FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 21, 1997
[ ] 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 1-12604
THE MARCUS CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1139844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 EAST WISCONSIN AVENUE, SUITE 1700 - MILWAUKEE, WISCONSIN 53202
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (414) 272-6020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 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 filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 1997 - 11,246,168
CLASS B COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 1997 - 8,503,752
<PAGE>
THE MARCUS CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets
(August 21, 1997 and May 29, 1997) . . . . . . . . . . . . . 3
Statements of Earnings
(Twelve weeks ended August 21, 1997 and August 22, 1996) . . 5
Statements of Cash Flows
(Twelve weeks ended August 21, 1997 and August 22, 1996) . . 6
Condensed Notes to Financial Statements . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(in thousands)
(Unaudited) (Audited)
August 21, May 29,
1997 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 21,907 $ 7,991
Accounts and notes receivable 10,009 5,531
Receivables from joint ventures 1,037 1,066
Other current assets 3,716 3,591
-------- --------
Total current assets 36,669 18,179
Property and equipment:
Land and improvements 74,754 70,313
Buildings and improvements 409,545 399,416
Leasehold improvements 8,086 8,059
Furniture, fixtures and equipment 165,583 159,715
Construction in progress 7,888 12,019
-------- --------
Total property and equipment 665,856 649,522
Less accumulated depreciation and amortization 167,725 162,470
-------- --------
Net property and equipment 498,131 487,052
Other assets:
Investments in joint ventures 1,430 1,439
Other 14,526 15,287
-------- --------
Total other assets 15,956 16,726
-------- --------
TOTAL ASSETS $550,756 $521,957
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
THE MARCUS CORPORATION
Consolidated Balance Sheets
(in thousands)
(Unaudited) (Audited)
August 21, May 29,
1997 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,733 $ 5,625
Accounts payable 16,828 10,291
Income taxes 6,950 52
Taxes other than income taxes 10,731 9,297
Accrued compensation 3,009 1,270
Other accrued liabilities 12,835 10,886
Current maturities on long-term debt 9,327 9,327
-------- --------
Total current liabilities 64,413 46,748
Long-term debt 165,821 168,065
Deferred income taxes 22,675 22,425
Deferred compensation and other 8,709 7,426
Shareholders' equity:
Preferred Stock, $1 par; authorized
1,000,000 shares; none issued
Common Stock, $1 par; authorized 30,000,000
shares; issued 11,882,315 shares at
August 21, 1997, 11,678,935 shares at
May 29, 1997 11,882 11,679
Class B Common Stock, $1 par; authorized
20,000,000 shares; issued and outstanding
8,504,252 shares at August 21, 1997,
8,707,632 shares at May 29, 1997 8,504 8,708
Capital in excess of par 39,633 39,470
Retained earnings 232,409 220,860
-------- --------
292,428 280,717
Less cost of Common Stock in treasury
(642,151 shares at August 21, 1997
and 668,272 shares at May 29, 1997) 3,290 3,424
-------- --------
Total shareholders' equity 289,138 277,293
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $550,756 $521,957
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
(in thousands, except per share data)
12 Weeks Ended
August 21, August 22,
1997 1996
Revenues:
Rooms and telephone $ 47,048 $ 40,553
Food and beverage 12,546 11,295
Theatre operations 23,580 20,486
Other income 6,879 5,490
-------- --------
Total revenues 90,053 77,824
Costs and expenses:
Rooms and telephone 15,741 13,300
Food and beverage 8,380 7,922
Theatre operations 14,283 12,425
Advertising and marketing 5,415 3,894
Administrative 7,836 6,608
Depreciation and amortization 7,226 6,340
Rent 1,069 806
Property taxes 2,713 2,596
Other operating expenses 3,185 2,515
-------- --------
Total costs and expenses 65,848 56,406
-------- --------
Operating income 24,205 21,418
Other income (expense):
Investment income 349 143
Interest expense (2,765) (2,179)
Gain on disposition of property and equipment (1) 4
-------- --------
(2,417) (2,032)
-------- --------
Earnings before income taxes 21,788 19,386
Income taxes 8,723 7,758
-------- --------
Net earnings $ 13,065 $ 11,628
======== ========
Net earnings per share $0.66 $0.59
===== =====
Weighted Average Shares Outstanding 19,893 19,841
See accompanying notes to consolidated financial statements.
<PAGE>
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
12 Weeks Ended
August 21, August 22,
1997 1996
OPERATING ACTIVITIES:
Net earnings $13,065 $11,628
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Earnings on investments in joint
ventures, net of distributions 9 (8)
Gain on disposition of property and equipment 1 (4)
Depreciation and amortization 7,226 6,340
Deferred income taxes 250 25
Deferred compensation and other 1,283 299
Changes in assets and liabilities:
Accounts and notes receivable (4,478) (1,037)
Other current assets (125) 79
Accounts payable 6,537 (4,294)
Income taxes 6,898 6,403
Taxes other than income taxes 1,434 2,000
Accrued compensation 1,739 742
Other accrued liabilities 1,949 (658)
------- -------
Total adjustments 22,723 9,887
------- -------
Net cash provided by operating activities 35,788 21,515
INVESTING ACTIVITIES:
Capital expenditures (18,266) (37,680)
Net proceeds from disposals of property,
equipment and other assets - 332
Increase in other assets 721 (2,008)
Cash received from joint ventures 29 462
------- -------
Net cash used in investing activities (17,516) (38,894)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes
payable and long-term debt - 11,500
Principal payments on notes payable and
long-term debt (3,136) (6,315)
Equity transactions:
Treasury stock transactions, except for
stock options (88) 3
Exercise of stock options 384 57
Dividends paid (1,516) (1,415)
------- -------
Net cash provided by (used in) financing
activities (4,356) 3,830
------- -------
Net increase (decrease) in cash and cash
equivalents 13,916 (13,549)
Cash and cash equivalents at beginning of year 7,991 15,466
------- -------
Cash and cash equivalents at end of period $ 21,907 $ 1,917
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
TWELVE WEEKS ENDED
AUGUST 21, 1997
(Unaudited)
A. Refer to the Company's audited financial statements (including
footnotes) for the fiscal year ended May 29, 1997, contained in the
Company's Form 10-K Annual Report for such fiscal year, for a
description of the Company's accounting policies.
B. The consolidated financial statements for the twelve weeks ended
August 21, 1997 and August 22, 1996 have been prepared by the Company
without audit. In the opinion of management, all adjustments
consisting only of normal recurring accruals necessary to present
fairly the unaudited interim financial information at August 21, 1997,
and for all periods presented, have been made.
<PAGE>
THE MARCUS CORPORATION
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Management's Discussion and
Analysis of Results of Operations and Financial Condition are "forward-
looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as
such because the context of the statement will include words such as the
company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward looking
statements are subject to certain risks, assumptions and uncertainties
which are described in close proximity to such statements and which could
cause actual results to differ materially from those currently
anticipated. Shareholders, potential investors and other readers are
urged to consider these risks, assumptions and uncertainties carefully in
evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements. The forward-looking
statements made herein are only made as of the date of this Form 10-Q and
the Company undertakes no obligation to publicly update such forward-
looking statements to reflect subsequent events or circumstances.
RESULTS OF OPERATIONS
General
The Company reports its results of operations on a 52-or 53-week
fiscal year which ends on the last Thursday in May. Each fiscal year is
divided into three 12-week quarters and a final quarter consisting of 16
or 17 weeks. The final quarter of fiscal 1998 will consist of 17 weeks
for the Company's restaurant division, while the Company and its other
remaining divisions will report a 16-week fourth quarter. Due to the
relative size of the Company's restaurant division compared to the
Company's other divisions, the additional week of results in fiscal 1998
is not anticipated to materially impact the Company's consolidated results
of operations for the fiscal year. Fiscal 1997 was a 53-week fiscal year
for the Company's motel and hotels/resorts divisions, while the Company
and its other remaining divisions reported a 52-week year in fiscal 1997.
Revenues for the first quarter of fiscal 1998 ended August 21,
1997 totaled $90.1 million, an increase of $12.3 million, or 15.7%, from
revenues of $77.8 million for the first quarter of fiscal 1996. All four
operating segments contributed to the increase in revenues this past
quarter, with the hotels/resorts division contributing the largest
increase over the prior year.
Net earnings for the first quarter of fiscal 1998 were $13.1
million, or $.66 per share, up 12.4% and 11.9%, respectively, from net
earnings of $11.6 million, or $.59 per share, for the same quarter in the
prior year. Again, all four operating segments contributed to the
increase in net earnings and net earnings per share.
Operating income (earnings before other income/expense and
income taxes) totaled $24.2 million in the first quarter of fiscal 1998,
an increase of $2.8 million, or 13.0%, compared to the prior year's
period. The Company's interest expense, net of investment income, totaled
$2.4 million for the first quarter of fiscal 1998, compared to $2.0
million during the same period last year. This increase was the result of
increased long-term debt levels necessary to help finance the Company's
capital expansion program.
Historically, the Company's first and fourth fiscal quarters
have produced the strongest operating results, because these periods
coincide with the typical summer seasonality of the movie theatre industry
and the spring and summer strength of the Company's travel and food
service businesses.
Motels
Total revenues for the first quarter of fiscal 1998 for the
motel division were $38.7 million, an increase of $4.8 million, or 14.2%,
compared to $33.9 million in the same period in fiscal 1997. The motel
division's operating income for the fiscal 1998 first quarter totaled
$13.0 million, an increase of $50,000, or 0.4%, from the $13.0 million
earned by the division in the same period of fiscal 1997.
Compared to the end of the first quarter of fiscal 1997, there
were 9 new Company-owned or operated and 7 new franchised Budgetel Inns in
operation and 2 new Company-owned Woodfield Suites in operation at the end
of the fiscal 1998 first quarter. The Company's newly opened motels
contributed additional revenues of $3.3 million to the division's fiscal
1998 first quarter revenues. The Company experienced slightly higher
occupancy rates and average daily room rates for comparable Budgetel Inns
in the first quarter of fiscal 1998, compared to the same quarter last
year. The result of the occupancy and average daily rate increases was a
2.1% increase in the division's revenue per available room, or RevPAR, for
comparable Budgetel Inns for the fiscal 1998 first quarter. Compared to
the prior year's first quarter, fiscal 1998 first quarter's results
continued to reflect pressure on the division's operating margins. The
Company has recently increased its marketing expenditures, both on a
national and local basis. In some highly competitive markets, the Company
has not been able to raise rates enough to fully offset rising costs.
At the end of the fiscal 1998 first quarter, the Company-owned
or operated 105 Budgetel Inns and franchised an additional 41 Inns,
bringing the total number of Budgetel Inns in operation to 146. In
addition, there are currently 7 Company-owned Budgetel Inns and 28
franchised locations under development, all of which are currently
scheduled to open in fiscal 1998 or shortly thereafter. The Company also
owns and operates 5 Woodfield Suites all-suite motels. Three additional
Company-owned Woodfield Suites are currently under development, with a new
franchise program set to be launched later this year.
Theatres
The theatre division's fiscal 1998 first quarter revenues were
$23.7 million, an increase of $3.1 million, or 15.0%, over revenues of
$20.6 million in the same period in fiscal 1997. Operating income for the
first quarter in fiscal 1998 totaled $5.5 million, an increase of
$600,000, or 11.3%, from operating income of $4.9 million in the same
period last year.
The Company did not add any new screens in the first quarter of
fiscal 1998, ending the first quarter with a total of 297 total screens in
40 theatres compared to 266 screens in 41 theatres at the end of the same
period last year. The Company currently has 44 additional screens under
construction, including two 16-screen ultraplexes in Columbus, Ohio. The
Company also signed an agreement with Imax Corporation to add IMAX/R/
2D/3D large-screen theatres at one of the new Columbus complexes and at
the 20-screen Marcus Cinemas of Addison, Illinois. The agreement also
gives the Company an option to build three additional IMAX large-screen
theatres.
Total box office receipts for the fiscal 1998 first quarter were
$15.8 million, an increase of $1.7 million, or 12.3%, over $14.1 million
in the same period last year. The increase in box office receipts for the
first quarter of fiscal 1998 compared to the same period in the prior year
was entirely due to the additional screens, together with a 2.2% increase
in first-run theatre average ticket prices and a 8.5% increase in vending
revenues per person. Without the additional screens, theatre attendance
would have decreased for the first quarter. The decline in attendance at
comparable locations occurred during the first half of the quarter, due
primarily to the fact that the summer of 1996 was front-loaded by movie
studios, who sought to avoid competition with the Atlanta Olympics. The
second half of the fiscal 1998 first quarter ended with several stronger
pictures, contributing to the overall improved results. Theatre
attendance is largely dependent upon the audience appeal of available
films, a factor over which the Company has limited control.
Hotels and Resorts
Total revenues from the hotels and resorts division during the
first quarter of fiscal 1998 increased by $3.9 million, or 23.3%, to $20.3
million, compared to $16.4 million in the previous year's comparable
period. Operating income increased by $2.2 million, or 60.6%, to $6.0
million in the fiscal 1998 first quarter, compared to $3.8 million in the
first quarter of fiscal 1997.
Improved occupancy rates and average daily rate increases at all
three of the Company's owned hotels and resorts contributed to the
increases in the fiscal 1998 period compared to the prior year's period.
In addition, the fiscal 1998 first quarter results benefitted from having
both championship golf courses at the Grand Geneva Resort & Spa open for
the entire quarter after renovations closed one course in the first
quarter of fiscal 1997. The division's total RevPAR increased 21.8% in
fiscal 1998's first quarter compared to the same quarter last year.
The Company plans to open its second resort, the Miramonte
Resort in Indian Wells, California, early in the fiscal 1998 third
quarter. Due to anticipated start-up expenses, this resort is not
expected to have a material impact on the division's fiscal 1998 operating
income. In addition, the Company expects to begin construction in fiscal
1998 on a 250-room expansion of the Milwaukee Hilton, which will create
the largest hotel in Wisconsin. The addition is currently scheduled to
open in 1999.
Restaurants
Restaurant division revenues totaled $7.3 million for the first
quarter of fiscal 1998, an increase of $500,000, or 7.5%, over fiscal 1997
first quarter revenues of $6.8 million. The division's operating income
for the fiscal 1998 first quarter totaled $1.0 million, an increase of
$350,000, or 59.1%, over operating income of $650,000 in the first quarter
of fiscal 1997.
The increases in revenues and operating income for the first
quarter of fiscal 1998, compared to the same period last year, were
primarily the result of customer count increases related to several recent
successful KFC product introductions and continued strong home delivery
sales. In addition, the Company opened its first 2-in-1 KFC/Taco Bell
conversion in the first quarter of fiscal 1998, resulting in significant
increases in both sales and earnings at that location.
FINANCIAL CONDITION
The Company's lodging, movie theatre and restaurant businesses
each generate significant and consistent daily amounts of cash because
each segment's revenue is derived predominantly from consumer cash
purchases. The Company believes that these consistent and predictable
cash sources, together with the availability to the Company of $50 million
of unused credit lines at the end of the first quarter, should be adequate
to support the ongoing operational liquidity needs of the Company's
businesses.
Net cash provided by operating activities increased by $14.3
million during the first quarter of fiscal 1998 to $35.8 million, compared
to $21.5 million in the prior year's first quarter. The increase over the
same period last year was primarily the result of increased net earnings
and depreciation/amortization, combined with timing differences in
payments of accounts payable and receipts of accounts and notes
receivable.
Net cash used in investing activities in the fiscal 1998 first
quarter totaled $17.5 million, compared to $38.9 million in the fiscal
1997 first quarter. Capital expenditures to support the Company's
continuing expansion program totaled $18.3 million in the first quarter of
fiscal 1998 compared to $37.7 million in the prior year's first quarter.
The timing of theatre screen additions accounts for the majority of the
decrease in capital expenditures, as a total of 47 new theatre screens,
including 27 acquired screens, were added in the fiscal 1997 first
quarter, compared to none in the fiscal 1998 first quarter. The Company
continues to anticipate that its total capital expenditures for fiscal
1998 will exceed fiscal 1997 amounts.
Cash used in financing activities in the fiscal 1998 first
quarter totaled $4.4 million, compared to cash provided by financing
activities of $3.8 million in the first quarter of fiscal 1997. During
the fiscal 1997 first quarter, the Company received $11.5 million of net
proceeds from the issuance of notes payable and long-term debt, compared
to none in the first quarter of fiscal 1998. The Company did not need to
issue notes or long-term debt in the first quarter of fiscal 1998 to help
fund its capital expansion program because the Company still had the use
of a portion of the cash proceeds from its October 1996 issuance of $85
million of senior unsecured long-term notes privately placed with six
institutional lenders. The Company expects to use the remaining proceeds
to help fund the Company's ongoing expansion plans and anticipates issuing
additional long-term debt in fiscal 1998. The Company has the ability to
issue up to $115 million of additional senior notes under the private
placement program through February 1999.
The actual timing and extent of the implementation of the
Company's current expansion plans will depend in large part on continuing
favorable industry and general economic conditions, the Company's
financial performance and available capital, the competitive environment,
evolving customer needs and trends and the availability of attractive
opportunities. It is likely that the Company's current expansion goals
will continue to evolve and change in response to these and other factors.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No Form 8-K was filed by the Company during the quarter to
which this Form 10-Q relates.
<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.
THE MARCUS CORPORATION
(Registrant)
DATE: October 6, 1997 By:\s\ Stephen H. Marcus
Stephen H. Marcus,
Chairman of the Board, President and Chief
Executive Officer
DATE: October 6, 1997 By:\s\ Douglas A. Neis
Douglas A. Neis
Chief Financial Officer and Treasurer
<PAGE>
THE MARCUS CORPORATION
FORM 10-Q
FOR
12 WEEKS ENDED AUGUST 21, 1997
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE MARCUS CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-28-1998
<PERIOD-START> MAY-30-1997
<PERIOD-END> AUG-21-1997
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<PP&E> 665,856
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<BONDS> 165,821
0
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<COMMON> 20,386
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<CGS> 38,404
<TOTAL-COSTS> 65,848
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 2,765
<INCOME-PRETAX> 21,788
<INCOME-TAX> 8,723
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