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 August 27,November 26, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-12604
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THE MARCUS CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1139844
- --------------------------------------------- ------------------------------------------------------------------ -------------------
(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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes X No _____
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, 1998JANUARY 7, 1999 - 18,520,58518,553,158
CLASS B COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 1998JANUARY 7, 1999 - 12,668,928
112,636,355
THE MARCUS CORPORATION
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INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements:
Balance Sheets
(August 27,(November 26, 1998 and May 28, 1998)........................................................... 3
Statements of Earnings
(Thirteen and twenty-six weeks ended August 27,November 26, 1998,
twelve and twenty-four weeks ended August 21,November 13, 1997
(as reported) and thirteen and twenty-six weeks ended
August 28,November 27, 1997 (pro forma)................................................................... 5
Statements of Cash Flows
(Thirteen(Twenty-six weeks ended August 27,November 26, 1998 and twelvetwenty-
four weeks ended August 21,November 13, 1997)....................................................................... 6
Condensed Notes to Financial Statements.......................Statements........................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................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............................. 13
Signatures................................................... 148-K.................................. 16
Signatures........................................................ 17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
August 27,November 26, May 28,
1998 1998
----------- -------------- ----
(in thousands)
ASSETS
Current assets:Assets:
Cash and cash equivalents $3,000$1,435 $4,678
Accounts and notes receivable 16,70115,144 14,294
Receivables from joint ventures 1,3071,444 1,288
Refundable income taxes -221 4,385
Other current assets 2,9995,477 3,773
----------- ----------------- -----
Total current assets 24,00723,721 28,418
Property and equipment:
Land and improvements 84,92989,294 85,282
Buildings and improvements 459,601469,951 440,737
Leasehold improvements 9,3789,374 9,355
Furniture, fixtures and equipment 190,664197,157 187,341
Construction in progress 23,04225,286 27,510
----------- ------------------ ------
Total property and equipment 767,614791,062 750,225
Less accumulated depreciation and amortization 195,351202,028 190,229
----------- ------------------- -------
Net property and equipment 572,263589,034 559,996
Other assets:
Investments in joint ventures 1,7611,625 1,496
Other 18,56619,132 18,594
----------- ------------------ ------
Total other assets 20,32720,757 20,090
----------- ------------------ ------
TOTAL ASSETS $616,597$633,512 $608,504
=========== ==================== ========
See accompanying notes to consolidated financial statements.
3
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
August 27,November 26, May 28,
1998 1998
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $5,218$4,785 $5,255
Accounts payable 18,13312,770 26,385
Income taxes 3,360 -
Taxes other than income taxes 11,72510,807 11,404
Accrued compensation 4,2642,531 2,643
Other accrued liabilities 15,47913,224 10,072
Current maturities on long-term
debt 10,41110,196 10,277
------- --------------
Total current liabilities 68,59054,313 66,036
Long-term debt 200,582227,421 205,632
Deferred income taxes 27,38028,462 26,479
Deferred compensation and other 8,5288,786 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
18,519,34518,520,585 shares at August 27,November
26, 1998, 18,511,866 shares at
May 28, 1998 18,52018,521 18,512
Class B Common Stock, $1 par;
authorized 33,000,000 shares;
issued and outstanding
12,670,16812,668,928 at August 27,November 26,
1998, 12,677,656 at May 28, 1998 12,67012,669 12,678
Capital in excess of par 40,38740,472 40,265
Retained earnings 248,072252,430 235,708
-------- --------
319,649-------
324,092 307,163
Less cost of Common Stock in treasury
(1,128,405(1,232,612 shares at August 27,November 26,
1998 and 944,544 shares at May 28,
1998) 8,1329,562 4,632
------- ------------- ------
Total shareholders' equity 311,517314,530 302,531
--------------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $616,597$633,512 $608,504
========= =================
See accompanying notes to consolidated financial statements.
4
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
(As reported) (Pro forma)(1)
13 Weeks Ended 12 Weeks Ended 13 Weeks Ended
Aug. 27, 1998 Aug. 21, 1997 Aug. 28, 1997
------------- ------------- -------------
(in thousands, except per share data)
Revenues:
Rooms and telephone $52,049 $47,048 $50,421
Theatre operations 33,179 23,580 24,705
Food and beverage 13,870 12,546 13,513
Other income 8,262 6,879 7,472
--------- ---------- -----------
Total revenues 107,360 90,053 96,111
Costs and expenses:
Rooms and telephone 18,650 15,741 17,179
Theatre operations 19,374 14,283 15,002
Food and beverage 9,269 8,380 9,009
Advertising and marketing 6,515 5,415 5,891
Administrative 9,753 7,836 8,414
Depreciation and amortization 9,245 7,226 7,882
Rent 1,038 1,069 1,103
Property taxes 3,474 2,713 2,868
Other operating expenses 3,944 3,185 3,319
--------- --------- ----------
Total costs and expenses 81,262 65,848 70,667
--------- --------- ----------
Operating income 26,098 24,205 25,444
Other income (expense):
Investment income 176 349 388
Interest expense (4,016) (2,765) (3,037)
Gain on disposition of property
and equipment 1,387 (1) 1
-------- ---------- ----------
(2,453) (2,417) (2,648)
-------- ---------- ----------
Earnings before income taxes 23,645 21,788 22,796
Income taxes 9,454 8,723 9,127
======== ========== ==========
Net earnings $14,191 $13,065 $13,669
======== ========== ==========
Net earnings per share(2):
Basic $0.47 $0.44 $0.46
Diluted $0.47 $0.44 $0.46
Weighted Average Shares
Outstanding(2):
Basic 30,201 29,601 29,603
Diluted 30,362 29,840 29,842
(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)
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
(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.
5
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
13(in thousands)
26 Weeks 1224 Weeks
Ended Ended
Aug. 27,Nov. 26, 1998 Aug. 21,Nov. 13, 1997
------------- -------------
(in thousands)
OPERATING ACTIVITIES:
Net earnings $14,191 $13,065$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 (265) 9
(Gain) loss(129) (23)
Gain on disposition of property
and equipment (1,387) 1(1,918) (242)
Depreciation and amortization 9,245 7,22619,114 14,573
Deferred income taxes 901 2501,983 500
Deferred compensation and other 702 1,283960 1,309
Changes in assets and liabilities:
Accounts and notes receivable (2,407) (4,478(850) (5,064)
Other current assets 774 (125(1,704) (517)
Accounts payable (8,252) 6,537(13,615) 1,318
Income taxes 7,745 6,8984,164 4,015
Taxes other than income taxes 321 1,434(597) 1,736
Accrued compensation 1,621 1,739(112) 1,639
Other accrued liabilities 5,407 1,949
-------3,152 (670)
------ -----
Total adjustments 14,405 22,723
-------10,448 18,574
------ ------
Net cash provided by operating activities 28,596 35,78830,528 38,556
INVESTING ACTIVITIES:
Capital expenditures, (21,762) (18,266including business
acquisitions (51,264) (41,310)
Net proceeds from disposals of property,
equipment and other assets 1,7605,276 318
Cash acquired pursuant to GHI acquistion - (Increase) decrease2,589
Increase in other assets (317) 721(956) (820)
Cash received from (advanced to)advanced to joint ventures (19) 29
--------- -------(156) (151)
----- -----
Net cash used in investing activities (20,338) (17,516)(47,100) (39,374)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes
payable and long-term debt 576 -33,675 7,000
Principal payments on notes payable
and long-term debt (5,529) (3,136)(12,437) (5,818)
Equity transactions:
Treasury stock transactions, except
for stock options (3,805) (88(5,182) (376)
Exercise of stock options 425 384461 973
Dividends paid (1,603)(3,188) (1,516)
--------- -------------- ------
Net cash used inprovided by financing activities (9,936) (4,356)
--------- --------13,329 263
------ ---
Net increase (decrease)decrease in cash and cash equivalents (1,678) 13,916(3,243) (555)
Cash and cash equivalents at beginning of year 4,678 7,991
--------- ------------- -----
Cash and cash equivalents at end of period $3,000 $21,907
========= =======$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
AUGUST 27,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 quarterhalf of fiscal 1998 are presented on a pro forma basis,
as if the quarterperiods had been reported on the new basis.
C. The consolidated financial statements for the thirteen and twenty-six weeks
ended August
27,November 26, 1998, twelve and twenty-four weeks ended August 21,November 13,
1997 and pro forma thirteen and twenty-six weeks ended August 28,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
August 27,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.
7
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 canmay generally be identified as such because the context of the
statementsuch
statements will include words such as the companyCompany "believes," "anticipates,"
Aexpects@"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 lookingforward-looking statements are subject to certain risks assumptions and uncertainties,
which are describedincluding, 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
close proximity to such statementsterms of both quality and which may cause actual results to differ materially from those currently
anticipated.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
risks, assumptions and uncertaintiesfactors 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
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 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 will divideis 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
quarterly results, comparative results for the second quarter and first quarterhalf of fiscal
1998 are presented on a pro forma basis, as if the quarterperiods had been reported on
the new basis.
8
Revenues for the firstsecond quarter of fiscal 1999 ended August 27,November 26,
1998, totaled $107.4$88.0 million, an increase of $11.2$11.9 million, or 11.7%15.7%, from pro
forma revenues of $96.1$76.1 million for the firstsecond quarter of fiscal 1997.1998. Revenues
reported for the 12-week quarter ended August 21,November 13, 1997 totaled $90.1$71.2 million.
All four operating segments contributed to the increase in revenues this pastfor the
fiscal 1999 second quarter, with the theatre division contributing the largest
increase over the prior year. 8
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 firstsecond quarter of fiscal 1999 were $14.2$5.9 million,
or $.47$.20 per share, up 3.8%down 12.2% and 2.2%9.1%, respectively, from pro forma net
earnings of $13.7$6.7 million, or $.46$.22 per share, for the same quarter during the
prior year. Net earnings reported for the 12-week quarter ended August 21,November 13,
1997 were $13.1$6.9 million, or $.44$.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 $26.1$12.7 million during the firstsecond quarter of fiscal 1999, an
increasea
decrease of $650,000,$800,000, or 2.6%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 $3.8$3.4 million and $7.2 million for the second quarter
and first quarterhalf of fiscal 1999, respectively, compared to $2.4$2.6 million and $5.2
million during the same periodperiods 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 firstsecond quarter of fiscal 1999 for the
limited-service lodging division were $41.9$37.7 million, an increase of $200,000,$2.4
million, or 0.6%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 $41.7$77.0 million duringfor the same period infirst half of fiscal 1998. The limited-service
lodging division's operating income for the fiscal 1999 firstsecond quarter totaled
$12.8$7.2 million, a decrease of $1.0 million,$900,000, or 7.2%11.1%, from pro forma operating income
of $13.8$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 $38.7$33.4 million and operating income of $13.0$8.4 million for the 12-week
second quarter ended August 21,November 13, 1997.
Compared to the end of the firstsecond quarter of fiscal 1998, one new
Company-owned or operated and 1514 new franchised Budgetel/Baymont Inns were in operation at
the end of the fiscal 1999 firstsecond quarter. One Company-owned Budgetel Inn was
sold during the quarter. The Company's newly opened Budgetel Inns contributed
additional revenues of $700,000$1.0 million to the division's fiscal 1999 first quarterhalf
revenues. The Company experienced lower occupancy rates and higher average daily
room rates for comparable Budgetel Inns during the firstsecond 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% increasedecrease in the division's
revenue per available room, or RevPAR, for comparable Budgetel Inns during the
fiscal 1999 second quarter. For the first quarter.
9
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 servicelimited-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, and
increased administrative costs associated with the Company's recent expansion
program, have
contributed to the lower operating margins. The Company expectsIn 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 to continue duringthis quarter were increased revenue and
operating income from the fiscal 1999 second quarter.division's franchising department and Woodfield Suites
properties.
During the firstsecond quarter of fiscal 1999, the Company continued to
preparewas completing
preparations for its previously announced name change of its Budgetel Inns to
Baymont Inns and Baymont Inns & Suites. CompletionSignage 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 repositioning to Baymont has
been extended to January 1999lodging industry,
and recognizes that a potential short-term decline in response to previously unanticipated delays in
completing the necessary signage for all properties and to ensure that the
quality and consistency of new features and amenities will be uniform throughout
the chain whenoccupancy during the name
change becomes effective.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 firstsecond quarter, the Company owned or
operated 106105 Budgetel/Baymont Inns and franchised an additional 5556 Inns,
bringing the total number of Budgetel/Baymont Inns in operation to 161. In
addition, there are currently 2223 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-ownedCompany-owned Woodfield Suites are currently under
construction.
Theatres
The theatre division's fiscal 1999 firstsecond quarter revenues were $33.3$22.8
million, an increase of $8.5$6.2 million, or 34.1%37.6%, over pro forma revenues of $24.8$16.6
million during the same fiscal 1998 period. Operating income for the firstsecond
quarter of fiscal 1999 totaled $8.1$3.6 million, an increase of $2.5 million,$600,000, or 44.8%19.7%,
over pro forma operating income of $5.6$3.0 million during the same period last
year. The division reported revenues of $23.7$14.5 million and operating income of
$5.5$2.5 million for the 12-week second quarter ended August 21,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 firstsecond quarter were
$22.4$15.2 million, an increase of $5.8$4.3 million, or 34.9%38.9%, over pro forma box office
receipts of $16.6$10.9 million during the same period last year. The increase in box
office receipts for the firstsecond quarter of fiscal 1999 compared to the same
period during the prior year was due to 7791 additional screens, a strong summergood fall
season of movies and continued popularity of stadium seating, together with a 3.4%seating. Total box office
receipts for the fiscal 1999 first half were $37.5 million, an increase inof $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 prices.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 quarter totaled $10.2half were $17.1 million, an increase of $2.8$4.8 million, or
37.0%39.0%, over pro forma vending revenues of $7.4$12.3 million during the same quarter last year.fiscal 1998
first half. The increase in vending revenues was due to increased theatre
attendance and a 4.8%3.9% increase in average concession sales per person during the
fiscal 1999 first half compared to the same quarterperiod last year.
Total theatre attendance for the second quarter and first half of
fiscal 1999 increased 30.5%38.7% and 33.7%, respectively, over pro forma total
attendance during the same quarterperiods last year. Attendance at the Company's
comparable locations has increased 8.7%8.4% during the first half of fiscal 1999, first quarter,
compared to the prior year same quarter.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.
1011
The Company opened 16 new screens at existing theatres and closed three
screens inDuring the firstsecond quarter of fiscal 1999, ending 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 374388 total screens in 45 theatres compared to 297 screens in 40 theatres at
the end of the same period last year. Early in the secondthird quarter of fiscal 1999,
the Company closed three moreacquired a 10-screen theatre in Milwaukee, bringing its current
screen total to 398 screens and opened a new 17-screen
ultraplex, including its first IMAX(R) theatre, in suburban Columbus, Ohio.screens per location average to 8.7. The
Company currently has 3814 additional screens eitherat existing locations under
construction, or about
to goincluding its second IMAX(R) theatre at the 20-screen Marcus
Cinemas of Addison, Illinois, and another 31 screens under construction this fall,development,
including a new 15-screen ultraplex in the Minneapolis metropolitan area. The
Company is also pursuing additional acquisition opportunities. During the firstsecond
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 addhave stadium seating to a majorityin over 80% of
its existingfirst-run screens by the end of fiscal 2000. The Company expects to begin construction shortly on
its second IMAX(R) theatre at the 20-screen Marcus Cinemas of Addison, Illinois
and expects to commence construction on up to 23 additional screens by the end
of the fiscal year. The Company is also pursuing additional acquisition
opportunities.
Hotels and Resorts
Total revenues from the hotels and resorts division during the firstsecond
quarter of fiscal 1999 increased by $2.4$3.1 million, or 10.8%18.1%, to $24.2$20.2 million,
compared to pro forma revenues of $21.8$17.1 million in the previous year's
comparable period. Operating income decreased by $1.1 million,$200,000, or 16.3%7.2%, to $5.3$2.2
million during the fiscal 1999 firstsecond quarter, compared to pro forma operating
income of $6.4$2.4 million during the firstsecond quarter of fiscal 1998. The division
reported revenues of $20.3$16.6 million and operating income of $6.0$2.8 million for the
12-week quarter ended August 21,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'sCompany=s comparable owned
hotels contributed to the revenue increases in the fiscal 1999 periodperiods compared
to the prior year's period.same periods. The division's total RevPAR for comparable
properties increased 9.0%6.6% during fiscal 1999's firstsecond 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 induring the second
quarter and first quarterhalf of fiscal 1999 by approximately $300,000 and $600,000,
respectively, of pre-opening cost amortization andat the Miramonte, in addition to
anticipated start-up operating losses at the Miramonte during
the traditionally slow summer season in the Palm Springs desert area.this new property. The Company expects
the Miramonte to continue to have a negative impact on division operating income
during the second and third quartersquarter of fiscal 1999, untilafter which pre-opening costs arewill be
fully amortized andamortized. Second quarter division operating income was favorably impacted
by good weather, which extended the property operates its first
complete peak season.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.
Madison's City Council recently approved the development agreement forDevelopment 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
fallyear 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 2000.
11
1999.
Restaurants
Restaurant division revenues totaled $7.8$7.2 million for the firstsecond
quarter of fiscal 1999, an increase of $100,000,$200,000, or 1.4%2.1%, over fiscal 1998 pro
forma firstsecond quarter revenues of $7.7$7.0 million. The division's operating income
for the fiscal 1999 firstsecond quarter totaled $1.0 million, a decreasean increase of
$100,000, or 11.9%9.5%, fromover pro forma operating income of $1.1 million$900,000 during the firstsecond
quarter of fiscal 1998. The division reported revenues of $7.3$6.6 million and
operating income of $1.0 million$800,000 for the 12-week quarter ended August 21,November 13, 1997.
TotalRestaurant 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 declined slightly duringtotaled $2.0 million
for the first half of fiscal 1999 first quarter compared to the prior year's same period due to a one-time
insurance adjustment from a prior claim that was settled during the quarter.
Excluding the insurance adjustment, theand 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. Two additionalTotal 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
conversions are under development and are expected to open lateconversion opened early in the third quarter of fiscal 1999.1999 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'ssegment=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 $37$39 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 decreased by $7.2$8.1 million
during the 13-week26-week first quarterhalf of fiscal 1999 to $28.6$30.5 million, compared to $35.8$38.6
million during the prior year's 12-week24-week first quarter.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 net earningsdepreciation and depreciation/amortization.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 quarterhalf
totaled $20.3$47.1 million, compared to $17.5$39.4 million during the fiscal 1998 12-week24-week
first quarter.half. Capital expenditures, including business acquisitions, to support
the Company's continuing expansion program totaled $21.8$51.3 million during the
first quarterhalf of fiscal 1999 compared to $18.3$41.3 million during the prior year's
reported first quarter. The
majorityhalf. Nearly two-thirds of the capital expenditures during the
fiscal 1999 first quarterhalf 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.
Cash used inNet cash provided by financing activities during the first half of
fiscal 1999 first quarter
totaled $9.9$13.3 million, compared to $4.4 million$300,000 during the 12-week24-week first
quarterhalf of fiscal 1998. During the fiscal 1999 first quarter,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 241,000355,000 of
its common shares in the open market pursuant to itsa long-standing existing
repurchase program resulting in the increased cash used in financing
activities. An additional 98,000 common shares were repurchased early in the
fiscal 1999 second quarter.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.
12
The Company's long-term debt decreased slightly during the first
quarter of fiscal 1999. The Company expects to issue 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 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 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.
1316
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 12, 1998January 8, 1999 By: /s/ Stephen H. Marcus
---------------------------------------------------------------------------------------------------
Stephen H. Marcus,
Chairman of the Board, President and
Chief Executive Officer
DATE: October 12, 1998January 8, 1999 By: /s/ Douglas A. Neis
---------------------------------------------------------------------------------------------------
Douglas A. Neis
Chief Financial Officer and Treasurer
1417
THE MARCUS CORPORATION
FORM 10-Q
FOR
1326 WEEKS ENDED AUGUST 27,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