FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 21, 1997 [ ] 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) 272-6020 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 SEPTEMBER 30, 1997 - 11,246,168 CLASS B COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 1997 - 8,503,752
THE MARCUS CORPORATION INDEX Page PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets (August 21, 1997 and May 29, 1997) . . . . . . . . . . . . . 3 Statements of Earnings (Twelve weeks ended August 21, 1997 and August 22, 1996) . . 5 Statements of Cash Flows (Twelve weeks ended August 21, 1997 and August 22, 1996) . . 6 Condensed Notes to Financial Statements . . . . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 8 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART I - FINANCIAL INFORMATION Item 1. Financial Statements THE MARCUS CORPORATION Consolidated Balance Sheets (in thousands) (Unaudited) (Audited) August 21, May 29, 1997 1997 ASSETS Current Assets: Cash and cash equivalents $ 21,907 $ 7,991 Accounts and notes receivable 10,009 5,531 Receivables from joint ventures 1,037 1,066 Other current assets 3,716 3,591 -------- -------- Total current assets 36,669 18,179 Property and equipment: Land and improvements 74,754 70,313 Buildings and improvements 409,545 399,416 Leasehold improvements 8,086 8,059 Furniture, fixtures and equipment 165,583 159,715 Construction in progress 7,888 12,019 -------- -------- Total property and equipment 665,856 649,522 Less accumulated depreciation and amortization 167,725 162,470 -------- -------- Net property and equipment 498,131 487,052 Other assets: Investments in joint ventures 1,430 1,439 Other 14,526 15,287 -------- -------- Total other assets 15,956 16,726 -------- -------- TOTAL ASSETS $550,756 $521,957 ======== ======== See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION Consolidated Balance Sheets (in thousands) (Unaudited) (Audited) August 21, May 29, 1997 1997 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 4,733 $ 5,625 Accounts payable 16,828 10,291 Income taxes 6,950 52 Taxes other than income taxes 10,731 9,297 Accrued compensation 3,009 1,270 Other accrued liabilities 12,835 10,886 Current maturities on long-term debt 9,327 9,327 -------- -------- Total current liabilities 64,413 46,748 Long-term debt 165,821 168,065 Deferred income taxes 22,675 22,425 Deferred compensation and other 8,709 7,426 Shareholders' equity: Preferred Stock, $1 par; authorized 1,000,000 shares; none issued Common Stock, $1 par; authorized 30,000,000 shares; issued 11,882,315 shares at August 21, 1997, 11,678,935 shares at May 29, 1997 11,882 11,679 Class B Common Stock, $1 par; authorized 20,000,000 shares; issued and outstanding 8,504,252 shares at August 21, 1997, 8,707,632 shares at May 29, 1997 8,504 8,708 Capital in excess of par 39,633 39,470 Retained earnings 232,409 220,860 -------- -------- 292,428 280,717 Less cost of Common Stock in treasury (642,151 shares at August 21, 1997 and 668,272 shares at May 29, 1997) 3,290 3,424 -------- -------- Total shareholders' equity 289,138 277,293 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $550,756 $521,957 ======== ======== See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION Consolidated Statements of Earnings (Unaudited) (in thousands, except per share data) 12 Weeks Ended August 21, August 22, 1997 1996 Revenues: Rooms and telephone $ 47,048 $ 40,553 Food and beverage 12,546 11,295 Theatre operations 23,580 20,486 Other income 6,879 5,490 -------- -------- Total revenues 90,053 77,824 Costs and expenses: Rooms and telephone 15,741 13,300 Food and beverage 8,380 7,922 Theatre operations 14,283 12,425 Advertising and marketing 5,415 3,894 Administrative 7,836 6,608 Depreciation and amortization 7,226 6,340 Rent 1,069 806 Property taxes 2,713 2,596 Other operating expenses 3,185 2,515 -------- -------- Total costs and expenses 65,848 56,406 -------- -------- Operating income 24,205 21,418 Other income (expense): Investment income 349 143 Interest expense (2,765) (2,179) Gain on disposition of property and equipment (1) 4 -------- -------- (2,417) (2,032) -------- -------- Earnings before income taxes 21,788 19,386 Income taxes 8,723 7,758 -------- -------- Net earnings $ 13,065 $ 11,628 ======== ======== Net earnings per share $0.66 $0.59 ===== ===== Weighted Average Shares Outstanding 19,893 19,841 See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION Consolidated Statements of Cash Flows (Unaudited) (in thousands) 12 Weeks Ended August 21, August 22, 1997 1996 OPERATING ACTIVITIES: Net earnings $13,065 $11,628 Adjustments to reconcile net earnings to net cash provided by operating activities: Earnings on investments in joint ventures, net of distributions 9 (8) Gain on disposition of property and equipment 1 (4) Depreciation and amortization 7,226 6,340 Deferred income taxes 250 25 Deferred compensation and other 1,283 299 Changes in assets and liabilities: Accounts and notes receivable (4,478) (1,037) Other current assets (125) 79 Accounts payable 6,537 (4,294) Income taxes 6,898 6,403 Taxes other than income taxes 1,434 2,000 Accrued compensation 1,739 742 Other accrued liabilities 1,949 (658) ------- ------- Total adjustments 22,723 9,887 ------- ------- Net cash provided by operating activities 35,788 21,515 INVESTING ACTIVITIES: Capital expenditures (18,266) (37,680) Net proceeds from disposals of property, equipment and other assets - 332 Increase in other assets 721 (2,008) Cash received from joint ventures 29 462 ------- ------- Net cash used in investing activities (17,516) (38,894) FINANCING ACTIVITIES: Debt transactions: Net proceeds from issuance of notes payable and long-term debt - 11,500 Principal payments on notes payable and long-term debt (3,136) (6,315) Equity transactions: Treasury stock transactions, except for stock options (88) 3 Exercise of stock options 384 57 Dividends paid (1,516) (1,415) ------- ------- Net cash provided by (used in) financing activities (4,356) 3,830 ------- ------- Net increase (decrease) in cash and cash equivalents 13,916 (13,549) Cash and cash equivalents at beginning of year 7,991 15,466 ------- ------- Cash and cash equivalents at end of period $ 21,907 $ 1,917 ======== ======== See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE TWELVE WEEKS ENDED AUGUST 21, 1997 (Unaudited) A. Refer to the Company's audited financial statements (including footnotes) for the fiscal year ended May 29, 1997, contained in the Company's Form 10-K Annual Report for such fiscal year, for a description of the Company's accounting policies. B. The consolidated financial statements for the twelve weeks ended August 21, 1997 and August 22, 1996 have been prepared by the Company without audit. In the opinion of management, all adjustments consisting only of normal recurring accruals necessary to present fairly the unaudited interim financial information at August 21, 1997, and for all periods presented, have been made.
THE MARCUS CORPORATION Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Special Note Regarding Forward-Looking Statements Certain matters discussed in this Management's Discussion and Analysis of Results of Operations and Financial Condition are "forward- looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement 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, assumptions and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those currently anticipated. Shareholders, potential investors and other readers are urged to consider these risks, assumptions and uncertainties 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 only made 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 Company reports its results of operations on a 52-or 53-week fiscal year which ends on the last Thursday in May. Each fiscal year is divided into three 12-week quarters and a final quarter consisting of 16 or 17 weeks. The final quarter of fiscal 1998 will consist of 17 weeks for the Company's restaurant division, while the Company and its other remaining divisions will report a 16-week fourth quarter. Due to the relative size of the Company's restaurant division compared to the Company's other divisions, the additional week of results in fiscal 1998 is not anticipated to materially impact the Company's consolidated results of operations for the fiscal year. Fiscal 1997 was a 53-week fiscal year for the Company's motel and hotels/resorts divisions, while the Company and its other remaining divisions reported a 52-week year in fiscal 1997. Revenues for the first quarter of fiscal 1998 ended August 21, 1997 totaled $90.1 million, an increase of $12.3 million, or 15.7%, from revenues of $77.8 million for the first quarter of fiscal 1996. All four operating segments contributed to the increase in revenues this past quarter, with the hotels/resorts division contributing the largest increase over the prior year. Net earnings for the first quarter of fiscal 1998 were $13.1 million, or $.66 per share, up 12.4% and 11.9%, respectively, from net earnings of $11.6 million, or $.59 per share, for the same quarter in the prior year. Again, all four operating segments contributed to the increase in net earnings and net earnings per share. Operating income (earnings before other income/expense and income taxes) totaled $24.2 million in the first quarter of fiscal 1998, an increase of $2.8 million, or 13.0%, compared to the prior year's period. The Company's interest expense, net of investment income, totaled $2.4 million for the first quarter of fiscal 1998, compared to $2.0 million during the same period last year. This increase was the result of increased long-term debt levels necessary to help finance the Company's capital expansion program. Historically, the Company's first and fourth fiscal quarters have produced the strongest operating results, because these periods coincide with the typical summer seasonality of the movie theatre industry and the spring and summer strength of the Company's travel and food service businesses. Motels Total revenues for the first quarter of fiscal 1998 for the motel division were $38.7 million, an increase of $4.8 million, or 14.2%, compared to $33.9 million in the same period in fiscal 1997. The motel division's operating income for the fiscal 1998 first quarter totaled $13.0 million, an increase of $50,000, or 0.4%, from the $13.0 million earned by the division in the same period of fiscal 1997. Compared to the end of the first quarter of fiscal 1997, there were 9 new Company-owned or operated and 7 new franchised Budgetel Inns in operation and 2 new Company-owned Woodfield Suites in operation at the end of the fiscal 1998 first quarter. The Company's newly opened motels contributed additional revenues of $3.3 million to the division's fiscal 1998 first quarter revenues. The Company experienced slightly higher occupancy rates and average daily room rates for comparable Budgetel Inns in the first quarter of fiscal 1998, compared to the same quarter last year. The result of the occupancy and average daily rate increases was a 2.1% increase in the division's revenue per available room, or RevPAR, for comparable Budgetel Inns for the fiscal 1998 first quarter. Compared to the prior year's first quarter, fiscal 1998 first quarter's results continued to reflect pressure on the division's operating margins. The Company has recently increased its marketing expenditures, both on a national and local basis. In some highly competitive markets, the Company has not been able to raise rates enough to fully offset rising costs. At the end of the fiscal 1998 first quarter, the Company-owned or operated 105 Budgetel Inns and franchised an additional 41 Inns, bringing the total number of Budgetel Inns in operation to 146. In addition, there are currently 7 Company-owned Budgetel Inns and 28 franchised locations under development, all of which are currently scheduled to open in fiscal 1998 or shortly thereafter. The Company also owns and operates 5 Woodfield Suites all-suite motels. Three additional Company-owned Woodfield Suites are currently under development, with a new franchise program set to be launched later this year. Theatres The theatre division's fiscal 1998 first quarter revenues were $23.7 million, an increase of $3.1 million, or 15.0%, over revenues of $20.6 million in the same period in fiscal 1997. Operating income for the first quarter in fiscal 1998 totaled $5.5 million, an increase of $600,000, or 11.3%, from operating income of $4.9 million in the same period last year. The Company did not add any new screens in the first quarter of fiscal 1998, ending the first quarter with a total of 297 total screens in 40 theatres compared to 266 screens in 41 theatres at the end of the same period last year. The Company currently has 44 additional screens under construction, including two 16-screen ultraplexes in Columbus, Ohio. The Company also signed an agreement with Imax Corporation to add IMAX/R/ 2D/3D large-screen theatres at one of the new Columbus complexes and at the 20-screen Marcus Cinemas of Addison, Illinois. The agreement also gives the Company an option to build three additional IMAX large-screen theatres. Total box office receipts for the fiscal 1998 first quarter were $15.8 million, an increase of $1.7 million, or 12.3%, over $14.1 million in the same period last year. The increase in box office receipts for the first quarter of fiscal 1998 compared to the same period in the prior year was entirely due to the additional screens, together with a 2.2% increase in first-run theatre average ticket prices and a 8.5% increase in vending revenues per person. Without the additional screens, theatre attendance would have decreased for the first quarter. The decline in attendance at comparable locations occurred during the first half of the quarter, due primarily to the fact that the summer of 1996 was front-loaded by movie studios, who sought to avoid competition with the Atlanta Olympics. The second half of the fiscal 1998 first quarter ended with several stronger pictures, contributing to the overall improved results. Theatre attendance is largely dependent upon the audience appeal of available films, a factor over which the Company has limited control. Hotels and Resorts Total revenues from the hotels and resorts division during the first quarter of fiscal 1998 increased by $3.9 million, or 23.3%, to $20.3 million, compared to $16.4 million in the previous year's comparable period. Operating income increased by $2.2 million, or 60.6%, to $6.0 million in the fiscal 1998 first quarter, compared to $3.8 million in the first quarter of fiscal 1997. Improved occupancy rates and average daily rate increases at all three of the Company's owned hotels and resorts contributed to the increases in the fiscal 1998 period compared to the prior year's period. In addition, the fiscal 1998 first quarter results benefitted from having both championship golf courses at the Grand Geneva Resort & Spa open for the entire quarter after renovations closed one course in the first quarter of fiscal 1997. The division's total RevPAR increased 21.8% in fiscal 1998's first quarter compared to the same quarter last year. The Company plans to open its second resort, the Miramonte Resort in Indian Wells, California, early in the fiscal 1998 third quarter. Due to anticipated start-up expenses, this resort is not expected to have a material impact on the division's fiscal 1998 operating income. In addition, the Company expects to begin construction in fiscal 1998 on a 250-room expansion of the Milwaukee Hilton, which will create the largest hotel in Wisconsin. The addition is currently scheduled to open in 1999. Restaurants Restaurant division revenues totaled $7.3 million for the first quarter of fiscal 1998, an increase of $500,000, or 7.5%, over fiscal 1997 first quarter revenues of $6.8 million. The division's operating income for the fiscal 1998 first quarter totaled $1.0 million, an increase of $350,000, or 59.1%, over operating income of $650,000 in the first quarter of fiscal 1997. The increases in revenues and operating income for the first quarter of fiscal 1998, compared to the same period last year, were primarily the result of customer count increases related to several recent successful KFC product introductions and continued strong home delivery sales. In addition, the Company opened its first 2-in-1 KFC/Taco Bell conversion in the first quarter of fiscal 1998, resulting in significant increases in both sales and earnings at that location. 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 $50 million of unused credit lines at the end of the first quarter, should be adequate to support the ongoing operational liquidity needs of the Company's businesses. Net cash provided by operating activities increased by $14.3 million during the first quarter of fiscal 1998 to $35.8 million, compared to $21.5 million in the prior year's first quarter. The increase over the same period last year was primarily the result of increased net earnings and depreciation/amortization, combined with timing differences in payments of accounts payable and receipts of accounts and notes receivable. Net cash used in investing activities in the fiscal 1998 first quarter totaled $17.5 million, compared to $38.9 million in the fiscal 1997 first quarter. Capital expenditures to support the Company's continuing expansion program totaled $18.3 million in the first quarter of fiscal 1998 compared to $37.7 million in the prior year's first quarter. The timing of theatre screen additions accounts for the majority of the decrease in capital expenditures, as a total of 47 new theatre screens, including 27 acquired screens, were added in the fiscal 1997 first quarter, compared to none in the fiscal 1998 first quarter. The Company continues to anticipate that its total capital expenditures for fiscal 1998 will exceed fiscal 1997 amounts. Cash used in financing activities in the fiscal 1998 first quarter totaled $4.4 million, compared to cash provided by financing activities of $3.8 million in the first quarter of fiscal 1997. During the fiscal 1997 first quarter, the Company received $11.5 million of net proceeds from the issuance of notes payable and long-term debt, compared to none in the first quarter of fiscal 1998. The Company did not need to issue notes or long-term debt in the first quarter of fiscal 1998 to help fund its capital expansion program because the Company still had the use of a portion of the cash proceeds from its October 1996 issuance of $85 million of senior unsecured long-term notes privately placed with six institutional lenders. The Company expects to use the remaining proceeds to help fund the Company's ongoing expansion plans and anticipates issuing additional long-term debt in fiscal 1998. The Company has the ability to issue up to $115 million of additional senior notes under the private placement program through February 1999. 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 Company's financial performance and available capital, 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 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.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE MARCUS CORPORATION (Registrant) DATE: October 6, 1997 By:\s\ Stephen H. Marcus Stephen H. Marcus, Chairman of the Board, President and Chief Executive Officer DATE: October 6, 1997 By:\s\ Douglas A. Neis Douglas A. Neis Chief Financial Officer and Treasurer
THE MARCUS CORPORATION FORM 10-Q FOR 12 WEEKS ENDED AUGUST 21, 1997 EXHIBIT INDEX Exhibit Description 27 Financial Data Schedule