FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 29, 1997
OR
[_] 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 53202-4220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 272-6020
Securities registered pursuant to Section 12(b) of the Act: Common Stock,
$1 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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 such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of August 8, 1997: $301,628,448
Number of shares outstanding of each of the classes of the registrant's
capital stock as of August 8, 1997:
Common Stock, $1 par value: 11,240,376 shares
Class B Common Stock, $1 par value: 8,504,252 shares
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
Proxy Statement for 1997 annual meeting of shareholders (incorporated by
reference into Part III, to the extent indicated therein).
PART I
Unless the context indicates otherwise, references to the number
of the Company's various facilities set forth in this Form 10-K Annual
Report are as of May 29, 1997.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-K 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 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 and uncertainties which are
described in close proximity to such statements and which may cause actual
results to differ materially from those currently anticipated.
Shareholders, potential investors and other readers are urged to consider
these factors in evaluating the forward-looking statements and are
cautioned not to place undue reliance on such forward-looking statements.
The forward-looking statements included herein are only made as of the
date of this report and the Company undertakes no obligation to publicly
update such forward-looking statements to reflect subsequent events or
circumstances.
Item 1. Business.
The Marcus Corporation through its subsidiaries (collectively,
the "Company") is engaged in four business segments: motels; movie
theatres; hotels and resorts; and restaurants.
The Company's motel operations include a chain of 143 Budgetel
Inn limited service motels in 28 states and four Woodfield Suites all-
suite hotels in Wisconsin, Colorado and Ohio. Of the 143 Budgetel Inns,
104 are owned or operated by the Company and 39 are franchised.
The Company operates 40 movie theatres with an aggregate of 297
screens throughout Wisconsin and Illinois. The Company also operates a
family entertainment center, Funset Boulevard, in Appleton, Wisconsin.
The Company's hotel and resort operations include the Pfister
and the Milwaukee Hilton, which are full-service hotels in the Milwaukee,
Wisconsin metropolitan area, and the Grand Geneva Resort & Spa, which is a
full-facility destination resort in Lake Geneva, Wisconsin. The Company
also manages three hotels for third parties: the Mead Inn in Wisconsin
Rapids, Wisconsin, the Crowne-Plaza Northstar in Minneapolis, Minnesota
and Beverly Garland's Holiday Inn in North Hollywood, California. In
fiscal 1997, the Company acquired a full-facility destination resort in
Indian Wells, California, which is being renovated before reopening in
November 1997 as the Miramonte Resort.
The Company's restaurant division includes 31 KFC (Kentucky
Fried Chicken) restaurants in Wisconsin.
The Company is continuing its aggressive expansion plan that it
began in fiscal 1994. The Company's current plans include pursuing the
following goals:
- Increasing its number of Budgetel Inns to 300 by the year
2000, with up to six new Company-owned and 24 new
franchised motels currently planned to be opened in fiscal
1998. The Company currently believes that much of this
anticipated future growth will ultimately come from its
increasing emphasis on opening new franchised Budgetel
Inns.
- Increasing its number of Woodfield Suites to approximately
40 to 50 within the next five years. The Company believes
that the majority of this potential growth will come from a
franchise program to be introduced in fiscal 1998,
supplemented by up to two or three Company-owned units per
year.
- Increasing its number of movie theatre screens to 500 by
the year 2000, with continued expansion outside of
Wisconsin. Up to 79 new screens are currently planned to
be opened by the Company in fiscal 1998, including 32 new
screens in development at two locations in Columbus, Ohio.
Currently under construction is a new 12-screen, all-
stadium seating ultraplex theatre in Menomonee Falls,
Wisconsin. Other current expansion plans include 35 new
screens to be added to existing locations in Wisconsin and
Illinois. The Company also has plans to add stadium
seating to a majority of its existing theatres.
- Adding one or two hotel properties each year over the next
few fiscal years, either Company-owned or managed for
others. In some cases, the Company may own only a partial
interest in new properties. The Company's newest property,
the Miramonte Resort in Indian Wells, California, is
scheduled to open in November 1997 after extensive
renovation.
- Expanding and enhancing the Company's KFC franchise. The
Company's first KFC/Taco Bell 2-in-1 unit, a conversion of
an existing KFC, opened in early fiscal 1998.
The actual number, mix and timing of potential future new facilities and
expansions will depend in large part on continuing favorable industry and
general economic conditions, the Company's financial performance and
available capital, the competitive environment, evolving customer needs
and trends, and the availability of attractive opportunities. It is
likely that the Company's expansion goals will continue to evolve and
change in response to these and other factors and there can be no
assurance that these current goals will be achieved.
Business Segment Data
Certain business segment data for the Company's three most
recent fiscal years relating to the Company's four industry segments is
set forth in Item 8 of Part II of this Form 10-K in footnote 10 to the
Notes to Consolidated Financial Statements.
Motel Operations
Budgetel Inns
The Company owns, operates or franchises 143 economy motels,
with almost 15,000 available rooms, under the name "Budgetel Inns" in 28
states. Of this total, 39 Budgetel Inns are operated through franchisees,
95 are Company-owned or operated and nine are operated under joint venture
type agreements. During fiscal 1997, 11 new Company-owned units and eight
new franchised units were opened. Depending upon continuing favorable
industry conditions and attractive opportunities, the Company currently
plans to add up to 30 new Budgetel Inns in fiscal 1998 (including up to
six Company-owned and up to 24 franchised facilities).
Targeted at the business traveler, Budgetel Inns feature an
upscale, contemporary exterior appearance, are generally located in high
traffic commercial areas in close proximity to interstate highway exits
and major thoroughfares and typically vary in size between 60 and 150
rooms.
The Company believes that providing amenities not typically
associated with limited service motels distinguish Budgetel Inns from many
of its competitors. These amenities include executive conference centers,
room-delivered complimentary continental breakfasts, king-sized beds, free
local telephone calls and incoming fax transmissions, non-smoking rooms,
in-room coffee makers and hair dryers, remote control cable televisions,
extra-long telephone cords and large working desks. To enhance customer
security, the Company has converted all of its Company-owned and
franchised Budgetel Inn rooms to "card key" locking systems and provides
well-lighted parking areas and all-night front desk staffing. The
interior of each Budgetel Inn is refurbished in accordance with a strict
periodic schedule.
The Company has a national franchise program for its Budgetel
Inns and has increased its emphasis on opening more franchised Budgetel
Inns. Support offices in Atlanta, Chicago and Dallas and a service office
in Florida are intended to help support expansion of the Budgetel Inn
franchise. Franchisees pay an initial franchise fee and annual marketing
assessments, reservation system assessments and royalty fees based on room
revenues. The Company is qualified to sell, and anticipates ultimately
selling, franchises in all 50 states.
During fiscal 1997, Budgetel Inns became the first limited
service lodging chain in the United States to offer business-class rooms
with a comprehensive package of business amenities at all locations. The
Company converted 10 percent of all rooms at each of its Budgetel Inn
locations into Business First rooms, which feature more than 20 business-
travel conveniences and amenities, including a speakerphone, an ergonomic
chair and an extra-large desk.
Budgetel Inns began testing a new upscale design at its new
locations in Macedonia, Ohio and Delafield, Wisconsin in fiscal 1997. The
design features all-brick exteriors and expanded lobbies.
Woodfield Suites
The Company operates four mid-priced, all-suite hotels under the
name "Woodfield Suites" and, in addition to a new Woodfield Suites opened
in Madison, Wisconsin early in fiscal 1998, currently plans to open one
additional Woodfield Suites in fiscal 1998. Although the Company
currently plans to increase the number of its Woodfield Suites to
approximately 40 to 50 within the next five years, the actual number of
potential additional Woodfield Suites will depend on continuing favorable
industry and economic conditions, the availability of attractive site
locations and customer acceptance.
Woodfield Suites offers all of its guests the use of its
centrally-located swimming pool, whirlpool and game room. Most suites
have a bedroom and separate living room and feature an extra-length bed,
sleeper sofa for additional guests, microwave, refrigerator, wet bar,
television and hair dryer. Some suites also have a kitchenette. All
guests receive a free continental breakfast and are invited to a free
cocktail hour. Meeting rooms and two-line telephones equipped with
dataports in every suite enhance Woodfield Suites' appeal for business
travelers.
Hotels and Resorts Operations
The Pfister Hotel
The Company owns and operates the Pfister Hotel in downtown
Milwaukee. The Pfister Hotel, a full service, luxury hotel, has 307 rooms
(including 80 luxury suites), three restaurants, two cocktail lounges, a
night club, an indoor swimming pool, an exercise facility and a 275-car
parking ramp. The Pfister has 20,000 square feet of banquet and
convention facilities. Banquet and meeting rooms can accommodate up to
3,000 persons and the hotel features two large ballrooms, including one of
the largest ballrooms in the Milwaukee metropolitan area, with banquet
seating for 1,200 people. A portion of the Pfister's first-floor space is
leased for use by retail tenants. In fiscal 1997, the Pfister Hotel
earned its 21st consecutive four-diamond award from the American
Automobile Association. The Pfister is also a member of Preferred Hotels
and Resorts Worldwide Association, an organization of independent luxury
hotels and resorts, and the Association of Historic Hotels of America.
The Milwaukee Hilton
The Company owns and operates the 500-room Milwaukee Hilton.
All 500 guest rooms, bathrooms, public areas and a significant portion of
meeting space were remodeled in 1995. The Hilton franchise affiliation
has benefitted the Milwaukee Hilton through the Hilton's international
centralized reservation and marketing system, advertising cooperatives and
frequent stay programs. In connection with the City of Milwaukee's
construction of a new convention facility in downtown Milwaukee, the
Company will add approximately 250 new rooms and connect the Milwaukee
Hilton by skywalk to the convention center by the end of fiscal 1999. The
addition will also include meeting rooms, a new ballroom and a family fun
center.
The Grand Geneva Resort & Spa
The Grand Geneva Resort & Spa in Lake Geneva, Wisconsin is a
full-facility destination resort located on 1,300 acres. The largest
convention resort in Wisconsin includes 355 guest rooms, 50,000 square
feet of banquet, meeting and exhibit space, three speciality restaurants,
two cocktail lounges, two championship golf courses, several ski-hills,
four indoor and five outdoor tennis courts, three swimming pools, an
executive and fitness complex, horse stables and an on-site airport.
Miramonte Resort
The Miramonte Resort in Indian Wells, California, purchased in
August 1996 and scheduled to open after renovations are completed in
November 1997, is a full-service destination resort located on 11
landscaped acres. The resort includes 14 two-story Tuscan style buildings
housing 224 guest rooms, including 60 suites, one restaurant, one lounge
and 9,500 square feet of banquet, meeting and exhibit space, including a
5,000 square foot grand ballroom. Additionally, there is a fully equipped
fitness center and two outdoor swimming pools, each with an adjacent
jacuzzi spa and sauna.
Operated and Managed Hotels
The Company operates the Crowne Plaza-Northstar Hotel in
Minneapolis, Minnesota. The Crowne Plaza - Northstar Hotel is located in
downtown Minneapolis and has 226 rooms, 13 meeting rooms, 6,370 square
feet of ballroom and convention space, one restaurant, one cocktail lounge
and an exercise facility.
The Company manages the Mead Inn in Wisconsin Rapids, Wisconsin.
The Mead Inn has 154 guest rooms, 11 meeting rooms totaling 8,180 square
feet of meeting space, two cocktail lounges, two restaurants and an indoor
pool with a sauna and whirlpool. During fiscal 1997, the Company
completed a renovation of the ballroom and lobby of the Mead Inn.
The Company manages Beverly Garland's Holiday Inn in North
Hollywood, California. The Beverly Garland has 255 rooms, including 12
suites, meeting space for up to 600, including an amphitheater and
ballroom, and an outdoor swimming pool and lighted tennis courts. The
mission-style hotel is located on seven acres near Universal Studios.
Theatre Operations
The Company operates 40 movie theatre locations with an
aggregate of 297 screens in Wisconsin and Illinois for an average of 7.4
screens per location, compared to an average of 6.1 screens per location
at the end of fiscal 1996 and 5.4 at the end of fiscal 1995. The
Company's facilities include 38 multi-screen complexes and two single-
screen theatres. The theatre division's long-term growth strategy is to
focus on multi-screen theatres having between eight to 20 screens which
typically vary in seating capacity from 150 to 450 seats per screen.
Multi-screen theatres allow the Company to offer a more diversified
selection of films to attract additional customers, exhibit movies in
larger or smaller auditoriums within the same theatre depending on the
popularity of the movie and benefit from the economies of having common
box office, concession, projection and lobby facilities. Most of the
Company's movie theatres feature exclusively first-run films.
In fiscal 1997, the Company opened 80 new screens, including a
new 20-screen ultraplex in Addison, Illinois, a 12-plex in New Berlin,
Wisconsin and an eight-plex in Appleton, Wisconsin. Also added in fiscal
1997 were 27 screens acquired at the beginning of the fiscal year,
consisting of an 11-screen theatre in Chicago Heights, Illinois and two
budget-film eight-plex theatres in the metropolitan Milwaukee area. Also
added in fiscal 1997 were 13 screens to two existing locations, including
a six-screen addition to the Gurnee, Illinois theatre, making that
location a 20-screen ultraplex. With the conversion of one of its
Appleton, Wisconsin theatres from first-run movies to budget movies, the
Company now operates 24 budget-oriented screens. The Company plans on
opening up to 79 additional new screens in fiscal 1998, including 32 new
screens in development at two locations in Columbus, Ohio.
The results of the Company's movie theatre business and the
motion picture industry in general are largely dependent upon the box
office appeal and marketing of available first-run films. Movie
production has been stimulated by additional demand from ancillary markets
such as home video, pay-per-view and cable television, as well as
increased demand from foreign film markets. The annual number of first-
run film releases has more than doubled since the late 1970s. Fiscal 1997
featured such box office hits as Independence Day, the Star Wars trilogy,
Mission Impossible, The Rock, Nutty Professor, A Time to Kill and Ransom.
The Company obtains its films from the national motion picture
production and distribution companies and is not dependent on any single
motion picture supplier. Booking, advertising, refreshment purchases and
promotion are handled centrally by an administrative staff.
The Company strives to provide its movie patrons with high-
quality picture and sound presentation in clean, comfortable, attractive
and contemporary theatre environments. Substantially all of the Company's
movie theatre complexes feature either digital sound, Dolby or other
stereo sound systems; acoustical ceilings; side wall insulation;
engineered drapery folds to eliminate sound imbalance, reverberation and
distortion; tiled floors; loge seats; cup-holder chair-arms; and computer-
controlled heating, air conditioning and ventilation. Computerized box
offices permit most of the Company's movie theatres to sell tickets in
advance. Most of the Company's theatres are accessible to persons with
disabilities and provide wireless headphones for hearing-impaired
moviegoers. Other amenities at certain theatres include THX auditoriums,
which allow customers to hear the softest and loudest sounds, and touch-
screen, computerized, self-service ticket kiosks, which simplify advance
ticket purchases. The Company also operates an exclusive customer
information telephone system in Milwaukee and Madison, allowing customers
to call for information regarding the locations, times and titles of
movies being shown by the Company throughout each metropolitan area.
The Company enhanced its offerings of amenities in fiscal 1997
by introducing stadium seating, a tiered seating system that permits
unobstructed viewing, at its theatres in Appleton and New Berlin,
Wisconsin, and Addison, Illinois. The Company is now installing stadium
seating in all of its new theatres and began an extensive program to
retrofit many of its existing auditoriums in fiscal 1998.
The Company sells food and beverage concessions at all of its
movie theatres. The Company believes that a wide variety of food and
beverage items, properly merchandised, increases concession revenue per
patron. Although popcorn still remains the traditional favorite with
moviegoers, the Company continues to upgrade its available concessions by
offering a wide range of choices. For example, some of the Company's
theatres offer hot dogs, pizza, ice cream, pretzel bites, frozen yogurt,
coffee, mineral water and juices.
In early fiscal 1997, the Company opened its first family
entertainment center, Funset Boulevard, adjacent to its new eight-screen
movie theatre in Appleton, Wisconsin. Funset Boulevard features a 40,000
square foot Hollywood-themed indoor amusement facility, including a
restaurant, party rooms, a laser tag center, virtual reality games, a
miniature golf course and an arcade.
Restaurant Operations
The Company has non-exclusive franchise rights to operate KFC
restaurants in the Milwaukee metropolitan area and in northeast Wisconsin.
The Company has operated KFC restaurants for 37 years, currently operates
31 KFC restaurants and is the largest operator of KFC restaurants in
Wisconsin, based on the number of facilities operated. The restaurants
feature Kentucky Fried Chicken and other franchisor-authorized food items.
Virtually all of the Company's KFC restaurants feature inside
seating for approximately 40 customers, drive-thru windows and updated
electronic equipment to better facilitate food preparation and order
processing. Fourteen locations in the Fox Valley and Milwaukee
metropolitan areas offer home delivery.
The Company's KFC locations operate under individual franchise
agreements, all of which were renewed in early fiscal 1998 for a term of
20 years. Franchise royalties approximate 4% of net sales and, in
addition, an initial flat fee of $20,000 is payable for each new KFC
restaurant.
The KFC franchisor specifies certain product requirements and
provide for certain approved suppliers of products and supplies in order
to maintain the franchise's quality standards.
The Company is exploring various expansion and acquisition
opportunities for its KFC operations. Early in fiscal 1998, the Company
opened its first combined two-in-one KFC and Taco Bell location in
Milwaukee, Wisconsin. Additional two-in-one locations are under
consideration.
Competition
In each of its businesses, the Company experiences intense
competition from national and/or regional chain and franchise operations,
some of which have substantially greater financial and marketing resources
than the Company. Most of the Company's facilities are located in close
proximity to other facilities which compete directly with those of the
Company.
The Company's Budgetel Inns compete with such national limited
service motel chains as Days Inn, Hampton Inn (owned by The Promus
Companies Incorporated), Fairfield Inn (owned by Marriott Corporation),
Red Roof Inn, La Quinta Inn, Comfort Inn and others, as well as a large
number of regional and local motels. The Company's Woodfield Suites
compete with such national chains as Embassy Suites, Comfort Suites,
AmeriSuites and Courtyard by Marriott, as well as other regional and local
all-suite facilities.
The Company's hotels and resorts compete with the hotels and
resorts operated by Hyatt Corporation, Marriott Corporation, Ramada Inns,
Holiday Inns and Wyndham Hotels, along with other regional and local
hotels and resorts.
In the restaurant business, the Company's KFC restaurants
compete locally with Hardee's, Boston Market, Popeye's and similar
national, as well as regional, fast food chains and individual restaurants
offering chicken.
The Company's movie theatres compete with large national movie
theatre operators, such as United Artists, Cinemark, Cineplex Odeon and
Carmike Cinemas, as well as with a wide array of smaller first-run and
discount exhibitors. Although movie exhibitors also generally compete
with the home video, pay-per-view and cable television markets, the
Company believes that such ancillary markets have assisted the growth of
the movie theatre industry by encouraging the production of first-run
movies released for initial movie theatre exhibition, which establishes
the demand for such movies in these ancillary markets.
The Company believes that the principal factors of competition
in each of its businesses, in varying degrees, are the price and quality
of its product, quality and location of its facilities, and customer
service. The Company believes that it is well positioned to compete on the
basis of these factors.
Seasonality
Historically, the Company's first and fourth fiscal quarters
have produced the strongest operating results, since such periods coincide
with the typical summer seasonality of the movie theatre industry and the
spring and summer strength of the travel and food service aspects of the
Company's business.
Research and Development
Research and development expenditures for the Company are not
material.
Environmental Regulation
The Company does not expect federal, state or local
environmental legislation to have a material effect on the Company's
capital expenditures, earnings or competitive position. However, the
Company's activities in acquiring and selling real estate for business
development purposes have been complicated by the continued emphasis
placed by Company personnel on properly analyzing real estate sites for
potential environmental problems. This circumstance has resulted in, and
is expected to continue to result in, greater time and increased costs
involved in acquiring and selling properties associated with the Company's
various businesses.
Employees
As of the end of fiscal 1997, the Company had approximately
7,400 employees, a majority of whom were employed on a part-time basis. A
majority of the Company's hotel employees in Milwaukee, Wisconsin are
covered by collective bargaining agreements which expire in June 1998. A
number of the Company's hotel employees in Minneapolis, Minnesota are
covered by collective bargaining agreements which expire in April 2000.
Relations with employees have been satisfactory and there have been no
work stoppages due to labor disputes.
Item 2. Properties.
The Company owns a substantial portion of its facilities,
including the Pfister Hotel, the Milwaukee Hilton and the Grand Geneva
Resort and Spa, all of the Company-owned Budgetel Inns and Woodfield
Suites, the majority of its theatres and restaurants, and leases the
remainder. In August 1996, the Company purchased the Miramonte Resort,
which is scheduled to open after renovations are completed in November
1997. The Company also manages three hotel properties for third parties.
` Additionally, the Company owns properties acquired for the future
construction and operation of new Company operating facilities. Some of
its properties are leased from entities owned by principal shareholders of
the Company. All of the Company's properties are suitably maintained and
adequately utilized to cover the respective business segment served.
The operating properties owned, leased and franchised by the
Company as of May 29, 1997 are summarized in the following table:
Leased
From Leased Managed Managed
Total Number Unrelated From for for Operated
of Facilities Owned Parties Related Related Unrelated By
Business Segment in Operation (1) Parties Parties Parties Franchisees
Restaurants:
KFC 31 30 1 0 0 0 0
Movie Theatres: 40 27 12 1 0 0 0
Hotels and Resorts:
Hotels 5 2 0 0 0 3 0
Resorts 1 1 0 0 0 0 0
Motels:
Budgetel 143 93 0 1 9 1 39
Woodfield Suites 4 4 0 0 0 0 0
TOTALS 224 157 13 2 9 4 39
_______________
(1) Two of the KFC restaurants, two of the movie theatres owned by the Company, and two of the motels are on land leased
from unrelated parties under long-term leases. One of the motels and one of the theatres is on land leased from
related parties. The Company's partnership interests in nine Budgetel Inns that it manages and one movie theatre
that it leases are not included in this column. Also not included in this column is the Miramonte Resort, which is
scheduled to open in November 1997.
Certain of the above individual properties or facilities are
subject to purchase money or construction mortgages or commercial lease
financing arrangements; none of these encumbrances are considered in the
aggregate to be material to the Company.
The terms of over 90% of the Company's operating property leases
expire on various dates after 1998 (assuming exercise by the Company of
all renewal and extension options).
Item 3. Legal Proceedings.
The Company does not believe that any pending legal proceeding
involving the Company is material to its business. No legal proceeding
required to be disclosed under this item was terminated during the fourth
quarter of the Company's 1997 fiscal year.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's
shareholders during the fourth quarter of the Company's 1997 fiscal year.
EXECUTIVE OFFICERS OF COMPANY
Each of the current executive officers of the Company is
identified below together with information about each such officer's age,
current position with the Company and employment history for at least the
past five years:
Name Position Age
Stephen H. Marcus Chairman of the Board, President and
Chief Executive Officer 62
Bruce J. Olson Group Vice President 47
H. Fred Delmenhorst Vice President-Human Resources 56
Thomas F. Kissinger General Counsel and Secretary 37
Douglas A. Neis Chief Financial Officer and Treasurer 38
Stephen H. Marcus has been Chairman of the Board of the Company
since December 1991 and President and Chief Executive Officer since
December 1988. Mr. Marcus has been employed by the Company for 36 years.
Bruce J. Olson has been employed in his present position with
the Company since July 1991. He was elected to serve on the Company's
Board of Directors in April 1996. Mr. Olson previously served as Vice
President-Administration and Planning for the Company from September 1987
until July 1991 and as Executive Vice President and Chief Operating
Officer of Marcus Theatres Corporation from August 1978 until October
1988, when he was appointed President of that corporation. Mr. Olson
joined the Company in 1974.
H. Fred Delmenhorst has been the Vice President-Human Resources
since he joined the Company in December 1984.
Thomas F. Kissinger joined the Company in August 1993 as
Secretary and Director of Legal Affairs and in August 1995 was promoted to
General Counsel and Secretary. Prior thereto, Mr. Kissinger was
associated with the law firm of Foley & Lardner for five years.
Douglas A. Neis joined the Company in February 1986 as
Controller of the Marcus Theatres division. In November 1987, Mr. Neis
was promoted to Controller of Marcus Restaurants. In July 1991, he was
appointed Vice President of Planning and Administration for Marcus
Restaurants. In September 1994, Mr. Neis was also named Director of
Technology for the Company and in September 1995 he was elected Corporate
Controller for the Company. In September 1996, Mr. Neis was promoted to
Chief Financial Officer and Treasurer of the Company.
The executive officers of the Company are generally elected
annually by the Board of Directors after the annual meeting of
shareholders. Each executive officer holds office until his successor has
been duly qualified and elected or until his earlier death, resignation or
removal.
PART II
Item 5. Market for the Company's Common Equity and Related Shareholder
Matters.
The following data has been adjusted, where necessary, to
retroactively adjust for the Company's three-for-two stock split effected
in the form of a 50% stock dividend distributed on November 14, 1995.
Last Sale Price Range of Common Stock
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year Ended May 29, 1997
High $27.75 $24.88 $23.25 $24.50
Low $21.25 $21.88 $20.25 $21.00
Fiscal Year Ended May 30, 1996
High $21.33 $23.67 $28.00 $28.25
Low $19.08 $19.83 $22.25 $25.00
On August 8, 1997, there were 1,980 shareholders of record for
the Common Stock and 40 shareholders of record for the Class B Common
Stock.
See Item 6 for information on the Company's cash dividends paid
on its Common Stock.
Item 6. Selected Financial Data.
Fiscal Year
1997 1996(2) 1995 1994 1993 1992 1991 1990 1989 1988 1987
Operating Results
(Dollars in Thousands)
Revenues $303,357 $262,287 $277,990 $242,614 $212,910 $204,297 $188,008 $176,592 $166,710 $162,393 $152,531
Net earnings $ 30,881 $ 42,307 $ 24,136 $ 22,829 $ 16,482 $ 13,289 $ 11,618 $ 10,781 $ 10,042 $ 10,073 $ 8,078
Common Stock Data(1)
Net earnings per
share $ 1.56 $ 2.14 $ 1.23 $ 1.16 $ 0.95 $ 0.79 $ 0.68 $ 0.63 $ 0.58 $ 0.58 $ 0.47
Cash dividends per
common share $ 0.30 $ 0.34 $ 0.23 $ 0.19 $ 0.17 $ 0.15 $ 0.13 $ 0.12 $ 0.11 $ 0.10 $ 0.10
Average shares
outstanding
(In Thousands) 19,830 19,808 19,691 19,661 17,472 16,883 17,046 17,226 17,306 17,364 17,364
Book value per share $ 14.06 $ 12.77 $ 10.94 $ 9.92 $ 8.93 $ 7.46 $ 6.81 $ 6.25 $ 5.74 $ 5.29 $ 4.80
Financial Position
(Year End)
(Dollars in Thousands)
Total assets $521,957 $455,315 $407,082 $361,606 $309,455 $274,394 $255,117 $230,789 $197,898 $181,354 $167,289
Long-term debt $168,065 $127,135 $116,364 $107,681 $ 78,995 $100,032 $ 96,183 $ 85,563 $ 64,163 $ 56,635 $ 55,255
Shareholders' equity $277,293 $251,248 $214,464 $193,918 $173,980 $124,874 $114,697 $106,983 $ 98,250 $ 91,318 $ 82,952
Capital expenditures $107,514 $ 83,689 $ 77,083 $ 75,825 $ 47,237 $ 27,238 $ 39,861 $ 42,385 $ 34,253 $ 23,591 $ 28,234
Financial Ratios
Current ratio (year
end) 0.39 0.62 0.41 0.67 0.90 0.73 0.65 0.91 0.75 1.00 0.94
Debt/capitalization
ratio (year-end) 0.39 0.35 0.37 0.37 0.34 0.46 0.47 0.45 0.41 0.40 0.41
Return on revenues 10.2% 16.1% 8.7% 9.4% 7.7% 6.5% 6.2% 6.1% 6.0% 6.2% 5.3%
Return on average
shareholders' equity 111.7% 18.2% 11.8% 12.4% 11.0% 11.1% 10.5% 10.5% 10.6% 11.6% 10.1%
_______________________
(1) All per share and shares outstanding data have been adjusted to reflect stock splits in fiscal 1996, 1993 and 1987.
(2) Includes an after-tax gain of $14.8 million, or $0.75 per share, on the sale of certain restaurant locations.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements herein constitute "forward-looking
statements." See "Special Note Regarding Forward-Looking Statements"
under Part I of this report.
Results of Operations
General
The Marcus Corporation and its four divisions report their
consolidated and individual segment results of operations on either a 52-
or-53-week fiscal year. Fiscal 1997 was a 53-week fiscal year for the
Company's motel and hotels/resorts divisions, while the Company and each
of its other divisions reported on a 52-week fiscal year. Fiscal 1996 was
a 53-week fiscal year for the Company and its theatre division, while the
Company's remaining divisions reported on a 52-week fiscal year. Fiscal
1995 was a 52-week year for the Company and each of its divisions. Fiscal
1998 will be a 53-week year for the Company's restaurant division, while
the Company and each of its other divisions will report on a 52-week
fiscal year.
Total consolidated revenues for fiscal 1997 were $303.4 million,
an increase of $41.1 million, or 15.7%, compared to fiscal 1996
consolidated revenues of $262.3 million. All four of the Company's
divisions contributed to the increase in revenues in fiscal 1997, with the
largest increase occurring in the Company's theatre division. Fiscal 1996
consolidated revenues were down $15.7 million, or 5.6%, from fiscal 1995
consolidated revenues due to the loss of approximately $46 million in
restaurant division revenues in fiscal 1996, resulting from the Company's
June 1995 sale of its 18 Applebee's restaurants and February 1995
disposition through lease of its 11 Marc's Cafe & Coffee Mill restaurants.
The additional week of results reported for the motel and hotels/resorts
divisions in fiscal 1997 contributed an additional $3.5 million in
revenues and $1.5 million in operating income to the Company's fourth
quarter and fiscal 1997 results. The additional week of results reported
for the theatre division in fiscal 1996 contributed an additional $2.0
million in revenues and $550,000 in operating income to the Company's
fourth quarter and fiscal 1996 results. Due to the relative size of the
Company's restaurant division compared to the Company's other divisions,
the additional week of results in fiscal 1998 from the restaurant division
is not anticipated to materially impact results from operations.
Net earnings for fiscal 1997 were $30.9 million, or $1.56 per
share. This represented a $3.4 million, or 12.3%, increase over
comparable fiscal 1996 earnings of $27.5 million, or $1.39 per share,
excluding the after-tax gain of $14.8 million, or $0.75 per share,
resulting from the Company's fiscal 1996 sale of restaurants. Including
the gain from the sale of restaurants, net earnings were $42.3 million, or
$2.14 per share, for fiscal 1996. Fiscal 1996 earnings, again excluding
the gain from the sale of the restaurants, increased 14.1% over fiscal
1995 net earnings. Weighted average shares outstanding were 19.8 million
for both fiscal 1997 and fiscal 1996 and 19.7 million for fiscal 1995.
The Company's interest expense, net of investment income,
totaled $10.0 million for fiscal 1997. This represented an increase of
$3.7 million, or 58.5%, over fiscal 1996 net interest expense of $6.3
million. This increase was the result of additional borrowings in fiscal
1997 necessary to finance the Company's capital program and the fact that
the Company was able to use proceeds from its sale of restaurants in
fiscal 1996 to fund a portion of its growth in that year.
The Company's income tax expense for fiscal 1997 was $20.3
million, a decrease of $7.5 million from fiscal 1996. The Company's
effective tax rate for fiscal 1997 was 39.7% versus the prior fiscal
year's 39.6%.
Historically, the Company's first and fourth fiscal quarters
have produced the strongest operating results, because these periods
coincide with the typical summer seasonality of the movie theatre industry
and the spring and summer strength of the Company's travel and food
service businesses. In addition, the Company reports its results of
operations in three equal 12-week quarters plus a 16-or-17-week fourth
quarter, contributing to the typically larger results in the fourth
quarter.
The Company is continuing its aggressive expansion plan that it
began in fiscal 1994, incurring a record $107.5 million in capital
expenditures in fiscal 1997 compared to $83.7 million in fiscal 1996. The
Company's current plans include the following goals:
- Increasing its number of Budgetel Inns to 300 by the year 2000, with
up to six new Company-owned and 24 new franchised motels currently
planned to be opened in fiscal 1998. The Company currently believes
that much of this anticipated future growth will ultimately come from
its continued increased emphasis on opening new franchised Budgetel
Inns.
- Increasing its number of Woodfield Suites to approximately 40 to 50
within the next five years. The Company believes that the majority
of this prospective growth will come from a franchise program to be
introduced in fiscal 1998, supplemented by up to two or three
Company-owned units per year.
- Increasing its number of movie theatre screens to 500 by the year
2000, with continued expansion outside of Wisconsin. Up to 79 new
screens are currently planned to be opened by the Company in fiscal
1998, including 32 new screens in development at two locations in
Columbus, Ohio. Currently under construction is a new 12-screen,
all-stadium-seating ultraplex theatre in Menomonee Falls, Wisconsin.
Other current expansion plans include 35 new screens to be added to
existing locations in Wisconsin and Illinois. The Company also has
plans to add stadium seating to a majority of its existing theatres.
- Adding one or two hotel properties each year over the next few fiscal
years, either Company-owned or managed for others. In some cases,
the Company may own only a partial interest in new properties. The
Company's newest property, the Miramonte Resort in Indian Wells,
California, is scheduled to open in November 1997 after extensive
renovation.
- Expanding and enhancing the Company's KFC franchise. The Company's
first KFC/Taco Bell 2-in-1 unit, a conversion of an existing KFC,
opened early in fiscal 1998.
The actual number, mix and timing of potential future new facilities and
expansions will depend in large part on continuing favorable industry and
economic conditions, the Company's financial performance and available
capital, the competitive environment, evolving customer needs and trends
and the continued availability of attractive opportunities. It is likely
that the Company's expansion goals will continue to evolve and change in
response to these and other factors and there can be no assurance that
these current goals will be achieved.
Motels
The Company's largest division is its motel division, which
contributed 44.6% of Company consolidated revenues and 61.4% of Company
consolidated operating income, excluding corporate items, in fiscal 1997.
The motel division's primary business is the owning and franchising of
Budgetel Inns and Woodfield Suites which respectively operate in the
limited-service economy and limited-service all-suites segments of the
lodging industry. The following tables set forth revenues, operating
income, number of units and rooms data for the motel division for the last
three fiscal years:
(in millions)
1997 1996 1995
Revenues $135.3 $118.7 $104.4
Operating income 39.8 36.3 32.0
Operating margin (% of revenue) 29.4% 30.6% 30.7%
(as of the fiscal year ended May)
1997 1996 1995
Budgetel Inns - number of units:
Company-owned or operated 104 93 82
Franchised 39 31 24
Total Budgetel Inns 143 124 106
Woodfield Suites - company owned 4 3 3
Total number of units 147 127 109
Available rooms at year-end
1997 1996 1995
Budgetel Inns
(includes franchised) 14,868 13,018 11,564
Woodfield Suites 490 339 339
Total revenues in the motel division increased 14.0% and 13.7%
in fiscal 1997 and fiscal 1996, respectively, principally as a result of
increasing available rooms. The additional week of operations included in
the motel division's fiscal 1997 results contributed an additional $2.5
million to the division's fiscal 1997 revenues and approximately $1.2
million to fiscal 1997 operating income. In addition to the increased
number of units in each year, increases in the average daily room rate at
the Company's Budgetel Inns of 3.0% and 4.2% in fiscal 1997 and 1996,
respectively, also contributed to the increased revenues. The Company's
motel occupancy percentage decreased slightly in both fiscal 1997 and
fiscal 1996, but still remained above industry averages. Factors
contributing to the slight decline in occupancy in both fiscal years
included an increase in the room supply of the limited service economy
lodging segment in both years and severe weather conditions and two
federal government shutdowns during the third quarter of fiscal 1996. The
result of the average daily rate increases and occupancy declines was a
1.1% and 3.2% increase in the division's revenue per available room, or
RevPAR, for comparable Inns for the fiscal years 1997 and 1996,
respectively. The Company's newly opened motels contributed additional
revenues of $4.9 million and nominal operating income in fiscal 1997.
Newly opened motels in fiscal 1996 contributed additional revenue of $5.3
million and nominal operating income. Similar comparative operating
results are expected for new facilities to be opened in fiscal 1998.
The motel division's operating income increased 9.7% in fiscal
1997 and 13.4% in fiscal 1996. Operating margins declined slightly to
29.4%, compared to 30.6% and 30.7% in fiscal years 1996 and 1995,
respectively, due primarily to the slight reductions in occupancy
percentages, start-up expenses associated with new motels and increased
advertising costs.
Theatres
The Company's oldest and second largest division is its theatre
division. The theatre division contributed 26.6% of the Company's
consolidated revenues and 26.0% of its consolidated operating income,
excluding corporate items, in fiscal 1997. The theatre division operates
motion picture theatres and a family entertainment center in Wisconsin and
Illinois, with plans to expand its theatres to additional states. The
following tables set forth revenues, operating income, screens and
theatres for the last three fiscal years:
(in millions)
1997 1996 1995
Revenues $80.6 $63.7 $54.0
Operating income 16.9 15.0 12.2
Operating margin (% of revenue) 20.9% 23.6% 22.7%
(as of the fiscal year ended May)
1997 1996 1995
Theatre screens 297 219 199
Theatre locations 40 36 37
Average screens per location 7.4 6.1 5.4
Family entertainment centers 1 - -
Total revenues in the theatre division increased 26.5% and 18.0%
in fiscal years 1997 and 1996, respectively, principally as a result of
adding additional screens. The additional week of operations included in
the theatre division's fiscal 1996 results (which included the Memorial
Day holiday weekend) contributed an additional $2.0 million to the
division's fiscal 1996 revenues.
Consistent with the Company's long-term strategic plan to focus
on operating large multi-screen theatres, the Company opened 80 new
screens in fiscal 1997, including a new 20-screen ultraplex in Addison,
Illinois, a twelve-plex in New Berlin, Wisconsin and an eight-plex in
Appleton, Wisconsin. Also added in fiscal 1997 were 27 screens acquired
at the beginning of the year, consisting of an 11-screen theatre in
Chicago Heights, Illinois and two budget-film eight-plex theatres in the
metropolitan Milwaukee area, and 13 screens added to existing locations,
including a six-screen addition to the Gurnee, Illinois theatre, also
making that location a twenty-screen ultraplex. As of May, 1997, the
Company operated 273 first-run screens and 24 budget screens. Compared to
first-run theatres, budget theatres generally have lower box office
revenues and associated film costs, but higher concession sales as a
percentage of box office revenue. Additionally, the Company's first
family entertainment center opened early in fiscal 1997 in Appleton,
Wisconsin. The 95,000 square foot Hollywood-themed indoor amusement
facility includes a restaurant, party rooms, a laser tag center, virtual
reality games, a miniature golf course, an arcade and the Company's new
eight-plex theatre in Appleton. The addition of the new screens and
family entertainment center in fiscal 1997 generated additional revenues
of $17.6 million compared to fiscal 1996.
The Company opened 27 new screens in fiscal 1996, including a
new ten-plex theatre in Orland Park, Illinois, and an eight-plex in Green
Bay, Wisconsin. The addition of the new screens in fiscal 1996 generated
additional revenues of over $7.0 million compared to fiscal 1995. Two
theatres with a total of two screens were closed in fiscal 1997 and three
theatres with a total of seven screens were closed in fiscal 1996. These
closed theatres had a minimal impact on operations in these years.
Revenues of the theatre business and the motion picture industry
in general are heavily dependent on the general audience appeal of
available films, together with studio marketing, advertising and support
campaigns, factors over which the Company has no control. Fiscal 1997
included such box office hits as Independence Day, the Star Wars trilogy,
Mission Impossible, The Rock, Nutty Professor, A Time to Kill and Ransom,
while fiscal 1996 included the hits Apollo 13, Toy Story, Twister, Batman
Forever, Grumpier Old Men and Pocahontas. Each of these films produced
box office receipts in excess of $1 million for the theatre division in
their respective fiscal years. Approximately the same number of first-run
films were released in fiscal years 1995, 1996 and 1997.
Total box office receipts in fiscal 1997 were $54.5 million, an
increase of $10.1 million, or 22.7%, from $44.4 million in fiscal 1996.
Fiscal 1996 box office receipts increased $6.1 million, or 15.9%, compared
to fiscal 1995. These increases are attributable to 22.7% and 9.2%
increases in attendance in fiscal years 1997 and 1996, respectively. The
increases in attendance are due to the increase in new screens each year.
Attendance at the Company's comparable locations was down 4.5% in fiscal
1997 and flat in fiscal 1996, compared to the previous year. Fiscal 1997
attendance at the Company's theatres, and the industry in general, was
adversely affected by the 1996 Summer Olympics. Not only did television
coverage of the Olympics reduce movie theatre attendance, but many motion
picture film distributors anticipated lower theatre attendance during the
Olympics and released their best films during the late spring and early
summer of 1996 in order to avoid competing with the Olympics. This
strategy meant that less attractive films were distributed in late summer
and early fall, with the result being reduced attendance late in the
Company's fiscal 1997 first quarter and the lack of quality holdovers into
the Company's fiscal 1997 second quarter. The decrease in fiscal 1997
attendance compared to the prior year was also due to the additional week
of operations in fiscal 1996. This additional week in fiscal 1996
included the 1996 Memorial Day weekend, which is traditionally one of the
year's busiest motion picture viewing weekends.
The theatre division's average ticket price did not change in
fiscal 1997 compared to the prior year. The lack of an increase in the
fiscal 1997 average ticket price was due to the additional budget-oriented
screens added during the fiscal year. First-run theatre average ticket
prices increased 4.9% in fiscal 1997 compared to the prior year. The
fiscal 1996 average ticket price increased 6.0% compared to the average
price in fiscal 1995.
Vending revenues in fiscal 1997 were $22.9 million, an increase
of $5.2 million, or 29.7%, from $17.7 million in fiscal 1996. Fiscal 1996
vending revenues increased $3.1 million, or 20.9%, from fiscal 1995
vending revenues of $14.6 million. Vending revenues increased due to the
increase in theatre attendance from the Company's added screens and the
5.8% and 10.4% increase in the average concession sales per person in
fiscal years 1997 and 1996, respectively.
The theatre division's operating income increased 12.3% in
fiscal 1997 and 23.3% in fiscal 1996, compared to the prior year results.
The division's operating margin declined slightly to 20.9%, compared to
23.6% and 22.7% in fiscal years 1996 and 1995, respectively. Fiscal 1997
operating income was reduced by over $800,000 of pre-opening expenses
related to new screens and the Company's new family entertainment center,
Funset Boulevard, and margins were further impacted by the weak film
product in late summer and early fall. Fiscal 1996 operating income
included $550,000 from the additional week of results reported during the
year.
Hotels and Resorts
The Company's hotels and resorts division contributed 19.8% of
Company consolidated revenues and 8.4% of Company consolidated operating
income, excluding corporate items, in fiscal 1997. The hotel and resort
division owns and operates two full-service hotels in downtown Milwaukee,
Wisconsin, and a full-facility destination resort in Lake Geneva,
Wisconsin. In addition, the Company managed three additional hotels in
fiscal 1997, two in fiscal 1996 and three in fiscal 1995. The division
acquired a resort in Indian Wells, California in fiscal 1997 and closed
the facility for an extensive renovation. The property is scheduled to
re-open in November, 1997 under the name Miramonte Resort. The following
table sets forth revenues and operating income for the hotels and resorts
division for the last three fiscal years:
(in millions)
1997 1996 1995
Revenues $60.2 $53.5 $45.3
Operating income 5.5 3.4 1.5
Operating margin (% of revenue) 9.1% 6.3% 3.3%
Total revenues in the hotels and resorts division increased
12.5% and 18.1% in fiscal 1997 and fiscal 1996, respectively. The
additional week of operations included in the division's fiscal 1997
results contributed an additional $1.0 million to the division's fiscal
1997 revenues and $230,000 to the fiscal 1997 operating income. The
hotels and resorts division's operating income increased 61.9% in fiscal
1997 and 129% in fiscal 1996, compared to the previous year. Operating
margins have steadily increased each year.
Occupancy and average daily rate increases at all three of the
division's owned properties contributed to the increase in revenues and
operating income in fiscal 1997, 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. As a
result of the occupancy and average daily rate increases, the division's
total RevPAR increased 12.4% in fiscal 1997 compared to the prior year.
Fiscal 1997 operating results were also favorably impacted by reduced
charges for pre-opening costs for the Milwaukee Hilton (formerly the Marc
Plaza) and increased management fees from properties managed but not owned
by the hotels and resorts division. The division's Miramonte Resort,
currently under renovation, did not have a material effect on fiscal 1997
results.
Increased occupancy at the Grand Geneva Resort & Spa as a result
of greater market awareness and the reduction of start-up related
expenses, together with the revenue from having the restored and renovated
Milwaukee Hilton open for the entire 1996 fiscal year and the impact of
increased average daily room rates at all three of the Company's owned
hotels, were the primary reasons for the division's increased fiscal 1996
revenues and operating income compared to the prior year. The division's
total RevPAR increased 16.0% in fiscal 1996 compared to the prior year.
However, the amortization of the Hilton's pre-opening costs, the loss of
revenue from the non-renewal of an operating agreement for the Sheraton-
Mayfair Inn in Milwaukee, Wisconsin, together with the effects on
occupancy of adverse winter weather, negatively impacted the division's
fiscal 1996 operating results.
In addition to completing the renovation of the Miramonte
Resort, the division expects to begin construction in fiscal 1998 on a
250-room expansion of the Milwaukee Hilton, which will create the largest
hotel in Wisconsin. Scheduled to open in 1999, the addition will also
include meeting rooms, a new ballroom, a family fun center and a skywalk
to the city's new Midwest Express Convention Center.
Restaurants
The Company's restaurant division contributed 8.8% of the
Company's consolidated revenues and 4.1% of its consolidated operating
income, excluding corporate items, in fiscal 1997. The restaurant
division has non-exclusive franchise rights to operate KFC restaurants in
the Milwaukee metropolitan area and in northeast Wisconsin. Prior to June
1996, the division also operated Applebee's Neighborhood Grill & Bar
restaurants under a franchise agreement and owned and operated additional
restaurants, including Marc's Cafe & Coffee Mills. The following tables
set forth revenues, operating income and number of restaurants for the
last three fiscal years:
(in millions)
1997 1996 1995
Revenues $26.8 $25.9 $74.1
Operating income 2.7 2.0 3.3
Operating margin (% of revenue) 10.0% 7.7% 4.5%
(as of the fiscal year ended May)
1997 1996 1995
KFC restaurants 31 31 34
Applebee's restaurants - - 18
Total restaurants 31 31 52
Total revenues in the restaurant division increased 3.5% in
fiscal 1997 and decreased 65.0% in fiscal 1996. Excluding $1.1 million
of revenues from subsequently sold or closed restaurants from fiscal 1996
revenues, restaurant division fiscal 1997 revenues increased 7.9% over the
prior year. The restaurant division's operating income increased 34.6% in
fiscal 1997 and decreased 40.0% in fiscal 1996, compared to the previous
year. Improved KFC results and the disposal of the full-service
restaurants has resulted in increased operating margins each year. The
sale of the Company's Applebee's restaurants, together with the fiscal
1995 divestiture of the Marc's Cafe & Coffee Mill and other restaurants,
reduced fiscal 1996 restaurant division revenues by approximately $46
million and reduced 1996 operating income by $1.2 million. In addition to
improvements in the division's KFC restaurants, reduced administrative
costs associated with the disposition of certain restaurant properties in
fiscal 1996 contributed to the increases in operating income. Annual
rental income of approximately $1 million from leasing the 11 divested
Marc's Cafes and one of the sold Applebee's was included as restaurant
division revenue in fiscal years 1997 and 1996.
The Company's KFC restaurants experienced a 6.8% increase in
aggregate revenues and a 1.4% decrease in aggregate revenues during fiscal
years 1997 and 1996, respectively, compared to the previous year.
Excluding $400,000 of decreased revenues in fiscal 1997 and $1.0 million
of decreased revenues in fiscal 1996 resulting from the closure of four
under performing KFC restaurants during fiscal 1996, same store KFC
restaurant sales increased 8.6% and 4.3% in fiscal years 1997 and 1996,
respectively. Same store KFC guest counts increased 4.2% and 3.3% in
fiscal years 1997 and 1996, respectively, due to increased lunch-time
traffic, the introduction and expansion of home delivery service and the
introduction of several new franchisor products. Average guest checks
increased in both fiscal 1997 and 1996 over previous year levels.
The Company's KFC restaurants experienced a 39.3% increase in
aggregate operating income during fiscal 1997, compared to a 1.4% decrease
in KFC aggregate operating income in fiscal 1996. Start-up costs
associated with the introduction of home delivery services in fiscal 1996
contributed to the decrease in operating income in fiscal 1996 and
corresponding increase in operating income in fiscal 1997. The Company
opened a new KFC during the fiscal 1996 fourth quarter and did not open
any new restaurants in fiscal 1997. In June 1997, the Company opened its
first KFC/Taco Bell 2-in-1 unit, converting an existing KFC restaurant.
Depending upon the success of this conversion, the Company may pursue
additional conversions as well as explore various other KFC expansion and
acquisition opportunities.
Financial Condition
The Company's lodging, movie theatre and restaurant businesses
each generate significant and consistent daily amounts of cash because
each segment's revenue is derived predominantly from consumer cash
purchases. The Company believes that these consistent and predictable
cash sources, together with the availability to the Company of $50
million of unused credit lines at fiscal 1997 year end, should be adequate
to support the ongoing operational liquidity needs of the Company's
businesses.
Net cash provided by operating activities increased by $19.3
million, or 46.3%, to $61.1 million in fiscal 1997, compared to $41.8
million in fiscal 1996. The increase was primarily the result of
approximately $10 million of income taxes incurred on the gain on the sale
of restaurants in fiscal 1996, combined with increased net earnings in
fiscal 1997 compared to fiscal 1996 earnings excluding the restaurant sale
gain. Timing differences in receipts of accounts and notes receivable,
net of increased payments of accounts payable contributed to the increase
in net cash provided by operating activities as well.
Net cash used in investing activities in fiscal 1997 increased
by $63.7 million, or 156%, to $104.5 million. Fiscal 1996 net cash used
in investing activities was significantly reduced by net proceeds of $48.9
million from the disposal of property, equipment and other assets
(principally from the sale of Applebee's). Capital expenditures in fiscal
1997 included $55.9 million incurred on motel division capital projects,
$37.4 million on theatre division projects and $13.4 million on hotels and
resorts division projects. In fiscal 1996, $51.5 million was incurred on
motel division projects, $20.3 million on theatre division projects and
$8.0 million on hotels and resorts division projects.
Principally as a result of funding a portion of the Company's
fiscal 1997 facility expansions and renovations, the Company's total debt
increased to $177.4 million at the close of fiscal 1997, compared to
$136.2 million at the end of fiscal 1996. Net cash provided by financing
activities in fiscal 1997 totaled $35.9 million, compared to $5.7 million
in fiscal 1996. During fiscal 1997, the Company received $99.9 million of
net proceeds from the issuance of notes payable and long-term debt,
compared to only $19.6 million in fiscal 1996. The relatively small
amount of debt proceeds in fiscal 1996 was due to the Company's use of
cash proceeds from its Applebee's sale to fund expansion during that time
period. Included in the fiscal 1997 proceeds was $85 million in principal
amount of senior unsecured long-term notes privately placed with six
institutional lendors. The Company has the ability to issue up to $115
million of additional senior notes under the private placement program
through February 1999. The Company used a portion of the proceeds from
the senior notes to pay off existing debt, resulting in total principal
payments on notes payable and long-term debt of $58.6 million in fiscal
1997, compared to only $7.9 million in fiscal 1996. The Company expects
to use the remaining proceeds to help fund the Company's ongoing expansion
plans. The Company's debt-capitalization ratio was 0.39 at May 29, 1997,
compared to 0.35 at the prior fiscal year end.
In addition to the changes in debt transactions noted above, net
cash provided by financing activities also increased due to dividend
payments of $5.7 million in fiscal 1997 compared to $6.3 million in fiscal
1996. The reduction in dividend payments was the result of a one-time
timing difference between the Company's quarterly dividend payments during
fiscal 1997 compared to the annual dividend payment plus one quarterly
payment made during fiscal 1996.
Total capital expenditures (including normal continuing capital
maintenance projects) of $107.5 million and $83.7 million were incurred in
fiscal 1997 and 1996, respectively. Total capital expenditures in fiscal
1998 are expected to exceed fiscal 1997 expenditures and are expected to
be funded by cash generated from operations and additional debt, including
additional institutional debt from the Company's private placement
program.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
of The Marcus Corporation
We have audited the accompanying consolidated balance sheets of The Marcus
Corporation (the Company) as of May 29, 1997 and May 30, 1996, and the
related consolidated statements of earnings, shareholders' equity and cash
flows for each of the three years in the period ended May 29, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
Company at May 29, 1997 and May 30, 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the
period ended May 29, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
July 18, 1997
THE MARCUS CORPORATION
CONSOLIDATED BALANCE SHEETS
May 29, 1997 May 30, 1996
(In Thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,991 $ 15,466
Accounts and notes receivable (Note 3) 5,531 8,780
Receivables from joint ventures (Note 9) 1,066 4,890
Other current assets 3,591 2,463
--------------------
Total current assets 18,179 31,599
PROPERTY AND EQUIPMENT, net (Note 3) 487,052 411,563
OTHER ASSETS:
Investments in joint ventures (Notes 8 and 9) 1,439 1,295
Other (Note 10) 15,287 10,858
--------------------
Total other assets 16,726 12,153
--------------------
Total assets $521,957 $455,315
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 9) $ 5,625 $ 5,555
Accounts payable 10,291 15,646
Income taxes 52 1,393
Taxes other than income taxes 9,297 8,323
Accrued compensation 1,270 1,380
Other accrued liabilities 10,886 9,352
Current maturities on long-term debt (Note 4) 9,327 9,069
--------------------
Total current liabilities 46,748 50,718
LONG-TERM DEBT (Note 4) 168,065 127,135
DEFERRED INCOME TAXES (Note 7) 22,425 20,027
DEFERRED COMPENSATION AND OTHER (Note 6) 7,426 6,187
COMMITMENTS, LICENSE RIGHTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Note 5):
Preferred Stock, $1 par; authorized 1,000,000 shares;
none issued
Common Stock:
Common Stock, $1 par; authorized 30,000,000
shares; issued 11,678,935 shares in 1997
and 11,529,962 shares in 1996 11,679 11,530
Class B Common Stock, $1 par; authorized
20,000,000 shares; issued and outstanding
8,707,632 shares in 1997
and 8,856,605 shares in 1996 8,708 8,857
Capital in excess of par 39,470 38,832
Retained earnings 220,860 195,643
--------------------
280,717 254,862
Less cost of Common Stock in treasury
(668,272 shares in 1997 and 718,352
shares in 1996) 3,424 3,614
--------------------
Total shareholders' equity 277,293 251,248
--------------------
Total liabilities and shareholders' equity $521,957 $455,315
====================
See accompanying notes.
THE MARCUS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED MAY 29, 1997
May 29, May 30, May 25,
1997 1996 1995
(In Thousands, Except Per Share Data)
REVENUES:
Rooms and telephone $156,689 $137,961 $119,705
Food and beverage 45,401 43,193 89,755
Theatre operations 79,733 63,099 53,733
Other income 21,534 18,034 14,797
-------------------------------
Total revenues 303,357 262,287 277,990
COSTS AND EXPENSES:
Rooms and telephone 60,198 51,346 42,780
Food and beverage 33,218 32,014 69,137
Theatre operations 49,149 38,055 32,612
Advertising and marketing 20,635 15,273 16,241
Administrative 27,108 25,532 23,080
Depreciation and amortization 28,903 25,117 23,570
Rent (Note 8) 2,435 2,461 3,727
Property taxes 10,175 9,416 9,488
Other operating expenses 10,805 11,258 10,560
-------------------------------
Total costs and expenses 242,626 210,472 231,195
-------------------------------
OPERATING INCOME 60,731 51,815 46,795
OTHER INCOME (EXPENSE):
Investment income 1,584 2,378 1,525
Interest expense (11,597) (8,696) (8,587)
Gain on disposition of property
and equipment (Note 2) 488 24,595 463
-------------------------------
(9,525) 18,277 (6,599)
-------------------------------
EARNINGS BEFORE INCOME TAXES 51,206 70,092 40,196
INCOME TAXES (Note 7) 20,325 27,785 16,060
-------------------------------
NET EARNINGS $ 30,881 $ 42,307 $ 24,136
===============================
NET EARNINGS PER SHARE $ 1.56 $ 2.14 $ 1.23
===============================
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 5) 19,830 19,808 19,691
===============================
See accompanying notes.
THE MARCUS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED MAY 29, 1997
Class B Capital
Common Common in Excess Retained Treasury
Stock Stock of Par Earnings Stock
(In Thousands)
BALANCES AT MAY 26, 1994 $ 7,366 $6,225 $44,745 $139,777 $(4,195)
Cash dividends:
$.21 per share Class B
Common Stock - - - (1,924) -
$.23 per share
Common Stock - - - (2,314) -
Exercise of stock options - - - - 186
Savings and profit-
sharing contribution - - 404 - 49
Reissuance of
treasury stock - - 5 - 4
Conversions of Class B
Common Stock 156 (156) - - -
Net earnings - - - 24,136 -
------- ------ ------ ------- ------
BALANCES AT MAY 25, 1995 7,522 6,069 45,154 159,675 (3,956)
Cash dividends:
$.31 per share Class B
Common Stock - - - (2,770) -
$.34 per share
Common Stock - - - (3,559) -
Three-for-two stock
split 3,764 3,032 (6,796) (10) -
Exercise of stock options - - 118 - 403
Purchase of treasury
stock - - - - (145)
Savings and profit-
sharing contribution - - 350 - 83
Reissuance of treasury
stock - - 6 - 1
Conversions of Class B
Common Stock 244 (244) - - -
Net earnings - - - 42,307 -
------- ------ ------ ------- ------
BALANCES AT MAY 30, 1996 11,530 8,857 38,832 195,643 (3,614)
Cash dividends:
$.27 per share Class B
Common Stock - - - (2,409) -
$.30 per share
Common Stock - - - (3,255) -
Exercise of stock options - - 127 - 251
Purchase of treasury
stock - - - - (214)
Savings and profit-
sharing contribution - - 383 - 115
Reissuance of treasury
stock - - 128 - 38
Conversions of Class B
Common Stock 149 (149) - - -
Net earnings - - - 30,881 -
------- ------ ------ ------- ------
BALANCES AT MAY 29, 1997 $11,679 $8,708 $39,470 $220,860 $(3,424)
======= ====== ======= ======== =======
See accompanying notes.
THE MARCUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED MAY 29, 1997
May 29, May 30, May 25,
1997 1996 1995
(In Thousands)
OPERATING ACTIVITIES
Net earnings $ 30,881 $ 42,307 $24,136
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Earnings on investments in
joint ventures, net of
distributions (144) (406) 33
Gain on disposition of property
and equipment (488) (24,595) (463)
Depreciation and amortization 28,903 25,117 23,570
Deferred income taxes 2,398 70 3,958
Deferred compensation and other 1,239 2,143 703
Contribution of Company stock
to savings and profit-sharing plan 498 433 453
Changes in operating assets
and liabilities:
Accounts and notes receivable 3,249 (2,614) 193
Other current assets (1,128) 1,767 (1,768)
Accounts payable (5,355) (2,240) 4,638
Income taxes (1,341) (676) (727)
Taxes other than income taxes 974 (768) 1,784
Accrued compensation (110) (78) 10
Other accrued liabilities 1,534 1,300 1,074
----------------------------
Total adjustments 30,229 (547) 33,458
----------------------------
Net cash provided by operating activities 61,110 41,760 57,594
INVESTING ACTIVITIES
Capital expenditures (107,514) (83,689) (77,083)
Net proceeds from disposals of property,
equipment and other assets 3,783 48,914 1,695
Purchase of interest in joint
ventures, net of cash acquired - (260) -
(Increase) decrease in other assets (4,602) (2,770) 1,049
Cash received from (advanced to)
joint ventures 3,824 (3,029) 6,122
----------------------------
Net cash used in investing activities (104,509) (40,834) (68,217)
FINANCING ACTIVITIES
Debt transactions:
Net proceeds from issuance of notes
payable and long-term debt 99,857 19,603 17,984
Principal payments on notes payable
and long-term debt (58,599) (7,905) (4,494)
Equity transactions:
Treasury stock transactions,
except for stock options (48) (138) 9
Exercise of stock options 378 521 186
Dividends paid (5,664) (6,339) (4,238)
----------------------------
Net cash provided by financing
activities 35,924 5,742 9,447
----------------------------
Net increase (decrease) in cash
and cash equivalents (7,475) 6,668 (1,176)
Cash and cash equivalents at
beginning of year 15,466 8,798 9,974
----------------------------
Cash and cash equivalents at
end of year $ 7,991 $ 15,466 $ 8,798
============================
See accompanying notes.
THE MARCUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 29, 1997
1. Description of Business and Summary of Significant Accounting Policies
Description of Business - The Marcus Corporation and its subsidiaries (the
Company) operate principally in four business segments:
Motels: Operates and franchises lodging facilities under the
names Budgetel Inns and Woodfield Suites, primarily
located in the eastern half of the United States.
Theatres: Operates multi-screen motion picture theatres and a
family entertainment center in Wisconsin and
Illinois.
Hotels/Resorts: Owns and operates full service hotels and resorts in
Wisconsin and manages full service hotels in
Wisconsin, Minnesota and California.
Restaurants: Operates KFC restaurants under a license agreement
for certain areas in the state of Wisconsin.
Principles of Consolidation - The consolidated financial statements
include the accounts of The Marcus Corporation and all of its
subsidiaries. Investments in 50%-owned affiliates are accounted for on the
equity method. All intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year - The Company reports on a 52/53-week year ending the last
Thursday of May. The Motels and Hotels/Resorts segments had a 53-week year
in fiscal 1997. The Theatres and Corporate segments had a 53-week year in
fiscal 1996. All other segments in 1997 and 1996 and all segments in
fiscal 1995 had 52-week years.
Cash Equivalents - The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash
equivalents. Cash equivalents are carried at cost, which approximates
market.
Inventories - Inventories, consisting principally of food and beverages,
are stated at average cost or at first-in, first-out cost.
Preopening Costs - Certain costs incurred prior to opening new or
remodeled motels and remodeled hotels are deferred and charged to
operations over the 12 months subsequent to the opening. Similar expenses
incurred in connection with the opening and remodeling of theatres and
restaurants are deferred and charged to operations at the time of opening.
Depreciation and Amortization - Depreciation and amortization of property
and equipment is provided using the straight-line method over the
following estimated useful lives:
Years
Land improvements 10 - 39
Buildings and improvements 10 - 39
Leasehold improvements 3 - 39
Furniture, fixtures and equipment 3 - 15
Advertising and Marketing Costs - The Company expenses all advertising and
marketing costs as incurred.
Net Earnings Per Share - Net earnings per share were computed based on the
weighted average number of shares of Common Stock, Class B Common Stock
and common stock equivalents (stock options) outstanding during the year.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, entitled "Earnings per Share," which will be effective
for periods ending after December 15, 1997. This Statement modifies the
computation, presentation and disclosure requirements of earnings per
share. The Company does not anticipate that this pronouncement will have a
material impact on its reported earnings per share.
Capitalization of Interest - The Company capitalizes interest during
construction periods by adding such interest to the cost of property and
equipment. Interest of approximately $1,320,000, $1,119,000 and $867,000
was capitalized in fiscal 1997, 1996 and 1995, respectively.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
2. Disposition of Restaurant Properties
Pursuant to an asset purchase agreement dated April 12, 1995, the Company
sold 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 would commence
immediately managing, operating and assuming all of the Company's existing
operating and development responsibilities related to the Company's
Applebee's restaurant operations. The Purchaser was entitled to all
profits of the restaurants subsequent to June 5, 1996, as reimbursement
for its management service.
On June 30, 1995, proceeds from the sale of approximately $48.3 million
were received in cash. The Company realized a net pretax gain of $25.4
million in fiscal 1996. Revenues and operating income from the Company's
Applebee's operations were not significant in fiscal 1996 and were as
follows for the fiscal year ended May 25, 1995:
(In Thousands)
Revenues $35,574
Operating income 2,250
On February 27, 1995, the Company leased 11 of its Marc's Cafe and Coffee
Mill restaurants to a group led by former members of the restaurants'
management team. The lease terms, which include certain buyout incentives,
differ for each location with the leases expiring on various dates through
February 28, 2001. Revenues related to the Company's operation of the 11
restaurants were $10,169,000 for the fiscal year ended May 25, 1995.
3. Additional Balance Sheet Information
The composition of accounts and notes receivable is as follows:
May 29, 1997 May 30, 1996
(In Thousands)
Trade receivables $3,871 $4,981
Notes receivable - 798
Other receivables 1,660 3,001
------------------------
$5,531 $8,780
========================
The composition of property and equipment, which is stated at cost, is as
follows:
May 29, 1997 May 30, 1996
(In Thousands)
Land and improvements $ 70,313 $ 60,177
Buildings and improvements 399,416 329,458
Leasehold improvements 8,059 5,688
Furniture, fixtures and equipment 159,715 137,305
Construction in progress 12,019 22,336
------------------------
Total property and equipment 649,522 554,964
Less accumulated depreciation and amortization 162,470 143,401
------------------------
$487,052 $411,563
========================
4. Long-Term Debt
Long-term debt is summarized as follows:
May 29, 1997 May 30, 1996
(In Thousands)
Mortgage notes due to 2002 $ 9,061 $ 9,890
Senior notes due May 31, 2005, with monthly
principal and interest payments of
$362,346, bearing interest at 10.22% 23,856 25,665
Senior notes due October 15, 2008, with annual
principal payments of $6,666,666 due beginning
October 15, 2000, bearing interest at 7.41% 60,000 -
Senior notes due October 15, 2011, with annual
principal payments of $2,272,727 due beginning
October 15, 2001, bearing interest at 7.51% 25,000 -
Industrial Development Revenue Bonds due to 2006 7,100 7,459
Unsecured term notes 52,375 57,719
Commercial paper - 11,971
Revolving credit agreements - 23,500
------------------------
177,392 136,204
Less current maturities 9,327 9,069
------------------------
$168,065 $127,135
========================
Substantially all of the mortgage notes, both fixed rate and adjustable,
bear interest from 7.2% to 9.3% at May 29, 1997. Adjustable rate
Industrial Development Revenue Bonds ($3,486,000 at May 29, 1997) bear
interest at 76.5% of prime plus 1% (7.8% at May 29, 1997), or are
adjustable based on high quality tax-exempt obligation rates
(approximately 4.2% at May 29, 1997). The Company's remaining Industrial
Development Revenue Bonds bear interest at 6.5% or 8.8%. The mortgage
notes and the Industrial Development Revenue Bonds are secured by the
related land, buildings and equipment.
The Company has three unsecured term notes outstanding, as follows:
May 29, 1997 May 30, 1996
(In Thousands)
Note due May 31, 2004, with quarterly
principal payments of $781,250. The
variable interest rate is based on the
LIBOR rate with an effective rate of
6.56% at May 29, 1997. $21,875 $24,219
Note due February 1, 2003, with quarterly
principal payments of $714,286 due
beginning May 1, 1999. The variable
interest rate is based on the LIBOR rate
with an effective rate of 6.73% at
May 29, 1997. 20,000 20,000
Note due October 1, 2000, with quarterly
principal payments of $750,000. The
variable interest rate is based on the
LIBOR rate with an effective rate of
5.83% at May 29, 1997. 10,500 13,500
------------------------
$52,375 $57,719
========================
The Company periodically issues commercial paper through an agreement with
a bank. The agreement requires the Company to maintain unused bank lines
of credit at least equal to the principal amount of its outstanding
commercial paper. At May 29, 1997, the Company had $50,000,000 of unused
credit lines available under various bank revolving credit agreements. The
interest rates under the revolving agreements were at prime or LIBOR plus
1%. There is an annual commitment fee of .25% of the unused portion of
these commitments.
Scheduled annual principal payments on long-term debt for the five years
subsequent to May 29, 1997, are:
Fiscal Year (In Thousands)
1998 $ 9,327
1999 15,167
2000 13,165
2001 18,686
2002 20,488
Interest paid, net of amounts capitalized, in 1997, 1996 and 1995 totaled
$10,985,000, $8,272,000, and $8,610,000, respectively.
Two swap agreements covering $15,000,000 were terminated during 1995 at a
loss of $185,000. One remaining swap agreement covering $10,500,000, which
is reduced by $750,000 quarterly, expires October 1, 2000, and requires
the Company to pay interest at a defined fixed rate of 5.08% while
receiving interest at a defined variable rate of three-month LIBOR (5.78%
at May 29, 1997). The second remaining swap agreement covering $7,500,000
expires August 6, 2001, and requires the Company to pay interest at a
defined fixed rate of 6.56% while receiving interest at a defined variable
rate of three-month LIBOR (5.81% at May 29, 1997). Together, these swap
agreements effectively convert $18,000,000 of the Company's variable rate
unsecured term notes to a fixed rate. The Company recorded the net
interest expense (income) related to these swap agreements as incurred,
totaling $4,000, $(96,000) and $61,000 in 1997, 1996 and 1995,
respectively. The accompanying consolidated balance sheet at May 29, 1997,
does not reflect the fair market value of the remaining swap agreements as
determined by the lender, which totals approximately $252,000.
The carrying amounts of the Company's long-term debt, based on the
respective rates and prepayment provisions of the senior notes,
approximate their fair value.
5. Shareholders' Equity
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 and Class B Common Stock. All per share,
weighted average shares outstanding and stock option data prior to
November 14, 1995, have been adjusted to reflect this dividend.
Shareholders may convert their shares of Class B Common Stock into shares
of Common Stock at any time. Class B Common Stock shareholders are
substantially restricted in their ability to transfer their Class B Common
Stock. Holders of Common Stock are entitled to cash dividends per share
equal to 110% of all dividends declared and paid on each share of the
Class B Common Stock. Holders of Class B Common Stock are entitled to ten
votes per share while holders of Common Stock are entitled to one vote per
share on any matters brought before the shareholders of the Company.
Liquidation rights are the same for both classes of stock.
Shareholders have approved the issuance of up to 1,668,750 shares of
Common Stock under various stock option plans. The options generally
become exercisable 40% after two years, 60% after three years and 80%
after four years. The remaining options are exercisable five years after
the date of the grant. At May 29, 1997 and May 30, 1996, there were
722,150 and 895,063 shares, respectively, available for grants under the
plans.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), in accounting
for its employee stock options. Under APB No. 25, because the exercise
price of the Company's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net earnings and earnings per share
required by SFAS No. 123, "Accounting for Stock Based Compensation," has
been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 1997 and 1996,
respectively: risk-free interest rates of 5.3% and 5.5%; dividend yield of
1.3% in both years; volatility factors of the expected market price of
the Company's common stock of 55% in both years and an expected life of
the option of approximately 6 years. Based on this analysis, the impact on
net earnings and earnings per share is immaterial.
A summary of the Company's stock option activity and related information
follows:
Year ended
May 30, May 25,
May 29, 1997 1996 1995
Weighted-
Average
Exercise
Options Price Options Options
(In Thousands, Except Per Share Data)
Outstanding at beginning of year 506 $16.12 474 441
Granted 84 25.00 124 126
Exercised (29) 13.72 (59) (26)
Forfeited (9) 19.72 (33) (67)
----- --- ---
Outstanding at end of year 552 17.58 506 474
===== === ===
Exercisable at end of year 247 15.91 144 101
===== === ===
Weighted-average fair value of
options granted during year $12.96 $10.21
Exercise prices for options outstanding as of May 29, 1997 ranged from
$4.67 to $25.88. The weighted-average remaining contractual life of those
options is 7.1 years.
The Company's Board of Directors has approved the repurchase of up to
1,125,000 shares of Common Stock to be held in treasury. The Company
intends to reissue these shares upon the exercise of stock options and for
savings and profit-sharing contributions. The Company purchased 9,167 and
7,127 shares pursuant to this plan during 1997 and 1996, respectively.
There were no purchases in 1995. At May 29, 1997, there were 338,513
shares available for repurchase under this authorization.
The Board has authorized the issuance of up to 500,000 shares of Common
Stock for The Marcus Corporation Dividend Reinvestment and Associate Stock
Purchase Plan. At May 29, 1997, there were 492,762 shares available under
this authorization.
The Company's loan agreements include, among other covenants, restrictions
on retained earnings and maintenance of certain financial ratios. At May
29, 1997, retained earnings of approximately $74,396,000 were
unrestricted.
6. Employee Benefit Plans
The Company has a qualified profit-sharing savings plan (401(k) plan)
covering eligible employees. The 401(k) plan provides for a contribution
of a minimum of 1% of defined compensation for all plan participants and
matching of 25% of employee contributions up to 6% of defined
compensation. In addition, the Company may make additional discretionary
contributions. The Company also sponsors unfunded nonqualified defined
benefit and deferred compensation plans. Pension and profit-sharing
expense for all plans was $1,485,000, $1,355,000 and $917,000 for 1997,
1996 and 1995, respectively.
7. Income Taxes
Income tax expense consists of the following:
Year ended
May 29, 1997 May 30, 1996 May 25, 1995
(In Thousands)
Currently payable:
Federal $14,415 $22,347 $ 9,273
State 3,512 5,368 2,829
Deferred 2,398 70 3,958
--------------------------------
$20,325 $27,785 $16,060
================================
The Company recognizes deferred tax assets and liabilities based upon the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under the liability method, deferred
tax assets and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities using
enacted tax rates for the year in which the differences are expected to
reverse.
The components of the net deferred tax liability were as follows:
May 29, 1997 May 30, 1996
(In Thousands)
Deferred tax assets:
Accrued employee benefits $ 1,765 $ 1,297
Other 493 263
Total deferred assets 2,258 1,560
------------------------
Deferred tax liability -
Depreciation and amortization 24,683 21,587
------------------------
Net deferred tax liability
included in balance sheet $22,425 $20,027
========================
A reconciliation of the statutory federal tax rate to the effective tax
rate follows:
Year ended
May 29, 1997 May 30, 1996 May 25, 1995
Expected tax expense: 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 5.1 5.1 5.3
Jobs tax credits - - (.3)
Other (.4) (.5) -
----------------------------------
39.7% 39.6% 40.0%
==================================
Income taxes paid in 1997, 1996 and 1995 totaled $19,268,000, $28,391,000
and $12,830,000, respectively.
8. Commitments, License Rights and Contingencies
Lease Commitments - The Company leases real estate under various
noncancellable operating leases with an initial term greater than one
year. Percentage rentals are based on the revenues at the specific rented
property. Rent expense charged to operations under these leases was as
follows:
Year ended
May 29, 1997 May 30, 1996 May 25, 1995
(In Thousands)
Fixed minimum rentals $2,282 $2,287 $2,358
Percentage rentals 335 356 1,551
Sublease rental income (182) (182) (182)
------------------------------
$2,435 $2,461 $3,727
==============================
Payments to affiliated parties for lease obligations were approximately
$492,000, $268,000 and $335,000 in 1997, 1996 and 1995, respectively.
Aggregate minimum rental commitments at May 29, 1997, are as follows, in
thousands:
Fiscal Year
1998 $ 1,710
1999 1,631
2000 1,577
2001 1,616
2002 1,577
After 2002 14,659
-------
$22,770
=======
Included in the above commitments is $6,274,000 in minimum rental
commitments to affiliated parties.
Commitments - The Company has commitments for the completion of
construction at various properties and the purchase of various properties
totaling approximately $24,000,000 at May 29, 1997.
License Rights - The Company owns the license rights in certain areas to
operate its restaurants and to sell products using the KFC trademark. In
addition, the Company has license rights to operate a hotel using the
Hilton trademark. Under the terms of the licenses, the Company is
obligated to pay fees based on defined gross sales. The KFC license also
requires the Company to pay an additional fee for each new location
established.
Contingencies - The Company guarantees the debt of joint ventures and
other entities totaling approximately $17,599,000 at May 29, 1997. The
debt of the joint ventures is collateralized by the real estate, buildings
and improvements, and all equipment of each joint venture.
9. Joint Venture Transactions
At May 29, 1997 and May 30, 1996, the Company held investments of
$1,439,000 and $1,295,000, respectively, in various approximately
50%-owned affiliates (joint ventures) which are accounted for under the
equity method.
The Company has receivables from the joint ventures of $1,066,000 and
$4,890,000 at May 29, 1997 and May 30, 1996, respectively. The Company
earns interest on $189,000 and $4,076,000 of the receivables at
approximately prime to prime plus 1.5% at May 29, 1997 and May 30, 1996,
respectively.
Included in notes payable at May 29, 1997 and May 30, 1996, is $2,294,000
and $1,515,000, respectively, due to joint ventures in connection with
cash advanced to the Company. The Company pays interest on the cash
advances based on the 90-day certificate of deposit rates.
10. Business Segment Information
Following is a summary of business segment information for 1995 through
1997:
Hotels/ Corporate
Motels Theatres Resorts Restaurants Items Total
(In Thousands)
1997
Revenues $135,251 $80,586 $60,210 $26,828 $ 482 $303,357
Operating
income
(loss) 39,787 16,865 5,464 2,681 (4,066) 60,731
Depreciation
and
amortization 15,389 5,071 6,174 2,001 268 28,903
Assets 287,027 98,554 79,829 24,979 31,568 521,957
Capital
expenditures 55,916 37,364 13,445 384 405 107,514
1996
Revenues $118,679 $63,696 $53,498 $25,927 $ 487 $262,287
Operating
income
(loss) 36,266 15,017 3,374 1,992 (4,834) 51,815
Depreciation
and
amortization 13,815 3,265 5,467 2,191 379 25,117
Assets 247,328 63,365 73,045 29,041 42,536 455,315
Capital
expenditures 51,542 20,316 8,010 619 3,202 83,689
1995
Revenues $104,356 $53,968 $45,292 $74,076 $ 298 $277,990
Operating
income
(loss) 31,992 12,175 1,473 3,318 (2,163) 46,795
Depreciation
and
amortization 12,883 2,766 4,101 3,385 435 23,570
Assets 211,112 46,928 68,731 53,090 27,221 407,082
Capital
expenditures 32,880 10,999 27,207 5,900 97 77,083
Corporate items include amounts not allocable to the business segments.
Corporate revenues consist principally of rent and the corporate operating
loss includes general corporate expenses. Corporate assets primarily
include cash and cash equivalents, notes receivable, receivables from
joint ventures and land held for development.
The Company has a loan outstanding of approximately $2,750,000 at May 29,
1997, to one of the hotels it manages, which bears interest at the prime
rate plus 1% and matures December 31, 2008.
PART III
Item 10. Directors and Executive Officers of the Company.
The information required by this item with respect to directors
is incorporated herein by reference to the information pertaining thereto
set forth under the caption entitled "Election of Directors" in the
definitive Proxy Statement for the Company's 1997 Annual Meeting of
Shareholders scheduled to be held September 29, 1997 ("Proxy Statement").
The required information with respect to executive officers appears at the
end of Part I of this Form 10-K.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by
reference to the information pertaining thereto set forth under the
caption entitled "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated herein by
reference to the information pertaining thereto set forth under the
caption entitled "Stock Ownership of Management and Others" in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item, to the extent applicable,
is incorporated herein by reference to the information pertaining thereto
set forth under the caption entitled "Certain Transactions" in the Proxy
Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statement Schedules.
(a) All schedules are omitted because they are inapplicable,
not required under the instructions or the financial
information is included in the consolidated financial
statements or notes thereto.
2. Exhibits and Reports on Form 8-K.
(a) The exhibits filed herewith or incorporated by reference
herein are set forth on the attached Exhibit Index.*
(b) The Company did not file a Form 8-K with the Securities and
Exchange Commission during the fourth quarter of fiscal 1997.
__________________
* Exhibits to this Form 10-K will be furnished to shareholders upon
advance payment of a fee of $0.20 per page, plus mailing expenses.
Requests for copies should be addressed to Thomas F. Kissinger,
General Counsel and Secretary, The Marcus Corporation, 250 East
Wisconsin Avenue, Suite 1700, Milwaukee, Wisconsin 53202.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
THE MARCUS CORPORATION
Date: August 22, 1997 By:/s/ Stephen H. Marcus
Stephen H. Marcus,
Chairman of the Board and
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Company and in the capacities as of the date indicated above.
By:/s/ Stephen H. Marcus By:/s/ George R. Slater
Stephen H. Marcus, Chairman of the George R. Slater, Director
Board and President (Chief
Executive Officer)
By:/s/ Douglas A. Neis By:/s/ Lee Sherman Dreyfus
Douglas A. Neis, Treasurer and Lee Sherman Dreyfus, Director
Controller (Chief Financial and
Accounting Officer)
By:/s/ Bruce J. Olson By:/s/ Daniel F. McKeithan, Jr.
Bruce J. Olson, Director Daniel F. McKeithan, Jr.,
Director
By:/s/ John L. Murray By:/s/ Diane Marcus Gershowitz
John L. Murray, Director Diane Marcus Gershowitz,
Director
By:/s/ Alan H. Selig By:/s/ Timothy E. Hoeksema
Alan H. Selig, Director Timothy E. Hoeksema, Director
By:/s/ Ulice Payne, Jr. By:/s/ Philip L. Milstein
Ulice Payne, Jr., Director Philip L. Milstein, Director
EXHIBIT INDEX
3.1 Articles of Incorporation. [Incorporated by reference to Exhibit
3.1 to the Company's Form S-3 Registration Statement (No.
33-57468).]
3.2* Bylaws, as amended as of September 28, 1995. [Incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form
10-K for the fiscal year ended May 30, 1996.]
4.1 Senior Note Purchase Agreement dated May 31, 1990 between the
Company and The Northwestern Mutual Life Insurance Company.
[Incorporated by reference to Exhibit 4 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1990.]
4.2 The Marcus Corporation Note Purchase Agreement, dated October
25, 1996. [Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended November 14, 1996.
4.3 Other than as set forth in Exhibits 4.1 and 4.2, the Company has
numerous instruments which define the rights of holders of
long-term debt. These instruments, primarily promissory notes,
have arisen from the purchase of operating properties in the
ordinary course of business. These instruments are not being
filed with this Annual Report on Form 10-K in reliance upon Item
601(b)(4)(iii) of Regulation S-K. Copies of these instruments
will be furnished to the Securities and Exchange Commission upon
request.
10.1 The Company is the guarantor and/or obligor under various loan
agreements in connection with operating properties (primarily
Budgetel Inns) which were financed through the issuance of
industrial development bonds. These loan agreements and the
additional documentation relating to these projects are not
being filed with this Annual Report on Form 10-K in reliance
upon Item 601(b)(4)(iii) of Regulation S-K. Copies of these
documents will be furnished to the Securities and Exchange
Commission upon request.
10.2 Comprehensive Image Enhancement Agreement dated October 12, 1988
between the Company and KFC Corporation. [Incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 25, 1989.]
10.3 Form of individual Kentucky Fried Chicken franchise agreement
between the Company and KFC Corporation.
10.4* The Marcus Corporation 1987 Stock Option Plan. [Incorporated by
reference to Exhibit A to the Company's 1987 Proxy Statement.]
10.5* The Marcus Corporation 1995 Equity Incentive Plan, as amended.
[Incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 30,
1996.]
10.6* The Marcus Corporation 1994 Nonemployee Director Stock Option
Plan. [Incorporated by reference to Exhibit A to the Company's
1994 Proxy Statement.]
21 Subsidiaries of the Company as of May 29, 1997.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
99 Definitive Proxy Statement for 1997 Annual Meeting of
Shareholders scheduled to be held on September 29, 1997 (filed
with the Securities and Exchange Commission under Regulation 14A
on August 22, 1997 and incorporated by reference herein to the
extent indicated).
__________
* This exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this form pursuant
to Item 14(c) of Form 10-K.