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 February 22, 2001
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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
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Commission File Number 1-12604
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
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(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 APRIL 2, 2001 - 17,300,680
CLASS B COMMON STOCK OUTSTANDING AT APRIL 2, 2001 - 11,874,669
THE MARCUS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements:
Balance Sheets
(February 22, 2001 and May 25, 2000)............................... 3
Statements of Earnings
(Thirteen and thirty-nine weeks ended
February 22, 2001 and February 24, 2000) .......................... 5
Statements of Cash Flows
(Thirty-nine weeks ended February 22,
2001 and February 24, 2000) ....................................... 6
Condensed Notes to Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition...................... 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..................................................18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................18
Signatures.........................................................19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
February 22, May 25,
2001 2000
------------ ---------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,525 $ 2,935
Accounts and notes receivable 21,794 11,908
Receivables from joint ventures 5,345 2,468
Refundable income taxes 2,824 3,020
Real estate and development costs 5,243 3,917
Other current assets 4,442 4,147
----- -----
Total current assets 43,173 28,395
Property and equipment:
Land and improvements 95,546 96,158
Buildings and improvements 572,912 514,734
Leasehold improvements 8,451 7,650
Furniture, fixtures and equipment 246,885 231,643
Construction in progress 27,045 48,152
------ ------
Total property and equipment 950,839 898,337
Less accumulated depreciation and amortization 269,603 240,020
------- -------
Net property and equipment 681,236 658,317
Other assets:
Investments in joint ventures 2,693 2,025
Other 37,939 35,039
------ ------
Total other assets 40,632 37,064
------ ------
TOTAL ASSETS $765,041 $723,776
======== ========
See accompanying notes to consolidated financial statements.
3
THE MARCUS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Audited)
February 22, May 25,
2001 2000
------------ ---------
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 6,739 $ 4,228
Accounts payable 15,951 24,463
Taxes other than income taxes 11,836 11,219
Accrued compensation 5,268 4,307
Other accrued liabilities 14,963 10,026
Current maturities of long-term debt 19,049 16,228
------ ------
Total current liabilities 73,806 70,471
Long-term debt 315,841 286,344
Deferred income taxes 33,375 32,602
Deferred compensation and other 9,357 9,112
Shareholders' equity:
Preferred Stock, $1 par; authorized
1,000,000 shares; none issued
Common Stock, $1 par; authorized
50,000,000 shares; issued 19,314,844
shares at February 22, 2001,
19,072,617 shares at May 25, 2000 19,315 19,073
Class B Common Stock, $1 par; authorized
33,000,000 shares; issued and
outstanding 11,874,669 at February 22,
2001, 12,116,896 at May 25, 2000 11,875 12,117
Capital in excess of par 40,821 40,774
Retained earnings 280,058 268,808
Accumulated other comprehensive loss (222) (257)
--- ---
351,847 340,515
Less cost of Common Stock in treasury
(2,053,500 shares at February 22, 2001
and 1,708,247 shares at May 25, 2000) (19,185) (15,268)
------ ------
Total shareholders' equity 332,662 325,247
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $765,041 $723,776
======== ========
See accompanying notes to consolidated financial statements.
4
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
(in thousands, except February 22, 2001 February 24, 2000
per share data) ----------------- -----------------
13 Weeks 39 Weeks 13 Weeks 39 Weeks
-------- -------- -------- --------
Revenues:
Rooms and telephone $35,145 $133,474 $34,884 $126,870
Theatre admissions 25,133 65,417 19,841 64,737
Theatre concessions 11,306 29,178 9,181 29,201
Food and beverage 6,257 22,524 6,186 20,186
Other income 9,035 32,253 7,347 24,406
----- ------ ----- ------
Total revenues 86,876 282,846 77,439 265,400
Costs and expenses:
Rooms and telephone 19,208 58,637 17,378 54,730
Theatre operations 19,485 50,896 15,678 50,667
Theatre concessions 2,657 7,043 2,094 6,993
Food and beverage 5,355 16,764 4,999 15,373
Advertising and marketing 7,197 22,355 5,898 18,202
Administrative 9,820 29,173 8,826 27,219
Depreciation and amortization 10,896 32,384 9,943 29,822
Rent 837 2,485 681 2,110
Property taxes 3,621 10,940 3,484 10,331
Pre-opening expenses 480 1,168 178 688
Other operating expenses 4,211 14,596 3,083 9,714
----- ------ ----- -----
Total costs and expenses 83,767 246,441 72,242 225,849
------ ------- ------ -------
Operating income 3,109 36,405 5,197 39,551
Other income (expense):
Investment income 613 1,902 238 933
Interest expense (5,551) (16,733) (4,674) (13,459)
Gain on insurance contracts 1,518 1,518 - -
Gain (loss) on disposition
of property and equipment (625) 926 139 3,879
--- --- --- -----
(4,045) (12,387) (4,297) (8,647)
----- ------ ----- -----
Earnings (loss) from continuing
operations before income taxes (936) 24,018 900 30,904
Income tax provision (benefit) (990) 9,113 367 12,584
--- ----- --- ------
Earnings from continuing
operations 54 14,905 533 18,320
Discontinued operations (Note 2):
Income from discontinued
operations, net of applicable
income taxes 287 981 348 1,319
--- --- --- -----
Net earnings $ 341 $ 15,886 $ 881 $19,639
======= ======== ======= =======
Earnings per share - basic and
diluted:
Continuing operations $0.00 $0.51 $0.02 $0.61
Discontinued operations $0.01 $0.03 $0.01 $0.05
----- ----- ----- -----
Net earnings per share $0.01 $0.54 $0.03 $0.66
===== ===== ===== =====
Weighted average shares
outstanding:
Basic 29,135 29,192 29,836 29,879
Diluted 29,356 29,316 29,869 29,924
See accompanying notes to consolidated financial statements.
5
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
39 Weeks Ended
February 22, February 24,
2001 2000
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(in thousands)
OPERATING ACTIVITIES:
Net earnings $ 15,886 $ 19,639
Adjustments to reconcile net earnings to
net cash provided
by operating activities:
(Earnings) losses on investments in joint
ventures, net of distributions 282 (103)
Gain on disposition of property and equipment (926) (3,879)
Depreciation and amortization 33,138 30,817
Deferred income taxes 773 3,121
Deferred compensation and other 245 925
Changes in assets and liabilities:
Accounts and notes receivable (9,886) 911
Real estate and development costs (1,326) -
Other current assets (295) (2,014)
Accounts payable (8,512) (5,856)
Income taxes 196 2,537
Taxes other than income taxes 617 (305)
Accrued compensation 961 1,146
Other accrued liabilities 4,937 5,720
----- -----
Total adjustments 20,204 33,020
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Net cash provided by operating activities 36,090 52,659
INVESTING ACTIVITIES:
Capital expenditures, including business
acquisitions (60,263) (62,650)
Net proceeds from disposals of property,
equipment and other assets 3,987 15,371
(Increase) decrease in other assets (2,670) 479
Cash advanced to joint ventures (2,877) (223)
----- ---
Net cash used in investing activities (61,823) (47,023)
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes
payable and long-term debt 48,399 16,726
Principal payments on notes payable
and long-term debt (13,570) (8,441)
Equity transactions:
Treasury stock transactions, except
for stock options (3,947) (2,657)
Exercise of stock options 77 101
Dividends paid (4,636) (4,747)
----- -----
Net cash provided by financing activities 26,323 982
------ ---
Net increase in cash and cash equivalents 590 6,618
Cash and cash equivalents at beginning of year 2,935 3,499
----- -----
Cash and cash equivalents at end of period $ 3,525 $ 10,117
======== ========
See accompanying notes to consolidated financial statements.
6
THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
THIRTEEN AND THIRTY NINE WEEKS ENDED
FEBRUARY 22, 2001
(Unaudited)
1. General
Accounting Policies - Refer to the Company's audited financial statements
(including footnotes) for the fiscal year ended May 25, 2000, contained in the
Company's Form 10-K Annual Report for such year, for a description of the
Company's accounting policies.
Basis of Presentation - The consolidated financial statements for the thirteen
and thirty-nine weeks ended February 22, 2001 and February 24, 2000 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 February 22, 2001, and for
all periods presented, have been made. The results of operations during the
interim periods are not necessarily indicative of the results of operations for
the entire year.
Reclassifications - Certain items in the accompanying fiscal 2000 financial
statements have been reclassified to conform to the fiscal 2001 presentation.
2. Discontinued Operations
The Restaurant business segment has been presented as discontinued operations in
the accompanying consolidated financial statements. KFC revenues for the
thirteen and thirty-nine weeks ended February 22, 2001 were $5,600,000 and
$17,763,000, respectively. KFC revenues for the thirteen and thirty-nine weeks
ended February 24, 2000 were $5,672,000 and $18,751,000, respectively.
3. Business Segment Information
The Company's primary operations are reported in the following three business
segments: Limited-Service Lodging, Theatres and Hotels/Resorts. Corporate items
include amounts not allocable to the business segments and consist principally
of rental revenue and general corporate expenses.
Following is a summary of business segment information for the thirteen and
thirty-nine weeks ended February 22, 2001 and February 24, 2000 (in thousands):
7
13 Weeks Ended Limited-Service Hotels/ Corporate
February 22, 2001 Lodging Theatres Resorts Items Total
- ----------------- --------------- -------- ------- --------- -----
Revenues $27,810 $37,461 $21,236 $369 $86,876
Operating income
(loss) (2,239) 8,100 (1,240) (1,512) 3,109
13 Weeks Ended Limited-Service Hotels/ Corporate
February 24, 2000 Lodging Theatres Resorts Items Total
- ----------------- --------------- -------- ------- --------- -----
Revenues $28,962 $30,147 $17,961 $369 $77,439
Operating income
(loss) 1,378 5,850 (112) (1,919) 5,197
39 Weeks Ended Limited-Service Hotels/ Corporate
February 22, 2001 Lodging Theatres Resorts Items Total
- ----------------- --------------- -------- ------- --------- -----
Revenues $102,970 $97,628 $81,094 $1,154 $282,846
Operating income
(loss) 13,611 18,268 9,699 (5,173) 36,405
39 Weeks Ended Limited-Service Hotels/ Corporate
February 24, 2000 Lodging Theatres Resorts Items Total
- ----------------- --------------- -------- ------- --------- -----
Revenues $102,367 $96,802 $64,973 $1,258 $265,400
Operating income
(loss) 16,390 18,631 8,980 (4,450) 39,551
8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Management's Discussion and Analysis of
Results of Operations and Financial Condition are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements may generally be identified as such because the context of such
statements will include words such as the Company "believes," "anticipates,"
"expects" or words of similar import. Similarly, statements that describe the
Company's future plans, objectives or goals are also forward-looking statements.
Such forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the following: (i) the Company's ability to
identify properties to acquire, develop and/or manage and continuing
availability of funds for such development; (ii) the Company's ability to
attract potential partners to assist in the acquisition and/or development of
properties; (iii) the limited-service lodging division's ability to attract and
retain quality franchise operators and to effectively execute its Baymont
repositioning strategy; (iv) continuing consumer demand as a result of general
economic conditions with respect to the hotels and resorts and limited-service
lodging divisions; (v) continuing availability, in terms of both quality and
quantity, of films for the theatre division; and (vi) competitive conditions in
the markets served by the Company. Shareholders, potential investors and other
readers are urged to consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein are made
only as of the date of this Form 10-Q and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
RESULTS OF OPERATIONS
General
The Marcus Corporation reports consolidated and individual segment results
of operations on a 52-or-53-week fiscal year ending on the last Thursday in May.
Fiscal 2001 is a 53-week year for the Company and each of its divisions and the
Company anticipates that its results for fiscal 2001 will increase
proportionately by the additional week of operations. The theatre division in
particular will benefit from the 53rd week during fiscal 2001 because that week
includes the traditionally busy Memorial Day weekend. Fiscal 2000 was a 52-week
year for the Company. The Company divides its fiscal year into three 13-week
quarters and a final quarter consisting of 13 or 14 weeks. The Company's primary
operations are reported in the following three business segments:
limited-service lodging, theatres and hotels/resorts. As a result of the
Company's stated intention to dispose of its KFC restaurants, the restaurant
business segment has been presented as discontinued operations in the
accompanying financial statements and in this discussion.
9
Revenues during the third quarter of fiscal 2001 ended February 22, 2001,
totaled $86.9 million, an increase of $9.5 million, or 12.2%, from revenues of
$77.4 million during the third quarter of fiscal 2000. For the first three
quarters of fiscal 2001, revenues were $282.8 million, an increase of $17.4
million, or 6.6%, from revenues of $265.4 million during the first three
quarters of fiscal 2000. Revenue increases from the Company's theatre and
hotels/resorts divisions contributed to the increase in third quarter revenues
compared to the same period last year. Revenue increases from the Company's
hotels and resorts division accounted for the majority of the increase in
revenues during the first three quarters of fiscal 2001 compared to the prior
year same period.
Earnings from continuing operations during the third quarter of fiscal 2001
were $54,000, or $.00 per share, a decrease of 89.9% and 100.0%, respectively,
compared to earnings from continuing operations of $533,000, or $.02 per share,
for the same quarter during the prior year. Net earnings during the third
quarter of fiscal 2001 were $341,000, or $.01 per share, a decrease of 61.3% and
66.7%, respectively, from net earnings of $881,000, or $.03 per share, during
the same quarter last year. During the first three quarters of fiscal 2001,
earnings from continuing operations were $14.9 million, or $.51 per share. This
represented a respective 18.6% and 16.4% decrease from earnings from continuing
operations of $18.3 million, or $.61 per share, during the first three quarters
of fiscal 2000. Net earnings during the first three quarters of fiscal 2001 were
$15.9 million, or $.54 per share, a decrease of 19.1% and 18.2%, respectively,
from net earnings of $19.6 million, or $.66 per share, during the first three
quarters of fiscal 2000. All per share data presented herein is on a diluted
basis.
Operating income (earnings before other income/expense and income taxes)
from continuing operations totaled $3.1 million during the third quarter of
fiscal 2001, a decrease of $2.1 million, or 40.2%, compared to the prior year's
same period. For the first three quarters of fiscal 2001, operating income from
continuing operations was $36.4 million, a decrease of $3.2 million, or 8.0%,
from operating income from continuing operations of $39.6 million during the
first three quarters of fiscal 2000. Operating income increases from the
Company's theatre division during the fiscal 2001 third quarter compared to the
same period last year were offset by reduced operating income from the
limited-service lodging and hotels/resorts divisions. Significantly increased
utility costs and snow removal costs during the fiscal 2001 third quarter
negatively impacted each of the Company's divisions by a total of $1 million and
$500,000, respectively, compared to the third quarter of fiscal 2000. Reduced
operating income from the Company's limited-service lodging division accounts
for the majority of the decrease in operating income during the first three
quarters of fiscal 2001 compared to the same period last year.
Increased interest expense and a loss on disposition of property and
equipment, offset by a gain on insurance contracts, contributed to the Company's
decreased earnings from continuing operations and net earnings during the third
quarter and first three quarters of fiscal 2001, compared to the prior year same
periods. Interest expense, net of investment income, totaled $4.9 million and
$14.8 million for the third quarter and first three quarters of fiscal
10
2001, respectively, compared to $4.4 million and $12.5 million during the same
periods last year. These increases were the result of increased long-term debt
levels necessary to help finance the Company's capital expenditures and higher
short-term interest rates during the first half of fiscal 2001. The Company
incurred a loss on disposition of property and equipment of $625,000 during the
fiscal 2001 third quarter and net gains on disposition of property and equipment
totaling $926,000 during the first three quarters of fiscal 2001, compared to
gains on disposition of property and equipment of $139,000 and $3.9 million
during the prior year same periods. The timing of periodic sales of Company
property and equipment can vary from quarter to quarter, resulting in variations
in the Company's gains or losses on disposition of property and equipment. The
Company recognized a non-taxable gain of $1.5 million during the third quarter
of fiscal 2001 from insurance contracts on the life of the Company's founder,
Ben Marcus, who died in December 2000. The Company's effective income tax rate
for the first three quarters of fiscal 2001 has declined as a result of this
non-taxable gain.
Limited-Service Lodging
Total revenues for the third quarter of fiscal 2001 for the limited-service
lodging division were $27.8 million, a decrease of $1.2 million, or 4.0%,
compared to revenues of $29.0 million during the same period in fiscal 2000.
Total revenues for the first three quarters of fiscal 2001 for the
limited-service lodging division were $103.0 million, an increase of $0.6
million, or 0.6%, compared to total revenues of $102.4 million for the first
three quarters of fiscal 2000. The limited-service lodging division incurred an
operating loss for the fiscal 2001 third quarter totaling $2.2 million compared
to operating income of $1.4 million during the same period of fiscal 2000. For
the first three quarters of fiscal 2001, the limited-service lodging division's
operating income totaled $13.6 million, a $2.8 million decrease, or 17.0%, from
operating income of $16.4 million for the first three quarters of fiscal 2000.
At the end of the fiscal 2001 third quarter, one additional Company-owned
or operated and five net additional franchised Baymont Inns & Suites were in
operation compared to the end of the third quarter of fiscal 2000. The Company
sold one Baymont Inn to a franchisee during the fiscal 2001 third quarter,
recognizing a loss on disposition of $700,000. The Company sold two Baymont Inns
during the second quarter of fiscal 2000 (one of which was sold to a franchisee)
and recognized a gain on disposition of $2.4 million as a result of these sales.
As a result of the sale of these inns, revenues for the fiscal 2001 third
quarter and first three quarters were negatively impacted by $100,000 and $1.3
million, respectively, compared to the same periods during the prior year.
The Company's comparable Baymont Inns & Suites experienced a 10.3% average
daily rate increase and a 6.7 point decline in occupancy percentage during the
third quarter of fiscal 2001, compared to the same quarter last year. Occupancy
declines were largest at the Company's Midwest properties, a result of the
particularly harsh December weather and resulting reduced travel. During the
first three quarters of fiscal 2001, comparable Company-owned or operated
Baymont Inns & Suites experienced a 12.0% increase in average daily rate and a
6.5 point decrease in occupancy percentage, compared to the first three quarters
of fiscal
11
2000. A primary factor contributing to the decline in occupancy has been the
significant increase in the industry supply of limited-service lodging rooms
during the past three years. The Company also anticipated some downward pressure
on occupancy as the Company significantly increased the average daily rate as it
repositioned the Baymont Inns & Suites brand from the lower-priced economy
segment of the lodging industry to the mid-price segment. The Company's
marketing and sales efforts are now focused on attracting more mid-market guests
to Baymont. The Company expects these efforts to increase occupancy in future
periods, but anticipates that the trend of increased average daily rates and
reduced occupancy will continue during the fourth quarter of fiscal 2001.
The result of the average daily rate increases and occupancy decline was a
3.6% decline and 0.4% increase in the division's revenue per available room, or
RevPAR, for comparable Baymont Inns during the fiscal 2001 third quarter and
first three quarters, respectively, compared to the same periods last year.
Subject to changes in economic and industry conditions, the Company believes
that RevPAR should not change significantly during the fourth quarter of fiscal
2001 and should improve during fiscal 2002 as market awareness of the Baymont
brand continues to increase. During the fiscal 2001 third quarter, the Company
announced plans to introduce several new features in the near future which are
designed to build the brand, including an enhanced lobby breakfast, upgrades in
the bed and bath, a new satisfaction guarantee, additional services for business
travelers, new sales and marketing programs and a new frequent stay reward
program, Guest Ovations. Several of these programs will result in additional
one-time and on-going costs, but are expected to increase occupancy and revenues
over the long-term.
In addition to the impact of increased utility costs described earlier, the
limited-service lodging division's operating results during the third quarter of
fiscal 2001 compared to the prior year's same period were negatively impacted by
approximately $1 million in costs recognized during the quarter related to the
introduction of the Company's new Guest Ovations frequent stay reward program,
the development of new interior design packages and the implementation of a new
system-wide training program. Each of these programs is expected to provide
benefits to the brand over the long-term. Additional costs associated with the
introduction of various brand initiatives, including Guest Ovations, will have a
negative impact on the division's operating income during the fourth quarter of
fiscal 2001.
At the end of the fiscal 2001 third quarter, the Company owned or operated
96 Baymont Inns & Suites and franchised an additional 82 Inns, bringing the
total number of Baymont Inns & Suites in operation to 178. In addition, there
were 28 approved franchised locations in development at the end of the third
quarter, including 10 under construction and scheduled to open in fiscal 2001 or
shortly thereafter. One Company-owned Baymont Inn & Suites opened during the
fiscal 2001 third quarter in New Berlin, Wisconsin. This location is expected to
be the prototype for future Company and franchise development.
The Company also owned and operated seven Woodfield Suites all-suite hotels
during the third quarter of fiscal 2001 and fiscal 2000. Revenues and operating
income from
12
Woodfield Suites decreased slightly during the third quarter of fiscal 2001
compared to the same period last year, due primarily to a RevPAR decrease of
3.2% for comparable properties. During the first three quarters of fiscal 2001
compared to the same period during fiscal 2000, revenues and operating income
from Woodfield Suites increased due to the continued improvement of new
locations and a RevPAR increase of 1.0% for comparable properties.
Theatres
The theatre division's fiscal 2001 third quarter revenues were $37.5
million, an increase of $7.3 million, or 24.3%, over revenues of $30.2 million
during the third quarter of fiscal 2000. Operating income for the third quarter
of fiscal 2001 totaled $8.1 million, an increase of $2.2 million, or 38.5%, over
last year's third quarter operating income of $5.9 million. The theatre
division's fiscal 2001 first three quarters revenues were $97.6 million, an
increase of $800,000, or 0.9%, over revenues of $96.8 million during the first
three quarters of fiscal 2000. Operating income for the first three quarters of
fiscal 2001 was $18.3 million, a decrease of $300,000, or 1.9%, from operating
income of $18.6 million during the first three quarters of fiscal 2000.
Consistent with the seasonal nature of the motion picture exhibition industry,
the third quarter of the Company's fiscal year, which includes the Christmas
holiday season, is typically the second busiest period for its theatre division,
exceeded only by the first quarter's busy summer season.
Total box office receipts for the fiscal 2001 third quarter were $25.1
million, an increase of $5.3 million, or 26.7%, from box office receipts of
$19.8 million during the same period last year. The Company experienced a 5.4%
increase in average ticket prices during the third quarter of fiscal 2001
compared to the same period last year and operated 32 additional screens,
representing a 7.1% increase over the prior year. Total box office receipts for
the first three quarters of fiscal 2001 were $65.4 million, an increase of
$700,000, or 1.1%, over box office receipts of $64.7 million during the same
period last year. The theatre division's average ticket price for the first
three quarters of fiscal 2001 increased 5.0% over the same period last year.
Concession revenues for the fiscal 2001 third quarter totaled $11.3
million, an increase of $2.1 million, or 23.1%, over concession revenues of $9.2
million during the same quarter last year. Concession revenues totaled $29.2
million during both the first three quarters of fiscal 2001 and 2000. The
Company's average concession sales per person increased 2.6% during the third
quarter and 4.0% during the first three quarters of fiscal 2001, compared to
last year's same periods.
Theatre attendance for the third quarter of fiscal 2001 increased 20.0%,
but has decreased 3.7% during the first three quarters of fiscal 2001, compared
to attendance during the same periods last year. Theatre attendance at the
Company's comparable locations increased 11.9% during the third quarter and has
decreased 11.0% during the first three quarters of fiscal 2001, compared to last
year's same periods. The increase in theatre attendance and the resulting
increases in box office receipts and concession revenues during the
13
fiscal 2001 third quarter compared to the same period last year can be
attributed to a strong selection of holiday films, including Dr. Suess' How the
Grinch Stole Christmas, Cast Away and What Women Want. The decline in attendance
during the first three quarters of fiscal 2001 was primarily the result of fewer
quality films during the first four months of fiscal 2001 compared to the same
period of fiscal 2000. The Company believes that there are a number of upcoming
films with excellent box office potential scheduled for release later in the
fiscal 2001 fourth quarter and during the summer. The Company believes that with
a strong summer season, the division's operating results will continue to
improve. Revenues for the theatre business and the motion picture industry in
general are heavily dependent upon the general audience appeal of available
films, together with studio marketing, advertising and support campaigns, all
factors over which the Company has no control.
The Company ended the third quarter with a total of 482 total screens in 49
theatres compared to 450 screens in 49 theatres at the end of the same period
last year. The Company has three new screens at an existing location in
development, including another UltraScreen, and is reviewing additional
development and acquisition opportunities. The Company also has continued to
retrofit existing theatres with stadium seating and digital sound during the
first three quarters of fiscal 2001. Currently 82% of its first-run auditoriums
now offer stadium seating, which is the highest percentage of any top-20 theatre
chain in the United States.
Hotels and Resorts
Total revenues from the hotels and resorts division during the third
quarter of fiscal 2001 increased by $3.2 million, or 18.2%, to $21.2 million,
compared to revenues of $18.0 million during the previous year's comparable
period. Operating losses increased by $1.1 million to $1.2 million during the
fiscal 2001 third quarter, compared to an operating loss of $100,000 during the
third quarter of fiscal 2000. Total revenues from the hotels and resorts
division during the first three quarters of fiscal 2001 totaled $81.1 million,
an increase of $16.1 million, or 24.8%, over first three quarters revenues of
$65.0 million during fiscal 2000. Operating income increased by $700,000, or
8.0%, during the first three quarters of fiscal 2001 to $9.7 million, compared
to operating income of $9.0 million during the same period last year.
Increases in RevPAR at the Company's Wisconsin-owned hotels/resorts,
significant revenue increases at the Company's recently expanded Hilton
Milwaukee City Center and vacation ownership sales were the primary reasons for
the division's revenue increases during the fiscal 2001 third quarter and first
three quarters compared to the prior year's same periods. A family water park
and fun center, Paradise Landing, built in conjunction with the Hilton room
addition, also contributed to the increased revenues during the fiscal 2001
third quarter. Excluding the Hotel Phillips and the Milwaukee Hilton City
Center, which opened additional rooms during the first quarter of fiscal 2001,
the division's total RevPAR for comparable Company-owned properties decreased
2.8% during the fiscal 2001 third quarter compared to the third quarter last
year and has increased 6.1% for the first three quarters of fiscal 2001 compared
to the same period last year. The decrease in RevPAR for comparable properties
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during the third quarter is due to a softer peak season at the Company's
Miramonte Resort in Indian Wells, California.
Sales from the Company's vacation ownership development at the Grand Geneva
Resort & Spa totaled $1.5 million and $6.2 million during the third quarter and
first three quarters of fiscal 2001, respectively. During the first three
quarters of fiscal 2000, the Company accounted for all sales of vacation
intervals using the deposit method, deferring all revenue because certain
minimum sales levels had not been reached. During the fourth quarter of fiscal
2000, minimum sales levels were met and all revenues previously deferred were
recognized. Due primarily to slightly higher than anticipated construction costs
and high initial sales and marketing costs, the vacation ownership development
has not had a material impact on the division's operating income during the
third quarter or first three quarters of fiscal 2001. The Company believes that
recent product offering improvements and increases in pricing, combined with
anticipated increased interest income from customer financing agreements, should
ultimately result in the vacation ownership development adding modestly to the
division's operating income and Company net earnings in future periods.
The division's increased operating losses during the fiscal 2001 third
quarter, compared to the same period last year, can be attributed primarily to
three items: increased utility costs at the Company-owned hotels/resorts,
reduced RevPAR and the resulting operating income decline at the Miramonte
Resort, and over $400,000 in pre-opening expenses related to the Company's new
Hilton Madison at Monona Terrace and Kansas City Hotel Phillips. The Hilton
Madison at Monona Terrace opened at the beginning of the fiscal 2001 fourth
quarter and initial guest response has been very favorable. The Hotel Phillips
is currently closed and undergoing a major renovation. The Company expects the
property to reopen during the second quarter of fiscal 2002 and to have a
slightly negative impact on fiscal 2001 fourth quarter and fiscal 2002 first
quarter division operating results due to anticipated additional pre-opening
expenses.
The hotel and resort division continues to explore additional opportunities
for growth, focusing on management contracts and limited equity investments. The
Company has initiated efforts to find an equity partner for its Hotel Phillips
project consistent with this growth strategy. If this effort is successful, it
could provide a model for future projects. In addition, the Timber Ridge Lodge,
a 225 unit condominium hotel and water park project on land adjacent to the
Grand Geneva Resort & Spa, is under construction, with the first phase expected
to open during the first quarter of fiscal 2002. The Company's hotel and resort
division will have a small equity investment in the property and will manage the
hotel. Guests of the Timber Ridge Lodge and Grand Geneva Resort & Spa will be
able to utilize the amenities of both properties.
Discontinued Operations
The Company previously announced its intention to sell its 30 KFC and
KFC/Taco Bell 2-in-1 restaurants and, as a result, the Company accounts for the
restaurant operations as
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discontinued operations in the Company's consolidated financial statements. The
Company recently announced that it has entered into a definitive asset purchase
agreement to sell these restaurants to H&K Partners, LLC, (of which the
division's current Executive Vice President, Peter Helf, is a principal). The
sale of the assets, which consist primarily of land, buildings and equipment, is
expected to close during the fiscal 2001 fourth quarter and the Company
anticipates that a significant gain from the sale of the assets will be
recognized.
Revenues from discontinued operations totaled $5.6 million for the third
quarter of fiscal 2001, a decrease of $100,000, or 1.3%, from fiscal 2000 third
quarter revenues of $5.7 million. During the third quarter of fiscal 2001, the
Company had income from discontinued operations, net of applicable income taxes,
of $287,000, a decrease of $61,000, or 17.5%, from income from discontinued
operations during the same period last year. During the first three quarters of
fiscal 2001, revenues from discontinued operations totaled $17.8 million, a
decrease of $1 million, or 5.3%, from prior year first three quarters revenues
from discontinued operations of $18.8 million. Income from discontinued
operations, net of applicable income taxes, totaled $981,000 for the first three
quarters of fiscal 2001, compared to $1.3 million during the first three
quarters of fiscal 2000. Although fiscal 2001 improved during the latter half of
the third quarter, KFC revenues and operating results have been negatively
impacted during the third quarter and first three quarters of fiscal 2001 by
ineffective national promotions and increased payroll costs, resulting in
reduced guest counts, average guest checks and operating margins.
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 of $44 million of unused credit lines as of the end of the third
quarter, should be adequate to support the ongoing operational liquidity needs
of the Company's businesses. The Company increased its credit lines early in the
third quarter of fiscal 2001, increasing its total availability under revolving
credit agreements to $175 million by entering into a new $45 million 364-day
revolving credit agreement with several banks. Borrowings under the new $45
million line would bear interest at LIBOR plus a margin which is adjusted based
on the Company's borrowing levels. The agreement requires an annual facility fee
of 0.2% on the total commitment.
Net cash provided by operating activities decreased by $16.6 million during
the first three quarters of fiscal 2001 to $36.1 million, compared to $52.7
million during the prior year's first three quarters. This is due primarily to
reduced earnings, timing differences in payments of accounts payable and
increases in accounts and notes receivable. Depreciation and amortization (a
non-cash expense) increased as a result of the Company's increased capital
spending program over recent years.
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Net cash used in investing activities during the first three quarters of
fiscal 2001 totaled $61.8 million, compared to $47.0 million during the first
three quarters of fiscal 2000. The increase in net cash used in investing
activities was primarily the result of reduced net proceeds from disposals of
property, equipment and other assets, which totaled $4.0 million during fiscal
2001 compared to $15.4 million during fiscal 2000. Capital expenditures to
support the Company's continuing expansion program totaled $60.3 million during
the first three quarters of fiscal 2001 compared to $62.7 million during the
prior year's first three quarters. Capital expenditures during the first three
quarters of fiscal 2001 included approximately $13 million incurred in the
theatre division to fund screen additions to existing theatres, stadium seating
retrofits and costs carried over from projects opened during the fourth quarter
of fiscal 2000. In addition, capital expenditures of approximately $13 million
were incurred in the limited-service lodging division and approximately $34
million were incurred by the hotels and resorts division to fund its major
construction projects.
Net cash provided by financing activities during the first three quarters
of fiscal 2001 totaled $26.3 million compared to $1.0 million during the first
three quarters of fiscal 2000. The Company funded a portion of its capital
expansion program during fiscal 2000 with the net proceeds from disposals of
assets. As a result of the reduced net proceeds from disposals of assets and
reduced net cash provided by operating activities during the fiscal 2001 first
three quarters compared to the same period last year, the Company's net proceeds
from issuance of notes payable and long-term debt totaled $48.4 million during
the first three quarters of fiscal 2001 compared to $16.7 million during the
same period last year. The Company's principal payments on notes payable and
long-term debt totaled $13.6 million during the first three quarters of fiscal
2001 compared to $8.4 million during the same period last year. Additionally,
during the first three quarters of fiscal 2001, the Company repurchased 370,000
shares of its common stock pursuant to its stock repurchase program at a total
cost of $4.2 million, compared to 257,000 shares repurchased during the first
three quarters of fiscal 2000 at a total cost of $2.9 million. At the end of the
first three quarters, an additional 2.0 million shares may be repurchased under
existing Board of Directors authorizations. Any such repurchases are expected to
be executed on the open market or in privately negotiated transactions depending
upon a number of factors, including prevailing market conditions.
Based upon the Company's expectation that the restaurant business will be
sold during the fourth quarter, the Company does not anticipate its long-term
debt at the end of fiscal 2001 to be greater than current third quarter levels.
In addition to the Company's new and existing credit lines, the Company has the
ability to issue up to $45 million of additional senior notes under an existing
private placement program. Depending upon a number of factors, including capital
requirements, proceeds from asset sales and market conditions, the Company
anticipates that it may issue additional senior notes during calendar 2001.
Proceeds from an issuance would be used to repay existing debt under its
revolving credit lines and to fund the Company's capital expenditure and stock
repurchase programs.
The actual timing and extent of the implementation of the Company's current
expansion plans will depend in large part on favorable industry and general
economic conditions, the
17
competitive environment, evolving customer needs and trends and the availability
of attractive opportunities. It is likely that the Company's current expansion
goals will continue to evolve and change in response to these and other factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has not experienced any material changes in its market risk
exposures since May 25, 2000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None.
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.
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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: April 9, 2001 By: /s/ Stephen H. Marcus
----------------------------------------
Stephen H. Marcus,
Chairman of the Board, President and
Chief Executive Officer
DATE: April 9, 2001 By: /s/ Douglas A. Neis
----------------------------------------
Douglas A. Neis
Chief Financial Officer and Treasurer
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