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 24, 2000
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[ ] 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
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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 MARCH 31, 2000 - 17,450,177
CLASS B COMMON STOCK OUTSTANDING AT MARCH 31, 2000 - 12,125,936
<PAGE>
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
(February 24, 2000 and May 27, 1999)............................ 3
Statements of Earnings
(Thirteen and thirty-nine weeks ended February 24, 2000 and
February 25, 1999).............................................. 5
Statements of Cash Flows
(Thirty-nine weeks ended February 24, 2000 and February 25,
1999)........................................................... 6
Condensed Notes to Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.............................. 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..................................................... 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 17
Signatures...................................................... 18
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
February 24, May 27,
2000 1999
---- ----
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $10,117 $3,499
Accounts and notes receivable 10,148 11,059
Receivables from joint ventures 1,962 1,739
Refundable income taxes 3,504 6,041
Other current assets 6,414 4,400
----- -----
Total current assets 32,145 26,738
Property and equipment:
Land and improvements 95,823 88,221
Buildings and improvements 500,432 481,517
Leasehold improvements 7,592 6,963
Furniture, fixtures and equipment 229,540 213,408
Construction in progress 29,050 28,620
------ ------
Total property and equipment 862,437 818,729
Less accumulated depreciation and amortization 230,384 207,516
------- -------
Net property and equipment 632,053 611,213
Other assets:
Investments in joint ventures 2,148 2,045
Other 35,098 36,120
------ ------
Total other assets 37,246 38,165
------ ------
TOTAL ASSETS $701,444 $676,116
======== ========
See accompanying notes to consolidated financial statements.
3
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<TABLE>
THE MARCUS CORPORATION
Consolidated Balance Sheets
<CAPTION>
(Unaudited) (Audited)
February 24, May 27,
2000 1999
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Notes payable $4,051 $4,479
Accounts payable 17,102 22,958
Taxes other than income taxes 9,270 9,575
Accrued compensation 3,763 2,617
Other accrued liabilities 15,007 9,287
Current maturities on long-term debt 18,924 10,470
------ ------
Total current liabilities 68,117 59,386
Long-term debt 264,529 264,270
Deferred income taxes 34,526 31,405
Deferred compensation and other 8,406 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 19,063,577 shares at February 24, 2000, 18,680,508
shares at May 27, 1999 19,064 18,681
Class B Common Stock, $1 par; authorized 33,000,000
shares; issued and outstanding 12,125,936 at February 24,
2000, 12,509,014 at May 27, 1999 12,126 12,509
Capital in excess of par 40,760 40,685
Retained earnings 267,388 252,498
Accumulated other comprehensive loss (258) (214)
---- ----
339,080 324,159
Less cost of Common Stock in treasury (1,506,688 shares at
February 24, 2000 and 1,280,676 shares at May 27, 1999) (13,214) (10,585)
------- -------
Total shareholders' equity 325,866 313,574
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $701,444 $676,116
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
<CAPTION>
(in thousands, except per share data) February 24, 2000 February 25, 1999
--------------------- ----------------------
13 Weeks 39 Weeks 13 Weeks 39 Weeks
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Rooms and telephone $34,884 $126,870 $34,683 $130,207
Theatre admissions 19,841 64,737 19,422 56,967
Theatre concessions 9,181 29,201 8,864 25,735
Food and beverage 6,186 20,186 6,240 18,864
Other income 7,347 24,406 6,310 22,365
----- ------ ----- ------
Total revenues 77,439 265,400 75,519 254,138
Costs and expenses:
Rooms and telephone 16,750 52,656 16,631 52,137
Theatre operations 15,678 50,667 15,597 43,937
Theatre concessions 2,094 6,993 2,134 6,357
Food and beverage 4,999 15,373 4,980 14,550
Advertising and marketing 5,898 18,202 5,653 17,319
Administrative 9,454 29,293 8,721 27,040
Depreciation and amortization 9,943 29,822 9,662 27,915
Rent 681 2,110 828 1,970
Property taxes 3,484 10,331 3,113 9,887
Pre-opening expenses 178 688 554 1,451
Other operating expenses 3,083 9,714 3,006 10,070
----- ----- ----- ------
Total costs and expenses 72,242 225,849 70,879 212,633
------ ------- ------ -------
Operating income 5,197 39,551 4,640 41,505
Other income (expense):
Investment income 238 933 225 548
Interest expense (4,674) (13,459) (4,667) (12,235)
Gain on disposition of property and equipment 139 3,879 32 1,618
--- ----- -- -----
(4,297) (8,647) (4,410) (10,069)
----- ----- ----- ------
Earnings from continuing operations before income taxes 900 30,904 230 31,436
Income taxes 367 12,584 102 12,593
--- ------ --- ------
Earnings from continuing operations 533 18,320 128 18,843
Discontinued operations (Note 2):
Income from discontinued operations, net of applicable
income taxes 348 1,319 383 1,549
Gain on disposal of discontinued operations, net of
applicable income taxes - - 2 201
------- -------- -------- --------
Net earnings $ 881 $ 19,639 $ 513 $ 20,593
======= ======== ======== ========
Earnings per share - Basic:
Continuing operations $ 0.02 $ 0.61 $ 0.01 $ 0.63
Discontinued operations $ 0.01 $ 0.05 $ 0.01 $ 0.06
------- -------- -------- --------
Net earnings per share $ 0.03 $ 0.66 $ 0.02 $ 0.69
======= ======== ======== ========
Earnings per share - Diluted:
Continuing operations $ 0.02 $ 0.61 $ 0.01 $ 0.62
Discontinued operations $ 0.01 $ 0.05 $ 0.01 $ 0.06
------- -------- -------- --------
Net earnings per share $ 0.03 $ 0.66 $ 0.02 $ 0.68
======= ======== ======== ========
Weighted Average Shares Outstanding:
Basic 29,836 29,879 29,933 30,034
Diluted 29,869 29,924 30,023 30,153
</TABLE>
See accompanying notes to consolidated financial statements.
5
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<TABLE>
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
39 Weeks Ended
------------------------------
February 24, February 25,
2000 1999
---- ----
(in thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $19,639 $20,593
Adjustments to reconcile net earnings to net cash provided
by operating activities:
(Earnings) losses on investments in joint ventures, net of distributions (103) 373
Gain on disposition of property and equipment (3,879) (1,953)
Depreciation and amortization 30,817 29,199
Deferred income taxes 3,121 2,938
Deferred compensation and other 925 1,215
Changes in assets and liabilities:
Accounts and notes receivable 911 3,093
Other current assets (2,014) (1,663)
Accounts payable (5,856) (11,336)
Income taxes 2,537 681
Taxes other than income taxes (305) (2,522)
Accrued compensation 1,146 (4)
Other accrued liabilities 5,720 4,029
----- -----
Total adjustments 33,020 24,050
------ ------
Net cash provided by operating activities 52,659 44,643
INVESTING ACTIVITIES:
Capital expenditures, including business acquisitions (62,650) (74,430)
Net proceeds from disposals of property, equipment and other assets 15,371 5,376
Purchase of interest in joint ventures - (771)
(Increase) decrease in other assets 479 (2,658)
Cash advanced to joint ventures (223) (332)
---- ----
Net cash used in investing activities (47,023) (72,815)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes payable and long-term debt 39,706 50,783
Principal payments on notes payable and long-term debt (31,421) (14,490)
Equity transactions:
Treasury stock transactions, except for stock options (2,657) (6,272)
Exercise of stock options 101 668
Dividends paid (4,747) (4,772)
------ ------
Net cash provided by financing activities 982 25,917
--- ------
Net increase (decrease) in cash and cash equivalents 6,618 (2,255)
Cash and cash equivalents at beginning of period 3,499 4,678
----- -----
Cash and cash equivalents at end of period $10,117 $2,423
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
THIRTEEN AND THIRTY-NINE WEEKS ENDED
FEBRUARY 24, 2000
(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
and thirty-nine weeks ended February 24, 2000 and February 25, 1999 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 24, 2000, and for
all periods presented, have been made. The results of operations during the
interim periods are not necessarily indicative of the results of operations for
the entire year.
Reclassifications - Certain items in the accompanying fiscal 1999 financial
statements have been reclassified to conform to the fiscal 2000 presentation.
2. Discontinued Operations
In September 1999, the Company announced its intention to sell its 30 KFC and
KFC/Taco Bell 2-in-1 restaurants. The Company is currently in discussions with
several potential purchasers of the assets, which consist primarily of land,
buildings and equipment. 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 statements of operations for
fiscal 2000. Prior period financial statements have been restated to conform to
the current year presentation. KFC revenues for the thirteen and thirty-nine
weeks ended February 24, 2000 were $5,672,000 and $18,751,000, respectively. KFC
revenues for the thirteen and thirty-nine weeks ended February 25, 1999 were
$6,236,000 and $19,893,000, 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
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corporate expenses. Prior period business segment information has been restated
to conform to the current year presentation.
Following is a summary of business segment information for the thirteen and
thirty-nine weeks ended February 24, 2000 and February 25, 1999 (in thousands):
<TABLE>
<CAPTION>
13 Weeks Ended Limited-Service Corporate
February 24, 2000 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $28,962 $30,147 $17,961 $369 $77,439
Operating Income 1,378 5,850 (112) (1,919) 5,197
<CAPTION>
13 Weeks Ended Limited-Service Corporate
February 25, 1999 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $28,502 $29,408 $17,165 $444 $75,519
Operating Income 1,006 5,627 (583) (1,410) 4,640
<CAPTION>
39 Weeks Ended Limited-Service Corporate
February 24, 2000 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $102,367 $96,802 $64,973 $1,258 $265,400
Operating Income 16,390 18,631 8,980 (4,450) 39,551
<CAPTION>
39 Weeks Ended Limited-Service Corporate
February 25, 1999 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $105,857 $85,209 $61,513 $1,559 $254,138
Operating Income 21,071 17,370 6,959 (3,895) 41,505
</TABLE>
8
<PAGE>
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 Company's ability to
attract potential partners to assist in the acquisition and/or development of
properties; (iii) the limited-service lodging division's ability to attract and
retain quality franchise operators and to effectively execute its Baymont
repositioning strategy; (iv) continuing consumer demand as a result of general
economic conditions with respect to the hotels and resorts and limited-service
lodging divisions; (v) continuing availability, in terms of both quality and
quantity, of films for the theatre 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 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. 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 financial statements.
Revenues for the third quarter of fiscal 2000 ended February 24, 2000,
totaled $77.4 million, an increase of $1.9 million, or 2.5%, from revenues of
$75.5 million for the third quarter of fiscal 1999. All three continuing
operating divisions reported increased revenues during the third quarter
compared to the prior year same period. For the first three quarters of fiscal
2000, revenues were $265.4 million, an increase of $11.3 million, or 4.4%, from
revenues of $254.1 million during the first three quarters of fiscal 1999.
9
<PAGE>
Earnings from continuing operations during the third quarter of fiscal 2000
were $533,000, or $.02 per share, an increase of 316.4% and 100%, respectively,
from earnings from continuing operations of $128,000, or $.01 per share, for the
same quarter during the prior year. Net earnings during the third quarter of
fiscal 2000 were $881,000, or $.03 per share, an increase of 71.7% and 50.0%,
respectively, from net earnings of $513,000, or $.02 per share, during the same
quarter last year. During the first three quarters of fiscal 2000, earnings from
continuing operations were $18.3 million, or $.61 per share. This represented a
respective 2.7% and 1.6% decrease from earnings from continuing operations of
$18.8 million, or $.62 per share, during the first three quarters of fiscal
1999. Net earnings during the first three quarters of fiscal 2000 were $19.6
million, or $.66 per share, a decrease of 4.6% and 2.9%, respectively, from net
earnings of $20.6 million, or $.68 per share, during the first three quarters of
fiscal 1999. 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 $5.2 million during the third quarter of
fiscal 2000, an increase of $600,000, or 12.0%, compared to the prior year's
same period. All three divisions contributed to the increased operating income
from continuing operations during the third quarter of fiscal 2000, compared to
the same period last year. For the first three quarters of fiscal 2000,
operating income from continuing operations was $39.6 million, a decrease of
$1.9 million, or 4.7%, from operating income from continuing operations of $41.5
million during the first three quarters of fiscal 1999. The decrease in
operating income during the first three quarters of fiscal 2000 was principally
the result of reduced operating income from the Company's limited-service
lodging division.
The Company's interest expense, net of investment income, totaled $4.4
million and $12.5 million for the third quarter and first three quarters of
fiscal 2000, respectively, compared to $4.4 million and $11.7 million during the
same periods in the prior year. The increase during the first three quarters
compared to the prior year's same period was the result of increased long-term
debt levels necessary to help finance the Company's ongoing capital expansion
program, offset by increased investment income and capitalized interest.
Limited-Service Lodging
Total revenues for the third quarter of fiscal 2000 for the limited-service
lodging division were $29.0 million, an increase of $500,000, or 1.6%, compared
to revenues of $28.5 million during the same period in fiscal 1999. Total
revenues for the first three quarters of fiscal 2000 for the limited-service
lodging division were $102.4 million, a decrease of $3.5 million, or 3.3%,
compared to revenues of $105.9 million for the first three quarters of fiscal
1999. The limited-service lodging division's operating income for the fiscal
2000 third quarter totaled $1.4 million, an increase of $400,000, or 37.0%, over
operating income of $1.0 million during the same period of fiscal 1999. For the
first three quarters of fiscal 2000, the limited-service lodging division's
operating income totaled $16.4 million, a $4.7 million decrease, or 22.2%, from
operating income of $21.1 million for the first three quarters of fiscal 1999.
10
<PAGE>
Compared to the end of the third quarter of fiscal 1999, 11 fewer
Company-owned or operated and 21 new franchised Baymont Inns & Suites were in
operation at the end of the fiscal 2000 third quarter. As a result of the sale
of seven Baymont Inns & Suites late in fiscal 1999 (five of which were sold to a
franchisee) and four Baymont Inns sold during the first half of fiscal 2000 (one
of which was sold to a franchisee), fiscal 2000 third quarter and first three
quarters revenues were negatively impacted by $1.8 million and $6.6 million,
respectively, compared to the same periods during the prior year. The sale of a
limited number of Company-owned Inns to franchisees is part of the Company's
strategy to emphasize growth primarily through franchising. In the short-term,
one of the results of this strategy will be a reduction in revenues from the
limited-service lodging division, as the revenues from a franchised Inn are
significantly less than those from a Company-owned Inn. The Company believes
that this strategy will give its franchise partners the opportunity to develop a
significant market presence and will allow the Company to utilize the sales
proceeds for other growth opportunities.
The Company's comparable Baymont Inns & Suites experienced a 0.6 percentage
point decline in occupancy percentage and a 7.0% average daily rate increase
during the third quarter of fiscal 2000, compared to the same quarter last year.
The result of the average daily rate increases and occupancy decline was a 5.9%
increase in the division's revenue per available room, or RevPAR, for comparable
Baymont Inns during the fiscal 2000 third quarter, compared to the same quarter
last year. Fiscal 2000 third quarter occupancy was negatively impacted by
reduced travel during the weeks surrounding January 1, 2000, due to concerns
over potential Year 2000 computer problems. For the first three quarters of
fiscal 2000, RevPAR for comparable Baymont Inns has increased 0.9% compared to
the first three quarters of fiscal 1999 as a result of a 5.4% increase in
average daily rate, offset by a 2.8 percentage point decline in occupancy
percentage.
The limited-service lodging division's increased operating results during
the third quarter of fiscal 2000 compared to the prior year's same period
represents the first such increase subsequent to the introduction of the Baymont
brand in January 1999 and the division's first such increase since the first
quarter of fiscal 1998. The increased RevPAR during the third quarter of fiscal
2000, which was the primary reason for the operating income improvement during
the quarter, is attributable primarily to increased market awareness of the
Baymont brand and the addition of lobby breakfasts at the majority of the
Company-owned Baymont locations. Inns with the lobby breakfasts have
consistently performed significantly better than Inns without the lobby
breakfast, due to favorable guest response to the new amenity and increased
average daily rates implemented in conjunction with such installations. The
Company completed installation of the lobby breakfasts at its Company-owned Inns
during the third quarter of fiscal 2000. The Company believes that RevPAR should
continue to improve as the Baymont brand enters its second year and that
operating margins should continue to stabilize as the Company benefits from a
full-year of the lobby breakfast program and as market awareness of the Baymont
name continues to increase.
Year-to-date operating results for the limited-service lodging division
have been impacted by increased limited-service segment room supply and
occupancy declines earlier in the fiscal year associated with the Company's name
change of its Budgetel Inns to Baymont Inns & Suites, resulting in initial
RevPAR and operating margin decreases. Increased payroll
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<PAGE>
costs in a tight labor market, combined with increased costs of additional guest
amenities and marketing costs associated with the re-branding effort also
contributed to the lower operating margins during the first three quarters of
fiscal 2000.
At the end of the fiscal 2000 third quarter, the Company owned or operated
95 Baymont Inns & Suites and franchised an additional 77 Inns, bringing the
total number of Baymont Inns & Suites in operation to 172. In addition, there
were 25 approved franchised locations in development at the end of the third
quarter, including eight under construction and scheduled to open in fiscal 2000
or shortly thereafter. One Company-owned Baymont Inn & Suites is under
construction.
The Company also owned and operated seven Woodfield Suites all-suite hotels
during the third quarter of fiscal 2000, compared to six locations during the
same period last year. The division's seventh Company-owned Woodfield Suites,
located in San Antonio, Texas, opened early during the third quarter of fiscal
2000 and the division's sixth property opened late in the third quarter of
fiscal 1999. Revenues and operating income from Woodfield Suites increased
during the third quarter and first three quarters of fiscal 2000 compared to the
same periods of fiscal 1999 due to results from the new locations and a
year-to-date RevPAR increase of 2.6% for comparable Woodfield Suites.
Theatres
The theatre division's fiscal 2000 third quarter revenues were $30.1
million, an increase of $700,000, or 2.5%, over revenues of $29.4 million during
the same fiscal 1999 period. Operating income for the third quarter of fiscal
2000 totaled $5.8 million, an increase of $200,000, or 4.0%, over operating
income of $5.6 million during the same period last year. Operating income during
the third quarter increased compared to the prior year, even though theatre
attendance decreased, due primarily to increases in the average ticket price and
improvements in cost controls by the division. The theatre division's fiscal
2000 first three quarters revenues were $96.8 million, an increase of $11.6
million, or 13.6%, over revenues of $85.2 million during the first three
quarters of fiscal 1999. Operating income for the first three quarters of fiscal
2000 was $18.6 million, an increase of $1.2 million, or 7.3%, over operating
income of $17.4 million during the first three quarters of fiscal 1999.
Consistent with the seasonal nature of the motion picture exhibition industry,
the third quarter of the Company's fiscal year, which includes the Christmas
holiday season, is typically the second busiest period for its theatre division,
exceeded only by the first quarter's busy summer season.
Total box office receipts for the fiscal 2000 third quarter were $19.8
million, an increase of $400,000, or 2.2%, over box office receipts of $19.4
million during the same period last year. The increase in box office receipts
for the third quarter of fiscal 2000 compared to the same period during the
prior year was due to 53 additional screens and an 8.0% increase in average
ticket prices. Total box office receipts for the fiscal 2000 first three
quarters were $64.7 million, an increase of $7.7 million, or 13.6%, over box
office receipts of $57.0 million during the same period last year. The theatre
division's average ticket price for the first three quarters of fiscal 2000
increased 6.8% over the same period last year. A
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<PAGE>
portion of the average ticket price increase is due to a change in pricing
policy at several of the Company's budget-oriented theatres. First-run theatre
average ticket prices have increased 4.4% during the first three quarters of
fiscal 2000 compared to the same period last year.
Concession revenues for the fiscal 2000 third quarter totaled $9.2 million,
an increase of $300,000, or 3.6%, over concession revenues of $8.9 million
during the same quarter last year. Concession revenues for the fiscal 2000 first
three quarters were $29.2 million, an increase of $3.5 million, or 13.5%, over
concession revenues of $25.7 million during the fiscal 1999 first three
quarters. The increase in concession revenues during the third quarter was due
to a 9.5% increase in average concession sales per person compared to the same
quarter last year. Increased concession prices and the success of several
family-oriented films during the quarter contributed to the substantial increase
in concession sales per person during the quarter. The increase in concession
revenues during the first three quarters of fiscal 2000 was due to increased
overall theatre attendance and a 6.6% increase in average concession sales per
person during the fiscal 2000 period compared to the same period last year.
Total theatre attendance for the third quarter decreased 5.4% compared to
the same quarter last year. Total theatre attendance for the first three
quarters of fiscal 2000 increased 6.5% over total attendance during the same
period last year. The decline in total attendance during the third quarter and a
6.6% decline in attendance at the Company's comparable locations during the
first three quarters of fiscal 2000 compared to the same periods last year is
the result of fewer quality films during the second and third quarters of fiscal
2000 and an increased number of available theatre screens in selected markets.
Attendance during the fiscal 2000 third quarter was also negatively impacted by
the fact that the Christmas and New Year's holidays fell on a weekend, reducing
attendance during the portion of the week when theatre attendance is
traditionally highest. 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.
The Company did not open any new screens during the third quarter of fiscal
2000. The Company ended the third quarter with a total of 450 total screens in
49 theatres compared to 397 screens in 46 theatres at the end of the same period
last year. The Company currently has 37 additional screens under construction,
including 21 screens at six existing locations and a new 16-screen UltraPlex in
the Minneapolis metropolitan area. The Company expects 29 of the new screens to
open by the end of fiscal 2000, with the remaining screens scheduled to open
during the first quarter of fiscal 2001. The Company has several additional
screens at existing locations in development and is pursuing additional
development and acquisition opportunities. The Company also continues to
retrofit existing theatres with stadium seating and expects to have
approximately 77% of its first-run auditoriums completed by the end of fiscal
2000 and approximately 90% completed by the end of fiscal 2001.
Hotels and Resorts
Total revenues from the hotels and resorts division during the third
quarter of fiscal 2000 increased by $800,000, or 4.6%, to $18.0 million,
compared to revenues of $17.2
13
<PAGE>
million during the previous year's comparable period. Operating losses decreased
by $500,000, or 80.8%, to $100,000 during the fiscal 2000 third quarter,
compared to an operating loss of $600,000 during the third quarter of fiscal
1999. With three of the Company's four owned properties located in the Midwest,
the third quarter of the Company's fiscal year is typically the slowest period
for its hotels and resorts division. Total revenues from the hotels and resorts
division during the first three quarters of fiscal 2000 totaled $65.0 million,
an increase of $3.5 million, or 5.6%, over first three quarters revenues of
$61.5 million during fiscal 1999. Operating income increased by $2.0 million, or
29.0%, during the first three quarters of fiscal 2000 to $9.0 million, compared
to operating income of $7.0 million during the same period last year.
Increases in RevPAR at the Company's owned hotels and continued improved
operating results from the Company's Miramonte Resort were the primary reasons
for the division's revenue increase and operating loss decrease during the
fiscal 2000 third quarter compared to the prior year's same period. The
division's total RevPAR for Company-owned properties increased 4.7% during
fiscal 2000's third quarter compared to the same quarter last year and has
increased 4.1% for the first three quarters of fiscal 2000 compared to the same
period last year. In addition to increased revenues at the Miramonte Resort as a
result of greater market awareness and improved marketing, operating income
comparisons to last year's third quarter and first three quarters were favorably
impacted by the fact that last year the Miramonte's results were reduced by
approximately $200,000 and $800,000 of pre-opening cost amortization,
respectively. Miramonte pre-opening expenses were fully amortized during the
fiscal 1999 third quarter and will not impact future quarterly comparisons to
operating results from this property.
The Company currently has two major hotel construction projects in
progress. The Company's expansion of the Hilton Milwaukee City Center remains on
schedule to open in June 2000. A family water park fun center being built in
conjunction with the room addition is expected to open in August 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 spring of 2001. During
the third quarter, the Company discontinued management of the Mission Point
Resort on Mackinac Island, Michigan.
The Company anticipates completing construction of the first two buildings
of its vacation ownership development at the Grand Geneva Resort & Spa by the
end of fiscal 2000. These two buildings will include 18 timeshare units in
addition to a sales center and model unit. Although the Company began selling
these units during the first quarter of fiscal 2000, initial sales efforts were
limited while the Company obtained the necessary approvals to sell to Illinois
residents. Such approval was received during the third quarter and sales have
subsequently increased. The Company has not recognized revenues from the sale of
timesharing units during the first three quarters of fiscal 2000. Based upon
current expectations that approximately 40% of the available units will be sold
by the end of fiscal 2000, the Company expects to begin recognizing deferred
revenues and costs associated with this development during the fourth quarter of
fiscal 2000. The Company does not anticipate that such recognition will have a
material impact on fiscal 2000 operating results.
14
<PAGE>
Discontinued Operations
In September 1999, the Company announced its intention to sell its 30 KFC
and KFC/Taco Bell 2-in-1 restaurants. 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. An
agreement entered into by the Company in September 1999 to sell the KFC
restaurants was subsequently terminated during the second quarter. The Company
is currently in discussions with several potential purchasers of the assets,
which consist primarily of land, buildings and equipment. If a sale is
consummated, the Company anticipates that a significant gain from the sale of
the assets would be recognized. Fiscal 2000 results of the restaurant operations
have been accounted for as discontinued operations in the Company's consolidated
financial statements and prior year results have been restated to conform with
the current year presentation.
Revenues from discontinued operations totaled $5.7 million for the third
quarter of fiscal 2000, a decrease of $500,000, or 9.0%, from fiscal 1999 third
quarter revenues of $6.2 million. During the first three quarters of fiscal
2000, revenues from discontinued operations totaled $18.8 million, a decrease of
$1.6 million, or 8.2%, from prior year first three quarters revenues from
discontinued operations of $20.4 million. Approximately $500,000 of revenues
from a Milwaukee summer festival beer tent operated by the restaurant division
was included in division revenues for the first three quarters of fiscal 1999.
The Company discontinued operation of this tent during fiscal 2000. KFC revenues
during the first three quarters of fiscal 1999 totaled $19.9 million, including
$300,000 from a KFC restaurant that was sold during the second quarter of fiscal
1999, resulting in an after-tax gain on disposal of $200,000.
During the third quarter of fiscal 2000, the Company had income from
discontinued operations, net of applicable income taxes, of $348,000, a decrease
of $35,000, or 9.1%, from income from discontinued operations during the same
period last year. KFC revenues and operating results were negatively impacted
during the quarter by a national marketing lunch promotion for sandwiches that
was not initially as effective as anticipated, resulting in reduced guest counts
and average guest checks. Income from discontinued operations, net of applicable
income taxes, totaled $1.3 million for the first three quarters of fiscal 2000,
compared to $1.5 million during the first three quarters of fiscal 1999. 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.
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 $67 million of unused credit lines as of the end
of the third quarter, should be adequate to support the ongoing operational
liquidity needs of the Company's businesses.
15
<PAGE>
Net cash provided by operating activities increased by $8.0 million during
the first three quarters of fiscal 2000 to $52.6 million, compared to $44.6
million during the prior year's first three quarters, due primarily to timing
differences in payments of accounts payable and 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 three
quarters totaled $47.0 million, compared to $72.8 million during the fiscal 1999
first three quarters. The reduction in net cash used in investing activities was
primarily the result of reduced capital expenditures and increased net proceeds
from disposals of property, equipment and other assets, which totaled $15.4
million during fiscal 2000 compared to $5.4 million during fiscal 1999. The
proceeds received during the fiscal 2000 first three quarters were the result of
the sale of four Baymont Inns & Suites and four former restaurant locations.
Capital expenditures to support the Company's continuing expansion program
totaled $62.7 million during the first three quarters of fiscal 2000 compared to
$74.4 million during the prior year's first three quarters. Fiscal 2000 first
three quarters capital expenditures included approximately $25 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 $17 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 $20 million has been incurred by the hotels and resorts
division to fund its construction projects.
Net cash provided by financing activities during the first three quarters
of fiscal 2000 totaled $1.0 million compared to $25.9 million during the first
three quarters of fiscal 1999. The Company funded a portion of its capital
expansion program during fiscal 2000 with the net proceeds from disposals of
assets. As a result, the Company's net proceeds from issuance of notes payable
and long-term debt totaled $39.7 million during the first three quarters of
fiscal 2000 compared to $50.8 million during the same period last year. The
Company's principal payments on notes payable and long-term debt totaled $31.4
million during the first three quarters of fiscal 2000 compared to $14.5 million
during the same period last year, which also contributed to the decreased cash
provided by financing activities. Offsetting this was the fact that, during the
first three quarters of last year, the Company repurchased 435,000 of its common
shares in the open market pursuant through its stock repurchase program,
compared to 257,000 shares repurchased during the first three quarters of fiscal
2000. If a sale of the restaurant business is consummated, then the Company will
consider using a portion of the anticipated proceeds from the sale 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 three quarters, there were 615,000 shares available for repurchase under
existing Board of Directors authorizations. As of the date of this filing, the
Company has purchased an additional 171,000 of its shares during the fourth
quarter of fiscal 2000.
Although the Company's long-term debt balance has not changed significantly
during the first three quarters of fiscal 2000, the Company may need to issue
additional long-term
16
<PAGE>
debt to help fund the Company's ongoing expansion plans in fiscal 2000. In
addition to the Company's existing credit lines, the Company has the ability to
issue up to $45 million of additional senior notes under an existing private
placement program.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has not experienced any material changes in its market risk
exposures since May 27, 1999.
PART II - OTHER INFORMATION
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: April 7, 2000 By: /s/ Stephen H. Marcus
----------------------------------------
Stephen H. Marcus,
Chairman of the Board, President and
Chief Executive Officer
DATE: April 7, 2000 By: /s/ Douglas A. Neis
----------------------------------------
Douglas A. Neis
Chief Financial Officer and Treasurer
18
<PAGE>
THE MARCUS CORPORATION
FORM 10-Q
FOR
39 WEEKS ENDED FEBRUARY 24, 2000
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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-25-2000
<PERIOD-START> MAY-28-1999
<PERIOD-END> FEB-24-2000
<CASH> 10,117
<SECURITIES> 0
<RECEIVABLES> 12,110
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,145
<PP&E> 862,437
<DEPRECIATION> 230,384
<TOTAL-ASSETS> 701,444
<CURRENT-LIABILITIES> 68,117
<BONDS> 264,529
0
0
<COMMON> 31,190
<OTHER-SE> 294,676
<TOTAL-LIABILITY-AND-EQUITY> 701,444
<SALES> 240,994
<TOTAL-REVENUES> 265,400
<CGS> 125,689
<TOTAL-COSTS> 225,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,459
<INCOME-PRETAX> 30,904
<INCOME-TAX> 12,584
<INCOME-CONTINUING> 18,320
<DISCONTINUED> 1,319
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,639
<EPS-BASIC> .66
<EPS-DILUTED> .66
</TABLE>
