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 February 2, 1995 [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________to_______________ Commission file number 1-12604 THE MARCUS CORPORATION (Exact name of registrant as specified in its charter) WISCONSIN 39-1139844 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 250 EAST WISCONSIN AVENUE - 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 FEBRUARY 2, 1995 - 6,975,145 CLASS B COMMON STOCK OUTSTANDING AT FEBRUARY 2, 1995 - 6,069,352 THE MARCUS CORPORATION INDEX Page No. PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets (February 2, 1995 and May 26, 1994) . . . . . . 3 Statements of Earnings (Twelve and thirty-six weeks ended February 2, 1995 and February 3, 1994) . . . . . . . . . . 5 Statements of Cash Flows (Thirty-six weeks ended February 2, 1995 and February 3, 1994) . . . . . . . . . . . . . . . 6 Condensed Notes to Financial Statements . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . 8 PART II - OTHER INFORMATION Item 6. Exhibits . . . . . . . . . . . . . . . . . . . 12 Signatures . . . . . . . . . . . . . . . . . . . . . . 13 PART I - FINANCIAL INFORMATION Item 1. Financial Statements THE MARCUS CORPORATION Consolidated Balance Sheets February 2, 1995 ASSETS (unaudited) May 26, 1994 CURRENT ASSETS: Cash and cash equivalents $ 9,506,000 $ 9,974,000 Accounts and notes receivable 7,149,000 6,359,000 Receivables from joint ventures 6,485,000 7,983,000 Other current assets 3,996,000 3,049,000 ------------ ------------ Total current assets 27,136,000 27,365,000 PROPERTY AND EQUIPMENT: Land and improvements 51,556,000 49,618,000 Buildings and improvements 266,113,000 231,905,000 Leasehold improvements 10,939,000 7,565,000 Furniture, fixtures and equipment 149,375,000 118,123,000 Construction in progress 9,909,000 37,302,000 ------------ ------------ Total property and equipment 487,892,000 444,513,000 Less accumulated depreciation and amortization 133,093,000 122,642,000 ------------ ------------ Net property and equipment 354,799,000 321,871,000 OTHER ASSETS: Investment in and advances to joint ventures 657,000 662,000 Other 9,514,000 11,708,000 ------------ ----------- Total other assets 10,171,000 12,370,000 ------------ ----------- TOTAL ASSETS $ 392,106,000 $ 361,606,000 =========== =========== See accompanying notes to consolidated financial statements. THE MARCUS CORPORATION Consolidated Balance Sheets LIABILITIES AND SHAREHOLDERS' February 2, 1995 EQUITY (unaudited) May 26, 1994 CURRENT LIABILITIES: Notes payable $ 4,683,000 $ 4,533,000 Accounts payable 12,581,000 13,248,000 Income taxes 4,771,000 2,796,000 Taxes other than income taxes 7,707,000 7,307,000 Accrued compensation 2,886,000 1,448,000 Other accrued liabilities 8,999,000 6,978,000 Current maturities on long-term debt 4,546,000 4,357,000 ---------- ---------- Total current liabilities 46,173,000 40,667,000 LONG-TERM DEBT 118,419,000 107,681,000 DEFERRED INCOME TAXES 16,840,000 15,999,000 DEFERRED COMPENSATION AND OTHER 3,690,000 3,341,000 SHAREHOLDERS' EQUITY Preferred Stock, $1 par; authorized 1,000,000 shares; none issued -- -- Common Stock, $1 par; authorized 30,000,000 shares; issued 7,521,968 shares at February 2, 1995, 7,365,987 shares at May 26, 1994 7,522,000 7,366,000 Class B Common Stock, $1 par; authorized 20,000,000 shares; issued 6,069,352 shares at February 2, 1995, 6,225,333 shares at May 26, 1994 6,069,000 6,225,000 Capital in excess of par 44,746,000 44,745,000 Retained earnings 152,689,000 139,777,000 ----------- ----------- 211,026,000 198,113,000 Less cost of treasury stock Common stock - 546,823 shares at February 2, 1995 and 559,608 shares at May 26, 1994 4,042,000 4,195,000 ----------- ---------- Total shareholders' equity 206,984,000 193,918,000 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 392,106,000 $ 361,606,000 =========== =========== See accompanying notes to consolidated financial statements. THE MARCUS CORPORATION Consolidated Statements of Earnings (unaudited) February 2, 1995 February 3, 1994 --------------- ---------------- 12 Weeks 36 Weeks 12 Weeks 36 Weeks -------- -------- -------- ------- Revenues: Rooms and telephone $ 22,033,000 $ 83,206,000 $ 18,689,000 $ 68,608,000 Food and beverage 20,214,000 66,224,000 17,918,000 56,175,000 Theatre operations 14,004,000 40,670,000 12,026,000 37,582,000 Other income 3,567,000 11,945,000 3,120,000 9,593,000 ---------- ----------- --------- --------- 59,818,000 202,045,000 51,753,000 171,958,000 Costs and Expenses: ---------- ----------- ---------- ----------- Rooms and telephone 9,768,000 30,804,000 8,458,000 25,950,000 Food and beverage 15,728,000 50,461,000 14,877,000 44,240,000 Theatre operations 8,373,000 24,497,000 7,030,000 22,208,000 Administration and selling 8,081,000 28,049,000 8,026,000 25,531,000 Depreciation and amortization 5,712,000 16,353,000 4,566,000 13,697,000 Rent 1,122,000 4,101,000 978,000 3,131,000 Property taxes 1,965,000 6,433,000 2,007,000 6,034,000 Other costs and expenses 2,333,000 5,832,000 182,000 1,487,000 Interest 2,325,000 6,379,000 1,593,000 4,991,000 --------- --------- --------- --------- 55,407,000 172,909,000 47,717,000 147,269,000 ---------- ----------- ---------- ----------- Earnings before income taxes and change in accounting principle 4,411,000 29,136,000 4,036,000 24,689,000 Income taxes 1,861,000 11,993,000 1,813,000 10,177,000 ---------- ---------- ---------- ---------- Earnings before change in accounting principle 2,550,000 17,143,000 2,223,000 14,512,000 Cumulative effect of change in accounting principle -- -- -- 1,782,000 ---------- ---------- ---------- --------- Net earnings $ 2,550,000 $ 17,143,000 $ 2,223,000 $ 16,294,000 =========== =========== ========== =========== Net earnings per weighted average share of Common Stock and Class B Common Stock: Earnings before accounting principle change $0.19 $1.31 $0.17 $1.11 Cumulative effect of change in accounting principle -- -- -- $0.13 -------- -------- -------- -------- Net earnings $0.19 $1.31 $0.17 $1.24 ====== ====== ====== ====== Weighted average shares outstanding 13,134,000 13,132,000 13,116,000 13,110,000 Dividends per share: Common Stock -- $0.34 -- $0.28 Class B Common Stock -- $0.31 -- $0.25 See accompanying notes to consolidated financial statements. THE MARCUS CORPORATION Consolidated Statements of Cash Flows For the Thirty-Six Weeks Ended February 2, February 3, (unaudited) 1995 1994 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 17,143,000 $ 16,294,000 Adjustments to reconcile net earnings to cash provided by operating activities: Earnings on investments in joint ventures (258,000) (81,000) Gain on disposals of property and equipment (135,000) (1,281,000) Depreciation and amortization 16,353,000 13,697,000 Effect of change in accounting principle -- (1,782,000) Deferred tax provision 841,000 589,000 Deferred compensation and other 349,000 456,000 Changes in assets and liabilities: Accounts and notes receivable 708,000 1,232,000 Other current assets (947,000) (640,000) Accounts and notes payable (517,000) (1,582,000) Income taxes 1,975,000 4,407,000 Taxes other than income taxes 400,000 (94,000) Accrued compensation 1,438,000 1,133,000 Other accrued liabilities 2,021,000 (2,198,000) ---------- ---------- Cash provided by operating activities 39,371,000 30,150,000 CASH FLOW FROM INVESTING ACTIVITIES: Additions to property and equipment (49,968,000) (46,026,000) Proceeds from disposals of property and equip. 830,000 3,331,000 Investments in joint ventures (196,000) (1,240,000) Decrease in other assets 2,194,000 2,856,000 Cash received from joint ventures 459,000 1,226,000 ---------- --------- Cash used in investment activities (46,681,000) (39,853,000) CASH FLOWS FROM FINANCING ACTIVITIES: Debt transactions: Proceeds from issuance of long- term debt 14,546,000 39,650,000 Principal payments on long-term debt (3,619,000) (27,116,000) Equity transactions: Treasury stock transactions (except for stock options) 2,000 (148,000) Exercise of stock options 152,000 346,000 Cash dividend paid (4,239,000) (3,481,000) ----------- ---------- Cash provided by financing activities 6,842,000 9,251,000 ----------- ---------- CASH AND CASH EQUIVALENTS: Net decrease during period (468,000) (452,000) Beginning balance 9,974,000 15,839,000 --------- --------- Ending balance $ 9,506,000 $ 15,387,000 ========== ========== See accompanying notes to consolidated financial statements. THE MARCUS CORPORATION CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE TWELVE AND THIRTY-SIX WEEKS ENDED FEBRUARY 2, 1995 (Unaudited) A. Refer to the Company's audited financial statements (including footnotes) for the year ended May 26, 1994, contained in the Company's Form 10-K Annual Report for such year, for a description of the Company's accounting policies. B. The consolidated financial statements for the twelve and thirty-six weeks ended February 2, 1995 and February 3, 1994, 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 2, 1995, and for all periods presented have been made. C. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which became effective for fiscal years beginning after December 15, 1992. The Company adopted this standard on a prospective basis effective May 28, 1993. The adoption resulted in additional income of $1,782,000. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS General Revenues for the third quarter of fiscal 1995 ended February 2, 1995 totaled $59.8 million, an increase of $8.1 million, or 15.6%, over the third quarter of fiscal 1994. Net earnings were $2.6 million for the third quarter of fiscal 1995, an increase of 14.7%, compared to net earnings of $2.2 million for the same period in the prior year. Earnings per share were $0.19 for the third quarter of fiscal 1995, compared to $0.17 for the third quarter of fiscal 1994, an increase of 11.8%. For the first three quarters of fiscal 1995, revenues were $202.0 million, a 17.5% increase from revenues of $172.0 million for the same period in the prior fiscal year. Net earnings were $17.1 million, or $1.31 per share, for the first three quarters of fiscal 1995, up 18.1% and 18.0%, respectively, from earnings before change in accounting principle of $14.5 million, or $1.11 per share, for the first three quarters of fiscal 1994. Including the one-time $1.8 million tax benefit, or $0.13 per share, resulting from the Company's adoption of SFAS 109 "Accounting for Income Taxes," net earnings for the first three quarters of fiscal 1994 were $16.3 million, or $1.24 per share. 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 1995 will consist of 16 weeks for all four of the Company's business segments; the same was true for fiscal 1994. Motels Total revenues for the third quarter of fiscal 1995 for the motel division were $20.4 million, an increase of $3.4 million, or 20.3%, compared to the same period in fiscal 1994. The motel division's operating profits for the fiscal 1995 third quarter totaled $1.4 million, an increase of $525,000, or 58.9%, over the division's same period fiscal 1994 operating profits. Total revenues for the first three quarters of fiscal 1995 were $71.0 million, an increase of $10.8 million, or 17.9%, compared to the first three quarters of fiscal 1994. Operating profits for the first three quarters of fiscal 1995 totaled $13.0 million, an increase of $3.4 million, or 35.7%, compared to the first three quarters of fiscal 1994. The third quarter is traditionally a slower period for the motel division than other quarters because of the holidays and winter weather. Increased occupancy and average daily room rates at the Company's Budgetel Inns during the fiscal 1995 periods, compared to the prior year's same periods, were principal factors contributing to the division's increased revenues and operating profits. One new Budgetel Inn was opened during the third quarter, with four scheduled to open in the fourth quarter of fiscal 1995. Compared to the third quarter of fiscal 1994, there were two new Woodfield Suites and seven new Budgetel Inns in operation during the fiscal 1995 third quarter. These new facilities contributed additional revenues of $1.7 million to the division's fiscal 1995 third quarter revenues. The financial performance of the Company's Woodfield Suites continued to be impacted by anticipated start-up related operating losses incurred by the Company's two new units during the fiscal 1995 periods. Theatres The theatre division's third quarter fiscal 1995 revenues were $14.1 million, an increase of $1.2 million, or 8.9%, over the same period in fiscal 1994. Operating profits for the third quarter in fiscal 1995 were $2.8 million, an increase of $450,000, or 19.2%, over the same prior year period. The division's revenues for the first three quarters of fiscal 1995 were $40.9 million, an increase of $2.3 million, or 6.0%, from the first three quarters of fiscal 1994. Operating profits for the first three quarters of fiscal 1995 were $7.7 million, an increase of $212,000, or 2.8%, compared to the first three quarters of fiscal 1994. The theatre division's results in the third quarter benefitted from the opening of a new eight-plex theatre in Delafield, Wisconsin early in the quarter and from the exhibition of a variety of popular movies, including "The Santa Claus(e)," "Dumb and Dumber" and "Disclosure," all of which resulted in above-average attendance for the period. Total box office receipts for the fiscal 1995 third quarter were $9.9 million, an increase of $1.6 million, or 20.0%, from the same period in the prior year. Total box office receipts for the first three quarters of fiscal 1995 were $29.1 million, an increase of $2.6 million, or 9.8%, from the first three quarters of fiscal 1994. These increases were attributable principally to increased attendance generated from the new theatres in Gurnee, Illinois and Delafield, Wisconsin. There were 197 screens in operation at the end of the first three quarters of fiscal 1995 versus 189 in the prior year. Average ticket prices also increased 4.4% during the first three quarters of 1995 from the prior year. Vending revenues for the third quarter of fiscal 1995 increased 18.4% over the previous year's third quarter period. Vending revenues for the first three quarters of fiscal 1995 increased 9.4% over the prior year. The increases were a result of the increase in theatre attendance generated from the new Delafield eight-plex. On March 3, 1995, the Company opened two new screens at its Regency Mall cinema in Racine, Wisconsin, increasing the theatre's total to eight screens. During the fourth quarter construction will begin on a new 10- plex theatre in Orland Park, Illinois and a four screen addition to the Company's Valley Park Cinema in Appleton, Wisconsin. A new eight-screen theatre complex in Green Bay, Wisconsin is also scheduled to open in May 1995. Hotels and Resort Total revenues from the hotel and resort division during the third quarter of fiscal 1995 increased by $1.8 million, or 30.1%, to $7.6 million, over the previous year's comparable period. Operating profits decreased by $1.9 million, resulting in an operating loss of almost $2.5 million, for the fiscal 1995 third quarter, compared to the prior fiscal year's third quarter. The division's total revenues during the first three quarters of fiscal 1995 increased by $11.0 million, or 48.8%, to $33.6 million, from the first three quarters of fiscal 1994. Operating profits for the first three quarters of 1995 were $474,000, compared to $1.4 million in the first three quarters of 1994, a decrease of 65.5%. Both the division's revenues and operating profits were affected adversely during the quarter by the temporary closure of the Company's Marc Plaza hotel for a complete restoration and renovation as part of the first phase of preparing the hotel for the scheduled 1997-1998 opening of a new convention center in downtown Milwaukee. However, despite the loss of revenues from the temporary closure of the Marc Plaza, the division recognized revenue increases during the 1995 periods attributable primarily to the Grand Geneva Resort & Spa and increased occupancy rates and average room rates at the Company's two continuing hotels. The remainder of the division's increased revenues was attributable principally to the receipt of management fees from the Crowne Plaza- Northstar and The Mead Inn, which were not under management for all of the same prior year periods. The principal reasons for the third quarter operating loss were continued start-up costs experienced at the Grand Geneva Resort & Spa and the temporary closure of the Marc Plaza. The renovation of the Marc Plaza is expected to be completed in May 1995, but should continue to reduce the division's revenues and operating profits for the remainder of the 1995 fiscal year. Restaurants Restaurant division revenues totaled $17.1 million for the fiscal 1995 third quarter, an increase of $1.7 million, or 10.9%, from the same period in fiscal 1994. The division incurred an operating loss for the fiscal 1995 third quarter of $422,500, an improvement of $578,000 from the operating loss of $1.0 million in the prior year's third quarter. For the first three quarters of fiscal 1995, the division's revenues totaled $54.6 million, an increase of $6.0 million, or 12.3%, over the first three quarters of fiscal 1994. Operating profits for the first three quarters of fiscal 1995 were $493,000, an increase of $1.1 million, compared to the operating loss of $560,000 for the first three quarters of fiscal 1994. The increases in fiscal 1995 period revenues and improved operating results compared to the 1994 periods were due entirely to increasing average check amounts and patronage at the Company's continuing Applebee's and KFC restaurants and revenues from the Company's newly opened Applebee's. The Company's remaining restaurant concepts experienced increasingly negative trends in revenues and operating profits during the fiscal 1995 periods compared to the prior year's periods principally as a result of competitive pressures. As a result, the Company closed its two Big Boy Express restaurants. On February 27, 1995, the Company consummated the disposition of 11 Marc's Cafe and Coffee Mill restaurants by leasing the locations to a former divisional management group. The Company also closed its last Big Boy and its remaining Marc's Cafe restaurant. The disposition and closure of these restaurants is expected to result in a reduction of $21 million in annualized revenues, but is not expected to have an adverse impact on the division's operating results. FINANCIAL CONDITION Net cash provided from operations increased by $9.2 million during the first three quarters of fiscal 1995 to $39.4 million, compared to the amount of cash provided from operations during the prior year's first three quarters. The increase resulted principally from increased comparable period earnings prior to the 1994 non-cash accounting change and an increase in depreciation and amortization expense resulting from the Company's expansion program. Cash used for investing activities in the first three quarters of fiscal 1995 increased to $46.7 million, an increase of $6.8 million compared to the cash used in the first three quarters of fiscal 1994, primarily as a result of capital expenditures during fiscal 1995 totaling $50.0 million ($15.8 million during the third quarter) to support the Company's continuing expansion program. The Company had capital expenditures of $46.0 million during the first three quarters of 1994. The most significant amount of capital spent by the Company during the first three quarters of fiscal 1995 was on the continued renovation of the Grand Geneva Resort & Spa, combined with expansion projects for Budgetel Inns and the theatre division and the renovations of the Marc Plaza. Scheduled capital expansion projects for the remainder of fiscal 1995 total approximately $30 million, including principally the renovation of the Marc Plaza and continued expansion of the Company's Budgetel Inns, Applebee's and theatres, together with ordinary capital maintenance projects. These projects are expected to be financed through cash generated by operations and utilization of the Company's currently available lines of credit. Cash provided by financing activities totaled $6.8 million in the first three quarters of fiscal 1995, a decrease of $2.4 million from the amount provided in the first three quarters of fiscal 1994. During the first three quarters of fiscal 1995, the Company paid $4.2 million in dividends to shareholders and made debt principal payments of $3.6 million. During the first of three quarters, the Company issued $14.5 million of new long-term debt by borrowing $9.0 million under its existing credit lines and issuing $5.5 million of commercial paper. Net cash and cash equivalents at February 2, 1995 were $9.5 million, compared to $15.4 million at February 3, 1994. At February 2, 1995, the Company's current ratio was .59, compared to .67 at the end of fiscal 1994. Given the cash nature of the Company's various businesses and the availability to the Company of $31.7 million in unused credit lines as of the end of the third quarter, the Company believes that the cash generated from its ongoing operations and available credit facilities are adequate to support the ongoing operational liquidity needs of the Company's business. The Company currently has three interest rate swap agreements on a notional amount aggregating $30 million. The Company does not believe that these agreements are material to the Company's financial condition or results of operation or that it is subject to any material risk of loss resulting from interest rate fluctuations. PART II - OTHER INFORMATION Item 6. Exhibits Exhibit 27 - Financial Data Schedule 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: March 17, 1995 By: \s\ Stephen H. Marcus Stephen H. Marcus, Chairman of the Board, President and Chief Executive Officer DATE: March 17, 1995 By: \s\ Kenneth A. MacKenzie Kenneth A. MacKenzie Chief Financial Officer, Treasurer and Controller THE MARCUS CORPORATION FORM 10-Q FOR 36 - WEEKS ENDED FEBRUARY 2, 1995 EXHIBIT INDEX Exhibit Description 27 Financial Data Schedule