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,November 13, 1997
[ ][] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________________________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,DECEMBER 19, 1997 - 11,246,16817,530,553
CLASS B COMMON STOCK OUTSTANDING AT SEPTEMBER 30,DECEMBER 19, 1997 - 8,503,75212,741,031
THE MARCUS CORPORATION
INDEX
Page
No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets
(August 21,(November 13, 1997 and May 29, 1997) . . . . . . 3
Statements of Earnings
(Twelve and twenty-four weeks ended November 13,
1997 and November 14, 1996) . . . . . . . . . . . 5
Statements of Cash Flows
(Twenty-four weeks ended November 13, 1997 and
November 14, 1996) . . . . . . . . . . . . . 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 2. Changes in Securities and Use of Proceeds . . . . 14
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . 8
PART II - OTHER INFORMATION. . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 1316
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 1417
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(in thousands)
(Unaudited) (Audited)
August 21,November 13, May 29,
ASSETS 1997 1997
ASSETS
Current Assets:assets:
Cash and cash equivalents $ 21,9077,436 $ 7,991
Accounts and notes receivable 10,00910,595 5,531
Receivables from joint ventures 1,0371,217 1,066
Other current assets 3,7164,108 3,591
-------- --------------- -------
Total current assets 36,66923,356 18,179
Property and equipment:
Land and improvements 74,75481,313 70,313
Buildings and improvements 409,545412,876 399,416
Leasehold improvements 8,0868,096 8,059
Furniture, fixtures and equipment 165,583168,193 159,715
Construction in progress 7,88819,095 12,019
-------- --------
Total property and equipment 665,856689,573 649,522
Less accumulated depreciation and
amortization 167,725175,158 162,470
-------- --------
Net property and equipment 498,131514,415 487,052
Other assets:
Investments in joint ventures 1,4301,462 1,439
Other 14,52616,027 15,287
-------- --------
Total other assets 15,95617,489 16,726
-------- --------
TOTAL ASSETS $550,756$555,260 $521,957
======== ========
See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION
Consolidated Balance Sheets (in thousands)
(Unaudited) (Audited)
August 21,November 13, May 29,
1997 1997
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
Current liabilities:
Notes payable $ 4,7334,658 $ 5,625
Accounts payable 16,82811,609 10,291
Income taxes 6,9504,067 52
Taxes other than income taxes 10,73111,033 9,297
Accrued compensation 3,0092,909 1,270
Other accrued liabilities 12,83510,216 10,886
Current maturities on long-term debt 9,327 9,327
-------- --------
Total current liabilities 64,41353,819 46,748
Long-term debt 165,821170,214 168,065
Deferred income taxes 22,67522,925 22,425
Deferred compensation and other 8,7098,735 7,426
Shareholders' equity:
Preferred Stock, $1 par; authorized
1,000,000 shares; none issued
Common Stock, $1 par; authorized
30,000,00050,000,000 shares; issued 11,882,31512,289,597
shares at August 21,November 13, 1997,
11,678,935 shares at May 29, 1997 11,88212,289 11,679
Class B Common Stock, $1 par;
authorized 20,000,00033,000,000 shares; issued
and outstanding 8,504,2528,503,752 shares at
August 21,November 13, 1997, 8,707,632 shares
at May 29, 1997 8,504 8,708
Capital in excess of par 39,63349,910 39,470
Retained earnings 232,409232,009 220,860
-------- --------
292,428302,712 280,717
Less cost of Common Stock in treasury
(642,151(613,843 shares at August 21,November 13, 1997
and 668,272 shares at May 29, 1997) 3,2903,145 3,424
-------- --------
Total shareholders' equity 289,138299,567 277,293
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $550,756$555,260 $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
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
(in thousands, except per share data)
November 13, 1997 November 14, 1996
12 Weeks 24 Weeks 12 Weeks 24 Weeks
Revenues:
Rooms and telephone $ 39,847 $ 86,895 $ 36,597 $ 77,150
Food and beverage 11,193 23,739 11,252 22,547
Theatre operations 14,299 37,879 11,878 32,364
Other income 5,845 12,724 5,101 10,591
------- ------- ------- -------
Total revenues 71,184 161,237 64,828 142,652
Costs and expenses:
Rooms and telephone 15,288 31,029 13,081 26,381
Food and beverage 7,708 16,088 7,902 15,824
Theatre operations 8,392 22,675 7,727 20,152
Advertising and marketing 5,328 10,743 5,212 9,106
Administrative 7,041 14,877 5,520 12,128
Depreciation and amortization 7,347 14,573 6,528 12,868
Rent 479 1,548 500 1,306
Property taxes 2,726 5,439 2,494 5,090
Other operating expenses 3,201 6,386 2,377 4,892
------- ------- ------- -------
Total costs and expenses 57,510 123,358 51,341 107,747
------- ------- ------- -------
Operating income 13,674 37,879 13,487 34,905
Other income (expense):
Investment income 477 826 294 437
Interest expense (2,872) (5,637) (2,489) (4,668)
Gain on disposition of property
and equipment 243 242 15 19
------- -------- ------- -------
(2,152) (4,569) (2,180) (4,212)
------- -------- ------- -------
Earnings before income taxes 11,522 33,310 11,307 30,693
Income taxes 4,605 13,328 4,525 12,283
------- -------- ------- -------
Net earnings $ 6,917 $ 19,982 $ 6,782 $ 18,410
======= ======== ======= =======
Net earnings per share* $0.23 $0.67 $0.23 $0.62
===== ===== ===== =====
Weighted Average Shares
Outstanding* 30,231 30,027 29,766 29,765
* 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)
1224 Weeks Ended
August 21, August 22,November 13, November 14,
1997 1996
OPERATING ACTIVITIES:
Net earnings $13,065 $11,628$ 19,982 $ 18,410
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Earnings on investments in joint
ventures, net of distributions 9 (8)(23) (189)
Gain on disposition of property and
equipment 1 (4)(242) (19)
Depreciation and amortization 7,226 6,34014,573 12,868
Deferred income taxes 250 25500 159
Deferred compensation and other 1,283 2991,309 3,648
Changes in assets and liabilities:
Accounts and notes receivable (4,478) (1,037)(5,064) 342
Other current assets (125) 79(517) (1,092)
Accounts payable 6,537 (4,294)1,318 (1,063)
Income taxes 6,898 6,4034,015 2,710
Taxes other than income taxes 1,434 2,0001,736 1,879
Accrued compensation 1,739 7421,639 963
Other accrued liabilities 1,949 (658)(670) (1,003)
------- -------
Total adjustments 22,723 9,88718,574 19,203
------- -------
Net cash provided by operating activities 35,788 21,51538,556 37,613
INVESTING ACTIVITIES:
Capital expenditures (18,266) (37,680)(41,932) (60,155)
Net proceeds from disposals of property,
equipment and other assets - 332318 1,059
Increase in other assets 721 (2,008)(820) (2,300)
Cash received from (advanced to) joint
ventures 29 462(151) 4,436
------- -------
Net cash used in investing activities (17,516) (38,894)(42,585) (56,960)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes
payable and long-term debt - 11,5007,000 97,875
Principal payments on notes payable and
long-term debt (3,136) (6,315)(5,818) (52,435)
Equity transactions:
Treasury stock transactions, except for
stock options (88) 3(376) (117)
Exercise of stock options 384 57973 140
Issuance of stock, net of distribution 3,211
Dividends paid (1,516) (1,415)
------- -------
Net cash provided by (used in) financing activities (4,356) 3,8303,474 44,048
------- -------
Net increase (decrease) in cash and cash
equivalents 13,916 (13,549)(555) 24,701
Cash and cash equivalents at beginning of
year 7,991 15,466
------- ---------------
Cash and cash equivalents at end of period $ 21,907 $ 1,917
========$7,436 $40,167
======= ========
See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
TWELVE AND TWENTY-FOUR WEEKS ENDED
AUGUST 21,NOVEMBER 13, 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 and twenty-four
weeks ended August 21,November 13, 1997 and August 22,November 14, 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,November 13, 1997, and for all periods presented, have
been made.
THE MARCUS CORPORATIONC. 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.
D. Pursuant to an Agreement and Plan of Reorganization dated June 30,
1997 between The Marcus Corporation and Guest House Inn, Inc.
("GHI"), the Company issued on October 1, 1997 610,173 Common Shares
in exchange for the net operating assets of GHI and issued 499,320
new Class B Shares in exchange for and cancellation of 449,320
existing Class B Shares owned by GHI. All share data has been
adjusted to reflect the three-for-two stock split. GHI is owned and
controlled by certain officers, directors and/or principal shareholders
of the Company. For financial reporting purposes, the assets acquired
from GHI were recorded at the historical book value of GHI rather than
fair value because GHI and the Company were controlled by the same
shareholders. The Common Shares issued to complete the GHI
Transaction were recorded at their fair value and the excess of this
fair value over the historical book value of the assets was recorded
as a distribution.
Item 2. Management'sManagements Discussion and Analysis of Results of Operations and
Financial Condition
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Management'sManagements Discussion and Analysis
of Results of Operations and Financial Condition are "forward-
looking"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 couldmay
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 firstsecond quarter of fiscal 1998 ended August 21,November 13,
1997, totaled $90.1$71.2 million, an increase of $12.3$6.4 million, or 15.7%9.8%, from
revenues of $77.8$64.8 million for the firstsecond quarter of fiscal 1996.1997. For the
first half of fiscal 1998, revenues were $161.2 million, an increase of
$18.6 million, or 13.0%, from revenues of $142.6 million during the first
half of fiscal 1997. All four operating segments contributed to the
increase in revenues this past
quarter, withfor the hotels/resorts division contributing the largest
increase over the prior year.fiscal 1998 second quarter.
Net earnings for the firstsecond quarter of fiscal 1998 were $13.1$6.9 million,
or $.66 per share, up 12.4% and 11.9%, respectively,2.0% from net earnings of $11.6$6.8 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 andSecond quarter net earnings per share were $.23 in both
fiscal years. For the first half of fiscal 1998, net earnings were $20.0
million, or $.67 per share. This represented a respective 8.5% and 8.1%
increase over net earnings of $18.4 million, or $.62 per share, for the
first half of fiscal 1997. 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.
Operating income (earnings before other income/expense and income
taxes) totaled $24.2$13.7 million induring the firstsecond quarter of fiscal 1998, an
increase of $2.8 million,$200,000, or 13.0%1.4%, compared to the prior year'syear same period.
For the first half of fiscal 1998, operating income was $37.9 million, an
increase of $3.0 million, or 8.5%, over operating income of $34.9 million
for the first half of fiscal 1997. The Company's interest expense, net of
investment income, totaled $2.4 million for the second quarter and $4.8
million for the first quarterhalf of fiscal 1998, compared to $2.0
million during1998. This represents increases of
$200,000 and $600,000, respectively, over the same periodperiods last year. This increaseyear and
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 firstsecond quarter of fiscal 1998 for the motel
division were $38.7$33.4 million, an increase of $4.8$3.0 million, or 14.2%9.9%,
compared to $33.9$30.4 million induring the same period in fiscal 1997. Total
revenues for the first half of fiscal 1998 for the motel division were
$72.2 million, an increase of $7.8 million, or 12.1%, compared to $64.4
million during the first half of fiscal 1997. The motel division's
operating income for the fiscal 1998 firstsecond quarter totaled $13.0$8.4 million,
an increasea decrease of $50,000,$450,000, or 0.4%5.2%, from the $13.0$8.8 million earned by the
division induring the same period of fiscal 1997. The motel division's
operating income for the first half of fiscal 1998 totaled $21.4 million,
a decrease of $400,000, or 1.9%, from the $21.8 million earned by the
division during the same period of fiscal 1997.
Compared to the end of the firstsecond quarter of fiscal 1997, there
were 97 new
Company-owned or operated andBudgetel Inns, 7 new franchised Budgetel Inns
in
operation and 2 new Company-owned Woodfield Suites were in operation at the end of
the fiscal 1998 firstsecond quarter. The Company's newly opened motels
contributed additional revenues of $3.3$2.6 million to the division's fiscal
1998 firstsecond quarter revenues. The Company experienced slightly higherlower
occupancy rates and slightly higher average daily room rates for
comparable Budgetel Inns in the firstsecond quarter of fiscal 1998, compared to
the same quarter last year. The result of the occupancy decline and
average daily rate increases was a 2.1% increase1.1% decrease in the division's revenue
per available room or RevPAR,(RevPAR), for comparable Budgetel Inns for the fiscal
1998 second quarter. For the first quarter. Compared to
the prior year's first quarter,half of fiscal 1998, first quarter'sRevPAR for
comparable Budgetel Inns increased 0.8% over the same period last year.
The motel division's results continuedcontinue to reflectbe impacted by the increasing
limited service segment room supply, resulting in minimal RevPAR
growth and pressure on the division's operating margins. TheIn addition, the
Company has recently increased its marketing expenditures both on a
nationalin fiscal 1998, as well
as increased its administrative infrastructure to accommodate the motel
division's recent and local basis.planned expansion program. In some highly
competitive markets, the Company has not been ableunable to sufficiently raise
rates enough to fully offset these and other rising costs.
At the end of the fiscal 1998 firstsecond quarter, the Company-owned or
operated 105 Budgetel Inns and franchised an additional 4142 Inns, bringing
the total number of Budgetel Inns in operation to 146.147. In addition, there
are currently 71 Company-owned and 12 franchised Budgetel Inns and 28
franchised locations under
development,construction, all of which are currently
scheduled to open inbefore the end of fiscal
1998 or shortly thereafter. An additional 4 Company-owned and 17
franchised Budgetel Inns are under development and should begin
construction in the near future. The Company also owns and operates 5
Woodfield Suites all-suite motels. Three additional
Company-ownedcompany-owned Woodfield Suites
are currently under development, with a new franchise program set to be
launched later this fiscal year.
Theatres
The theatre division's fiscal 1998 firstsecond quarter revenues were $23.7$14.5
million, an increase of $3.1$2.5 million, or 15.0%21.4%, over revenues of $20.6$11.9
million induring the same period in fiscal 1997. Operating income for the
firstsecond quarter in fiscal 1998 totaled $5.5$2.5 million, an increase of $600,000,$1.6
million, or 11.3%183.8%, fromover operating income of $4.9 million in$880,000 during the same
period last year. The theatre division's fiscal 1998 first half revenues
were $38.1 million, an increase of $5.6 million, or 17.3%, over revenues
of $32.5 million during the first half of fiscal 1997. Operating income
for the first half of fiscal 1998 was $8.0 million, an increase of $2.2
million, or 37.5%, over $5.8 million of operating income during the first
half of fiscal 1997. 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 1998 first half were $25.3
million, an increase of $3.3 million, or 15.1%, over $22.0 million during
the same period last year. The increase in box office receipts for the
first half of fiscal 1998 compared to the same period in the prior year
was due to additional screens, a 4.2% increase in average ticket prices
and more popular films distributed in the second quarter this year
compared to the same period last year. Vending revenues for the first
half of the year were $11.3 million, an increase of 1.9 million, or 20.6%,
over $9.4 million during the first half of fiscal 1997. The increase in
vending revenues can be attributed to an overall increase in attendance,
including the new screens, and a 9.5% increase in vending revenues per
person. For the first half of fiscal 1998, theatre attendance at
comparable screens has declined slightly. Theatre attendance is largely
dependent upon the audience appeal of available films, a factor over which
the Company has limited control. In addition, the Company experienced a
fire loss early in the third quarter at its North Shore Cinema in Mequon,
Wisconsin. As a result of this loss, the theatre is expected to be
closed for approximately 3 months, which will have a slight negative
impact on the theatre division's third quarter fiscal 1998 results.
The Company did not add any new screens induring the firstsecond quarter of
fiscal 1998, ending the firstsecond 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 4445 additional screens
under construction at three locations, including twoa 12-screen ultraplex in
Menomonee Falls, Wisconsin and 16-screen and 17-screen ultraplexes in
Columbus, Ohio. The
Company also signedOhio with an agreement with Imax Corporation to add IMAX/R/ 2D/3D large-screen theatrestheatre at one of the new
Columbus complexes and at
the 20-screen Marcus Cinemas of Addison, Illinois.complexes. The agreementCompany is also givesadding 27 screens to nine
existing locations. In addition, the Company an optionalso began a recent capital
program to build three additional IMAX large-screen
theatres.
Total box office receiptsretrofit approximately one-third of its existing screens to
stadium seating and recently announced that it has signed a definitive
purchase agreement for the fiscal 1998 first quarter were
$15.8 million, an increaseacquisition 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, togethersix suburban Minneapolis/St.
Paul theatres 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 halftotal 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.44 screens.
Hotels and Resorts
Total revenues from the hotels and resorts division during the firstsecond
quarter of fiscal 1998 increased by $3.9 million,$500,000, or 23.3%3.2%, to $20.3$16.6 million,
compared to $16.4$16.1 million induring the previous year's comparable period.
Operating income increaseddecreased by $2.2 million,$700,000, or 60.6%19.8%, to $6.0$2.8 million during
the fiscal 1998 second quarter, compared to $3.5 million in the fiscal 1998 first quarter, compared to $3.8 million in the
firstsecond
quarter of fiscal 1997. ImprovedTotal revenues from the hotels and resorts
division during the first half of fiscal 1998 totaled $36.8 million, an
increase of $4.3 million, or 13.4%, over total first half revenues of
$32.5 million in fiscal 1997. Operating income increased by $1.6 million
during the first half of fiscal 1998, or 22.0%, to $8.8 million, compared
to $7.2 million during the prior year's first half.
For the first half of the year, occupancy rates and average daily
rate increasesrates have increased at all three of the Company's owned hotels and
resorts, contributedcontributing to the increasesincreased revenues and operating income in
the fiscal 1998 periodfirst half compared to the prior year's period.
In addition, the fiscal 19981997 first half. Second
quarter results benefitted from having
both championship golf courseswere impacted by approximately $300,000 of pre-opening
costs at the Company's Miramonte Resort and reduced group occupancy and
poor weather at the Grand Geneva Resort & Spa open for
the entire quarter after renovations closed one course in the first
quarter of fiscal 1997.Spa. The division's total
RevPAR increased 21.8%5.5% in fiscal 1998's firstsecond quarter compared to the same
quarter last year and has increased 13.3% for the first half of fiscal
1998 compared to the same period last year.
The Company plans to open its second resort, the Miramonte Resort in
Indian Wells, California, early in the fiscal 1998 third
quarter.January 1998. Due to anticipated start-up
expenses, this resort is not
expected to have a materialslightly negative impact on
the division's fiscal 1998 third quarter operating income and an
immaterial impact on the division's fiscal 1998 results. Shortly after
the end of the second quarter, the Company announced that it had
entered into a management contract to operate its first property in
Michigan, the Mission Point Resort on Mackinac Island. This is the
Company's third resort and fourth management contract, increasing the
division's properties to eight. The Mission Point Resort is a seasonal
property and is not expected to materially impact the division's fiscal
1998 operating income. In addition, the Company expects to begin
construction induring the fourth quarter of 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 September 1999.
Restaurants
Restaurant division revenues totaled $7.3$6.6 million for the firstsecond
quarter of fiscal 1998, an increase of $500,000,$300,000, or 7.5%4.7%, over fiscal 1997
firstsecond quarter revenues of $6.8$6.3 million. The division's operating income
for the fiscal 1998 firstsecond quarter totaled $1.0 million,$810,000, an increase of
$350,000,$138,000, or 59.1%20.5%, over operating income of $650,000 in$672,000 during the firstsecond
quarter of fiscal 1997. Restaurant division revenues totaled $13.9
million for the first half of fiscal 1998, an increase of $800,000, or
6.1%, over first half fiscal 1997 revenues of $13.1 million. The
division's operating income for the first half of fiscal 1998 totaled $1.8
million, an increase of $500,000, or 39.6%, over fiscal 1997 first half
operating income of $1.3 million.
The increases in revenues and operating income for both the second
quarter and first quarterhalf of fiscal 1998, compared to the same periodperiods last
year, were primarily the result of customer count and average guest check
increases related to several recent successful KFC product introductions,
and continued strong home delivery sales. In addition,sales and results from the Company opened itsCompany's first
2-in-1 KFC/Taco Bell conversion, incombined with reduced food costs. The
Company operated 30 KFC restaurants and 1 KFC/Taco Bell 2-in-1 restaurant
at the firstend of the second quarter of fiscal 1998, resulting in significant
increases in both sales and earningscompared to 31 KFC
restaurants at that location.the end of the fiscal 1997 second 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 $50$47 million of unused
credit lines at the end of the firstsecond 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$943,000
during the first quarterhalf of fiscal 1998 to $35.8$38.6 million, compared to $21.5$37.6
million induring the prior year's first quarter.half. 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 during in the fiscal 1998 first
quarterhalf totaled $17.5$42.6 million, compared to $38.9$60.0 million induring the fiscal
1997 first quarter.half. Capital expenditures to support the Company's continuing
expansion program totaled $18.3$41.9 million induring the first quarterhalf of fiscal
1998 compared to $37.7$60.1 million induring the prior year's first quarter.half. 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 induring the fiscal 1997 first
quarter,half, compared to none induring the fiscal 1998 first quarter.half. In addition,
growth of Company-owned Budgetel Inns has slowed slightly compared to the
previous year. The Company continues to anticipatecurrently anticipates that its total capital
expenditures for fiscal 1998 will exceedapproximate fiscal 1997 amounts.amounts, but
with the theatre division spending a greater portion of the total than in
the past.
Cash used inprovided by financing activities induring the fiscal 1998 first
quarterhalf totaled $4.4$3.5 million, compared to cash provided by financing
activities of $3.8$44.0 million induring the first quarterhalf
of fiscal 1997. During the fiscal 19971998 first quarter,half, the Company received
$11.5$7.0 million of net proceeds from the issuance of notes payable and long-termlong-
term debt, compared to none$97.9 million during the first half of fiscal
1997. Included 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 cash1997 proceeds from its October 1996 issuance ofwas $85 million of senior
unsecured long-term notes privately placed with six institutional lenders.
The Company expectsused a portion of the fiscal 1997 proceeds from the senior
notes to use the remaining proceeds
to help fund the Company's ongoing expansion planspay off existing debt, resulting in total principal payments on
notes payable and anticipates issuing
additional long-term debt inof $52.4 million during the first half of
fiscal 1998.1997, compared to only $5.8 million during the same period this
year. The Company has the ability to issue up to $115 million of
additional senior notes under the private placement program through
February 1999.1999 and anticipates issuing additional long-term debt in fiscal
1998 to help fund the Company's ongoing expansion plans.
In addition to the changes in debt transactions noted above, net cash
provided by financing activities also increased in fiscal 1998 due to the
issuance of 610,173 shares of the Company's Common Stock (adjusted for the
three-for-two stock split) in conjunction with the acquisition of operating
assets of a related company, Guest House Inn, Inc. during the second
quarter. The issuance of the stock, which was recorded at its fair value,
net of a distribution, calculated as the excess of the fair value over the
historical book value of the assets acquired, resulted in an additional $3.2
million of net cash provided by financing activities.
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.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On October 1, 1997 the Company issued (a) 610,173 shares of Common
Stock to Guest House Inn, Inc. ("GHI") in exchange for all of the real
estate and operating assets owned by GHI and (b) 449,320 new shares of
Class B Common Stock to GHI in exchange for and cancellation of the
existing 449,320 shares of Class B Common Stock owned by GHI. All share
data has been adjusted to reflect the three-for-two stock split effected
in the form of a 50% stock dividend distributed on December 5, 1997. The
aggregate value of the shares of Common Stock issued was $10,528,871 and
the aggregate value of the shares of Class B Common Stock issued was
$7,753,265. All of such shares received by GHI were distributed in a tax-
free liquidation of GHI to GHI's shareholders pro rata with their GHI
share ownership. The shareholders of GHI were Ben Marcus, Stephen H.
Marcus and Diane Marcus Gershowitz, who are officers, directors and/or
principal shareholders of the Company, Ida Lowe (the sister of Ben
Marcus), and certain trusts for the benefit of members of their families,
all of whom are "accredited investors" for purposes of Rule 501 of
Regulation D under the Securities Act of 1933, as amended ("Regulation
D"). Such issuances were effected in reliance upon the exemption from
registration provided by Rule 506 of Regulation D. No underwriters were
engaged in connection with the foregoing issuances.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1997 annual meeting of shareholders was held on Monday,
September 29, 1997 ("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, Ulice Payne, Jr. and Philip L.
Milstein to the Company's Board of Directors for one-year terms
to expire at the Company's 1998 annual meeting of shareholders
and until their successors are duly qualified and elected.
2. The shareholders approved and ratified the Agreement and Plan of
Reorganization dated June 30, 1997 between The Marcus
Corporation and GHI.
3. The shareholders approved the amendment to the Company's
Articles of Incorporation to increase the number of authorized
shares of Common Stock from 30,000,000 to 50,000,000 and the
number of authorized shares of Class B Common Stock from
20,000,000 to 33,000,000.
As of the August 8, 1997 record date for the Annual Meeting ("Record
Date"), 11,240,376 shares of Common Stock (pre-stock split) and 8,504,252
shares of Class B Common Stock (pre-stock split) 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 at the
Annual Meeting (all on a pre-stock split basis):
Election of Directors
For Withheld
Name Votes Percentage(1) Votes Percentage(1)
Stephen H. Marcus 89,698,734 99.95% 42,122 0.05%
Diane Marcus Gershowitz 89,697,879 99.95% 42,977 0.05%
Daniel F. McKeithan, Jr. 89,697,662 99.95% 43,194 0.05%
Allan H. Selig 89,691,513 99.95% 49,343 0.05%
Timothy E. Hoeksema 89,701,930 99.96% 38,926 0.04%
Bruce J. Olson 89,698,720 99.95% 42,136 0.05%
Ulice Payne, Jr. 89,698,533 99.95% 42,323 0.05%
Philip L. Milstein 89,701,653 99.96% 39,203 0.04%
Approval of the Agreement and Plan of Reorganization
For Against Abstained Broker Non-Vote
Votes Percentage(1) Votes Percentage(1) Votes Percentage(1) Votes Percentage(1)
87,491,846 97.50% 50,714 0.06% 39,420 0.04% 2,158,876 2.40%
Approval of the Amendment to the Company's Articles of Incorporation
For Against Abstained Broker Non-Vote
Votes Percentage(1) Votes Percentage(1) Votes Percentage(1) Votes Percentage(1)
88,840,350 99.00% 862,954 0.96% 37,552 0.04% 0 0.00%
----------------
(1) Based on a total of 89,740,856 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 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27.3.1 Form of Amendment to the Articles of
Incorporation of the Marcus Corporation,
effective September 29, 1997.
Exhibit 3.2 Restated Articles of Incorporation of The
Marcus Corporation, effective October 2,
1997.
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.None.
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,December 23, 1997 By:\s\ \s\ Stephen H. Marcus
Stephen H. Marcus,
Chairman of the Board, President and
Chief Executive Officer
DATE: October 6,December 23, 1997 By:\s\ \s\ Douglas A. Neis
Douglas A. Neis
Chief Financial Officer and Treasurer
THE MARCUS CORPORATION
FORM 10-Q
FOR 12THE
24 - WEEKS ENDED AUGUST 21,NOVEMBER 13, 1997
EXHIBIT INDEX
Exhibit Description
3.1 Form of Amendment to the Company's Articles of
Incorporation, effective September 29, 1997
3.2 Restated Articles of Incorporation of the Company,
effective October 2, 1997.
27 Financial Data Schedule