
labor, occupancy and other direct unit-level operating costs, decreased from
$57.3 million in second quarter 1999 to $35.1 million in second quarter 2000. As
a percentage of Sales, these costs increased from 77.0% of Sales in second
quarter 1999 to 81.3% in second 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 $12.4 million in
second quarter 1999 to $5.0 million in second 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 $4.9 million in second quarter 1999 to $3.3 million in second
quarter 2000. The decrease of $1.6 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. Restructuring and
reorganization charges increased from $0.3 million in second quarter 1999 to
$7.7 million in second quarter 2000. In second quarter 2000, the Company
recorded a provision of $7.7 million for the costs of legal and professional
fees associated with its reorganization.
IMPAIRMENT OF LONG-LIVED ASSETS. As a result of operating losses
incurred and projected future losses for certain of the Company's assets, the
Company recorded an impairment charge of $24.2 million in second quarter 2000.
11
<PAGE>
INTEREST EXPENSE. Interest expense decreased from $9.1 million in
second quarter 1999 to $1.2 million in second quarter 2000. The interest for
second 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 and through May 9, 2000, contractual interest expense of approximately
$8.6 million associated with the $250 million debt offering for the second
quarter 2000 was not recorded. Interest expense in the second quarter 2000
consists primarily of the amortization of debt issuance costs which continued
until the effective date of the Company's bankruptcy filing and interest
associated with the Company's newly restructured debt after May 9, 2000.
INTEREST INCOME. Interest income increased from $0.3 million in second
quarter 1999 to $0.5 million in the second quarter of 2000. The increase
resulted from an infusion of capital and the forgiveness of debt under the Plan
of Reorganization.
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATES. Equity in
unconsolidated affiliates increased from a loss of $0.1 million in the thirteen
weeks ended June 27, 1999 to income of $0.7 million in the thirteen weeks ended
June 25, 2000. The Company recognized $0.4 million and $1.3 million of earnings
reported by ECE, an entity 20% owned by the Company, and Planet Hollywood (Asia)
Pte. Ltd.'s May 2000 sale of an equity interest to a third party, respectively
in the thirteen weeks ended June 25, 2000. This income is offset by $0.9 million
of losses reported by Planet Hollywood (Asia) Pte. Ltd., an entity 33% owned by
the Company subsequent to the May 2000 equity transaction. In the thirteen weeks
ended June 27, 1999, losses incurred by Planet Hollywood (Asia) Pte. Ltd. were
partially offset by earnings reported by ECE.
TWENTY-SIX WEEKS ENDED JUNE 25, 2000 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 27,
1999.
In summary, the operating results of the Company expressed as a percentage of
total revenues (except where noted) were as follows:
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 25, JUNE 27,
2000 1999
------- -------
REVENUES:
Food & Beverage 72.0% 73.2%
Merchandise 18.2% 24.1%
Theatre 3.9% --%
Royalty, franchise fees and other 5.9% 2.7%
----- -----
100.0% 100.0%
COST AND EXPENSES:
Food and beverage cost of sales (a) 25.3% 25.3%
Merchandise cost of sales (b) 34.7% 35.3%
Total - Cost of sales (c) 28.3% 27.8%
Operating expenses (c) 83.7% 76.6%
-----------------
(a) As a percentage of food and beverage sales.
(b) As a percentage of merchandise sales.
(c) As a percentage of Sales.
12
<PAGE>
REVENUES. Total revenues decreased from $151.7 million for the
twenty-six weeks ended June 27, 1999 to $88.9 million for the twenty-six weeks
ended June 25, 2000, a decrease of $62.8 million or 41%. The decrease in total
revenues was attributable to approximately $30.0 million of declines in
same-unit sales and approximately $38.0 million of declines related to the
closing, sale, franchising or licensing of 26 Company operated units during
fiscal 1999, a majority of which were completed in October. These declines were
partially offset by approximately $7.0 million of revenues from Easton Planet
Movies that began operations in July 1999.
Sales decreased 43% from $147.6 million for the twenty-six weeks ended
June 27, 1999 to $83.6 million for the twenty-six weeks ended June 25, 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. The decline in same unit sales was primarily due to
declines in customer traffic and a decline in the merchandise sales mix.
Franchise fees were $0.5 million for the twenty-six weeks ended June
27, 1999. There were no franchise fees recorded for the twenty-six weeks ended
June 25, 2000. The decrease in franchise fees was primarily due to the Company
recognizing revenue for one franchise in the twenty-six weeks ended June 27,
1999 compared to none in the twenty-six weeks ended June 25, 2000. The Company
anticipates franchise revenues will continue to fluctuate due to the timing of
franchise unit openings.
COSTS AND EXPENSES. Food and beverage costs were 25.3% of food and
beverage sales in the twenty-six weeks ended June 27, 1999 and the twenty-six
weeks ended June 25, 2000. Merchandise costs decreased from 35.3% of merchandise
sales in the twenty-six weeks ended June 27, 1999 to 34.7% in the twenty-six
weeks ended June 25, 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 $113.1 million in the twenty-six weeks
ended June 27, 1999 to $70.0 million in the twenty-six weeks ended June 25,
2000. As a percentage of Sales, these costs increased from 76.6% of Sales in the
twenty-six weeks ended June 27, 1999 to 83.7% in the twenty-six weeks ended June
25, 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 $24.2 million in the
twenty-six weeks ended June 27, 1999 to $11.2 million in the twenty-six weeks
ended June 25, 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.
RESTRUCTURING AND REORGANIZATION CHARGES. In the twenty-six weeks ended
June 25, 2000, the Company recorded a reorganization charge of $8.4 million for
the costs of legal and professional fees associated with the Company's
restructuring. Restructuring activity through second quarter 2000 was as
follows:
13
<PAGE>
<TABLE>
<CAPTION>
ACCRUED ACCRUED
DEC. 26, PAID IN EXPENSE JUNE 25,
1999 2000 2000 2000
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
RESTRUCTURING COSTS:
Lease termination costs for units closed or
not to be opened $6,945 $ 212 $ -- $6,733
====== ====== ======== ======
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS. As a result of operating losses
incurred and projected future losses for certain of the Company's assets, the
Company recorded an impairment charge of $24.2 million in the twenty-six weeks
ended June 25, 2000. In the twenty-six weeks ended June 27, 1999, the Company
recorded a charge of $4.6 million to write off costs associated with sites which
have been abandoned and to record an additional charge for a site under
development which was being held for sale.
INTEREST EXPENSE. Interest expense decreased from $17.3 million in the
twenty-six weeks ended June 27, 1999 to $1.6 million in the twenty-six weeks
ended June 25, 2000. The interest expense for the twenty-six weeks ended June
27, 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 $17.2
million associated with the $250 million debt offering for the twenty-six weeks
ended June 25, 2000 was not recorded. Interest expense for the twenty-six weeks
ended June 25, 2000 consists primarily of the amortization of debt issuance
costs and interest associated with the Company's newly restructured debt after
May 9, 2000.
INTEREST INCOME. Interest income decreased from $0.8 million in the
twenty-six weeks ended June 27, 1999 to $0.5 million in the twenty-six weeks
ended June 25, 2000. The decrease resulted from $0.2 million of interest income
in the twenty-six weeks ended June 25, 2000 being recorded as an offset to
restructuring and reorganization charges as a result of the Company's bankruptcy
filing.
EQUITY IN INCOME (LOSSES) OF UNCONSOLIDATED AFFILIATES. Equity in
unconsolidated affiliates decreased from a loss of $1.2 million in the
twenty-six weeks ended June 27, 1999 to a loss of $0.2 million in the twenty-six
weeks ended June 25, 2000. The Company recognized $0.4 million and $1.3 million
of earnings reported by ECE, an entity 20% owned by the Company, and Planet
Hollywood (Asia) Pte. Ltd.'s May 2000 sale of an equity interest to a third
party, respectively during the twenty-six weeks ended June 25, 2000. This income
is offset by $1.8 million of losses reported by Planet Hollywood (Asia) Pte.,
Ltd., an entity 33% owned by the Company, subsequent to the May 2000 equity
transaction. In the twenty-six weeks ended June 27, 1999, losses incurred by
Planet Hollywood (Asia) Pte. Ltd. were partially offset by earnings reported by
ECE.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in the twenty-six weeks ended
June 27, 1999 and the twenty-six weeks ended June 25, 2000 was $27.7 million and
$11.9 million, respectively. The primary use of cash in operating activities was
to fund losses from operations.
14
<PAGE>
Net cash provided by investing activities in the twenty-six weeks ended
June 27, 1999 was $16.4 million and the twenty-six week period ended June 25,
2000 was $29.3 million. The increase was primarily the result of proceeds from
sales of property and equipment. During the twenty-six weeks ended June 25,
2000, the Company sold its New York Times Square Hotel property for
approximately $30.0 million. The Company received proceeds of $20.5 million from
the sale of property and equipment in the twenty-six weeks ended June 27, 1999.
Capital expenditures for the twenty-six weeks ended June 27, 1999 and the
twenty-six weeks ended June 25, 2000 were $4.3 million and $0.7 million,
respectively.
Net cash used in financing activities in the twenty-six weeks ended
June 27, 1999, and for the twenty-six weeks ended June 25, 2000 was $12.4
million and $13.8 million respectively. The cash used in financing activities
for the twenty-six weeks ended June 25, 2000 was primarily a result of the
repayment of notes payable of $47.5 million, offset by the issuance of common
stock for $30.0 million and the reduction of restricted cash balances. The cash
used in financing activities for the twenty-six weeks ended June 27, 1999 was a
result of the repayment of notes payable of $17.9 million, offset by a change in
restricted cash of $3.1 million and proceeds from the issuance of notes payable
of $2.4 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. 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 the credit facilities to fund
operations. The Company expects that cash on hand; cash generated from
operations and funds available under the credit facilities will be sufficient to
meet its capital requirements.
OTHER
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 June 25, 2000, the Company had spent approximately $4.3 million
implementing its new enterprise information system and addressing the Year 2000
issue. As of July 2000, the Company has not experienced material disruption or
other 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
15
<PAGE>
2000 compliance and any Year 2000 issues that may arise at a later date.
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. Currency
fluctuations did not have a material effect on the Company's results in the
first two quarters of 2000.
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.
16
<PAGE>
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 10Q - "Management's discussion and
analysis of financial condition and result of operations - Other" for a
description of the Company's Chapter 11 proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with its reorganization, the Company experienced on the
Effective Date of the Reorganization a change in its equity ownership that
constituted a change of control. A group of investors, organized by the
Company's Chairman and CEO, invested $30 million cash into the Company for the
right to direct ownership of approximately seven million shares of new common
stock (70% of the voting securities of the Company). The balance of the
outstanding shares of common stock (three million shares), together with $47.5
million in cash and $60 million in new secured PIK Notes were distributed to the
Company's former bondholders in exchange for the cancellation of approximately
$282 million in debt. All previously existing common stock of the Company was
canceled in exchange for 200,000 warrants to purchase new common stock in the
reorganized Company. Each warrant is exercisable for the purchase of one share
of new Class A Common Stock at an exercise price of $65.50 per share and will
expire on the third anniversary of the Effective Date of the Plan.
The Company obtained a $10 million standby term loan from Bay Harbour
Management, LC as a backstop to a $15 million working capital facility also
obtained at the Effective Date of the Plan. The term loan is evidenced by a Note
Purchase Agreement between the Company, certain other parties and Wilmington
Trust Company, as agent, and matures two years after the Effective Date of the
Plan, subject to certain optional extensions. At its option, until the maturity
date of the term loan, the lender shall have the right to convert any
outstanding amount of the loan into shares of Class A Common Stock, dollar for
dollar, at $4.29 per share. In addition, the lender was granted, as part of its
commitment fee, warrants to purchase 200,000 shares of new Class A Common Stock
at an exercise price of $4.29 per share which will expire on January 8, 2003.
17
<PAGE>
ITEM 5. OTHER INFORMATION
In May of this year, the Company announced the hiring of Christopher R.
Thomas who was appointed President and Chief Financial Officer. Prior to joining
the Company, Mr. Thomas served as president and chief financial officer of
California-based Sizzler USA, a domestic steakhouse chain that went through a
Chapter 11 bankruptcy restructuring a few years ago. Mr. Thomas is a former
certified public accountant with Arthur Andersen and spent 15 years with
Sizzler, part of that time serving as chief financial officer for its parent
company, Sizzler International, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 10 Employment Agreement between the Company and
Christopher R. Thomas
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K
during the thirteen weeks ended June 25, 2000:
DATE OF REPORT FILING DATE REGARDING
-------------- ----------- ---------
5/09/00 5/18/00 The announcement that the Company
had successfully emerged from Chapter 11
reorganization and discussion of the change
in its equity ownership that constituted a
change in control as of the effective date
of the reorganization.
18
<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: August 14, 2000 By: /s/ ROBERT EARL
--------------------
Name: Robert Earl
Its: Chairman and Chief Executive Officer
DATE: August 14, 2000 By: /s/ CHRISTOPHER R. THOMAS
-----------------------------
Name: Christopher R. Thomas
Its: President, Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
Exhibit 10 Employment Agreement between the Company and
Christopher R. Thomas
Exhibit 27 Financial Data Schedule
