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 23, 2000
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-12604
-------
THE MARCUS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1139844
----------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
250 East Wisconsin Avenue, Suite 1700
Milwaukee, Wisconsin 53202
----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 905-1000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK OUTSTANDING AT DECEMBER 29, 2000 - 17,256,330
CLASS B COMMON STOCK OUTSTANDING AT DECEMBER 29, 2000 - 11,879,718
<PAGE>
THE MARCUS CORPORATION
----------------------
INDEX
-----
PART I - FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements:
Balance Sheets
(November 23, 2000 and May 25, 2000)............................ 3
Statements of Earnings
(Thirteen and twenty-six weeks ended November 23, 2000 and
November 25, 1999).............................................. 5
Statements of Cash Flows
(Twenty-six weeks ended November 23, 2000 and
November 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 4. Submission of Matters to a Vote of Security Holders............. 17
Item 6. Exhibits and Reports on Form 8-K................................ 18
Signatures...................................................... 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
November 23, May 25,
2000 2000
---- ----
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $463 $2,935
Accounts and notes receivable 20,055 11,908
Receivables from joint ventures 4,624 2,468
Refundable income taxes - 3,020
Real estate and development costs 4,302 3,917
Other current assets 3,964 4,147
----- -----
Total current assets 33,408 28,395
Property and equipment:
Land and improvements 96,107 96,158
Buildings and improvements 571,038 514,734
Leasehold improvements 8,499 7,650
Furniture, fixtures and equipment 243,741 231,643
Construction in progress 19,221 48,152
------ ------
Total property and equipment 938,606 898,337
Less accumulated depreciation and amortization 260,421 240,020
------- -------
Net property and equipment 678,185 658,317
Other assets:
Investments in joint ventures 2,033 2,025
Other 37,950 35,039
------ ------
Total other assets 39,983 37,064
------ ------
TOTAL ASSETS $751,576 $723,776
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
November 23, May 25,
2000 2000
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $6,779 $4,228
Accounts payable 9,887 24,463
Income taxes 51 -
Taxes other than income taxes 13,663 11,219
Accrued compensation 3,086 4,307
Other accrued liabilities 10,461 10,026
Current maturities of long-term debt 19,054 16,228
------ ------
Total current liabilities 62,981 70,471
Long-term debt 312,365 286,344
Deferred income taxes 33,135 32,602
Deferred compensation and other 9,241 9,112
Shareholders' equity:
Preferred Stock, $1 par; authorized 1,000,000
shares; none issued
Common Stock, $1 par; authorized 50,000,000
shares; issued 19,296,537 shares at
November 23, 2000, 19,072,617 shares at
May 25, 2000 19,297 19,073
Class B Common Stock, $1 par; authorized 33,000,000
shares; issued and outstanding 11,892,976 at
November 23, 2000, 12,116,896 at May 25, 2000 11,893 12,117
Capital in excess of par 40,802 40,774
Retained earnings 281,259 268,808
Accumulated other comprehensive loss (208) (257)
--- ---
353,043 340,515
Less cost of Common Stock in treasury (2,055,593
shares at November 23, 2000 and 1,708,247
shares at May 25, 2000) (19,189) (15,268)
------ ------
Total shareholders' equity 333,854 325,247
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $751,576 $723,776
======== ========
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data) November 23, 2000 November 25, 1999
----------------- -----------------
13 Weeks 26 Weeks 13 Weeks 26 Weeks
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Rooms and telephone $45,260 $98,329 $42,052 $91,986
Theatre admissions 16,046 40,284 16,248 44,896
Theatre concessions 7,152 17,872 7,220 20,020
Food and beverage 8,181 16,267 6,971 14,000
Other income 10,503 23,218 7,753 17,059
------ ------ ----- ------
Total revenues 87,142 195,970 80,244 187,961
Costs and expenses:
Rooms and telephone 18,744 38,007 17,498 35,906
Theatre operations 12,844 31,411 12,978 34,989
Theatre concessions 1,818 4,386 1,868 4,899
Food and beverage 5,729 11,409 5,108 10,374
Advertising and marketing 7,260 15,158 5,945 12,304
Administrative 10,557 20,775 9,874 19,839
Depreciation and amortization 10,427 21,488 9,876 19,879
Rent 826 1,648 604 1,429
Property taxes 3,551 7,319 3,441 6,847
Pre-opening expenses 361 688 138 510
Other operating expenses 4,781 10,385 3,060 6,631
----- ------ ----- -----
Total costs and expenses 76,898 162,674 70,390 153,607
------ ------- ------ -------
Operating income 10,244 33,296 9,854 34,354
Other income (expense):
Investment income (loss) 792 1,289 318 695
Interest expense (5,955) (11,182) (3,905) (8,785)
Gain on disposition of property and equipment 1,295 1,551 2,413 3,740
----- ----- ----- -----
(3,868) (8,342) (1,174) (4,350)
----- ----- ----- -----
Earnings from continuing operations before income taxes 6,376 24,954 8,680 30,004
Income taxes 2,597 10,103 3,589 12,217
----- ------ ----- ------
Earnings from continuing operations 3,779 14,851 5,091 17,787
Discontinued operations (Note 2):
Income from discontinued operations, net of applicable
income taxes 317 694 497 971
--- --- --- ---
Net earnings $4,096 $15,545 $5,588 $18,758
====== ======= ====== =======
Earnings per share - Basic and Diluted:
Continuing operations $0.13 $0.51 $0.17 $0.60
Discontinued operations $0.01 $0.02 $0.02 $0.03
----- ----- ----- -----
Net earnings per share $0.14 $0.53 $0.19 $0.63
===== ===== ===== =====
Weighted Average Shares Outstanding:
Basic 29,141 29,220 29,896 29,901
Diluted 29,284 29,299 29,949 29,948
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
26 Weeks Ended
--------------
November 23, November 25,
----------- -----------
2000 1999
---- ----
(in thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $15,545 $18,758
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Earnings on investments in joint ventures, net of distributions (8) (157)
Gain on disposition of property and equipment (1,551) (3,740)
Depreciation and amortization 21,993 20,614
Deferred income taxes 533 2,124
Deferred compensation and other 129 632
Changes in assets and liabilities:
Accounts and notes receivable (8,147) (1,804)
Real estate and development costs (385) -
Other current assets 183 (177)
Accounts payable (14,576) (9,014)
Income taxes 3,071 5,448
Taxes other than income taxes 2,444 2,507
Accrued compensation (1,221) (738)
Other accrued liabilities 435 291
--- ---
Total adjustments 2,900 15,986
----- ------
Net cash provided by operating activities 18,445 34,744
INVESTING ACTIVITIES:
Capital expenditures, including business acquisitions (41,795) (44,669)
Net proceeds from disposals of property, equipment and other assets 1,047 15,084
(Increase) decrease in other assets (2,424) 1,040
Cash received from (advanced to) joint ventures (2,156) 412
----- ---
Net cash used in investing activities (45,328) (28,133)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes payable and long-term debt 43,005 10,575
Principal payments on notes payable and long-term debt (11,607) (10,229)
Equity transactions:
Treasury stock transactions, except for stock options (3,959) (485)
Exercise of stock options 65 51
Dividends paid (3,093) (3,165)
----- -----
Net cash provided by (used in) financing activities 24,411 (3,253)
------ -----
Net increase (decrease) in cash and cash equivalents (2,472) 3,358
Cash and cash equivalents at beginning of year 2,935 3,499
----- -----
Cash and cash equivalents at end of period $463 $6,857
==== ======
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
THIRTEEN AND TWENTY SIX WEEKS ENDED
NOVEMBER 23, 2000
(Unaudited)
1. General
Accounting Policies - Refer to the Company's audited financial statements
(including footnotes) for the fiscal year ended May 25, 2000, 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 23, 2000 and November 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 November 23, 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.
2. Discontinued Operations
The Restaurant business segment has been presented as discontinued operations in
the accompanying consolidated financial statements. KFC revenues for the
thirteen and twenty-six weeks ended November 23, 2000 were $6,224,000 and
$12,163,000, respectively. KFC revenues for the thirteen and twenty-six weeks
ended November 25, 1999 were $6,426,000 and $13,079,000, 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. Corporate items
include amounts not allocable to the business segments and consist principally
of rental revenue and general corporate expenses.
Following is a summary of business segment information for the thirteen and
twenty-six weeks ended November 23, 2000 and November 25, 1999 (in thousands):
7
<PAGE>
13 Weeks Ended Limited-Service Corporate
November 23, 2000 Lodging Theatres Hotels/Resorts Items Total
----------------- ------- -------- -------------- ----- -----
Revenues $34,258 $24,273 $28,194 $417 $87,142
Operating Income 4,690 2,904 4,655 (2,005) 10,244
13 Weeks Ended Limited-Service Corporate
November 25, 1999 Lodging Theatres Hotels/Resorts Items Total
----------------- ------- -------- -------------- ----- -----
Revenues $33,525 $24,334 $21,887 $498 $80,244
Operating Income 4,662 2,944 3,512 (1,264) 9,854
26 Weeks Ended Limited-Service Corporate
November 23, 2000 Lodging Theatres Hotels/Resorts Items Total
----------------- ------- -------- -------------- ----- -----
Revenues $75,160 $60,167 $59,858 $785 $195,970
Operating Income 15,850 10,168 10,939 (3,661) 33,296
26 Weeks Ended Limited-Service Corporate
November 25, 1999 Lodging Theatres Hotels/Resorts Items Total
----------------- ------- -------- -------------- ----- -----
Revenues $73,405 $66,655 $47,012 $889 $187,961
Operating Income 15,012 12,781 9,092 (2,531) 34,354
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 "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
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 2001 is a 53-week year for the Company and each of its divisions and the
Company anticipates that its reported results for fiscal 2001 will be increased
proportionately by the additional week of operations. Fiscal 2000 was a 52-week
year 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. As a result of the
Company's stated intention to dispose of its KFC restaurants, the restaurant
business segment has been presented as discontinued operations in the
accompanying financial statements and in this discussion.
Revenues during the second quarter of fiscal 2001 ended November 23, 2000,
totaled $87.1 million, an increase of $6.9 million, or 8.6%, from revenues of
$80.2 million during the second quarter of fiscal 2000. For the first half of
fiscal 2001, revenues were $196.0
9
<PAGE>
million, an increase of $8.0 million, or 4.3%, from revenues of $188.0 million
during the first half of fiscal 2000. Revenue increases from the Company's
limited-service lodging and hotels/resorts divisions during the second quarter
and first half of fiscal 2001 were partially offset by a decrease in theatre
division revenues compared to the prior year same periods.
Earnings from continuing operations during the second quarter of fiscal
2001 were $3.8 million, or $.13 per share, a decrease of 25.8% and 23.5%,
respectively, compared to earnings from continuing operations of $5.1 million,
or $.17 per share, for the same quarter during the prior year. Net earnings
during the second quarter of fiscal 2001 were $4.1 million, or $.14 per share, a
decrease of 26.7% and 26.3%, respectively, from net earnings of $5.6 million, or
$.19 per share, during the same quarter last year. During the first half of
fiscal 2001, earnings from continuing operations were $14.9 million, or $.51 per
share. This represented a respective 16.5% and 15.0% decrease from earnings from
continuing operations of $17.8 million, or $.60 per share, during the first half
of fiscal 2000. Net earnings during the first half of fiscal 2001 were $15.5
million, or $.53 per share, a decrease of 17.1% and 15.9%, respectively, from
net earnings of $18.8 million, or $.63 per share, during the first half of
fiscal 2000. 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 $10.2 million during the second quarter of
fiscal 2001, an increase of nearly $400,000, or 4.0%, compared to the prior
year's same period. For the first half of fiscal 2001, operating income from
continuing operations was $33.3 million, a decrease of $1.1 million, or 3.1%,
from operating income from continuing operations of $34.4 million during the
first half of fiscal 2000. Operating income increases from the Company's
limited-service lodging and hotels/resorts divisions during the quarter and
first half of fiscal 2001 compared to the same periods last year were offset by
reduced operating income from the theatre division and increased unallocated
corporate expenses. Factors contributing to the increased loss from corporate
items include reduced rental income on former restaurants, increased legal
expenses on several one-time projects, and increased costs associated with
building the Company's internal real estate/development function, the benefits
of which will ultimately include the acquisition of additional revenue-producing
projects for the Company.
Increased interest expense and decreased gains on disposition of property
and equipment contributed to the Company's decreased earnings from continuing
operations and net earnings during the second quarter and first half of fiscal
2001, compared to the prior year same periods. Interest expense, net of
investment income, totaled $5.2 million and $9.9 million for the second quarter
and first half of fiscal 2001, respectively, compared to $3.6 million and $8.1
million during the same periods last year. These increases were the result of
increased long-term debt levels necessary to help finance the Company's capital
expenditures and higher short-term interest rates. Gains on disposition of
property and equipment totaled $1.3 million and $1.6 million for the second
quarter and first half of fiscal 2001, respectively, compared to $2.4 million
and $3.7 million during the prior year same periods. The timing of periodic
sales of Company property and equipment can vary from quarter to quarter,
resulting in variations in the Company's gains or losses on disposition of
property and equipment.
10
<PAGE>
Limited-Service Lodging
Total revenues for the second quarter of fiscal 2001 for the
limited-service lodging division were $34.3 million, an increase of $800,000, or
2.2%, compared to revenues of $33.5 million during the same period in fiscal
2000. Total revenues for the first half of fiscal 2001 for the limited-service
lodging division were $75.2 million, an increase of $1.8 million, or 2.4%,
compared to total revenues of $73.4 million for the first half of fiscal 2000.
The limited-service lodging division's operating income for the fiscal 2001
second quarter totaled $4.69 million, an increase of $30,000, or 0.6%, over
operating income of $4.66 million during the same period of fiscal 2000. For the
first half of fiscal 2001, the limited-service lodging division's operating
income totaled $15.9 million, a $900,000 increase, or 5.6%, over operating
income of $15.0 million for the first half of fiscal 2000.
At the end of the fiscal 2001 second quarter, one additional Company-owned
or operated and four additional franchised Baymont Inns & Suites were in
operation compared to the end of the second quarter of fiscal 2000. As a result
of the sale of two Baymont Inns during the second quarter of fiscal 2000 (one of
which was sold to a franchisee), a gain on disposition of $2.4 million was
recognized last year and fiscal 2001 second quarter and first half revenues were
negatively impacted by $400,000 and $1.2 million, respectively, compared to the
same periods during the prior year.
The Company's comparable Baymont Inns & Suites experienced a 13.1% average
daily rate increase and a 7.1 point decline in occupancy percentage during the
second quarter of fiscal 2001, compared to the same quarter last year. During
the first half of fiscal 2001, comparable Company-owned or operated Baymont Inns
& Suites experienced a 12.5% increase in average daily rate and a 6.2 point
decrease in occupancy percentage, compared to the first half of fiscal 2000. The
primary factor contributing to the decline in occupancy has been the significant
increase in the industry supply of limited-service lodging rooms during the past
three years. The Company also anticipated some downward pressure on occupancy as
the Company significantly increased the average daily rate as part of its
efforts to reposition the Baymont Inns & Suites brand from the lower-priced
economy segment of the lodging industry to the mid-price segment. The Company
expects that the trend of increased average daily rates and reduced occupancy
will continue during the third quarter of fiscal 2001.
The result of the average daily rate increases and occupancy decline was a
0.3% and 2.0% increase in the division's revenue per available room, or RevPAR,
for comparable Baymont Inns during the fiscal 2001 second quarter and first
half, respectively, compared to the same periods last year. Subject to changes
in economic and industry conditions, the Company believes that RevPAR should
continue to improve during fiscal 2001 as market awareness of the Baymont brand
continues to increase. The Company also plans to introduce several new features
in the near future which are designed to build the brand, including an enhanced
lobby breakfast, upgrades in the bed and bath, a new satisfaction guarantee,
additional services for business travelers, new sales and marketing programs and
an expanded frequent stay program. Several of these programs will result in
additional one-time and on-going costs, but are expected to increase occupancy
and revenues over the long-term.
11
<PAGE>
The limited-service lodging division's increased operating results during
the second quarter of fiscal 2001 compared to the prior year's same period
represent the fourth consecutive quarterly increase after nine straight quarters
of decreased operating income dating back to the first quarter of fiscal 1998.
In addition to the impact of the RevPAR increase during the fiscal 2001 second
quarter, increased revenues from franchising contributed to the division's
improvement during the quarter and the Company expects that trend to continue as
it continues to focus on increased growth through franchising.
At the end of the fiscal 2001 second quarter, the Company owned or operated
96 Baymont Inns & Suites and franchised an additional 78 Inns, bringing the
total number of Baymont Inns & Suites in operation to 174. In addition, there
were 30 approved franchised locations in development at the end of the second
quarter, including 11 under construction and scheduled to open in fiscal 2001 or
shortly thereafter. One Company-owned Baymont Inn & Suites is currently under
construction and expected to open during the fiscal 2001 third quarter.
The Company also owned and operated seven Woodfield Suites all-suite hotels
during the second quarter of fiscal 2001, 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. Revenues and operating income from Woodfield Suites increased during the
second quarter and first half of fiscal 2001 compared to the same periods of
fiscal 2000 due to the new location and RevPAR increases of 3.7% and 2.7%,
respectively, for comparable Woodfield Suites compared to the same periods last
year.
Theatres
The theatre division's revenues were $24.3 million in both the second
quarter of fiscal 2001 and the second quarter of fiscal 2000. Operating income
for the second quarter of fiscal 2001 equaled last year's second quarter total
of $2.9 million. The theatre division's fiscal 2001 first half revenues were
$60.2 million, a decrease of $6.5 million, or 9.7%, from revenues of $66.7
million during the first half of fiscal 2000. Operating income for the first
half of fiscal 2001 was $10.2 million, a decrease of $2.6 million, or 20.4%,
from operating income of $12.8 million during the first half of fiscal 2000.
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 2001 second quarter were $16.0
million, a decrease of $200,000, or 1.2%, from box office receipts of $16.2
million during the same period last year. The Company experienced a 3.7%
increase in average ticket prices during the second quarter of fiscal 2001
compared to the same period last year and operated 32 additional screens,
representing a 7.1% increase over the prior year. Total box office receipts for
the first half of fiscal 2001 were $40.3 million, a decrease of $4.6 million, or
10.3%, from box office receipts of $44.9 million during the same period last
year. The theatre division's
12
<PAGE>
average ticket price for the first half of fiscal 2001 increased 4.5% over the
same period last year.
Concession revenues totaled $7.2 million during both the second quarter of
fiscal 2001 and second quarter of fiscal 2000. Concession revenues for the
fiscal 2001 first half were $17.9 million, a decrease of $2.1 million, or 10.7%,
from concession revenues of $20.0 million during the fiscal 2000 first half. The
Company's average concession sales per person increased 4.0% during the second
quarter and first half compared to last year's same periods.
Total theatre attendance for the second quarter and first half of fiscal
2001 decreased 4.9% and 14.2%, respectively, compared to the same periods last
year. Total theatre attendance at the Company's comparable locations decreased
11.8% during the second quarter and 21.1% during the first half of fiscal 2001,
compared to last year's same periods. The decline in total attendance and the
resulting decreases in box office receipts and concession revenues during the
second quarter and first half of fiscal 2001 were primarily the result of fewer
quality films during the first four months of fiscal 2001 compared to the same
period of fiscal 2000. The Company's box office receipts during September 2000
were down 23.0%, due in part to a lack of quality films held over from the
August time period and adverse effects on theatre attendance as a result of
television coverage of the summer Olympics. Attendance improved during the last
two months of the fiscal 2001 second quarter as the quality of movies improved.
In particular, Dr. Suess' How the Grinch Stole Christmas and several other
holiday films performed extremely well late in the second quarter and early into
the Company's fiscal 2001 third quarter. Revenues for the theatre business and
the motion picture industry in general are heavily dependent upon the general
audience appeal of available films, together with studio marketing, advertising
and support campaigns, all factors over which the Company has no control.
The Company ended the second quarter with a total of 482 total screens in
49 theatres compared to 450 screens in 49 theatres at the end of the same period
last year. The Company closed one six-screen theatre early in the second quarter
of fiscal 2001. The Company also sold one four-screen theatre and purchased a
five-screen theatre in an adjacent market during the fiscal 2001 second quarter.
The Company has three new screens at an existing location in development,
including another UltraScreen, and is reviewing additional development and
acquisition opportunities. The Company also has continued to retrofit existing
theatres with stadium seating and digital sound during the first half of fiscal
2001. Currently 82% of its first-run auditoriums now offer stadium seating,
which is the highest percentage of any top-20 theatre chain in the United
States.
Hotels and Resorts
Total revenues from the hotels and resorts division during the second
quarter of fiscal 2001 increased by $6.3 million, or 28.8%, to $28.2 million,
compared to revenues of $21.9 million during the previous year's comparable
period. Operating income increased by $1.2 million, or 32.5%, to $4.7 million
during the fiscal 2001 second quarter, compared to operating income of $3.5
million during the second quarter of fiscal 2000. Total revenues
13
<PAGE>
from the hotels and resorts division during the first half of fiscal 2001
totaled $59.9 million, an increase of $12.9 million, or 27.3%, over first half
revenues of $47.0 million during fiscal 2000. Operating income increased by $1.8
million, or 20.3%, during the first half of fiscal 2001 to $10.9 million,
compared to operating income of $9.1 million during the same period last year.
Increases in RevPAR at the Company's comparable owned hotels/resorts,
improved operating results from the Company's expanded Milwaukee Hilton City
Center and vacation ownership sales were the primary reasons for the division's
revenue and operating income increases during the fiscal 2001 second quarter and
first half compared to the prior year's same periods. Excluding the Hotel
Phillips and the Milwaukee Hilton City Center, which opened additional rooms
during the first quarter of fiscal 2001, the division's total RevPAR for
comparable Company-owned properties increased 10.7% during the fiscal 2001
second quarter compared to the same quarter last year and increased 9.4% for the
first half of fiscal 2001 compared to the same period last year.
The Company opened the rooms portion of its extensive addition to the
Hilton Milwaukee City Center in late June 2000, contributing significantly to
the overall increase in total division revenues during the fiscal 2001 second
quarter compared to the same period last year. A family water park and fun
center, Paradise Landing, built in conjunction with the Hilton room addition,
opened early in the second quarter of fiscal 2001. Construction also continues
on the division's new Company-owned Hilton Madison at Monona Terrace. The
property, which will be connected to the new Monona Terrace Convention Center,
is on schedule to open in March 2001. The division incurred pre-opening expenses
of $200,000 during the second quarter of fiscal 2001 in preparation for the
Hilton Madison opening and expects additional pre-opening expenses to have a
slight negative impact on the division's fiscal 2001 third quarter operating
results. The Company closed the newly-acquired Hotel Phillips in Kansas City in
September 2000 for a major renovation. The Company expects the Hotel Phillips to
reopen during the first quarter of fiscal 2002 and to have a slightly negative
impact on fiscal 2001 division operating results due to anticipated pre-opening
expenses.
Sales from the Company's vacation ownership development at the Grand Geneva
Resort & Spa totaled $1.9 million and $4.6 million during the second quarter and
first half of fiscal 2001, respectively. During the first three quarters of
fiscal 2000, the Company accounted for all sales of vacation intervals using the
deposit method, deferring all revenue because certain minimum sales levels had
not been reached. During the fourth quarter of fiscal 2000, minimum sales levels
were met and revenues were recognized retroactively. Due primarily to slightly
higher than anticipated construction costs and high initial sales and marketing
costs, the vacation ownership development has not had a material impact on
division operating income during the second quarter or first half of fiscal
2001. The Company believes that recent product offering improvements and
increases in pricing, combined with anticipated increased interest income from
customer financing agreements, should ultimately result in the vacation
ownership development adding modestly to division operating income and Company
net earnings in future periods.
14
<PAGE>
During the second quarter of fiscal 2001, the Company announced its
involvement in a new condominium hotel project on land adjacent to the Grand
Geneva Resort & Spa. The project, the Timber Ridge Lodge, will include 225 units
when fully completed and will feature a 50,000 square foot indoor/outdoor water
park. The Company's hotel and resort division will have a small equity
investment in the property and will manage the hotel. Guests of the Timber Ridge
Lodge and Grand Geneva Resort & Spa will be able to utilize the amenities of
both properties. The first phase of the new hotel is expected to open during the
first quarter of fiscal 2002. The hotel and resort division continues to explore
additional opportunities for growth, focusing on management contracts and
limited equity investments.
Discontinued Operations
The Company continues to actively pursue the sale of the Company's 30 KFC
and KFC/Taco Bell 2-in-1 restaurants. As a result, the Company continues to
account for the restaurant operations as discontinued operations in the
Company's consolidated financial statements because of its belief that a sale
may be consummated during fiscal 2001.
Revenues from discontinued operations totaled $6.2 million for the second
quarter of fiscal 2001, a decrease of $200,000, or 3.1%, from fiscal 2000 second
quarter revenues of $6.4 million. During the second quarter of fiscal 2001, the
Company had income from discontinued operations, net of applicable income taxes,
of $317,000, a decrease of $180,000, or 36.2%, from income from discontinued
operations during the same period last year. During the first half of fiscal
2001, revenues from discontinued operations totaled $12.2 million, a decrease of
$900,000, or 7.0%, from prior year first half revenues from discontinued
operations of $13.1 million. Income from discontinued operations, net of
applicable income taxes, totaled $694,000 for the first half of fiscal 2001,
compared to $971,000 during the first half of fiscal 2000. Although fiscal 2001
second quarter results improved compared to recent quarters, KFC revenues and
operating results continued to be negatively impacted during the second quarter
and first half of fiscal 2001 by ineffective national promotions and increased
payroll costs, resulting in reduced guest counts, average guest checks and
operating margins. The Company continues to have strong confidence in the KFC
brand and believes that KFC revenues and operating income should improve in
future quarters. This is based upon the Company's assessment of the proposed KFC
national marketing program for the remainder of fiscal 2001 and the fact that
sales were reduced during the last two quarters of fiscal 2000 due to an
ineffective sandwich promotion and reduced local advertising.
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 $30 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. The Company increased its
15
<PAGE>
credit lines early in the third quarter of fiscal 2001, increasing its total
availability under revolving credit agreements to $175 million by replacing a
$25 million bridge loan agreement with a new $45 million 364-day revolving
credit agreement with several banks. Any borrowings under the new line would
bear interest at LIBOR plus a margin which adjusts based on the Company's
borrowing levels. The agreement requires an annual facility fee of .2% on the
total commitment. If the new revolving credit agreement had been in place at the
end of the second quarter, the Company would have had $50 million in unused
credit lines available to it.
Net cash provided by operating activities decreased by $16.3 million during
the first half of fiscal 2001 to $18.4 million, compared to $34.7 million during
the prior year's first half, due primarily to reduced earnings, timing
differences in payments of accounts payable and increases in accounts and notes
receivable. Depreciation and amortization (a non-cash expense) increased as a
result of the Company's increased capital spending program.
Net cash used in investing activities during the first half of fiscal 2001
totaled $45.3 million, compared to $28.1 million during the first half of fiscal
2000. The increase in net cash used in investing activities was primarily the
result of reduced net proceeds from disposals of property, equipment and other
assets, which totaled $1.0 million during fiscal 2001 compared to $15.1 million
during fiscal 2000. Capital expenditures to support the Company's continuing
expansion program totaled $41.8 million during the first half of fiscal 2001
compared to $44.7 million during the prior year's first half. Fiscal 2001 first
half capital expenditures included approximately $12 million incurred in the
theatre division to fund screen additions to existing theatres, stadium seating
retrofits and costs carried over from projects opened during the fourth quarter
of fiscal 2000. In addition, capital expenditures of approximately $8 million
were incurred in the limited-service lodging division and approximately $22
million were incurred by the hotels and resorts division to fund its major
construction projects.
Net cash provided by financing activities during the first half of fiscal
2001 totaled $24.4 million compared to net cash used in financing activities of
$3.3 million during the first half of fiscal 2000. The Company funded a portion
of its capital expansion program during fiscal 2000 with the net proceeds from
disposals of assets. As a result of the reduced net proceeds from disposals of
assets and reduced net cash provided by operating activities during the fiscal
2001 first half compared to the same period last year, the Company's net
proceeds from issuance of notes payable and long-term debt totaled $43.0 million
during the first half of fiscal 2001 compared to $10.6 million during the same
period last year. The Company's principal payments on notes payable and
long-term debt totaled $11.6 million during the first half of fiscal 2001
compared to $10.2 million during the same period last year. Additionally, during
the first half of fiscal 2001, the Company repurchased 367,000 of its common
shares pursuant to its stock repurchase program at a total cost of $4.1 million,
compared to 51,000 shares repurchased during the first half of fiscal 2000 at a
total cost of $666,000. At the end of the first half of fiscal 2001, up to 2.0
million additional shares may be repurchased under existing Board of Directors
authorizations. 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.
16
<PAGE>
Depending upon whether a sale of the restaurant business is consummated,
the Company anticipates that it may need to issue additional long-term debt to
help fund the Company's ongoing expansion plans for the remainder of fiscal
2001. In addition to the Company's new and existing credit lines, the Company
also has the ability to issue up to $45 million of additional senior notes under
an existing private placement program. Depending upon a number of factors,
including capital requirements, proceeds from asset sales and market conditions,
the Company anticipates that it might issue additional senior notes during
calendar 2001. Proceeds from an issuance would be used to repay existing debt
under its revolving credit lines and to fund the Company's capital expenditure
and stock repurchase programs.
The actual timing and extent of the implementation of the Company's current
expansion plans will depend in large part on favorable industry and general
economic conditions, the competitive environment, evolving customer needs and
trends and the availability of attractive opportunities. It is likely that the
Company's current expansion goals will continue to evolve and change in response
to these and other factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has not experienced any material changes in its market risk
exposures since May 25, 2000.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2000 annual meeting of shareholders was held on Monday,
September 25, 2000 (the "Annual Meeting"). At the Annual Meeting, the following
matters were voted on in person or by proxy and approved by the Company's
shareholders:
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 2001 annual meeting of shareholders and until
their successors are duly qualified and elected.
As of the August 11, 2000 record date for the Annual Meeting, 14,309,444
shares of Common Stock and 11,342,002 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:
17
<PAGE>
Election of Directors
---------------------
<TABLE>
<CAPTION>
For Withheld
-------------------------------- ------------------------------
Name Votes Percentage(1) Votes Percentage(1)
----
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Stephen H. Marcus 127,495,372 99.82% 234,092 0.18%
Diane Marcus Gershowitz 127,494,691 99.82% 234,773 0.18%
Daniel F. McKeithan, Jr. 127,496,845 99.82% 232,619 0.18%
Allan H. Selig 127,484,500 99.81% 244,964 0.19%
Timothy E. Hoeksema 127,495,658 99.82% 233,806 0.18%
Bruce J. Olson 127,496,534 99.82% 232,930 0.18%
Philip L. Milstein 127,497,834 99.82% 231,630 0.18%
Bronson J. Haase 127,496,044 99.82% 233,420 0.18%
-----------------
(1) Based on a total of 127,729,464 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.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
Exhibit 4.1. Credit Agreement, dated as of December 29, 2000,
among The Marcus Corporation, Bank One, NA, as
administrative agent, LaSalle Bank National
Association, as documentation agent, the other
financial institutions party thereto and Banc One
Capital Markets, Inc., as lead arranger and sole
book runner
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.
18
<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 8, 2001 By: /s/ Stephen H. Marcus
----------------------------------------
Stephen H. Marcus,
Chairman of the Board, President and
Chief Executive Officer
DATE: January 8, 2001 By: /s/ Douglas A. Neis
----------------------------------------
Douglas A. Neis
Chief Financial Officer and Treasurer
19
<PAGE>
THE MARCUS CORPORATION
FORM 10-Q
FOR
26 WEEKS ENDED NOVEMBER 23, 2000
EXHIBIT INDEX
Exhibit Description
------- -----------
4.1 Credit Agreement, dated as of December 29, 2000, among The Marcus
Corporation, Bank One, NA, as administrative agent, LaSalle Bank
National Association, as documentation agent, the other financial
institutions party thereto and Banc One Capital Markets, Inc., as lead
arranger and sole book runner
27 Financial Data Schedule
20
