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 August 26, 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
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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 offices) (Zip Code)
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
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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 OCTOBER 6, 1999 - 17,405,854
CLASS B COMMON STOCK OUTSTANDING AT OCTOBER 6, 1999 - 12,502,026
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THE MARCUS CORPORATION
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INDEX
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PART I-FINANCIAL INFORMATION Page
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Item 1. Consolidated Financial Statements:
Balance Sheets
(August 26, 1999 and May 27, 1999)............................. 3
Statements of Earnings
(Thirteen weeks ended August 26, 1999 and thirteen weeks
ended August 27, 1998)......................................... 5
Statements of Cash Flows
(Thirteen weeks ended August 26, 1999 and thirteen weeks
ended August 27, 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............................... 17
Item 11. Signatures..................................................... 18
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
August 26, May 27,
1999 1999
---- ----
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $4,324 $3,499
Accounts and notes receivable 13,311 11,059
Receivables from joint ventures 1,719 1,739
Refundable income taxes - 6,041
Other current assets 2,945 4,400
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Total current assets 22,299 26,738
Property and equipment:
Land and improvements 90,998 88,221
Buildings and improvements 485,433 478,576
Leasehold improvements 10,575 9,904
Furniture, fixtures and equipment 220,909 213,408
Construction in progress 22,512 28,620
-------- --------
Total property and equipment 830,427 818,729
Less accumulated depreciation and amortization 213,970 207,516
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Net property and equipment 616,457 611,213
Other assets:
Investments in joint ventures 2,318 2,045
Other 37,164 36,120
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Total other assets 39,482 38,165
-------- --------
TOTAL ASSETS $678,238 $676,116
======== ========
See accompanying notes to consolidated financial statements.
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THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
August 26, May 27,
1999 1999
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $5,010 $4,479
Accounts payable 11,576 22,958
Income taxes 1,440 -
Taxes other than income taxes 11,960 9,575
Accrued compensation 3,316 2,617
Other accrued liabilities 15,098 9,287
Current maturities on long-term debt 12,602 10,470
-------- --------
Total current liabilities 61,002 59,386
Long-term debt 251,778 264,270
Deferred income taxes 32,469 31,405
Deferred compensation and other 7,844 7,481
Shareholders' equity:
Preferred Stock, $1 par; authorized 1,000,000 shares;
none issued
Common Stock, $1 par; authorized 50,000,000 shares;
issued 18,687,487 shares at August 26, 1999,
18,680,508 shares at May 27, 1999 18,687 18,681
Class B Common Stock, $1 par; authorized 33,000,000
shares; issued and outstanding 12,502,026 at
August 26, 1999, 12,509,014 at May 27, 1999
12,502 12,509
Capital in excess of par 40,710 40,685
Retained earnings 264,083 252,498
Accumulated other comprehensive loss (193) (214)
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335,789 324,159
Less cost of Common Stock in treasury (1,283,651
shares at August 26, 1999 and 1,280,676 shares
at May 27, 1999)
(10,644) (10,585)
-------- --------
Total shareholders' equity 325,145 324,159
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $678,238 $676,116
======== ========
See accompanying notes to consolidated financial statements.
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THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
(in thousands, except per share data) August 26, August 27,
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Rooms and telephone $49,934 $52,049
Theatre admissions 28,648 22,369
Theatre concessions 12,800 10,076
Food and beverage 7,029 6,492
Other income 9,306 8,992
----- -----
Total revenues 107,717 99,978
Costs and expenses:
Rooms and telephone 18,408 18,247
Theatre operations 22,011 16,928
Theatre concessions 3,031 2,441
Food and beverage 5,266 4,719
Advertising and marketing 6,359 6,107
Administrative 9,965 9,491
Depreciation and amortization 10,003 8,818
Rent 825 595
Property taxes 3,406 3,381
Pre-opening expenses 372 408
Other operating expenses 3,571 3,681
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Total costs and expenses 83,217 74,816
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Operating income 24,500 25,162
Other income (expense):
Investment income 377 176
Interest expense (4,880) (4,016)
Gain on disposition of property and equipment 1,327 1,387
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(3,176) (2,453)
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Earnings from continuing operations before income taxes 21,324 22,709
Income taxes 8,628 9,080
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Earnings from continuing operations 12,696 13,629
Discontinued operations (Note 2):
Income from discontinued operations, net of income
taxes of $322,000 in 1999 and $374,000 in 1998 474 562
--- ---
Net earnings $13,170 $14,191
======= =======
Earnings per share - Basic:
Continuing operations $0.42 $0.45
Discontinued operations $0.02 $0.02
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Net earnings per share $0.44 $0.47
===== =====
Earnings per share- Diluted:
Continuing operations $0.42 $0.45
Discontinued operations $0.02 $0.02
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Net earnings per share $0.44 $0.47
===== =====
Weighted Average Shares Outstanding:
Basic 29,906 30,201
Diluted 29,946 30,362
See accompanying notes to consolidated financial statements.
</TABLE>
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THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(in thousands)
August 26, August 27,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $13,170 $14,191
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Earnings on investments in joint ventures, net of distributions (273) (265)
Gain on disposition of property and equipment (1,327) (1,387)
Depreciation and amortization 10,373 9,245
Deferred income taxes 1,064 901
Deferred compensation and other 363 702
Changes in assets and liabilities:
Accounts and notes receivable (2,252) (2,407)
Other current assets 1,455 774
Accounts payable (11,382) (8,252)
Income taxes 7,481 7,745
Taxes other than income taxes 2,385 321
Accrued compensation 699 1,621
Other accrued liabilities 5,811 5,407
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Total adjustments 14,397 14,405
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Net cash provided by operating activities 27,567 28,596
INVESTING ACTIVITIES:
Capital expenditures, including business acquisitions (20,800) (21,762)
Net proceeds from disposals of property, equipment and other assets 6,539 1,760
Increase in other assets (1,052) (317)
Cash received from (advanced to) joint ventures 20 (19)
-- ----
Net cash used in investing activities (15,293) (20,338)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes payable and long-term debt 963 576
Principal payments on notes payable and long-term debt (10,792) (5,529)
Equity transactions:
Treasury stock transactions, except for stock options (38) (3,805)
Exercise of stock options - 425
Dividends paid (1,582) (1,603)
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Net cash used in financing activities (11,449) (9,936)
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Net increase (decrease) in cash and cash equivalents 825 (1,678)
Cash and cash equivalents at beginning of year 3,499 4,678
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Cash and cash equivalents at end of period $4,324 $3,000
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
THIRTEEN WEEKS ENDED AUGUST 26, 1999
(Unaudited)
1. General
Accounting Policies - Refer to the Company's audited financial statements
(including footnotes) for the fiscal year ended May 27, 1999, contained in the
Company's Form 10-K Annual Report for such year, for a description of the
Company's accounting policies.
Basis of Presentation - The consolidated financial statements for the thirteen
weeks ended August 26, 1999 and August 27, 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 August 26, 1999, and for all periods presented
have been made.
Reclassifications - Certain items in the accompanying fiscal 1999 financial
statements have been reclassified to conform to the fiscal 2000 presentation.
2. Discontinued Operations
On September 23, 1999, the Company entered into agreements to sell its 30 KFC
and KFC/Taco Bell 2-in-1 restaurants. The asset sales, which consist primarily
of land, building and equipment, are scheduled to close in November 1999. In
accordance with the provisions of Accounting Principles Board Opinion No. 30
concerning reporting the effect of disposal of a segment of a business, the
results of operations of the KFC division have been classified as discontinued
in the accompanying consolidated statements of earnings. Prior period financial
statements have been restated to conform to the current year presentation.
Revenues from discontinued operations for the thirteen weeks ended August 26,
1999 and August 27, 1998 were $6,653,000 and $7,382,000, respectively.
3. Business Segment Information
The Company's primary operations are reported in the following three business
segments: Limited-Service Lodging, Theatres and Hotels/Resorts. The Restaurant
business segment has been presented as discontinued operations in the
accompanying consolidated financial statements. Rental revenues and operating
income resulting from the leasing of several Company-owned restaurants to other
restaurant operators, which had previously been included in Restaurant segment
results, will now be included in Corporate items. Corporate items include
amounts not allocable to the business segments and consist principally of rental
revenue and general corporate expenses. Prior period business segment
information has been restated to conform to the current year presentation.
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Following is a summary of business segment information for the thirteen weeks
ended August 26, 1999 and August 27, 1998 (in thousands):
<TABLE>
<CAPTION>
13 Weeks Ended Limited-Service Corporate
August 26, 1999 Lodging Theatres Hotels/Resorts Items Total
- --------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $39,880 $42,321 $25,125 $391 $107,717
Operating Income 10,350 9,837 5,580 (1,267) 24,500
<CAPTION>
13 Weeks Ended Limited-Service Corporate
August 27, 1998 Lodging Theatres Hotels/Resorts Items Total
- -------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $41,939 $33,314 $24,166 $559 $99,978
Operating Income 12,834 8,100 5,326 (1,098) 25,162
</TABLE>
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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 Aforward-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; and (v)
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 reports consolidated and individual segment results
of operations on a 52-or 53-week fiscal year ending on the last Thursday in May.
Fiscal 2000 and fiscal 1999 are 52-week years for the Company. The Company
divides its fiscal year into three 13-week quarters and a final quarter
consisting of 13 or 14 weeks.
Revenues from continuing operations for the first quarter of fiscal 2000
ended August 26, 1999, totaled $107.7 million, an increase of $7.7 million, or
7.7%, from revenues of $100.0 million for the first quarter of fiscal 2000. The
majority of the revenue increase over the previous year was contributed by the
theatre division.
Earnings from continuing operations for the first quarter of fiscal 2000
were $12.7 million, or $.42 per share, a decrease of 6.8% and 6.7%,
respectively, from earnings from continuing operations of $13.6 million, or $.45
per share, for the same quarter during the prior year. Net earnings for the
first quarter of fiscal 2000 were $13.2 million, or $.44 per
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share, a decrease of 7.2% and 6.4%, respectively, from net earnings of $14.2
million, or $.47 per share, for the same quarter last year. All per share data
presented herein is on a diluted basis.
Operating income (earnings before other income/expense and income taxes)
from continuing operations totaled $24.5 million during the first quarter of
fiscal 2000, a decrease of $700,000, or 2.6%, compared to the prior year same
period. Operating income increases from the Company's theatre and hotels/resorts
divisions were offset by reduced operating income from the limited-service
lodging division. The Company's interest expense, net of investment income,
totaled $4.5 million for the first quarter of fiscal 2000, compared to $3.8
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.
Year 2000 Readiness Disclosure
The Year 2000 issue refers generally to the data structure problem that may
prevent systems from properly recognizing dates after the year 1999. The Year
2000 issue affects information technology (IT) systems, such as computer
programs and various types of electronic equipment that process date information
by using only two digits rather than four digits to define the applicable year,
and thus may recognize a date using "00" as the year 1900 rather than the year
2000. The issue also affects some non-IT systems, such as devices which rely on
embedded microchips to process date information. The Year 2000 issue may result
in system failures or miscalculations, causing disruptions of a company's
operations. Moreover, even if a company's systems are Year 2000 compliant, a
problem may exist to the extent that the data that such systems process is not
compliant.
State of Readiness: The Company has implemented a Year 2000 Program
designed to ensure that the Company's computer system and applications will
function properly through 1999, into Year 2000 and beyond. The Company's Year
2000 Program has four phases: (1) identification and assessment, (2) remediation
(including modification, upgrading and replacement), (3) testing and (4)
contingency planning. The Company's Year 2000 Program is an ongoing process
involving continual evaluation and may be subject to a change in response to new
developments.
The Company has three distinct operating divisions, excluding its
discontinued restaurant division. The Company has identified corporate-wide and
division specific operating systems and is finalizing the remediation and
testing of modified, upgraded and replacement systems. This testing and
remediation will continue through the remainder of 1999. Corporate financial and
human resource management/payroll systems are scheduled for completion of
testing during the fourth quarter of the calendar year. The Company expects that
all critical IT systems and critical embedded systems will be compliant by
December 31, 1999. The Company has surveyed all operating divisions and has
identified any non-IT systems, which if not Year 2000 compliant, may have a
material adverse effect on the Company's business, operating results or
financial condition. The Company has identified and surveyed its critical
vendors, suppliers and financial institutions with which it has material
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relationships. Based on current survey status, the Company is not aware of any
material third-party Year 2000 risks not resolved by contingency plans.
Costs to Address Year 2000 Issues: The Company estimates that the cost of
remediation of problems related to Year 2000 issues will be less than $750,000,
the majority of which is expected to be capitalized.
Contingency Plan: If the Company's IT systems are not Year 2000 compliant
on a timely basis, the Company plans to operate such systems manually until any
Year 2000 issues are remediated. Although such failure should not result in any
loss of data and information, it may increase some costs of operation. All
systems will be backed-up prior to January 1, 2000, with some being turned off
following back-up to reduce any potential for failure at the time of rollover.
Contingency plans are being developed for all critical processes to operate
manually. In addition, if the failure of major utility companies to operate
properly in the Year 2000 contributes to the failure of internal systems,
contingency plans focus on the safety and security of guests and asset
preservation. The Company expects to maintain close contact with third parties
with whom it has material relationships, such as vendors, suppliers and
financial institutions, with respect to such third parties' Year 2000
compliance. Contingency plans include alternate plans should one of these third
parties be unable to maintain their supply chain to the Company.
In light of its compliance efforts, the Company does not believe that the
Year 2000 issue will materially adversely affect operations or results of
operations, and does not expect implementation to have a material impact on the
Company's financial statements. However, there can be no assurance that the
Company's systems will be Year 2000 compliant prior to December 31, 1999, or
that the failure of any such system will not have a material adverse effect on
the Company's business, operating results and financial condition. To the extent
the Year 2000 problem has a material adverse effect on the business, operations
or financial condition of third parties with whom the Company has material
relationships, such as vendors, suppliers and financial institutions, the Year
2000 problem may also have a material adverse effect on the Company's business,
results of operations and financial condition.
Limited-Service Lodging
Total revenues for the first quarter of fiscal 2000 for the limited-service
lodging division were $39.9 million, a decrease of $2.1 million, or 4.9%,
compared to revenues of $41.9 million during the same period in fiscal 1999. The
limited-service lodging division's operating income for the fiscal 2000 first
quarter totaled $10.3 million, a decrease of $2.5 million, or 19.4%, from
operating income of $12.8 million during the same period of fiscal 1999.
Compared to the end of the first quarter of fiscal 1999, nine less
Company-owned or operated and 16 new franchised Baymont Inns & Suites were in
operation at the end of the fiscal 2000 first quarter. The Company sold two
Baymont Inns during the first quarter of fiscal 2000. Including seven Baymont
Inns & Suites sold late in fiscal 1999, the Inns sold contributed revenues of
$2.5 million during the first quarter last year, resulting in the majority
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of the division's revenue decrease during fiscal 2000. The Company's comparable
Baymont Inns & Suites experienced a 5.2 percentage point decline in occupancy
percentage and a 4.3% average daily rate increase during the first quarter of
fiscal 2000, compared to the same quarter last year. The result of the average
daily rate increases and occupancy declines was a 2.9% decrease in the
division's revenue per available room, or RevPAR, for comparable Baymont Inns
during the fiscal 2000 first quarter, compared to the same quarter last year.
The limited-service lodging division's results continue to be impacted by
the increased limited-service segment room supply and occupancy declines
associated with the Company's recent name change of its Budgetel Inns to Baymont
Inns & Suites, resulting in RevPAR declines and pressure on the division's
operating margin. Increased payroll costs in a tight labor market, combined with
increased costs of additional guest amenities and marketing costs associated
with the re-branding effort, have contributed to the lower operating margins.
The Company expects these trends to continue during the fiscal 2000 second
quarter. The Company, however, is encouraged by recent trends in RevPAR, where
the decline in RevPAR compared to the prior year has improved each quarter since
the introduction of the Baymont brand in January 1999. The Company continues to
believe that RevPAR and operating margins may stabilize later in fiscal 2000 as
the Company completes the addition of lobby breakfasts to the majority of its
locations, and as market awareness of the Baymont name increases.
At the end of the fiscal 2000 first quarter, the Company owned or operated
97 Baymont Inns & Suites and franchised an additional 71 Inns, bringing the
total number of Baymont Inns & Suites in operation to 168. In addition, there
were 25 franchised locations in development, including eight under construction,
at the end of the first quarter, all of which are scheduled to open in fiscal
2000 or shortly thereafter.
The Company also owned and operated six Woodfield Suites all-suite motels
during the first quarter of fiscal 2000, compared to five locations during the
same period last year. One Company-owned Woodfield Suites is currently under
construction. Revenues and operating income from Woodfield Suites increased
during the first quarter of fiscal 2000 compared to the first quarter of fiscal
1999 due to results from the new location and RevPAR increases of 2.8% for
comparable Woodfield Suites compared to the same period last year.
Theatres
The theatre division's fiscal 2000 first quarter revenues were $42.3
million, an increase of $9.0 million, or 27.0%, over revenues of $33.3 million
during the same fiscal 1999 period. Operating income for the first quarter of
fiscal 2000 totaled $9.8 million, an increase of $1.7 million, or 21.4%, over
operating income of $8.1 million during the same period last year.
Total box office receipts for the fiscal 2000 first quarter were $28.6
million, an increase of $6.2 million, or 28.1%, over box office receipts of
$22.4 million during the same period last year. The increase in box office
receipts for the first quarter of fiscal 2000 compared to the same period during
the prior year was due to 68 additional screens and a
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strong summer season of movies, including Star Wars I - The Phantom Menace,
Austin Powers 2 and Tarzan, together with a 5.4% increase in average ticket
prices.
Concession revenues for the fiscal 2000 first quarter totaled $12.8
million, an increase of $2.7 million, or 27.0%, over concession revenues of
$10.1 million during the same quarter last year. The increase in concession
revenues was due to increased theatre attendance and a 4.6% increase in average
concession sales per person compared to the same quarter last year.
Total theatre attendance increased 21.6% over total attendance during the
same quarter last year. Attendance at the Company's comparable locations
increased 3.2% during the fiscal 2000 first quarter, compared to the prior year
same quarter. 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 first quarter of fiscal 2000, the Company acquired a six-screen
theatre in Shakopee, Minnesota, opened seven new screens at an existing theatre
in Elk River, Minnesota and opened its second IMAX(R) theatre at an existing
20-screen UltraPlex in Addison, Illinois. The Company ended the first quarter
with a total of 442 screens in 49 theatres compared to 374 screens in 45
theatres at the end of the same period last year. The Company currently has 27
additional screens under construction, including a new 16-screen UltraPlex in
the Minneapolis metropolitan area. The Company has several additional screens at
existing locations in development and is pursuing additional acquisition
opportunities. The Company also continues to retrofit existing theatres with
stadium seating in order to meet its goal of having stadium seating in over 90%
of its first-run auditoriums by the end of fiscal 2000.
Hotels and Resorts
Total revenues from the hotels and resorts division during the first
quarter of fiscal 2000 increased by $960,000, or 4.0%, to $25.1 million,
compared to revenues of $24.2 million in the previous year's comparable period.
Operating income increased by $250,000, or 4.8%, to $5.6 million during the
fiscal 2000 first quarter, compared to operating income of $5.3 million during
the first quarter of fiscal 1999.
Increased management fees due to improved results at the Company's managed
properties and an overall 4.1% increase in RevPAR at the Company's owned hotels
contributed to the division's revenue and operating income increases in the
fiscal 2000 first quarter compared to the prior year's period. Operating income
increases were primarily the result of improved performances at the Company's
two resort properties, the Grand Geneva Resort & Spa and the Miramonte Resort.
Operating income comparisons to last year's first quarter were negatively
impacted by a special week-long Harley Davidson 95th anniversary event that
occurred in Milwaukee last year that generated a significant number of
room-nights for the Company's two Milwaukee hotels. Conversely, operating income
comparisons to last year's first quarter were favorably impacted by the fact
that last year the Miramonte's results were reduced by approximately $300,000 of
pre-opening cost amortization. Miramonte pre-
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opening expenses were not fully amortized until the fiscal 1999 third quarter,
which should result in additional favorable comparisons in operating income at
this property during the next two quarters.
The Company currently has three major construction projects in progress.
The Company's 200-room expansion of the Hilton Milwaukee City Center is
currently scheduled to open in June 2000. Construction also continues on the
division's new Company-owned Hilton Madison at Monona Terrace. Projected
completion of the property, which will be connected to the city's new Monona
Terrace Convention Center, is in the spring of 2001. During the first quarter of
fiscal 2000, the Company began construction on a vacation ownership development
at the Grand Geneva Resort & Spa, representing the Company's entrance into the
timesharing business. The Company began selling its first 24 units during the
first quarter and construction of this first phase of the development is
scheduled to be completed by the end of fiscal 2000.
Discontinued Operations
On September 23, 1999, the Company entered into agreements to sell its 30
KFC and KFC/Taco Bell 2-in-1 restaurants. The asset sales, which consist
primarily of land, buildings and equipment, are scheduled to close in November
1999. The Company anticipates a gain from the sale of the restaurants during the
second quarter of fiscal 2000. The Company decided to dispose of its restaurant
business in order to concentrate on its core lodging and theatre operations. In
fiscal years 1995 and 1996, respectively, the Company had divested its family
restaurant business and its Applebee's restaurants. The results of the
restaurant operations have been accounted for as discontinued operations in the
Company's consolidated financial statements for the first quarter and prior year
results have been restated to conform with the current year presentation.
Revenues from discontinued operations totaled $6.7 million for the first
quarter of fiscal 2000, a decrease of $700,000, or 9.9%, from fiscal 1999 first
quarter revenues of $7.4 million. Included in fiscal 1999 first quarter revenues
was approximately $500,000 of revenues from a Milwaukee summer festival beer
tent operated by the restaurant division. The Company discontinued operation of
this tent during fiscal 2000. KFC revenues during the first quarter of fiscal
1999 totaled $6.9 million. During the first quarter of fiscal 2000, the Company
had income from discontinued operations, net of applicable income taxes, of
$500,000, a decrease of $100,000, or 15.7%, from income from discontinued
operations during the same period last year. KFC revenues and operating results
were negatively impacted during the quarter by a Star Wars national marketing
promotion that was not as effective as anticipated and also resulted in the
Company incurring a loss of approximately $75,000 related to unsold Star Wars
premium items during the fiscal 2000 first quarter. For the fiscal year ended
May 27, 1999, revenues from discontinued operations totaled $26.9 million and
income from discontinued operations, net of applicable income taxes, totaled
$2.0 million.
14
<PAGE>
FINANCIAL CONDITION
The Company's lodging and movie theatre 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 $92 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 totaled $27.6 million during each
of the first quarters of fiscal 2000 and fiscal 1999. Timing differences in
payments of accounts payable were offset by timing differences in payments of
taxes other than income taxes. 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 2000 first quarter
totaled $15.3 million, compared to $20.3 million during the fiscal 1999 first
quarter. The reduction in net cash used in investing activities was the result
of increased net proceeds from disposals of property, equipment and other
assets, which totaled $6.5 million during fiscal 2000 compared to $1.8 million
during fiscal 1999. The proceeds received during the fiscal 2000 first quarter
were the result of the sale of two Baymont Inns & Suites and four former
restaurant locations. Capital expenditures to support the Company's continuing
expansion program totaled $20.8 million during the first quarter of fiscal 2000
compared to $21.8 million during the prior year's first quarter. Fiscal 2000
first quarter capital expenditures included approximately $8 million incurred in
the theatre division to fund new theatres, screen additions to existing
theatres, stadium seating retrofits and construction of the Company's second
IMAX(R) theatre. In addition, capital expenditures of approximately $6 million
have been incurred in the limited-service lodging division to fund the
construction of a Woodfield Suites and to continue Baymont re-branding efforts
and approximately $6 million has been incurred by the hotels and resorts
division to fund their construction projects.
Cash used in financing activities during the fiscal 2000 first quarter
totaled $11.4 million, compared to $9.9 million during the first quarter of
fiscal 1999. The Company's principal payments on notes payable and long-term
debt totaled $10.8 million during the first quarter of fiscal 2000 compared to
$5.5 million during the same period last year, resulting in the increased cash
used in financing activities. Offsetting this was the fact that, last year, the
Company repurchased 241,000 of its common shares in the open market pursuant to
its stock repurchase program, compared to 9,000 shares repurchased during the
first quarter of fiscal 2000. The Company intends to use a portion of the
anticipated proceeds from the sale of its restaurant business to continue its
stock repurchase program. Any such 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. At the end of the first
quarter, there were 863,000 shares available for repurchase under existing Board
of Directors authorizations.
15
<PAGE>
Although the Company's long-term debt decreased during the first quarter of
fiscal 2000, the Company may need to issue additional long-term debt to help
fund the Company's ongoing expansion plans in fiscal 2000. The Company has the
ability to issue up to $45 million of additional senior notes under an existing
private placement program. The Company also intends to use a portion of the
anticipated proceeds from the sale of its restaurant business to fund the
Company's capital programs in its continuing operations.
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 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.
16
<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.
17
<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 8, 1999 By: /s/ Stephen H. Marcus
-----------------------------------------------
Stephen H. Marcus,
Chairman of the Board, President and Chief
Executive Officer
DATE: October 8, 1999 By: /s/ Douglas A. Neis
-----------------------------------------------
Douglas A. Neis
Chief Financial Officer and Treasurer
18
<PAGE>
THE MARCUS CORPORATION
FORM 10-Q
FOR
13 WEEKS ENDED AUGUST 26, 1999
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27 Financial Data Schedule
19
<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-25-2000
<PERIOD-START> MAY-27-1999
<PERIOD-END> AUG-26-1999
<CASH> 4,324
<SECURITIES> 0
<RECEIVABLES> 15,030
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,299
<PP&E> 830,427
<DEPRECIATION> 213,970
<TOTAL-ASSETS> 678,238
<CURRENT-LIABILITIES> 61,002
<BONDS> 251,778
0
0
<COMMON> 31,189
<OTHER-SE> 293,956
<TOTAL-LIABILITY-AND-EQUITY> 678,238
<SALES> 98,411
<TOTAL-REVENUES> 107,717
<CGS> 48,716
<TOTAL-COSTS> 83,217
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,880
<INCOME-PRETAX> 21,324
<INCOME-TAX> 8,628
<INCOME-CONTINUING> 12,696
<DISCONTINUED> 474
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,170
<EPS-BASIC> .44
<EPS-DILUTED> .44
</TABLE>
