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 26, 1998 [ ] 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 JANUARY 7, 1999 - 18,553,158 CLASS B COMMON STOCK OUTSTANDING AT JANUARY 7, 1999 - 12,636,355
THE MARCUS CORPORATION INDEX PART I - FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements: Balance Sheets (November 26, 1998 and May 28, 1998).............................. 3 Statements of Earnings (Thirteen and twenty-six weeks ended November 26, 1998, twelve and twenty-four weeks ended November 13, 1997 (as reported) and thirteen and twenty-six weeks ended November 27, 1997 (pro forma)..................................... 5 Statements of Cash Flows (Twenty-six weeks ended November 26, 1998 and twenty- four weeks ended November 13, 1997)............................... 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 4. Submission of Matters to a Vote of Security Holders............... 14 Item 5. Other Information................................................. 15 Item 6. Exhibits and Reports on Form 8-K.................................. 16 Signatures........................................................ 17 2
PART I - FINANCIAL INFORMATION Item 1. Financial Statements THE MARCUS CORPORATION Consolidated Balance Sheets (Unaudited) (Audited) November 26, May 28, 1998 1998 ---- ---- (in thousands) ASSETS Current Assets: Cash and cash equivalents $1,435 $4,678 Accounts and notes receivable 15,144 14,294 Receivables from joint ventures 1,444 1,288 Refundable income taxes 221 4,385 Other current assets 5,477 3,773 ------ ----- Total current assets 23,721 28,418 Property and equipment: Land and improvements 89,294 85,282 Buildings and improvements 469,951 440,737 Leasehold improvements 9,374 9,355 Furniture, fixtures and equipment 197,157 187,341 Construction in progress 25,286 27,510 ------- ------ Total property and equipment 791,062 750,225 Less accumulated depreciation and amortization 202,028 190,229 -------- ------- Net property and equipment 589,034 559,996 Other assets: Investments in joint ventures 1,625 1,496 Other 19,132 18,594 ------- ------ Total other assets 20,757 20,090 ------- ------ TOTAL ASSETS $633,512 $608,504 ========= ======== See accompanying notes to consolidated financial statements. 3
THE MARCUS CORPORATION Consolidated Balance Sheets (Unaudited) (Audited) November 26, May 28, 1998 1998 ---- ---- (in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $4,785 $5,255 Accounts payable 12,770 26,385 Taxes other than income taxes 10,807 11,404 Accrued compensation 2,531 2,643 Other accrued liabilities 13,224 10,072 Current maturities on long-term debt 10,196 10,277 ------- ------ Total current liabilities 54,313 66,036 Long-term debt 227,421 205,632 Deferred income taxes 28,462 26,479 Deferred compensation and other 8,786 7,826 Shareholders' equity: Preferred Stock, $1 par; authorized 1,000,000 shares; none issued Common Stock, $1 par; authorized 50,000,000 shares; issued 18,520,585 shares at November 26, 1998, 18,511,866 shares at May 28, 1998 18,521 18,512 Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 12,668,928 at November 26, 1998, 12,677,656 at May 28, 1998 12,669 12,678 Capital in excess of par 40,472 40,265 Retained earnings 252,430 235,708 -------- ------- 324,092 307,163 Less cost of Common Stock in treasury (1,232,612 shares at November 26, 1998 and 944,544 shares at May 28, 1998) 9,562 4,632 ------ ------ Total shareholders' equity 314,530 302,531 -------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $633,512 $608,504 ========= ======== See accompanying notes to consolidated financial statements. 4
THE MARCUS CORPORATION Consolidated Statements of Earnings (Unaudited) <TABLE> <CAPTION> (As reported) (Pro forma)(1) November 26, 1998 November 13, 1997 November 27, 1997 ----------------- ----------------- ----------------- 13 Weeks 26 Weeks 12 Weeks 24 Weeks 13 Weeks 26 Weeks -------- -------- -------- -------- -------- -------- (in thousands, except per share data) <S> <C> <C> <C> <C> <C> <C> Revenues: Rooms and telephone $ 43,475 $ 95,524 $ 39,847 $ 86,895 $ 41,708 $ 92,129 Theatre operations 22,678 55,857 14,299 37,879 16,519 41,224 Food and beverage 12,927 26,797 11,193 23,739 11,946 25,459 Other income 8,914 17,176 5,845 12,724 5,878 13,350 --------- --------- --------- --------- --------- --------- Total revenues 87,994 195,354 71,184 161,237 76,051 172,162 Costs and expenses: Rooms and telephone 18,843 37,493 15,288 31,029 16,761 33,940 Theatre operations 13,383 32,757 8,392 22,675 9,540 24,542 Food and beverage 9,317 18,586 7,708 16,088 8,240 17,249 Advertising and marketing 6,923 13,438 5,328 10,743 6,147 12,038 Administrative 9,198 18,951 7,041 14,877 7,356 15,770 Depreciation and amortization 9,869 19,114 7,347 14,573 7,993 15,875 Rent 606 1,644 479 1,548 520 1,623 Property taxes 3,489 6,963 2,726 5,439 2,776 5,644 Other operating expenses 3,655 7,599 3,201 6,386 3,195 6,514 --------- --------- --------- --------- --------- --------- Total costs and expenses 75,283 156,545 57,510 123,358 62,528 133,195 --------- --------- --------- --------- --------- --------- Operating income 12,711 38,809 13,674 37,879 13,523 38,967 Other income (expense): Investment income 147 323 477 826 488 876 Interest expense (3,552) (7,568) (2,872) (5,637) (3,081) (6,118) Gain on disposition of property and equipment 531 1,918 243 242 249 250 --------- --------- --------- --------- --------- --------- (2,874) (5,327) (2,152) (4,569) (2,344) (4,992) --------- --------- --------- --------- --------- --------- Earnings before income taxes 9,837 33,482 11,522 33,310 11,179 33,975 Income taxes 3,948 13,402 4,605 13,328 4,472 13,599 --------- --------- --------- --------- --------- --------- Net earnings $ 5,889 $ 20,080 $ 6,917 $ 19,982 $ 6,707 $ 20,376 ========= ========= ========= ========= ========= ========= Net earnings per share (2): Basic $ 0.20 $ 0.67 $ 0.23 $ 0.67 $ 0.22 $ 0.68 Diluted $ 0.20 $ 0.66 $ 0.23 $ 0.67 $ 0.22 $ 0.68 Weighted Average Shares Outstanding (2): Basic 29,968 30,084 30,071 29,867 30,031 29,817 Diluted 30,072 30,217 30,231 30,027 30,313 30,069 </TABLE> (1) Pro forma information is presented as if the prior year had been reported on the new 13-week basis. (2) All per share and shares outstanding data have been adjusted to reflect the 50% stock dividend distributed on December 5, 1997. See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION Consolidated Statements of Cash Flows (Unaudited) (in thousands) 26 Weeks 24 Weeks Ended Ended Nov. 26, 1998 Nov. 13, 1997 ------------- ------------- OPERATING ACTIVITIES: Net earnings $20,080 $19,982 Adjustments to reconcile net earnings to net cash provided by operating activities: Earnings on investments in joint ventures, net of distributions (129) (23) Gain on disposition of property and equipment (1,918) (242) Depreciation and amortization 19,114 14,573 Deferred income taxes 1,983 500 Deferred compensation and other 960 1,309 Changes in assets and liabilities: Accounts and notes receivable (850) (5,064) Other current assets (1,704) (517) Accounts payable (13,615) 1,318 Income taxes 4,164 4,015 Taxes other than income taxes (597) 1,736 Accrued compensation (112) 1,639 Other accrued liabilities 3,152 (670) ------ ----- Total adjustments 10,448 18,574 ------ ------ Net cash provided by operating activities 30,528 38,556 INVESTING ACTIVITIES: Capital expenditures, including business acquisitions (51,264) (41,310) Net proceeds from disposals of property, equipment and other assets 5,276 318 Cash acquired pursuant to GHI acquistion - 2,589 Increase in other assets (956) (820) Cash advanced to joint ventures (156) (151) ----- ----- Net cash used in investing activities (47,100) (39,374) FINANCING ACTIVITIES: Debt transactions: Net proceeds from issuance of notes payable and long-term debt 33,675 7,000 Principal payments on notes payable and long-term debt (12,437) (5,818) Equity transactions: Treasury stock transactions, except for stock options (5,182) (376) Exercise of stock options 461 973 Dividends paid (3,188) (1,516) ------ ------ Net cash provided by financing activities 13,329 263 ------ --- Net decrease in cash and cash equivalents (3,243) (555) Cash and cash equivalents at beginning of year 4,678 7,991 ------ ----- Cash and cash equivalents at end of period $1,435 $7,436 ====== ====== See accompanying notes to consolidated financial statements. 6
THE MARCUS CORPORATION CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED NOVEMBER 26, 1998 (Unaudited) A. Refer to the Company's audited financial statements (including footnotes) for the fiscal year ended May 28, 1998, contained in the Company's Form 10-K Annual Report for such fiscal year, for a description of the Company's accounting policies. B. Beginning in fiscal 1999, the Company is dividing its fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. Previously, the Company's fiscal year consisted of three 12-week quarters and a fourth quarter of 16 or 17 weeks. Comparative results for the second quarter and first half of fiscal 1998 are presented on a pro forma basis, as if the periods had been reported on the new basis. C. The consolidated financial statements for the thirteen and twenty-six weeks ended November 26, 1998, twelve and twenty-four weeks ended November 13, 1997 and pro forma thirteen and twenty-six weeks ended November 27, 1997 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 26, 1998, and for all periods presented, have been made. D. The Company's Board of Directors declared a three-for-two stock split, effected in the form of a 50% stock dividend, distributed on December 5, 1997, to all holders of Common Stock and Class B Common Stock. All per share and weighted average shares outstanding data prior to December 5, 1997, have been adjusted to reflect this dividend.
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 limited-service lodging division's ability to attract and retain quality franchise operators and to effectively execute its Baymont name change strategy; (iii) continuing consumer demand as a result of general economic conditions with respect to the hotels and resorts and limited-service lodging divisions; (iv) continuing availability, in terms of both quality and quantity, of films for the theatre division; (v) absence of significant increases in costs of obtaining food for the restaurant 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 and its four divisions report their consolidated and individual segment results of operations on a 52-or 53-week fiscal year ending on the last Thursday in May. Fiscal 1999 will be a 52-week year for the Company and each of its divisions. Fiscal 1998 was a 53-week fiscal year for the Company's restaurant division, while the Company and its other remaining divisions reported a 52-week year in fiscal 1998. Historically, the Company's fiscal year has been divided into three 12-week quarters and a final quarter consisting of 16 or 17 weeks. Beginning in fiscal 1999, the Company is dividing its fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. The Company has made this change in order to simplify its reporting process and provide greater consistency between quarters. To facilitate comparisons with fiscal 1999 results, comparative results for the second quarter and first half of fiscal 1998 are presented on a pro forma basis, as if the periods had been reported on the new basis. 8
Revenues for the second quarter of fiscal 1999 ended November 26, 1998, totaled $88.0 million, an increase of $11.9 million, or 15.7%, from pro forma revenues of $76.1 million for the second quarter of fiscal 1998. Revenues reported for the 12-week quarter ended November 13, 1997 totaled $71.2 million. All four operating segments contributed to the increase in revenues for the fiscal 1999 second quarter, with the theatre division contributing the largest increase over the prior year. For the first half of fiscal 1999, revenues were $195.4 million, an increase of $23.2 million, or 13.5%, from pro forma revenues of $172.2 million during the first half of fiscal 1998. Net earnings for the second quarter of fiscal 1999 were $5.9 million, or $.20 per share, down 12.2% and 9.1%, respectively, from pro forma net earnings of $6.7 million, or $.22 per share, for the same quarter during the prior year. Net earnings reported for the 12-week quarter ended November 13, 1997 were $6.9 million, or $.23 per share. For the first half of fiscal 1999, net earnings were $20.1 million, or $.66 per share. This represented a respective 1.5% and 2.9% decrease from pro forma net earnings of $20.4 million, or $.68 per share, for the first half of fiscal 1998. All earnings per share data have been adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend on December 5, 1997. The Company adopted SFAS No. 128, "Earnings Per Share," in fiscal 1998. Prior period amounts have been restated under the new standard. All per share data presented herein is on a diluted basis. Operating income (earnings before other income/expense and income taxes) totaled $12.7 million during the second quarter of fiscal 1999, a decrease of $800,000, or 6.0%, compared to the pro forma prior year same period. For the first half of fiscal 1999, operating income was $38.8 million, a decrease of $200,000, or 0.4%, from pro forma operating income of $39.0 million for the first half of fiscal 1998. The Company's interest expense, net of investment income, totaled $3.4 million and $7.2 million for the second quarter and first half of fiscal 1999, respectively, compared to $2.6 million and $5.2 million during the same periods last year on a pro forma basis. This increase was the result of increased long-term debt levels necessary to help finance the Company's capital program, combined with reduced investment income and capitalized interest. The Company is conducting a review of its computer systems to identify those areas that may be affected by the Year 2000 issue and is developing an implementation plan to resolve the issue. The Company expects the project to be substantially complete by early 1999 and does not, at this time, expect this project to have a significant effect on the business, results of operations or financial condition of the Company. The Company began converting critical accounting and data processing systems in fiscal 1998 in the normal course of business and expects that the new systems will provide business benefits in addition to being ready for the Year 2000. The Company is also assessing the impact of this issue with its key vendors and suppliers. Limited-Service Lodging Total revenues for the second quarter of fiscal 1999 for the limited-service lodging division were $37.7 million, an increase of $2.4 million, or 6.8%, compared to pro forma 9
revenues of $35.3 million during the same period in fiscal 1998. Total revenues for the first half of fiscal 1999 for the limited-service lodging division were $79.6 million, an increase of $2.6 million, or 3.4%, compared to pro forma revenues of $77.0 million for the first half of fiscal 1998. The limited-service lodging division's operating income for the fiscal 1999 second quarter totaled $7.2 million, a decrease of $900,000, or 11.1%, from pro forma operating income of $8.1 million during the same period of fiscal 1998. For the first half of fiscal 1999, the limited-service lodging division's operating income totaled $20.1 million, a $1.9 million decrease, or 8.6%, from pro forma operating income of $22.0 million for the first half of fiscal 1998. The division reported revenues of $33.4 million and operating income of $8.4 million for the 12-week second quarter ended November 13, 1997. Compared to the end of the second quarter of fiscal 1998, one new Company-owned and 14 new franchised Budgetel/Baymont Inns were in operation at the end of the fiscal 1999 second quarter. One Company-owned Budgetel Inn was sold during the quarter. The Company's newly opened Budgetel Inns contributed additional revenues of $1.0 million to the division's fiscal 1999 first half revenues. The Company experienced lower occupancy rates and higher average daily room rates for comparable Budgetel Inns during the second quarter of fiscal 1999, compared to the same quarter last year. The result of the occupancy decline and average daily rate increases was a 0.9% decrease in the division's revenue per available room, or RevPAR, for comparable Budgetel Inns during the fiscal 1999 second quarter. For the first half of fiscal 1999, RevPAR for comparable Budgetel Inns is unchanged from the same period last year. The limited-service lodging division's results continue to be impacted by the increased limited-service segment room supply, resulting in minimal RevPAR growth and pressure on the division's operating margin. Reduced occupancy percentages, combined with increased payroll costs in a tight labor market, have contributed to the lower operating margins. In addition, administrative costs have increased due to recent investments in information technology and personnel, including sales staff, in preparation for the upcoming Baymont name change. Offsetting these negative trends this quarter were increased revenue and operating income from the division's franchising department and Woodfield Suites properties. During the second quarter of fiscal 1999, the Company was completing preparations for its previously announced name change of its Budgetel Inns to Baymont Inns and Baymont Inns & Suites. Signage is being replaced during the third quarter and the Company plans to officially introduce Baymont Inns and Suites with a significant advertising campaign beginning in mid-January 1999. The Company does not expect the Baymont introduction to immediately alter the current trends occurring in the limited-service segment of the lodging industry, and recognizes that a potential short-term decline in occupancy during the name change transition could occur. The Company believes that the long-term benefits of the name change should include expanding the Company's customer base, increasing RevPAR and increasing development opportunities. At the end of the fiscal 1999 second quarter, the Company owned or operated 105 Budgetel/Baymont Inns and franchised an additional 56 Inns, bringing the total number of Budgetel/Baymont Inns in operation to 161. In addition, there are currently 23 franchised locations under construction or in development, all of which are scheduled to open in fiscal 10
1999 or shortly thereafter. The Company also owns and operates five Woodfield Suites all-suite motels. Two Company-owned Woodfield Suites are currently under construction. Theatres The theatre division's fiscal 1999 second quarter revenues were $22.8 million, an increase of $6.2 million, or 37.6%, over pro forma revenues of $16.6 million during the same fiscal 1998 period. Operating income for the second quarter of fiscal 1999 totaled $3.6 million, an increase of $600,000, or 19.7%, over pro forma operating income of $3.0 million during the same period last year. The division reported revenues of $14.5 million and operating income of $2.5 million for the 12-week second quarter ended November 13, 1997. The theatre division's fiscal 1999 first half revenues were $56.1 million, an increase of $14.7 million, or 35.5%, over pro forma revenues of $41.4 million during the first half of fiscal 1998. Operating income for the first half of fiscal 1999 was $11.7 million, an increase of $3.1 million, or 36.0%, over $8.6 million of pro forma operating income during the first half of fiscal 1998. Consistent with the seasonality 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 1999 second quarter were $15.2 million, an increase of $4.3 million, or 38.9%, over pro forma box office receipts of $10.9 million during the same period last year. The increase in box office receipts for the second quarter of fiscal 1999 compared to the same period during the prior year was due to 91 additional screens, a good fall season of movies and continued popularity of stadium seating. Total box office receipts for the fiscal 1999 first half were $37.5 million, an increase of $10.0 million, or 36.5%, over pro forma box office receipts of $27.5 million during the same period last year. The theatre division's average ticket price for the first half of fiscal 1999 has increased 2.1% over the same period last year. Vending revenues for the fiscal 1999 second quarter totaled $6.9 million, an increase of $2.1 million, or 42.1%, over pro forma vending revenues of $4.8 million during the same quarter last year. Vending revenues for the fiscal 1999 first half were $17.1 million, an increase of $4.8 million, or 39.0%, over pro forma vending revenues of $12.3 million during the fiscal 1998 first half. The increase in vending revenues was due to increased theatre attendance and a 3.9% increase in average concession sales per person during the fiscal 1999 first half compared to the same period last year. Total theatre attendance for the second quarter and first half of fiscal 1999 increased 38.7% and 33.7%, respectively, over pro forma total attendance during the same periods last year. Attendance at the Company's comparable locations has increased 8.4% during the first half of fiscal 1999, compared to the prior year 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. 11
During the second quarter of fiscal 1999, the Company opened a new 17-screen ultraplex, including its first IMAX(R) theatre, in suburban Columbus, Ohio and closed three screens. The Company ended the second quarter with a total of 388 total screens in 45 theatres compared to 297 screens in 40 theatres at the end of the same period last year. Early in the third quarter of fiscal 1999, the Company acquired a 10-screen theatre in Milwaukee, bringing its current screen total to 398 screens and its screens per location average to 8.7. The Company currently has 14 additional screens at existing locations under construction, including its second IMAX(R) theatre at the 20-screen Marcus Cinemas of Addison, Illinois, and another 31 screens under development, including a new 15-screen ultraplex in the Minneapolis metropolitan area. The Company is also pursuing additional acquisition opportunities. During the second quarter of fiscal 1999, the Company also continued to retrofit existing theatres with stadium seating. The Company currently has stadium seating in 54% of its total screens and the Company's goal is to have stadium seating in over 80% of its first-run screens by the end of fiscal 2000. Hotels and Resorts Total revenues from the hotels and resorts division during the second quarter of fiscal 1999 increased by $3.1 million, or 18.1%, to $20.2 million, compared to pro forma revenues of $17.1 million in the previous year's comparable period. Operating income decreased by $200,000, or 7.2%, to $2.2 million during the fiscal 1999 second quarter, compared to pro forma operating income of $2.4 million during the second quarter of fiscal 1998. The division reported revenues of $16.6 million and operating income of $2.8 million for the 12-week quarter ended November 13, 1997. Total revenues from the hotels and resorts division during the first half of fiscal 1999 totaled $44.3 million, an increase of $5.4 million, or 14.0%, over pro forma first half revenues of $38.9 million during fiscal 1998. Operating income decreased by $1.2 million, or 13.8%, during the first half of fiscal 1999 to $7.5 million, compared to pro forma operating income of $8.7 million during the same period last year. Revenues from the Company's new Miramonte Resort in Indian Wells, California and improved RevPAR at all three of the Company=s comparable owned hotels contributed to the revenue increases in the fiscal 1999 periods compared to the prior year's same periods. The division's total RevPAR for comparable properties increased 6.6% during fiscal 1999's second quarter compared to the same quarter last year and has increased 8.0% for the first half of fiscal 1999 compared to the same period last year. Operating income for the first half of fiscal 1999 has increased at all three comparable owned properties as well. Total division operating income was negatively impacted during the second quarter and first half of fiscal 1999 by approximately $300,000 and $600,000, respectively, of pre-opening cost amortization at the Miramonte, in addition to anticipated start-up operating losses at this new property. The Company expects the Miramonte to continue to have a negative impact on division operating income during the third quarter of fiscal 1999, after which pre-opening costs will be fully amortized. Second quarter division operating income was favorably impacted by good weather, which extended the golf season at the Grand Geneva Resort & Spa. 12
The Company began construction early in the second quarter of fiscal 1999 on a 250-room expansion of the Milwaukee Hilton, which will be connected to Milwaukee's newly opened Midwest Express Convention Center and will create the largest hotel in Wisconsin. The addition is currently scheduled to open in 2000. Development continues on the division's new Company-owned Monona Terrace Hilton in Madison, Wisconsin. Projected completion of the property, which will be connected to the city's new Monona Terrace Convention Center, is late in the year 2000. The Company is also moving forward on development plans for timesharing at the Grand Geneva. Sales efforts on the initial timeshare units may begin in the summer of 1999. Restaurants Restaurant division revenues totaled $7.2 million for the second quarter of fiscal 1999, an increase of $200,000, or 2.1%, over fiscal 1998 pro forma second quarter revenues of $7.0 million. The division's operating income for the fiscal 1999 second quarter totaled $1.0 million, an increase of $100,000, or 9.5%, over pro forma operating income of $900,000 during the second quarter of fiscal 1998. The division reported revenues of $6.6 million and operating income of $800,000 for the 12-week quarter ended November 13, 1997. Restaurant division revenues totaled $14.9 million for the first half of fiscal 1999, an increase of $200,000, or 1.7%, over pro forma first half fiscal 1998 revenues of $14.7 million. The division's operating income totaled $2.0 million for the first half of fiscal 1999 and fiscal 1998. The Company's KFC restaurants reported increases in revenue and operating income during the periods reported due in part to expanded lunch and snack business and the continuing success of the division's first 2-in-1 KFC/Taco Bell restaurant in Milwaukee. Total division operating income did not increase during the fiscal 1999 first half compared to the prior year's same period due to a one-time insurance adjustment from a prior claim that was settled during the first quarter. A second 2-in-1 combination restaurant conversion opened early in the third quarter of fiscal 1999 and another conversion is scheduled to open later in the quarter. The Company sold a KFC restaurant during the second quarter, bringing the total number of restaurants operating in this division to 30 at the end of the quarter. 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 $39 million of unused credit lines, should be adequate to support the ongoing operational liquidity needs of the Company's businesses. Net cash provided by operating activities decreased by $8.1 million during the 26-week first half of fiscal 1999 to $30.5 million, compared to $38.6 million during the prior year's 24-week first half. The decrease compared to the same period last year was primarily the result of timing differences in payments of accounts payable, offset by timing differences in receipts 13
of accounts and notes receivable and increased depreciation and amortization (a non-cash expense) as a result of the Company's increased capital spending program. Net cash used in investing activities during the fiscal 1999 first half totaled $47.1 million, compared to $39.4 million during the fiscal 1998 24-week first half. Capital expenditures, including business acquisitions, to support the Company's continuing expansion program totaled $51.3 million during the first half of fiscal 1999 compared to $41.3 million during the prior year's reported first half. Nearly two-thirds of the capital expenditures during the fiscal 1999 first half were incurred in the theatre division to fund new theatres, screen additions to existing theatres, stadium seating retrofits and construction of the Company's first IMAX(R) theatre. Net cash provided by financing activities during the first half of fiscal 1999 totaled $13.3 million, compared to $300,000 during the 24-week first half of fiscal 1998. During the fiscal 1999 first half, the Company received $33.7 million of net proceeds from the issuance of notes payable and long-term debt, compared to $7.0 million during the 24-week first half of fiscal 1998. The Company issued additional long-term debt to help fund the Company's ongoing expansion plans in fiscal 1999. The Company has the ability to issue up to $85 million of additional senior notes under a private placement program and expects to issue additional notes early in calendar 1999. Proceeds from the issuance of additional senior notes would be used to pay off existing debt and fund the Company's capital program. During the fiscal 1999 first half, the Company repurchased 355,000 of its common shares in the open market pursuant to a long-standing existing repurchase program and a recently announced new repurchase program. The Company announced in the second quarter of fiscal 1999 that its Board of Directors had authorized the repurchase of up to 1 million additional shares of the Company's outstanding common stock. The 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. 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 4. Submission of Matters to a Vote of Security Holders The Company's 1998 annual meeting of shareholders was held on Monday, September 28, 1998 ("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 and Philip L. Milstein to the Company's Board of Directors for one-year terms to expire at the Company's 1999 14
annual meeting of shareholders and until their successors are duly qualified and elected. As of the August 7, 1998 record date for the Annual Meeting ("Record Date"), 18,517,345 shares of Common Stock and 8,504,252 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 For Withheld ------------------------- ----------------------- Name Votes Percentage(1) Votes Percentage(1) ----------- ------------- -------- -------------- Stephen H. Marcus 132,065,843 99.89 140,217 0.11% Diane Marcus Gershowitz 132,064,318 99.89 141,742 0.11% Daniel F. McKeithan, Jr 132,061,409 99.89 144,651 0.11% Allan H. Selig 132,054,238 99.89 151,822 0.11% Timothy E. Hoeksema 132,065,618 99.89 140,442 0.11% Bruce J. Olson 132,064,871 99.89 141,189 0.11% Philip L. Milstein 132,065,715 99.89 140,345 0.11% - ------- (1) Based on a total of 132,206,060 votes represented by shares of Common Stock and Class B Common Stock actually voted in person or by proxy at the Annual Meeting. No other matters were brought before the Annual Meeting for a shareholder vote. Item 5. Other Information A shareholder wishing to include a proposal in the Company's proxy statement for its 1999 annual meeting of shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, must forward the proposal to the Company by April 30, 1999. In addition, a shareholder who otherwise intends to present business at the 1999 annual meeting of shareholders (including, nominating persons for election as directors) must comply with the requirements set forth in the Company's Bylaws. Among other things, to bring business before an annual meeting, a shareholder must give written notice thereof, complying with the Bylaws, to the Secretary of the Company not later than 45 days prior to the date in the current year corresponding to the date on which the Company first mailed its proxy materials for the prior year's annual meeting. Accordingly, if the Company does not receive notice of a shareholder proposal submitted otherwise than pursuant to Rule 14a-8 prior to July 14, 1999, then the notice will be considered untimely and the Company will not be required to present such proposal at the 1999 annual meeting of shareholders. If the Board of Directors chooses to present such proposal at the 1999 annual meeting of shareholders, then the persons 15
named in proxies solicited by the Board of Directors for the 1999 annual meeting of shareholders may exercise discretionary voting power with respect to such proposal. 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. 16
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, 1999 By: /s/ Stephen H. Marcus -------------------------------------------------- Stephen H. Marcus, Chairman of the Board, President and Chief Executive Officer DATE: January 8, 1999 By: /s/ Douglas A. Neis -------------------------------------------------- Douglas A. Neis Chief Financial Officer and Treasurer 17
THE MARCUS CORPORATION FORM 10-Q FOR 26 WEEKS ENDED NOVEMBER 26, 1998 EXHIBIT INDEX Exhibit Description 3.1 Form of Amendment to the Bylaws of The Marcus Corporation 3.2 Bylaws of The Marcus Corporation, effective December 17, 1998 27 Financial Data Schedule 18