FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 22, 1996
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to_______________
Commission file number 1-12604
THE MARCUS CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1139844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 EAST WISCONSIN AVENUE, SUITE 1700 - MILWAUKEE, WISCONSIN 53202
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (414) 272-6020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934, during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK OUTSTANDING AT SEPTEMBER 24, 1996 - 10,818,671
CLASS B COMMON STOCK OUTSTANDING AT SEPTEMBER 24, 1996 - 8,856,405
THE MARCUS CORPORATION
INDEX
Page
No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets
(August 22, 1996 and May 30, 1996) . . . . . . . . 3
Statements of Earnings
(Twelve weeks ended August 22, 1996
and August 17, 1995) . . . . . . . . . . . . . . . 5
Statements of Cash Flows
(Twelve weeks ended August 22, 1996
and August 17, 1995) . . . . . . . . . . . . . . . 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 and Reports on Form 8-K . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(in thousands)
(Unaudited) (Audited)
August 22, May 30,
1996 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 1,917 $ 15,466
Accounts and notes receivable 9,817 8,780
Receivables from joint ventures 4,428 4,890
Other current assets 2,384 2,463
------- -------
Total current assets 18,546 31,599
Property and equipment:
Land and improvements 66,156 60,177
Buildings and improvements 356,975 329,458
Leasehold improvements 5,410 5,688
Furniture, fixtures and equipment 142,766 137,305
Construction in progress 19,195 22,336
------- -------
Total property and equipment 590,502 554,964
Less accumulated depreciation and
amortization 147,927 143,401
------- -------
Net property and equipment 442,575 411,563
Other assets:
Investments in joint ventures 1,303 1,295
Other 12,866 10,858
------- -------
Total other assets 14,169 12,153
------- -------
TOTAL ASSETS $475,290 $455,315
======== ========
See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION
Consolidated Balance Sheets
(in thousands)
(Unaudited) (Audited)
August 22, May 30,
1996 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $4,521 $5,555
Accounts payable 11,352 15,646
Income taxes 7,796 1,393
Taxes other than income taxes 10,323 8,323
Accrued compensation 2,122 1,380
Other accrued liabilities 8,694 9,352
Current maturities on long-term debt 9,069 9,069
------- -------
Total current liabilities 53,877 50,718
Long-term debt 133,354 127,135
Deferred income taxes 20,052 20,027
Deferred compensation and other 6,486 6,187
Shareholders' equity
Preferred Stock, $1 par; authorized
1,000,000 shares;
none issued
Common Stock, $1 par; authorized
30,000,000 shares;
issued 11,530,162 shares at August 22,
1996, 11,529,962 shares at May 30, 1996 11,530 11,530
Class B Common Stock, $1 par; authorized
20,000,000
shares; issued and outstanding 8,856,405
shares at August 22, 1996, 8,856,605 at
May 30, 1996 8,857 8,857
Capital in excess of par 38,872 38,832
Retained earnings 205,856 195,643
------- -------
265,115 254,862
Less cost of Common Stock in treasury
(714,467 shares at August 22, 1996 and
718,352 shares at May 30, 1996) 3,594 3,614
------- -------
Total shareholders' equity 261,521 251,248
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $475,290 $455,315
======== ========
See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)
(in thousands, except per share data)
12 Weeks Ended
August 22, August 17,
1996 1995
Revenues:
Rooms and telephone $40,553 $37,012
Food and beverage 11,295 11,866
Theatre operations 20,486 18,857
Other income 5,490 5,833
------- -------
Total revenues 77,824 73,568
Costs and expenses:
Rooms and telephone 13,300 12,014
Food and beverage 7,922 8,306
Theatre operations 12,425 11,247
Advertising and marketing 3,894 3,324
Administrative 6,608 7,359
Depreciation and amortization 6,340 5,875
Rent 806 1,019
Property taxes 2,596 2,203
Other operating expenses 2,515 2,794
------- -------
Total costs and expenses 56,406 54,141
------- -------
Operating income 21,418 19,427
Other income (loss):
Investment income 143 364
Interest expense (2,179) (2,111)
Gain on disposition of property and
equipment 4 24,607
------- -------
(2,032) 22,860
------- -------
Earnings before income taxes 19,386 42,287
Income taxes 7,758 16,977
------- -------
Net earnings $11,628 $25,310
======= =======
Net earnings per share:*
Earnings excluding gain on restaurant sale $0.59 $0.53
After-tax gain on restaurant sale 0.75
-------
Net earnings per share $0.59 $1.28
------- -------
Weighted Average Shares Outstanding* 19,841 19,743
* All per share and weighted average shares outstanding data has been
adjusted to reflect the 50% stock dividend distributed on November 14,
1995.
See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
12 Weeks Ended
August 22, August 17,
1996 1995
OPERATING ACTIVITIES:
Net earnings $11,628 $25,310
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Earnings on investments in joint
ventures, net of distributions (8) (80)
Gain on disposition of property and
equipment (4) (24,607)
Depreciation and amortization 6,340 5,875
Deferred income taxes 25 646
Deferred compensation and other 299 194
Changes in assets and liabilities:
Accounts and notes receivable (1,037) (4,411)
Other current assets 79 516
Accounts payable (4,294) (10,000)
Income taxes 6,403 14,081
Taxes other than income taxes 2,000 808
Accrued compensation 742 930
Other accrued liabilities (658) 1,595
------- -------
Total adjustments 9,887 (14,453)
------- -------
Net cash provided by operating activities 21,515 10,857
INVESTING ACTIVITIES:
Capital expenditures (37,680) (19,306)
Net proceeds from disposals of property,
equipment and other assets 332 49,080
Purchase of interest in joint ventures, net
of cash acquired -- (222)
(Increase) decrease in other assets (2,008) 3,483
Cash received from joint ventures 462 255
------- -------
Net cash [used in] provided by investing
activities (38,894) 33,290
FINANCING ACTIVITIES:
Debt transactions:
Net proceeds from issuance of notes
payable and long-term debt 11,500 -
Principal payments on notes payable and
long-term debt (6,315) (20,539)
Equity transactions:
Treasury stock transactions, except for
stock options 3 (109)
Exercise of stock options 57 183
Dividends paid (1,415) (5,010)
------- -------
Net cash provided by [used in] financing
activities 3,830 (25,475)
------- -------
Net increase (decrease) in cash and cash
equivalents (13,549) 18,672
Cash and cash equivalents at beginning of
year 15,466 8,798
------- -------
Cash and cash equivalents at end of period $ 1,917 $27,470
======= =======
See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
TWELVE WEEKS ENDED
AUGUST 22, 1996
(Unaudited)
A. Refer to the Company's audited financial statements (including
footnotes) for the fiscal year ended May 30, 1996, contained in the
Company's Form 10-K Annual Report for such fiscal year, for a
description of the Company's accounting policies.
B. The consolidated financial statements for the twelve weeks ended
August 22, 1996 and August 17, 1995, 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 22, 1996,
and for all periods presented have been made.
C. Pursuant to an asset purchase agreement dated April 12, 1995, the
Company completed the sale of its 18 existing Applebee's Neighborhood
Grill & Bar restaurants (Applebee's), two Applebee's under
construction, five Applebee's under development and its development
rights for Applebee's to Apple South, Inc. (the Purchaser). On June 5,
1995, the Company entered into a management agreement with the
Purchaser, whereby the Purchaser commenced to immediately manage,
operate and assume all of the Company's existing operating and
development responsibilities related to the Company's Applebee's
restaurant operations. The Purchaser received all profits of the
restaurants between June 5, 1995 and June 30, 1995, as reimbursement
for its management service. On June 30, 1995, proceeds from the sale
of approximately $48.3 million were received by the Company in cash.
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 November
14, 1995, to all holders of Common Stock and Class B Common Stock. All
per share and weighted average shares outstanding data prior to
November 14, 1995 have been adjusted to reflect this dividend.
THE MARCUS CORPORATION
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 can generally be identified as
such because the context of the statement will include words such as the
company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward looking
statements are subject to certain risks, assumptions and uncertainties
which are described in close proximity to such statements and which could
cause actual results to differ materially from those currently
anticipated. Shareholders, potential investors and other readers are
urged to consider these risks, assumptions and uncertainties carefully in
evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements. The forward-looking
statements made herein are only made as of the date of this Form 10-Q and
the Company undertakes no obligation to publicly update such forward-
looking statements to reflect subsequent events or circumstances.
RESULTS OF OPERATIONS
General
The Company reports its results of operations on a 52-or 53-week
fiscal year which ends on the last Thursday in May. Each fiscal year is
divided into three 12-week quarters and a final quarter consisting of 16
or 17 weeks. The final quarter of fiscal 1997 will consist of 17 weeks
for each of the Company's motel and hotels/resorts divisions, while the
Company and its other remaining divisions will report a 16-week fourth
quarter. Fiscal 1996 was a 53-week fiscal year for the Company and its
theatre division, while the Company's remaining divisions reported a 52-
week year in fiscal 1996.
Revenues for the first quarter of fiscal 1997 ended August 22,
1996, totaled $77.8 million dollars, an increase of $4.3 million, or 5.8%,
from revenues reported for the first quarter of fiscal 1996. Excluding
$973,000 of revenues recognized in the first quarter of fiscal 1996 from
restaurant locations which were subsequently disposed of or closed,
revenues increased 7.2% between quarters. Net earnings for the first
quarter of fiscal 1997 were $11.6 million, or $0.59 per share, up 10.5%
and 11.3%, respectively, from comparable earnings of $10.5 million, or
$0.53 per share, for the same quarter in the prior year. Including the
after-tax gain of $14.8 million, or $0.75 per share, resulting from the
Company's sale of its Applebee's restaurants and related rights in June
1995, net earnings for fiscal 1996's first quarter were $25.3 million, or
$1.28 per share.
Motels
Total revenues for the first quarter of fiscal 1997 for the
motel division were $33.9 million, an increase of $3.4 million, or 11.2%,
compared to the first quarter of fiscal 1996. The motel division's
operating income for the fiscal 1997 first quarter totaled $13.0 million,
an increase of $1.3 million, or 10.8%, over the division's fiscal 1996
first quarter operating income.
Compared to the first quarter of fiscal 1996, there were 11 new
Company-owned or operated and five new franchised Budgetel Inns in
operation during the fiscal 1997 first quarter. The Company's newly
opened motels contributed additional revenues of $2.4 million to the
division's fiscal 1997 first quarter revenues. Increased average daily
room rates at the Company's continuing motels during the first quarter of
fiscal 1997 compared to the prior year's first quarter offset lower
comparative occupancy rates caused by increasing industry segment room
availability. The Company is beginning to notice overbuilding in certain
areas of the limited service lodging segment which the Company believes
may eventually negatively impact its operating income margins. At the end
of the fiscal 1997 first quarter, the Company operated 129 Budgetel Inns,
of which 96 were Company-owned or operated and 33 were franchised. In
addition, the Company currently plans to open up to an additional 23 new
Company-owned or operated or franchised Budgetel Inns during the remainder
of fiscal 1997. During the fiscal 1997 first quarter, the Company signed
a franchise development agreement with a Houston, Texas-based developer to
open up to 42 new franchised Budgetel Inns in Texas over the next ten
years. The Company also owns and operates three Woodfield Suites all-
suite motels and plans to open two new Woodfield Suites in Cincinnati,
Ohio and Madison, Wisconsin later in fiscal 1997.
Theatres
The theatre division's fiscal 1997 first quarter revenues were
$20.6 million, an increase of $1.7 million, or 8.7%, over the first
quarter of fiscal 1996. The division's operating income for the fiscal
1997 first quarter was $4.9 million, a decrease of $248,000, or 4.8%,
under the same prior year period.
Total box office receipts for the fiscal 1997 first quarter were
$14.1 million, an increase of $781,000, or 5.9%, from the same period in
the prior year. During the first quarter of fiscal 1997, box office
receipts increased due to the operation of 64 additional screens in the
fiscal 1996 first quarter, together with a 4.8% increase in first-run
theatre average ticket prices and a 5.8% increase in vending revenues per
person. A total of 47 new screens, including 27 acquired screens, were
added during the fiscal 1997 first quarter, with another 39 screens under
construction or development as of the end of the quarter. The Company
operated 266 total screens at the end of the first quarter of fiscal 1997
compared to 202 at the end of last year's first quarter. The additional
screens in operation during the fiscal 1997 first quarter allowed over-all
theatre attendance to increase 6.2% compared to the fiscal 1996 first
quarter. Without the additional screens, attendance would have decreased
between quarters largely as a result of the 1996 Summer Olympics. The
Olympics adversely affected attendance at the Company's theatres and the
industry in general. Not only did the television coverage of the Olympics
reduce movie theatre attendance, but many motion picture film distributors
anticipated lower theatre attendance during the Olympics and featured
their best films during the late spring and early summer to avoid
competing with the Olympics. This strategy meant that less attractive
films were distributed later in the summer. Because theatre attendance is
largely dependent upon the audience appeal of available films, these less
attractive film offerings further reduced attendance. Also, fiscal 1997
first quarter results for the division did not include the results of the
1996 Memorial Day weekend, which was included in the Company's fiscal 1996
fourth quarter results. Fiscal 1996's first quarter included the results
of the 1995 Memorial Day weekend. The Memorial Day weekend is
traditionally one of the year's busiest motion picture viewing weekends.
FunSet Boulevard, the division's new family entertainment center, opened
in July 1996 and did not have a material effect on first quarter results.
Hotels and Resorts
Total revenues from the hotels and resorts division during the
first quarter of fiscal 1997 increased by $88,000, or 0.5%, to $16.4
million, over the previous year's first quarter. Fiscal 1997 first
quarter operating income increased by $255,000, or 7.3%, to $3.8 million,
compared to the prior fiscal year's first quarter. The division's
improved results were achieved for the fiscal 1997 first quarter despite
unseasonably cold weather in the early summer which impacted occupancy and
delayed the opening of the newly designed Highland's golf course at the
Grand Geneva Resort & Spa. The division's fiscal 1997 first quarter
results benefitted from increased revenues from, and reduced charges for
pre-opening costs for, the Company's Milwaukee Hilton hotel (formerly the
Marc Plaza). The division acquired the Erawan Garden Springs Resort in
Indian Wells, California in August 1996 and plans are underway for an
extensive renovation of the property.
Restaurants
Restaurant division revenues totaled $6.8 million for the fiscal
1997 first quarter, a decrease of $590,000, or 8.0%, from the same period
in fiscal 1996. The decreased revenues were due to the absence of
$973,000 of revenues from the disposition or closure of 21 restaurants
since last year's first quarter, as well as decreased rental income.
Excluding the loss of revenues from the non-continuing restaurants, fiscal
1997 first quarter revenues for the division increased 6.0% over the
fiscal 1996 first quarter. The division's operating income for the fiscal
1997 period was $657,000, compared to operating income of $258,000 in the
first quarter of the prior year. This increase in operating income was
primarily a result of new successful KFC product introductions and
increased sales from KFC's home delivery program, combined with reduced
administrative costs related to the disposition of certain restaurant
properties last year. Same store KFC revenues for the first quarter of
fiscal 1997 compared to the prior year's first quarter were up 13.3%,
with guest counts at same store KFCs up 8.6% and average guest check
amounts up 4.6%. The Company plans to open its first converted 2-in-1
KFC/Taco Bell restaurant during the third quarter.
FINANCIAL CONDITION
The Company's lodging, movie theatre and restaurant businesses
each generate significant and consistent daily amounts of cash because
each segment's revenue is derived predominantly from consumer cash
purchases. The Company believes that these consistent and predictable
cash sources, together with the availability to the Company of in excess
of $25 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 increased by $10.6
million during the first quarter of fiscal 1997 to $21.5 million, compared
to $10.9 million in the prior year's first quarter. The increase between
the fiscal first quarters was primarily the result of approximately $10
million of income taxes incurred on the gain on the sale of restaurants in
fiscal 1996. Timing differences in receipts of accounts and notes
receivable and payment of accounts payable were offset by a reduced
increase in income taxes payable.
Net cash used in investing activities during the fiscal 1997
first quarter totaled $38.9 million, compared to the positive cash flow of
$33.3 million in the fiscal 1996 first quarter which resulted from
receiving $48.3 million in net cash proceeds from the June 1995 sale of
its Applebee's restaurants and related rights. Capital expenditures to
support the Company's continuing expansion program totalled $37.7 million
in the first quarter of fiscal 1997 compared to $19.3 million in the prior
year's first quarter.
Cash provided by financing activities in the fiscal 1997 first
quarter totalled $3.8 million compared to a net use of $25.5 million in
the first quarter of fiscal 1996. During the fiscal 1997 first quarter,
the Company received $11.5 million of net proceeds from the issuance of
notes payable and long-term debt. The Company did not issue new debt in
the first quarter of fiscal 1996. The Company paid $6.3 million of
principal payments on long-term debt in the fiscal 1997 first quarter
compared to $20.5 million in the prior year's first quarter. The higher
debt payments in the first quarter of fiscal 1996 were a result of the use
of cash proceeds from its Applebee's sale. As a result of the Company's
change to quarterly rather than annual dividend payments, the Company made
dividend payments of $1.4 million during the fiscal 1997 first quarter
compared to $5.0 million during the prior year's first quarter. The
Company is planning a private placement of $200 millon in principal amount
of senior unsecured long-term notes over the next 30 months, with an
initial placement of approximately $85 million in principal amount of
notes expected on or about October 25, 1996. The Company expects to use
these funds to pay off existing debt and help fund the Company's ongoing
expansion plans.
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 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.
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 7, 1996
By: \s\ Stephen H. Marcus
Stephen H. Marcus,
Chairman of the Board, President and
Chief Executive Officer
DATE: October 7, 1996
By: \s\ Douglas A. Neis
Douglas A. Neis
Chief Financial Officer and Treasurer
THE MARCUS CORPORATION
FORM 10-Q
FOR
12 WEEKS ENDED AUGUST 22, 1996
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule