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 February 25, 1999
[ ] 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
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1139844
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
250 East Wisconsin Avenue, Suite 1700
Milwaukee, Wisconsin 53202
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (414) 905-1000
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 APRIL 5, 1999 - 17,276,355
CLASS B COMMON STOCK OUTSTANDING AT APRIL 5, 1999 - 12,634,977
<PAGE>
THE MARCUS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements:
Balance Sheets
(February 25, 1999 and May 28, 1998).................. 3
Statements of Earnings
(Thirteen and thirty-nine weeks ended February 25,
1999, twelve and thirty-six weeks ended February 5,
1998 (as reported) and thirteen and thirty-nine
weeks ended February 26, 1998 (pro forma)............. 5
Statements of Cash Flows
(Thirty-nine weeks ended February 25, 1999 and
thirty-six weeks ended February 5, 1998).............. 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...................... 16
Item 11. Signatures............................................ 17
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Audited)
February 25, May 28,
1999 1998
---- ----
(in thousands)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,423 $ 4,678
Accounts and notes receivable 11,201 14,294
Receivables from joint ventures 1,620 1,288
Refundable income taxes 3,704 4,385
Other current assets 5,436 3,773
-------- --------
Total current assets 24,384 28,418
Property and equipment:
Land and improvements 89,818 85,282
Buildings and improvements 481,531 440,737
Leasehold improvements 9,376 9,355
Furniture, fixtures and equipment 208,235 187,341
Construction in progress 18,404 27,510
-------- --------
Total property and equipment 807,364 750,225
Less accumulated depreciation and amortization 205,166 190,229
-------- --------
Net property and equipment 602,198 559,996
Other assets:
Investments in joint ventures 1,894 1,496
Other 20,618 18,594
-------- --------
Total other assets 22,512 20,090
-------- --------
TOTAL ASSETS $649,094 $608,504
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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THE MARCUS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Audited)
February 25, May 28,
1999 1998
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable $ 4,435 $ 5,255
Accounts payable 15,049 26,385
Taxes other than income taxes 8,882 11,404
Accrued compensation 2,639 2,643
Other accrued liabilities 14,101 10,072
Current maturities on long-term debt 10,059 10,277
--------- --------
Total current liabilities 55,165 66,036
Long-term debt 242,963 205,632
Deferred income taxes 29,417 26,479
Deferred compensation and other 9,041 7,826
Shareholders' equity:
Preferred Stock, $1 par; authorized 1,000,000
shares; none issued - -
Common Stock, $1 par; authorized 50,000,000
shares; issued 18,554,536 shares at February
25, 1999, 18,511,866 shares at May 28, 1998 18,555 18,512
Class B Common Stock, $1 par; authorized
33,000,000 shares; issued and outstanding
12,634,977 at February 25, 1999, 12,677,656 at
May 28, 1998 12,635 12,678
Capital in excess of par 40,450 40,265
Retained earnings 251,287 235,708
-------- --------
322,927 307,163
Less cost of Common Stock in treasury (1,286,093
shares at February 25, 1999 and 944,544 shares
at May 28, 1998) 10,419 4,632
-------- --------
Total shareholders' equity 312,508 302,531
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $649,094 $608,504
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
<TABLE>
<CAPTION>
(As reported) (Pro forma)(1)
February 25, 1999 February 5,1998 February 26, 1998
--------------------- --------------------- ---------------------
13 Weeks 39 Weeks 12 Weeks 36 Weeks 13 Weeks 39 Weeks
-------- -------- -------- -------- -------- --------
(in thousands, except per share data)
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Rooms and telephone $34,683 $130,207 $30,803 $117,698 $35,553 $127,682
Theatre admissions 19,422 56,967 17,038 42,370 18,369 45,878
Theatre concessions 8,864 25,735 7,662 18,831 8,277 20,467
Food and beverage 12,485 39,282 10,049 33,788 10,978 36,437
Other income 6,815 25,432 5,668 19,770 6,448 21,323
------- -------- ------- -------- ------- --------
Total revenues 82,269 277,623 71,220 232,457 79,625 251,787
Costs and expenses:
Rooms and telephone 17,148 53,916 14,865 45,224 16,493 49,733
Theatre operations 15,596 43,937 12,675 32,368 13,667 34,860
Theatre concessions 2,134 6,357 2,015 4,997 2,181 5,530
Food and beverage 9,244 27,830 7,657 23,738 8,358 25,600
Advertising and marketing 5,921 19,359 4,928 15,671 5,504 17,542
Administrative 8,960 27,911 6,829 21,706 7,628 23,398
Depreciation and amortization 10,085 29,199 7,591 22,164 8,282 24,157
Rent 892 2,536 575 2,123 666 2,289
Property taxes 3,195 10,158 2,664 8,103 2,917 8,561
Pre-opening expenses 561 1,479 273 950 355 1,062
Other operating expenses 3,253 10,852 3,056 9,442 3,102 9,616
------- -------- ------- -------- ------- --------
Total costs and expenses 76,989 233,534 63,128 186,486 69,153 202,348
------- -------- ------- -------- ------- --------
Operating income 5,280 44,089 8,092 45,971 10,472 49,439
Other income (expense):
Investment income (loss) 225 548 (43) 783 (27) 849
Interest expense (4,667) (12,235) (3,191) (8,828) (3,521) (9,639)
Gain on disposition of property and
equipment 35 1,953 215 457 212 462
------- -------- ------- -------- ------- --------
(4,407) (9,734) (3,019) (7,588) (3,336) (8,328)
------- -------- ------- -------- ------- --------
Earnings before income taxes 873 34,355 5,073 38,383 7,136 41,111
Income taxes 360 13,762 2,038 15,366 2,852 16,451
------- ------ ------- -------- ------- --------
Net earnings $513 $ 20,593 $3,035 $ 23,017 $ 4,284 $ 24,660
======= ======== ======= ======== ======= ========
Net earnings per share:
Basic $ 0.02 $ 0.69 $ 0.10 $ 0.77 $ 0.14 $ 0.82
Diluted $ 0.02 $ 0.68 $ 0.10 $ 0.76 $ 0.14 $ 0.82
Weighted Average Shares Outstanding:
Basic 29,933 30,034 30,276 29,942 30,278 29,970
Diluted 30,023 30,153 30,537 30,193 30,527 30,225
(1) Pro forma information is presented as if the prior year had been reported
on the new 13-week basis.
</TABLE>
See accompanying notes to consolidated financial statements.
5
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THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(in thousands)
39 Weeks 36 Weeks
Ended Ended
Feb. 25, 1999 Feb. 5, 1998
------------- ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 20,593 $ 23,017
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Earnings on investments in joint ventures, net of distributions 373 136
Gain on disposition of property and equipment (1,953) (457)
Depreciation and amortization 29,199 22,164
Deferred income taxes 2,938 750
Deferred compensation and other 1,215 1,005
Changes in assets and liabilities:
Accounts and notes receivable 3,093 (3,777)
Other current assets (1,663) (646)
Accounts payable (11,336) 4,485
Income taxes 681 4,316
Taxes other than income taxes (2,522) (436)
Accrued compensation (4) 1,928
Other accrued liabilities 4,029 551
--------- ---------
Total adjustments 24,050 30,019
--------- ---------
Net cash provided by operating activities 44,643 53,036
INVESTING ACTIVITIES:
Capital expenditures, including business acquisitions (74,430) (56,337)
Net proceeds from disposals of property, equipment and other assets 5,376 1,323
Purchase of interest in joint ventures (771)
Increase in other assets (2,658) (1,113)
Cash advanced to joint ventures (332) (188)
--------- ---------
Net cash used in investing activities (72,815) (56,315)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes payable and long-term debt 50,783 16,489
Principal payments on notes payable and long-term debt (14,490) (11,799)
Equity transactions:
Treasury stock transactions, except for stock options (6,272) (383)
Exercise of stock options 668 1,104
Dividends paid (4,772) (3,078)
--------- ---------
Net cash provided by financing activities 25,917 2,333
--------- ---------
Net decrease in cash and cash equivalents (2,255) (946)
Cash and cash equivalents at beginning of year 4,678 7,991
--------- ---------
Cash and cash equivalents at end of period $ 2,423 $ 7,045
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
THIRTEEN AND THIRTY-NINE WEEKS ENDED
FEBRUARY 25, 1999
(Unaudited)
A. Refer to the Company's audited financial statements (including footnotes)
for the fiscal year ended May 28, 1998, contained in the Company's Form
10-K Annual Report for such fiscal year, for a description of the
Company's accounting policies.
B. Beginning in fiscal 1999, the Company is dividing its fiscal year into
three 13-week quarters and a final quarter consisting of 13 or 14 weeks.
Previously, the Company's fiscal year consisted of three 12-week quarters
and a fourth quarter of 16 or 17 weeks. Comparative results for the third
quarter and three quarters of fiscal 1998 are presented on a pro forma
basis, as if the periods had been reported on the new basis.
C. The consolidated financial statements for the thirteen and thirty-nine
weeks ended February 25, 1999, twelve and thirty-six weeks ended
February 5, 1998 and pro forma thirteen and thirty-nine weeks ended
February 26, 1998 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 February 25, 1999, and for all periods
presented, have been made.
D. Certain items terms in the accompanying fiscal 1998 financial statements
have been reclassified to conform to the fiscal 1999 presentation.
7
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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 may generally be identified as such because the context of such
statements 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 and uncertainties,
including, but not limited to, the following: (i) the Company's ability to
identify properties to acquire, develop and/or manage and continuing
availability of funds for such development; (ii) the limited-service lodging
division's ability to attract and retain quality franchise operators and to
effectively execute its Baymont name change strategy; (iii) continuing consumer
demand as a result of general economic conditions with respect to the hotels and
resorts and limited-service lodging divisions; (iv) continuing availability, in
terms of both quality and quantity, of films for the theatre division; (v)
absence of significant increases in costs of obtaining food for the restaurant
division; and (vi) competitive conditions in the markets served by the Company.
Shareholders, potential investors and other readers are urged to consider these
factors 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 made only 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 Marcus Corporation and its four divisions report their consolidated
and individual segment results of operations on a 52-or 53-week fiscal year
ending on the last Thursday in May. Fiscal 1999 will be a 52-week year for the
Company and each of its divisions. Fiscal 1998 was a 53-week fiscal year for the
Company's restaurant division, while the Company and its other remaining
divisions reported a 52-week year in fiscal 1998.
Historically, the Company's fiscal year has been divided into three
12-week quarters and a final quarter consisting of 16 or 17 weeks. In fiscal
1999, the Company began dividing its fiscal year into three 13-week quarters and
a final quarter consisting of 13 or 14 weeks. The Company made this change in
order to simplify its reporting process and provide greater consistency between
quarters. To facilitate comparisons with fiscal 1999 results, comparative
results for the third quarter and first three quarters of fiscal 1998 are
presented on a pro forma basis, as if the periods had been reported on the new
basis.
8
<PAGE>
Revenues for the third quarter of fiscal 1999 ended February 25, 1999,
totaled $82.3 million, an increase of $2.6 million, or 3.3%, from pro forma
revenues of $79.6 million for the third quarter of fiscal 1998. Revenues
reported for the 12-week quarter ended February 5, 1998 totaled $71.2 million.
The increase in revenues for the fiscal 1999 third quarter was the result of
increases from the hotels and resorts division and theatre division. For the
first three quarters of fiscal 1999, revenues were $277.6 million, an increase
of $25.8 million, or 10.3%, from pro forma revenues of $251.8 million during the
first three quarters of fiscal 1998.
Net earnings for the third quarter of fiscal 1999 were $500,000, or $.02
per share, down 88.0% and 85.7%, respectively, from pro forma net earnings of
$4.3 million, or $.14 per share, for the same quarter during the prior year. Net
earnings reported for the 12-week quarter ended February 5, 1998 were $3.0
million, or $.10 per share. For the first three quarters of fiscal 1999, net
earnings were $20.6 million, or $.68 per share. This represented a respective
16.5% and 17.1% decrease from pro forma net earnings of $24.7 million, or $.82
per share, for the first three quarters of fiscal 1998. All per share data
presented herein is on a diluted basis.
Operating income (earnings before other income/expense and income taxes)
totaled $5.3 million during the third quarter of fiscal 1999, a decrease of $5.2
million, or 49.6%, compared to the pro forma operating income for the same prior
year period. For the first three quarters of fiscal 1999, operating income was
$44.1 million, a decrease of $5.3 million, or 10.8%, from pro forma operating
income of $49.4 million for the first three quarters of fiscal 1998. The
Company's interest expense, net of investment income, totaled $4.4 million and
$11.7 million for the third quarter and first three quarters of fiscal 1999,
respectively, compared to $3.5 million and $8.8 million during the same periods
last year on a pro forma basis. This increase was the result of increased
long-term debt levels necessary to help finance the Company's capital program,
combined with reduced investment income and capitalized interest.
Year 2000 Readiness Disclosure
The Company has undertaken a comprehensive Year 2000 compliance program
that addresses this complex problem. In addition, where the Company's services
or processes incorporate third-party software or products, the Company is
working closely with vendors to verify and assure compliance. The Company's Year
2000 Program was given its direction by the Board of Directors and The Executive
Committee in February 1998. Each division within the Company formed a task force
and was given its mission with the guidance of The Year 2000 Program Office.
Regular meetings are held and progress is reviewed and reported. During early
1998, the Company conducted a thorough inventory and prioritization of all items
that may be impacted by the Year 2000. Inventory includes computers, operating
systems, software and embedded systems. The compliance status of each inventory
item is being determined from the vendor or through third party tools and
testing. To date, assessment of critical inventory is complete. Each critical
noncompliant item is being addressed to bring it to compliance status.
Previously planned upgrades of many systems are in process including financial,
HRMS and property operating systems. Completion of all
9
<PAGE>
required resolution efforts is scheduled to be done by October 31, 1999. Testing
of each critical system is being evaluated based upon risk and business factors.
Many systems have been tested already. All systems tested to date have passed
the compliance test. Contingency planning will also begin April 1, 1999. This
planning includes scheduling resources, disaster recovery and business
continuity. The Company will also consider the Year 2000 status of each of our
critical vendors and supplies in this plan.
Limited-Service Lodging
Total revenues for the third quarter of fiscal 1999 for the
limited-service lodging division were $29.3 million, a decrease of $1.6 million,
or 5.1%, compared to pro forma revenues of $30.9 million during the same period
in fiscal 1998. Total revenues for the first three quarters of fiscal 1999 for
the limited-service lodging division were $108.9 million, an increase of $1.1
million, or 1.0%, compared to pro forma revenues of $107.8 million for the first
three quarters of fiscal 1998. The limited-service lodging division's operating
income for the fiscal 1999 third quarter totaled $1.0 million, a decrease of
$3.4 million, or 76.9%, from pro forma operating income of $4.4 million during
the same period of fiscal 1998. For the first three quarters of fiscal 1999, the
limited-service lodging division's operating income totaled $21.1 million, a
$5.2 million decrease, or 19.9%, from pro forma operating income of $26.3
million for the first three quarters of fiscal 1998. The division reported
revenues of $27.0 million and operating income of $2.7 million for the 12-week
third quarter ended February 5, 1998.
During the third quarter of fiscal 1999, the Company officially changed
the name of its Budgetel Inns to Baymont Inns and Baymont Inns & Suites. Nine
new franchised Budgetel/Baymont Inns were in operation at the end of the fiscal
1999 third quarter compared to the end of the third quarter of fiscal 1998. The
Company experienced lower occupancy rates and higher average daily room rates
for comparable Budgetel/Baymont Inns during the third quarter of fiscal 1999,
compared to the same quarter last year. The result of the occupancy decline and
average daily rate increases was a 7.3% decrease in the division's revenue per
available room, or RevPAR, for comparable Budgetel/Baymont Inns during the
fiscal 1999 third quarter. For the first three quarters of fiscal 1999, RevPAR
for comparable Budgetel/Baymont Inns decreased 1.9% from the same period last
year.
The limited-service lodging division's results continue to be impacted by
the increased limited-service segment room supply, resulting in RevPAR decreases
and pressure on the division's operating margin. Reduced occupancy percentages,
combined with increased payroll costs in a tight labor market, have contributed
to the lower operating margins. In addition, administrative costs have increased
due to recent investments in information technology and personnel, including
sales staff, in preparation for the Baymont name change. Offsetting these
negative trends in the third quarter were increased franchise revenue and
increased revenue and operating income from the division's Woodfield Suites
properties.
As the Company expected, the Baymont introduction did not immediately
alter the current trends occurring in the limited-service segment of the lodging
industry and may have actually contributed to a decline in occupancy during the
name change transition.
10
<PAGE>
Anticipated decreases in walk-in business contributed to the reduced occupancy
due to the new brand's lack of name recognition. Delays in completing the new
Baymont signage, caused in part by severe January weather in the Midwest, also
contributed to the challenging transition during the quarter. The Company
responded to the signage delays by reducing its scheduled marketing expenditures
during the quarter. New signage was completed early in the fourth quarter and
the Company recently began an extensive marketing campaign to introduce the
Baymont brand. Although the Company expects that short-term declines in
occupancy may continue during the initial introduction of the new Baymont brand,
the Company believes that the long-term benefits of the name change should
include expanding the Company's customer base, increasing RevPAR and increasing
development opportunities.
At the end of the fiscal 1999 third quarter, the Company owned or operated
106 Baymont Inns or Baymont Inns & Suites and franchised an additional 55 Inns,
bringing the total number of Baymont Inns in operation to 160. In addition,
there are currently 26 franchised locations under construction or in
development, all of which are scheduled to open in calendar 1999. The Company
also owns and operates six Woodfield Suites all-suite motels. The Company opened
its sixth location during the fiscal 1999 third quarter. One additional
Company-owned Woodfield Suites is currently under construction.
Theatres
The theatre division's fiscal 1999 third quarter revenues were $29.1
million, an increase of $1.2 million, or 4.3%, over pro forma revenues of $27.9
million during the same fiscal 1998 period. Operating income for the third
quarter of fiscal 1999 totaled $5.6 million, a decrease of $2.1 million, or
27.2%, from pro forma operating income of $7.7 million during the same period
last year. The division reported revenues of $25.7 million and operating income
of $7.0 million for the 12-week third quarter ended February 5, 1998. The
theatre division's fiscal 1999 first three quarters revenues were $85.2 million,
an increase of $15.9 million, or 22.9%, over pro forma revenues of $69.3 million
during the first three quarters of fiscal 1998. Operating income for the first
three quarters of fiscal 1999 was $17.4 million, an increase of $1.0 million, or
6.1%, over $16.4 million of pro forma operating income during the first three
quarters of fiscal 1998. Included in fiscal 1999 third quarter and first three
quarters operating income is $290,000 and $450,000, respectively, of pre-opening
expenses associated with its recently opened 16-screen ultraplex and IMAX(R)
theatre in Columbus, Ohio.
Total theatre admissions for the fiscal 1999 third quarter were $19.4
million, an increase of $1.0 million, or 5.7%, over pro forma theatre admissions
of $18.4 million during the same period last year. The increase in theatre
admissions for the third quarter of fiscal 1999 compared to the same period
during the prior year was entirely due to 100 additional screens, an increase of
33.7%, compared to the same period last year. Total theatre admissions for the
fiscal 1999 first three quarters were $57.0 million, an increase of $11.1
million, or 24.2%, over pro forma theatre admissions of $45.9 million during the
same period last year. The theatre division's average ticket price for the first
three quarters of fiscal 1999 has increased 0.2% over the same period last year.
11
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Concession revenues for the fiscal 1999 third quarter totaled $8.9
million, an increase of $600,000, or 7.1%, over pro forma concession revenues of
$8.3 million during the same quarter last year. Concession revenues for the
fiscal 1999 first three quarters were $25.7 million, an increase of $5.3
million, or 25.7%, over pro forma concession revenues of $20.4 million during
the fiscal 1998 first three quarters. The increase in concession revenues was
due to increased theatre attendance from the Company's new screens and a 1.4%
increase in average concession sales per person during the fiscal 1999 first
three quarters compared to the same period last year.
Total attendance for the third quarter and first three quarters of fiscal
1999 increased 9.0% and 23.9%, respectively, over pro forma total attendance
during the same periods last year. Attendance at the Company's comparable
locations decreased 12.1% during the third quarter and increased 0.3% during the
first three quarters of fiscal 1999, compared to the prior year same periods.
Fiscal 1999 third quarter attendance was negatively impacted by the lack of
popular film product compared to the same period during the prior year. Fiscal
1998 attendance was significantly increased by the record-breaking results of
the film Titanic. Attendance was also negatively impacted during the fiscal 1999
third quarter by a major winter storm on New Year's weekend during what is
traditionally the largest theatre attendance week of the year. The Company
estimates that it lost approximately $2 million in revenues due to the storm.
Although the box office appeal of current films has improved, the Company
does not presently anticipate any major box office hits for the balance of the
fiscal year until Star Wars I -- The Phantom Menace is released nine days prior
to the Company's fiscal year-end. Based upon current theatre industry
expectations, the Company anticipates that Star Wars could have a favorable
impact on division results, particularly during the first quarter of fiscal
2000. Revenues for the theatre business and the motion picture industry in
general are heavily dependent upon the general audience appeal of available
films, together with studio marketing, advertising and support campaigns,
factors over which the Company has no control.
During the third quarter of fiscal 1999, the Company acquired a 10-screen
theatre in Milwaukee and closed one screen. The Company ended the third quarter
with a total of 397 total screens in 46 theatres compared to 297 screens in 40
theatres at the end of the same period last year. Early during the fourth
quarter of fiscal 1999, the Company acquired a 14-screen theatre in Elgin,
Illinois, bringing its current screen total to 411 screens and its screens per
location average to 8.7. The Company currently has 15 additional screens at
existing locations under construction, including its second IMAX(R) theatre at
the 20-screen Marcus Cinemas of Addison, Illinois, and another 16 screens
scheduled to begin construction shortly at existing locations. The Company also
has several new projects under development, including a new 15-screen ultraplex
in the Minneapolis metropolitan area. The Company is also pursuing additional
acquisition opportunities. During the third quarter of fiscal 1999, the Company
continued to retrofit existing theatres with stadium seating. The Company
currently has stadium seating in approximately 60% of its total auditoriums and
the Company's goal is to have stadium seating in over 90% of its first-run
auditoriums by the end of fiscal 2000.
12
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Hotels and Resorts
Total revenues from the hotels and resorts division during the third
quarter of fiscal 1999 increased by $3.1 million, or 21.4%, to $17.2 million,
compared to pro forma revenues of $14.1 million in the previous year's
comparable period. Operating losses decreased by $600,000, or 49.4%, to $600,000
during the fiscal 1999 third quarter, compared to a pro forma operating loss of
$1.2 million during the third quarter of fiscal 1998. The division reported
revenues of $12.4 million and an operating loss of $1.1 million for the 12-week
quarter ended February 5, 1998. Total revenues from the hotels and resorts
division during the first three quarters of fiscal 1999 totaled $61.5 million,
an increase of $8.5 million, or 16.0%, over pro forma first three quarters
revenues of $53.0 million during fiscal 1998. Operating income decreased by
$600,000, or 8.4%, during the first three quarters of fiscal 1999 to $7.0
million, compared to pro forma operating income of $7.6 million during the same
period last year.
Revenues from the Company's new Miramonte Resort in Indian Wells,
California and improved RevPAR at all three of the Company's comparable owned
hotels contributed to the revenue increases in the fiscal 1999 periods compared
to the prior year's same periods. The division's total RevPAR for comparable
properties increased 15.2% during fiscal 1999's third quarter compared to the
same quarter last year and has increased 9.4% for the first three quarters of
fiscal 1999 compared to the same period last year, primarily due to increased
average daily rates. Total operating income at the three comparable owned
properties for the first three quarters of fiscal 1999 has increased as well.
Increased management fees, due to improved results at the Company's managed
properties, contributed to the improved third quarter results. Total division
operating income was negatively impacted during the third quarter and first
three quarters of fiscal 1999 by approximately $200,000 and $800,000,
respectively, of pre-opening cost amortization at the Miramonte, in addition to
anticipated start-up operating losses at this new property. All pre-opening
expenses were fully amortized during the fiscal 1999 third quarter, which should
contribute to more favorable comparisons in operating income in future quarters.
The Company began construction early in the third quarter of fiscal 1999
on a 200-room expansion of the Milwaukee Hilton, which will be connected to
Milwaukee's newly opened Midwest Express Convention Center and will create the
largest hotel in Wisconsin. The addition is currently scheduled to open in July
2000. Construction is expected to commence on the division's new Company-owned
Monona Terrace Hilton in Madison, Wisconsin. Projected completion of the
property, which will be connected to the city's new Monona Terrace Convention
Center, is early in the year 2001. The Company is also moving forward on
development plans for timesharing at the Grand Geneva. Construction of the
initial units and sales efforts on the timeshare units may begin in the summer
of 1999.
Restaurants
Restaurant division revenues totaled $6.5 million for the third quarter of
fiscal 1999, a decrease of $100,000, or 1.0%, from fiscal 1998 pro forma third
quarter revenues of $6.6 million. The division's operating income for the fiscal
1999 third quarter
13
<PAGE>
totaled $600,000, a decrease of $200,000, or 24.7%, from pro forma operating
income of $800,000 during the third quarter of fiscal 1998. The division
reported revenues of $6.0 million and operating income of $700,000 for the
12-week quarter ended February 5, 1998. Restaurant division revenues totaled
$21.4 million for the first three quarters of fiscal 1999, an increase of
$200,000, or 0.9%, over pro forma first three quarters fiscal 1998 revenues of
$21.2 million. The division's operating income totaled $2.6 million for the
first three quarters of fiscal 1999, a decrease of $200,000, or 8.3%, from pro
forma operating income of $2.8 million during the same period during fiscal
1998.
The Company's KFC restaurants reported increases in revenue and operating
income during the periods reported due in part to expanded lunch and snack
business and the continuing success of the division's 2-in-1 KFC/Taco Bell
restaurants in Milwaukee. Total division revenues decreased during the fiscal
1999 third quarter due to reduced rental income from several former restaurant
locations. Total division operating income did not increase during the fiscal
1999 first three quarters compared to the prior year's same period due to a
one-time insurance adjustment from a prior claim that was settled during the
first quarter. Two 2-in-1 combination restaurant conversions opened during the
third quarter of fiscal 1999. At the end of the fiscal 1999 third quarter, the
Company operated 27 KFC restaurants and 3 KFC/Taco Bell 2-in-1 restaurants,
compared to 30 KFC restaurants and 1 KFC/Taco Bell unit at the end of the same
period last year.
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 $27 million of unused credit lines at the end of
the third quarter, should be adequate to support the ongoing operational
liquidity needs of the Company's businesses. In addition, the Company
anticipates increasing its total revolving credit lines from its current level
of $90 million to $125 million during the fiscal 1999 fourth quarter.
Net cash provided by operating activities decreased by $8.4 million during
the 39-week first three quarters of fiscal 1999 to $44.6 million, compared to
$53.0 million during the prior year's 36-week first three quarters. The decrease
compared to the same period last year was primarily the result of reduced
earnings and timing differences in payments of accounts payable, offset by
timing differences in receipts of accounts and notes receivable. Depreciation
and amortization (a non-cash expense) increased as a result of the Company's
increased capital spending program.
Net cash used in investing activities during the fiscal 1999 first three
quarters totaled $72.8 million, compared to $56.3 million during the fiscal 1998
36-week first three quarters. Capital expenditures, including business
acquisitions, to support the Company's continuing expansion program totaled
$74.4 million during the first three quarters of fiscal 1999 compared to $56.3
million during the prior year's reported first three quarters. Approximately $45
million of the capital expenditures during the fiscal 1999 first three
14
<PAGE>
quarters were incurred in the theatre division to fund new theatres, screen
additions to existing theatres, stadium seating retrofits and construction of
the Company's first IMAX(R) theatre. An additional $10 million of the capital
expenditures was incurred during construction of two Company-owned Woodfield
Suites. The Company currently anticipates that total capital expenditures during
fiscal 1999 will be similar to total expenditures during fiscal 1998.
Net cash provided by financing activities during the first three quarters
of fiscal 1999 totaled $25.9 million, compared to $2.3 million during the
36-week first three quarters of fiscal 1998. During the fiscal 1999 first three
quarters, the Company received $50.8 million of net proceeds from the issuance
of notes payable and long-term debt, compared to $16.5 million during the
36-week first three quarters of fiscal 1998. The Company issued additional
long-term debt to help fund the Company's ongoing expansion plans in fiscal
1999. The Company has the ability to issue up to $85 million of additional
senior notes under a private placement program and expects to issue additional
notes totaling $40 million during the fourth quarter of fiscal 1999. Proceeds
from the issuance of additional senior notes would be used to pay off existing
debt and fund the Company's capital program.
During the fiscal 1999 first three quarters, the Company repurchased
435,000 of its common shares in the open market pursuant to a long-standing
existing repurchase program and a recently announced new repurchase program. The
Company announced in the second quarter of fiscal 1999 that its Board of
Directors had authorized the repurchase of up to 1 million additional shares of
the Company's outstanding common stock. The repurchases are expected to be
executed on the open market or in privately negotiated transactions depending
upon a number of factors, including prevailing market conditions.
The actual timing and extent of the implementation of the Company's
current expansion plans will depend in large part on favorable industry and
general economic conditions, 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.
15
<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.
16
<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: April 5, 1999 By: /s/ Stephen H. Marcus
---------------------------
Stephen H. Marcus,
Chairman of the Board, President and Chief
Executive Officer
DATE: April 5, 1999 By: /s/ Douglas A. Neis
---------------------------
Douglas A. Neis
Chief Financial Officer and Treasurer
17
<PAGE>
THE MARCUS CORPORATION
FORM 10-Q
FOR
39 WEEKS ENDED FEBRUARY 25, 1999
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
18
<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 TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-27-1999
<PERIOD-START> MAY-29-1998
<PERIOD-END> FEB-25-1999
<CASH> 2,423
<SECURITIES> 0
<RECEIVABLES> 12,821
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,384
<PP&E> 807,364
<DEPRECIATION> 205,166
<TOTAL-ASSETS> 649,094
<CURRENT-LIABILITIES> 55,165
<BONDS> 242,963
0
0
<COMMON> 31,190
<OTHER-SE> 281,318
<TOTAL-LIABILITY-AND-EQUITY> 649,094
<SALES> 252,191
<TOTAL-REVENUES> 277,623
<CGS> 132,040
<TOTAL-COSTS> 233,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,235
<INCOME-PRETAX> 34,355
<INCOME-TAX> 13,762
<INCOME-CONTINUING> 20,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,593
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
</TABLE>
