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 November 25, 1999
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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
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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 DECEMBER 31, 1999 - 17,747,578
CLASS B COMMON STOCK OUTSTANDING AT DECEMBER 31, 1999 - 12,128,286
<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
(November 25, 1999 and May 27, 1999)............................ 3
Statements of Earnings
(Thirteen and twenty-six weeks ended November 25, 1999
and November 26, 1998).......................................... 5
Statements of Cash Flows
(Twenty-six weeks ended November 25, 1999 and
November 26, 1998).............................................. 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 4. Submission of Matters to a Vote of Security Holders............. 17
Item 6. Exhibits and Reports on Form 8-K................................ 19
Signatures...................................................... 20
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
November 25, May 27,
1999 1999
---- ----
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $6,857 $3,499
Accounts and notes receivable 12,863 11,059
Receivables from joint ventures 1,327 1,739
Refundable income taxes 593 6,041
Other current assets 4,577 4,400
----- -----
Total current assets 26,217 26,738
Property and equipment:
Land and improvements 95,664 88,221
Buildings and improvements 488,937 478,576
Leasehold improvements 10,594 9,904
Furniture, fixtures and equipment 222,276 213,408
Construction in progress 27,176 28,620
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Total property and equipment 844,647 818,729
Less accumulated depreciation and amortization 220,459 207,516
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Net property and equipment 624,188 611,213
Other assets:
Investments in joint ventures 2,202 2,045
Other 34,851 36,120
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Total other assets 37,053 38,165
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TOTAL ASSETS $687,458 $676,116
======== ========
See accompanying notes to consolidated financial statements.
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<TABLE>
THE MARCUS CORPORATION
Consolidated Balance Sheets
<CAPTION>
(Unaudited) (Audited)
November 25, May 27,
1999 1999
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Notes payable $4,150 $4,479
Accounts payable 13,944 22,958
Taxes other than income taxes 12,082 9,575
Accrued compensation 1,879 2,617
Other accrued liabilities 9,578 9,287
Current maturities on long-term debt 12,546 10,470
------ ------
Total current liabilities 54,179 59,386
Long-term debt 262,869 264,270
Deferred income taxes 33,529 31,405
Deferred compensation and other 8,113 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 19,049,542 shares at November 25, 1999, 18,680,508
shares at May 27, 1999 19,050 18,681
Class B Common Stock, $1 par; authorized 33,000,000
shares; issued and outstanding 12,139,971 at November 25,
1999, 12,509,014 at May 27, 1999 12,140 12,509
Capital in excess of par 40,734 40,685
Retained earnings 268,088 252,498
Accumulated other comprehensive loss (179) (214)
---- ----
339,833 324,159
Less cost of Common Stock in treasury (1,311,100 shares at
November 25, 1999 and 1,280,676 shares at May 27, 1999) (11,065) (10,585)
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Total shareholders' equity 328,768 313,574
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $687,458 $676,116
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
<CAPTION>
(in thousands, except per share data) November 25, 1999 November 26, 1998
------------------------ -----------------------
13 Weeks 26 Weeks 13 Weeks 26 Weeks
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Rooms and telephone $42,052 $91,986 $43,475 $95,524
Theatre admissions 16,248 44,896 15,176 37,545
Theatre concessions 7,220 20,020 6,795 16,871
Food and beverage 6,971 14,000 6,132 12,624
Other income 7,753 17,059 7,063 16,055
----- ------ ----- ------
Total revenues 80,244 187,961 78,641 178,619
Costs and expenses:
Rooms and telephone 17,498 35,906 17,259 35,506
Theatre operations 12,978 34,989 11,412 28,340
Theatre concessions 1,868 4,899 1,782 4,223
Food and beverage 5,108 10,374 4,851 9,570
Advertising and marketing 5,945 12,304 5,559 11,666
Administrative 9,874 19,839 8,828 18,319
Depreciation and amortization 9,876 19,879 9,435 18,253
Rent 604 1,429 547 1,142
Property taxes 3,441 6,847 3,393 6,774
Pre-opening expenses 138 510 489 897
Other operating expenses 3,060 6,631 3,383 7,064
----- ----- ----- -----
Total costs and expenses 70,390 153,607 66,938 141,754
------ ------- ------ -------
Operating income 9,854 34,354 11,703 36,865
Other income (expense):
Investment income 318 695 147 323
Interest expense (3,905) (8,785) (3,552) (7,568)
Gain on disposition of property and equipment 2,413 3,740 199 1,586
----- ----- --- -----
(1,174) (4,350) (3,206) (5,659)
------ ------ ------ ------
Earnings from continuing operations before income taxes 8,680 30,004 8,497 31,206
Income taxes 3,589 12,217 3,411 12,491
----- ------ ----- ------
Earnings from continuing operations 5,091 17,787 5,086 18,715
Discontinued operations (Note 2):
Income from discontinued operations, net of applicable
income taxes 497 971 604 1,166
Gain on disposal of discontinued operations, net of
applicable income taxes - - 199 199
-------- -------- -------- --------
Net earnings $ 5,588 $ 18,758 $ 5,889 $ 20,080
======== ======== ======== ========
Earnings per share - Basic:
Continuing operations $ 0.17 $ 0.60 $ 0.17 $ 0.62
Discontinued operations $ 0.02 $ 0.03 $ 0.03 $ 0.05
-------- -------- -------- --------
Net earnings per share $ 0.19 $ 0.63 $ 0.20 $ 0.67
======== ======== ======== ========
Earnings per share - Diluted:
Continuing operations $ 0.17 $ 0.60 $ 0.17 $ 0.62
Discontinued operations $ 0.02 $ 0.03 $ 0.03 $ 0.04
-------- -------- -------- --------
Net earnings per share $ 0.19 $ 0.63 $ 0.20 $ 0.66
======== ======== ======== ========
Weighted Average Shares Outstanding:
Basic 29,896 29,901 29,968 30,084
Diluted 29,949 29,948 30,072 30,217
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
26 Weeks Ended
-----------------------------
November 25, November 26,
1999 1998
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(in thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $18,758 $20,080
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Earnings on investments in joint ventures, net of distributions (157) (129)
Gain on disposition of property and equipment (3,740) (1,918)
Depreciation and amortization 20,614 19,114
Deferred income taxes 2,124 1,983
Deferred compensation and other 632 960
Changes in assets and liabilities:
Accounts and notes receivable (1,804) (850)
Other current assets (177) (1,704)
Accounts payable (9,014) (13,615)
Income taxes 5,448 4,164
Taxes other than income taxes 2,507 (597)
Accrued compensation (738) (112)
Other accrued liabilities 291 3,152
--- -----
Total adjustments 15,986 10,448
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Net cash provided by operating activities 34,744 30,528
INVESTING ACTIVITIES:
Capital expenditures, including business acquisitions (44,669) (51,264)
Net proceeds from disposals of property, equipment and other assets 15,084 5,276
(Increase) decrease in other assets 1,040 (956)
Cash received from (advanced to) joint ventures 412 (156)
--- ----
Net cash used in investing activities (28,133) (47,100)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes payable and long-term debt 19,597 33,675
Principal payments on notes payable and long-term debt (19,251) (12,437)
Equity transactions:
Treasury stock transactions, except for stock options (485) (5,182)
Exercise of stock options 51 461
Dividends paid (3,165) (3,188)
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Net cash (used in) provided by financing activities (3,253) 13,329
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Net increase (decrease) in cash and cash equivalents 3,358 (3,243)
Cash and cash equivalents at beginning of year 3,499 4,678
----- -----
Cash and cash equivalents at end of period $6,857 $1,435
====== ======
</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 TWENTY-SIX WEEKS ENDED
NOVEMBER 25, 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
and twenty-six weeks ended November 25, 1999 and November 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 November 25, 1999, 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 twenty-six
weeks ended November 25, 1999 were $6,426,000 and $13,079,000, respectively. KFC
revenues for the thirteen and twenty-six weeks ended November 26, 1998 were
$6,796,000 and $13,648,000, 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
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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.
Following is a summary of business segment information for the thirteen and
twenty-six weeks ended November 25, 1999 and November 26, 1998 (in thousands):
<TABLE>
<CAPTION>
13 Weeks Ended Limited-Service Corporate
November 25, 1999 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $33,525 $24,334 $21,887 $498 $80,244
Operating Income 4,662 2,944 3,512 (1,264) 9,854
<CAPTION>
13 Weeks Ended Limited-Service Corporate
November 26, 1998 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $35,416 $22,487 $20,182 $556 $78,641
Operating Income 7,231 3,643 2,216 (1,387) 11,703
<CAPTION>
26 Weeks Ended Limited-Service Corporate
November 25, 1999 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $73,405 $66,655 $47,012 $889 $187,961
Operating Income 15,012 12,781 9,092 (2,531) 34,354
<CAPTION>
26 Weeks Ended Limited-Service Corporate
November 26, 1998 Lodging Theatres Hotels/Resorts Items Total
- ----------------- ------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $77,355 $55,801 $44,348 $1,115 $178,619
Operating Income 20,065 11,743 7,542 (2,485) 36,865
</TABLE>
8
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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 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 name
change 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 second quarter of fiscal 2000 ended November 25, 1999,
totaled $80.2 million, an increase of $1.6 million, or 2.0%, from revenues of
$78.6 million for the second quarter of fiscal 1999. Revenue increases from the
theatre and hotels/resorts divisions were partially offset by reduced revenue in
the limited-service lodging division. For the first half of fiscal 2000,
revenues were $188.0 million, an increase of $9.4 million, or 5.2%, from
revenues of $178.6 million during the first half of fiscal 1999.
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Earnings from continuing operations during both the second quarter of
fiscal 2000 and the second quarter of fiscal 1999 were $5.1 million, or $.17 per
share. Net earnings during the second quarter of fiscal 2000 were $5.6 million,
or $.19 per share, a decrease of 5.1% and 5.0%, respectively, from net earnings
of $5.9 million, or $.20 per share, during the same quarter last year. During
the first half of fiscal 2000, earnings from continuing operations were $17.8
million, or $.60 per share. This represented a respective 5.0% and 3.2% decrease
from earnings from continuing operations of $18.7 million, or $.62 per share,
during the first half of fiscal 1999. Net earnings during the first half of
fiscal 2000 were $18.8 million, or $.63 per share, a decrease of 6.6% and 4.5%,
respectively, from net earnings of $20.1 million, or $.66 per share, during the
first half 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 $9.9 million during the second quarter of
fiscal 2000, a decrease of $1.8 million, or 15.8%, compared to the prior year's
same period. Reduced operating income from the Company's theatre and
limited-service lodging divisions was the principal reason for the overall
reduction in operating income during the second quarter. For the first half of
fiscal 2000, operating income from continuing operations was $34.4 million, a
decrease of $2.5 million, or 6.8%, from operating income from continuing
operations of $36.9 million during the first half of fiscal 1999. The decrease
in operating income during the first half of fiscal 2000 was the result of
reduced operating income from the Company's limited-service lodging division.
The Company's interest expense, net of investment income, totaled $3.6
million and $8.1 million for the second quarter and first half of fiscal 2000,
respectively, compared to $3.4 million and $7.2 million during the same periods
in the prior year. These increases were 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.
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 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 had four phases: (1) identification and assessment, (2) remediation
(including modification, upgrading and
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replacement), (3) testing and (4) contingency planning. The Company identified
corporate-wide and division specific operating systems and finalized the
remediation and testing of modified, upgraded and replacement systems by the end
of 1999. Testing of corporate financial and human resource management/payroll
systems was completed during the fourth quarter of the calendar year. All
critical IT systems and critical embedded systems were materially compliant by
December 31, 1999. The Company surveyed all operating divisions and 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 also identified and surveyed its critical vendors,
suppliers and financial institutions with which it has material relationships.
Based on the surveys, the Company was 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 was less than $750,000, the
majority of which were capitalized.
Contingency Plans: If the Company's IT systems had not been Year 2000
compliant on a timely basis, the Company planned to operate such systems
manually until any Year 2000 issues were remediated. All systems were 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 were
developed for all critical processes to operate manually. In addition, if the
failure of major utility companies to operate properly in the Year 2000 had
contributed to the failure of internal systems, contingency plans focusing on
the safety and security of guests and asset preservation were in place.
As of the date of this Form 10-Q, the Company has not experienced any Year
2000 issues arising from its systems or those of its material vendors and
suppliers. To the extent that there might be any ongoing Year 2000 issues that
might arise at a later date, the Company has contingency plans in place to
address such issues. The Company continues 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
and any ongoing Year 2000 issues that might arise at a later date. Contingency
plans include alternate plans should one of these third parties be unable to
maintain their supply chain to the Company.
In light of the Company's remediation efforts, the Year 2000 issue has had
no material adverse effect to date on the operations or results of operations of
the Company, and is not expected to have a material impact on the Company's
financial statements. However, there can be no assurance that the Company or any
third parties will not have ongoing Year 2000 issues that may have a material
adverse effect on the Company's business, operating results and financial
condition in the future.
Limited-Service Lodging
Total revenues for the second quarter of fiscal 2000 for the
limited-service lodging division were $33.5 million, a decrease of $1.9 million,
or 5.3%, compared to revenues of
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$35.4 million during the same period in fiscal 1999. Total revenues for the
first half of fiscal 2000 for the limited-service lodging division were $73.4
million, a decrease of $4.0 million, or 5.1%, compared to revenues of $77.4
million for the first half of fiscal 1999. The limited-service lodging
division's operating income for the fiscal 2000 second quarter totaled $4.7
million, a decrease of $2.6 million, or 35.5%, from operating income of $7.2
million during the same period of fiscal 1999. For the first half of fiscal
2000, the limited-service lodging division's operating income totaled $15.0
million, a $5.1 million decrease, or 25.2%, from operating income of $20.1
million for the first half of fiscal 1999.
Compared to the end of the second quarter of fiscal 1999, 11 fewer
Company-owned or operated and 18 new franchised Baymont Inns & Suites were in
operation at the end of the fiscal 2000 second quarter. The Company sold two
Baymont Inns during the second quarter of fiscal 2000, including one to a
franchisee, recognizing a gain on disposition of $2.4 million. As a result of
the sale of these two Inns plus seven Baymont Inns & Suites sold late in fiscal
1999 (five of which were sold to a franchisee) and two Baymont Inns sold during
the first quarter of fiscal 2000, fiscal 2000 second quarter and first half
revenues were negatively impacted by $2.3 million and $4.8 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,
however, that this strategy will best serve the long-term growth of the Baymont
brand and will improve the Company's overall return on investment.
The Company's comparable Baymont Inns & Suites experienced a 2.8 percentage
point decline in occupancy percentage and a 5.1% average daily rate increase
during the second quarter of fiscal 2000, compared to the same quarter last
year. The result of the average daily rate increases and occupancy decline was a
0.6% increase in the division's revenue per available room, or RevPAR, for
comparable Baymont Inns during the fiscal 2000 second quarter, compared to the
same quarter last year. For the first half of fiscal 2000, RevPAR for comparable
Baymont Inns has decreased 1.1% compared to the first half of fiscal 1999 as a
result of a 4.0 percentage point decline in occupancy percentage and a 4.8%
increase in average daily rate.
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 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, however, is encouraged by recent trends in RevPAR. The increased RevPAR
during the second 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. The Company also considers the addition of lobby
breakfasts to the majority of its locations critical to the future operating
performance of the Baymont Inns & Suites. Inns that have installed the lobby
breakfast are performing significantly better than Inns without the lobby
breakfast, with
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average daily rates in November and December running approximately 11-13% higher
at Inns with the lobby breakfast. The Company expects that the majority of the
lobby breakfast additions will be completed during the third quarter of fiscal
2000. The Company believes that RevPAR will continue to improve as the Baymont
brand enters its second year and that operating margins may begin to stabilize
later in fiscal 2000 after completion of the lobby breakfast program and as
market awareness of the Baymont name increases.
At the end of the fiscal 2000 second quarter, the Company owned or operated
95 Baymont Inns & Suites and franchised an additional 74 Inns, bringing the
total number of Baymont Inns & Suites in operation to 169. In addition, there
were 25 approved franchised locations in development at the end of the second
quarter, including 12 under construction and scheduled to open in fiscal 2000 or
shortly thereafter.
The Company also owned and operated six Woodfield Suites all-suite hotels
during the second quarter of fiscal 2000, compared to five locations during the
same period last year. An additional Company-owned Woodfield Suites, located in
San Antonio, Texas, opened early during the third quarter of fiscal 2000.
Revenues and operating income from Woodfield Suites increased during the second
quarter and first half of fiscal 2000 compared to the same periods of fiscal
1999 due to results from the new location and RevPAR increases of 4.4% and 3.6%,
respectively, for comparable Woodfield Suites compared to the same period last
year.
Theatres
The theatre division's fiscal 2000 second quarter revenues were $24.3
million, an increase of $1.8 million, or 8.2%, over revenues of $22.5 million
during the same fiscal 1999 period. Operating income for the second quarter of
fiscal 2000 totaled $2.9 million, a decrease of $700,000, or 19.2%, from
operating income of $3.6 million during the same period last year. The increased
revenues during the fiscal 2000 second quarter were offset by increased
occupancy costs associated with the Company's capital program and increased
costs of film rental, resulting in reduced operating income compared to the same
period last year. The theatre division's fiscal 2000 first half revenues were
$66.7 million, an increase of $10.9 million, or 19.5%, over revenues of $55.8
million during the first half of fiscal 1999. Operating income for the first
half of fiscal 2000 was $12.8 million, an increase of $1.1 million, or 8.8%,
over operating income of $11.7 million during the first half of fiscal 1999.
Consistent with the seasonal nature of the motion picture exhibition industry,
the second quarter of the Company's fiscal year is typically the slowest period
for its theatre division.
Total box office receipts for the fiscal 2000 second quarter were $16.2
million, an increase of $1.0 million, or 7.1%, over box office receipts of $15.2
million during the same period last year. The increase in box office receipts
for the second quarter of fiscal 2000 compared to the same period during the
prior year was due to 62 additional screens and a 7.0% increase in average
ticket prices. Total box office receipts for the fiscal 2000 first half were
$44.9 million, an increase of $7.4 million, or 19.6%, over box office receipts
of $37.5 million during the same period last year. The theatre division's
average ticket price for the first half of fiscal 2000 increased 5.9% over the
same period last year.
13
<PAGE>
Concession revenues for the fiscal 2000 second quarter totaled $7.2
million, an increase of $400,000, or 6.3%, over concession revenues of $6.8
million during the same quarter last year. Concession revenues for the fiscal
2000 first half were $20.0 million, an increase of $3.1 million, or 18.7%, over
concession revenues of $16.9 million during the fiscal 1999 first half. The
increase in concession revenues during the second quarter and first half of
fiscal 2000 was due to increased theatre attendance and 6.1% and 5.1% increases,
respectively, in average concession sales per person during the fiscal 2000
periods compared to the same periods last year.
Total theatre attendance for the second quarter and first half of fiscal
2000 increased 0.2% and 12.9%, respectively, over total attendance during the
same periods last year. Attendance at the Company's comparable locations
declined during the second quarter compared to the same quarter last year as a
result of fewer quality films during fiscal 2000 and an increased number of
available theatre screens in selected markets. For the first half of fiscal
2000, attendance at the Company's comparable locations decreased 2.0% compared
to the prior year's same period. 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 second quarter of fiscal 2000, the Company opened four new
screens at an existing theatre in Orland Park, Illinois and four new screens at
an existing theatre in Delafield, Wisconsin. The Company ended the second
quarter with a total of 450 total screens in 49 theatres compared to 388 screens
in 45 theatres at the end of the same period last year. The Company currently
has 36 additional screens under construction, including 20 screens at five
existing locations and 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 development and acquisition
opportunities. The Company also continues to retrofit existing theatres with
stadium seating and expects to have approximately 70% of its first-run
auditoriums completed by the end of fiscal 2000 and 90% completed by the end of
calendar 2000.
Hotels and Resorts
Total revenues from the hotels and resorts division during the second
quarter of fiscal 2000 increased by $1.7 million, or 8.4%, to $21.9 million,
compared to revenues of $20.2 million in the previous year's comparable period.
Operating income increased by $1.3 million, or 58.5%, to $3.5 million during the
fiscal 2000 second quarter, compared to operating income of $2.2 million during
the second quarter of fiscal 1999. Total revenues from the hotels and resorts
division during the first half of fiscal 2000 totaled $47.0 million, an increase
of $2.7 million, or 6.0%, over first half revenues of $44.3 million during
fiscal 1999. Operating income increased by $1.6 million, or 20.6%, during the
first half of fiscal 2000 to $9.1 million, compared to operating income of $7.5
million during the same period last year.
14
<PAGE>
Increased management fees due to improved results at the Company's managed
properties and increases in RevPAR at the Company's owned hotels were the
reasons for the division's revenue and operating income increases during the
fiscal 2000 second quarter and first half compared to the prior year's same
periods. The division's total RevPAR for Company-owned properties increased 7.9%
during fiscal 2000's second quarter compared to the same quarter last year and
increased 4.2% for the first half of fiscal 2000 compared to the same period
last year. While operating income during the second quarter increased at all
four Company-owned properties, the largest contributor to the improved operating
results for both the second quarter and first half of fiscal 2000 was the
Miramonte Resort. In addition to increased revenues as a result of greater
market awareness and improved marketing, operating income comparisons to last
year's second quarter and first half were favorably impacted by the fact that
last year the Miramonte's results were reduced by approximately $300,000 and
$600,000 of pre-opening cost amortization, respectively. Miramonte pre-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 fiscal 2000 third quarter.
The Company currently has three major construction projects in progress.
The Company's 200-room expansion of the Hilton Milwaukee City Center remains on
schedule 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 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 of fiscal
2000, although initial sales efforts have been limited while the Company
obtained the necessary approvals to sell to Illinois residents. Such approval
was received late in calendar year 1999. Construction of this first phase of the
development is scheduled to be completed by the end of fiscal 2000. The Company
has not recognized revenues from the sale of timesharing units during the first
half of fiscal 2000.
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 later 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.
15
<PAGE>
Revenues from discontinued operations totaled $6.4 million for the second
quarter of fiscal 2000, a decrease of $400,000, or 5.4%, from fiscal 1999 second
quarter revenues of $6.8 million. During the first half of fiscal 2000, revenues
from discontinued operations totaled $13.1 million, a decrease of $1.1 million,
or 7.8%, from prior year first half revenues from discontinued operations of
$14.2 million. Included in fiscal 1999 first half 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 half of fiscal 1999 totaled $13.7
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 second 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 17.7%, from income from discontinued operations during the same
period last year. KFC revenues and operating results were negatively impacted
during the quarter by increased chicken costs and a national marketing lunch
promotion for sandwiches that was not initially as effective as anticipated.
Income from discontinued operations, net of applicable income taxes, totaled
$1.0 million for the first half of fiscal 2000, compared to $1.2 million during
the first half 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 $78 million of unused credit lines as of the end
of the second quarter, should be adequate to support the ongoing operational
liquidity needs of the Company's businesses.
Net cash provided by operating activities increased by $4.2 million during
the first half of fiscal 2000 to $34.7 million, compared to $30.5 million during
the prior year's first half, 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 half
totaled $28.1 million, compared to $47.1 million during the fiscal 1999 first
half. The reduction in net cash used in investing activities was primarily the
result of increased net proceeds from disposals of property, equipment and other
assets, which totaled $15.1 million during fiscal 2000 compared to $5.3 million
during fiscal 1999. The proceeds received during the fiscal 2000 first half 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 $44.7 million during the first half of fiscal 2000 compared to
$51.3 million during the prior year's first half. Fiscal 2000 first half capital
expenditures included approximately $19 million
16
<PAGE>
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 $12
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 $13 million has been incurred by the hotels and resorts
division to fund their previously described construction projects.
Net cash used in financing activities during the first half of fiscal 2000
totaled $3.3 million, compared to net cash provided by financing activities of
$13.3 million during the first half of fiscal 1999. The Company has 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 only $19.6 million during
the first half of fiscal 2000, compared to $33.7 million during the same period
last year. The Company's principal payments on notes payable and long-term debt
totaled $19.3 million during the first half of fiscal 2000 compared to $12.4
million during the same period last year, which also contributed to the
increased cash used in financing activities. Offsetting this was the fact that
during the first half of last year, the Company repurchased 355,000 of its
common shares in the open market pursuant to its stock repurchase program,
compared to 51,000 shares repurchased during the first half of fiscal 2000. If a
sale of the restaurant business is consummated, the Company intends to use 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 half,
there were 821,000 shares available for repurchase under existing Board of
Directors authorizations.
Although the Company's long-term debt balance has not changed during the
first half 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. 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.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1999 annual meeting of shareholders was held on Monday,
October 4, 1999 ("Annual Meeting"). At the Annual Meeting, the following matters
were voted on in person or by proxy, and approved by the Company's shareholders:
17
<PAGE>
1. The shareholders voted to elect Stephen H. Marcus, Diane Marcus
Gershowitz, Daniel F. McKeithan, Jr., Allan H. Selig, Timothy E.
Hoeksema, Bruce J. Olson, Philip L. Milstein and Bronson J. Haase to
the Company's Board of Directors for one-year terms to expire at the
Company's 2000 annual meeting of shareholders and until their
successors are duly qualified and elected.
2. The shareholders approved an amendment to the Company's 1995 Equity
Incentive Plan to increase the number of shares of Common Stock
available by 2,000,000.
As of the August 13, 1999 record date for the Annual Meeting ("Record
Date"), 17,401,015 shares of Common Stock and 12,502,026 shares of Class B
Common Stock were outstanding and eligible to vote, with the Common Stock
entitled to one vote per share and the Class B Common Stock entitled to ten
votes per share. Following are the final votes on the matters presented for
shareholder approval of the Annual Meeting:
Election of Directors
- ---------------------
<TABLE>
<CAPTION>
For Withheld
---------------------------------- --------------------------------
Name Votes Percentage(1) Votes Percentage(1)
- ---- ---------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Stephen H. Marcus 131,815,639 99.88% 161,350 0.12%
Diane Marcus Gershowitz 131,817,457 99.88% 159,532 0.12%
Daniel F. McKeithan, Jr. 131,817,582 99.88% 159,407 0.12%
Allan H. Selig 131,801,203 99.87% 175,786 0.13%
Timothy E. Hoeksema 131,813,972 99.88% 163,017 0.12%
Bruce J. Olson 131,817,406 99.88% 159,583 0.12%
Philip L. Milstein 131,817,812 99.88% 159,177 0.12%
Bronson J. Haase 131,814,127 99.88% 162,862 0.12%
</TABLE>
<TABLE>
Approval of Amendment to the Company's 1995 Equity Incentive Plan
- -----------------------------------------------------------------
<CAPTION>
For Against Abstained Broker Non-Vote
- --------------------------- -------------------------- ------------------------- --------------------------
Votes Percentage(1) Votes Percentage(1) Votes Percentage(1) Votes Percentage(1)
- ----------- ------------- --------- ------------- ------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
124,174,705 94.09% 3,186,964 2.41% 103,885 0.08% 4,511,435 3.42%
- -----------------
(1) Based on a total of 131,976,989 votes represented by shares of Common Stock and Class B Common
Stock actually voted in person or by proxy at the Annual Meeting.
</TABLE>
No other matters were brought before the Annual Meeting for a shareholder
vote.
18
<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.
19
<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: January 7, 2000 By: /s/ Stephen H. Marcus
-----------------------------------------------
Stephen H. Marcus,
Chairman of the Board, President and Chief
Executive Officer
DATE: January 7, 2000 By: /s/ Douglas A. Neis
-----------------------------------------------
Douglas A. Neis
Chief Financial Officer and Treasurer
20
<PAGE>
THE MARCUS CORPORATION
FORM 10-Q
FOR
26 WEEKS ENDED NOVEMBER 25, 1999
EXHIBIT INDEX
Exhibit Description
-----------
27 Financial Data Schedule
21
<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> 6-MOS
<FISCAL-YEAR-END> MAY-25-2000
<PERIOD-START> MAY-28-1999
<PERIOD-END> NOV-25-1999
<CASH> 6,857
<SECURITIES> 0
<RECEIVABLES> 14,190
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,217
<PP&E> 844,647
<DEPRECIATION> 220,459
<TOTAL-ASSETS> 687,458
<CURRENT-LIABILITIES> 54,179
<BONDS> 262,869
0
0
<COMMON> 31,190
<OTHER-SE> 297,578
<TOTAL-LIABILITY-AND-EQUITY> 687,458
<SALES> 170,902
<TOTAL-REVENUES> 187,961
<CGS> 86,168
<TOTAL-COSTS> 153,607
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,785
<INCOME-PRETAX> 30,004
<INCOME-TAX> 12,217
<INCOME-CONTINUING> 17,787
<DISCONTINUED> 971
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,758
<EPS-BASIC> .63
<EPS-DILUTED> .63
</TABLE>
