-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GkF4Wml3A0w+ijvodNXx38nh2ew1r25k5KyRtTCCREwdgSD8gPBGdsXQz/nxSQkf i/QyuBwNIMyvTqhQO/c4JA== 0000897069-98-000156.txt : 19980324 0000897069-98-000156.hdr.sgml : 19980324 ACCESSION NUMBER: 0000897069-98-000156 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980205 FILED AS OF DATE: 19980323 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARCUS CORP CENTRAL INDEX KEY: 0000062234 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 391139844 STATE OF INCORPORATION: WI FISCAL YEAR END: 0529 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12604 FILM NUMBER: 98570838 BUSINESS ADDRESS: STREET 1: 250 EAST WISCONSIN AVE STREET 2: SUITE 1700 CITY: MILWAUKEE STATE: WI ZIP: 53202-4220 BUSINESS PHONE: 4142726020 MAIL ADDRESS: STREET 1: 250 EAST WISCONSIN AVENUE STREET 2: STE 1700 CITY: MILWAUKEE STATE: WI ZIP: 53202-4220 10-Q 1 THE MARCUS CORPORATION FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 5, 1998 [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________to_______________ Commission file number 1-12604 THE MARCUS CORPORATION (Exact name of registrant as specified in its charter) WISCONSIN 39-1139844 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 250 EAST WISCONSIN AVENUE - MILWAUKEE, WISCONSIN 53202 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (414) 272-6020 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK OUTSTANDING AT MARCH 19, 1998 - 17,594,371 CLASS B COMMON STOCK OUTSTANDING AT MARCH 19, 1998 - 12,729,402 THE MARCUS CORPORATION INDEX Page No. PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets (February 5, 1998 and May 29, 1997) . . . . . . . . 3 Statements of Earnings (Twelve and thirty-six weeks ended February 5, 1998 and February 6, 1997) . . . . . . . . . . . . . . . 5 Statements of Cash Flows (Thirty-six weeks ended February 5, 1998 and February 6, 1997) . . . . . . . . . . . . . . . . . 6 Condensed Notes to Financial Statements . . . . . . 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . 8 PART II - OTHER INFORMATION Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . 14 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 15 PART I - FINANCIAL INFORMATION Item 1. Financial Statements THE MARCUS CORPORATION Consolidated Balance Sheets (in thousands) (Unaudited) (Audited) Feb. 5, May 29, 1998 1997 ASSETS Current Assets: Cash and cash equivalents $7,045 $ 7,991 Accounts and notes receivable 9,308 5,531 Receivables from joint ventures 1,254 1,066 Other current assets 4,237 3,591 -------- -------- Total current assets 21,844 18,179 Property and equipment: Land and improvements 81,143 70,313 Buildings and improvements 414,719 399,416 Leasehold improvements 8,291 8,059 Furniture, fixtures and equipment 171,734 159,715 Construction in progress 28,639 12,019 -------- -------- Total property and equipment 704,526 649,522 Less accumulated depreciation and amortization 180,836 162,470 -------- -------- Net property and equipment 523,690 487,052 Other assets: Investments in joint ventures 1,303 1,439 Other 16,280 15,287 -------- -------- Total other assets 17,583 16,726 -------- -------- TOTAL ASSETS $563,117 $521,957 ======== ======== See accompanying notes to consolidated financial statements. THE MARCUS CORPORATION Consolidated Balance Sheets (in thousands) (Unaudited) (Audited) Feb. 5, May 29, 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 4,159 $ 5,625 Accounts payable 14,776 10,291 Income taxes 4,368 52 Taxes other than income taxes 8,861 9,297 Accrued compensation 3,198 1,270 Other accrued liabilities 11,437 10,886 Current maturities on long-term debt 9,319 9,327 -------- ------- Total current liabilities 56,118 46,748 Long-term debt 174,229 168,065 Deferred income taxes 23,175 22,425 Deferred compensation and other 8,431 7,426 Shareholders' equity: Preferred Stock, $1 par; authorized 1,000,000 shares; none issued Common Stock, $1 par; authorized 50,000,000 shares; issued 18,455,994 shares at February 5, 1998, 11,678,935 shares at May 29, 1997 18,456 11,679 Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 12,733,528 shares at February 5, 1998, 8,707,632 shares at May 29, 1997 12,734 8,708 Capital in excess of par 39,595 39,470 Retained earnings 233,482 220,860 -------- -------- 304,267 280,717 Less cost of Common Stock in treasury (908,792 shares at February 5, 1998 and 668,272 shares at May 29, 1997) 3,103 3,424 -------- -------- Total shareholders' equity 301,164 277,293 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $563,117 $521,957 ======== ======== See accompanying notes to consolidated financial statements. THE MARCUS CORPORATION Consolidated Statements of Earnings (Unaudited)
(in thousands, except per share data) February 5, 1998 February 6, 1997 12 Weeks 36 Weeks 12 Weeks 36 Weeks Revenues: Rooms and telephone $30,803 $117,698 $28,577 $105,727 Food and beverage 10,049 33,788 9,440 31,987 Theatre operations 25,612 63,491 21,207 53,571 Other income 4,756 17,480 3,982 14,573 -------- -------- ------- -------- Total revenues 71,220 232,457 63,206 205,858 Costs and expenses: Rooms and telephone 15,134 46,163 12,687 39,068 Food and beverage 7,661 23,749 7,398 23,222 Theatre operations 14,690 37,365 13,188 33,340 Advertising and marketing 4,928 15,671 4,298 13,404 Administrative 6,829 21,706 5,585 17,713 Depreciation and amortization 7,591 22,164 6,740 19,608 Rent 575 2,123 536 1,842 Property taxes 2,664 8,103 1,771 6,861 Other operating expenses 3,056 9,442 2,258 7,150 -------- -------- ------- -------- Total costs and expenses 63,128 186,486 54,461 162,208 -------- -------- ------- -------- Operating income 8,092 45,971 8,745 43,650 Other income (expense): Investment income (loss) (43) 783 487 924 Interest expense (3,191) (8,828) (3,025) (7,693) Gain (loss) on disposition of property and equipment 215 457 (8) 11 ------- ------- ------- ------- (3,019) (7,588) (2,546) (6,758) ------- ------- ------- ------- Earnings before income taxes 5,073 38,383 6,199 36,892 Income taxes 2,038 15,366 2,484 14,767 ------- ------- ------- ------- Net earnings $3,035 $23,017 $ 3,715 $ 22,125 ======= ======= ======= ======= Net earnings per share:* Basic $0.10 $0.77 $0.13 $0.75 Diluted $0.10 $0.76 $0.12 $0.74 Weighted Average Shares Outstanding:* Basic 30,276 29,942 29,516 29,510 Diluted 30,537 30,193 29,789 29,783 * All per share and shares outstanding data have been adjusted to reflect the 50% stock dividend distributed on December 5, 1997. See accompanying notes to consolidated financial statements.
THE MARCUS CORPORATION Consolidated Statements of Cash Flows (Unaudited) (in thousands) 36 Weeks Ended Feb. 5, Feb. 6, 1998 1997 OPERATING ACTIVITIES: Net earnings $23,017 $22,125 Adjustments to reconcile net earnings to net cash provided by operating activities: Earnings on investments in joint ventures, net of distributions 136 137 Gain on disposition of property and equipment (457) (11) Depreciation and amortization 22,164 19,608 Deferred income taxes 750 184 Deferred compensation and other 1,005 (729) Changes in assets and liabilities: Accounts and notes receivable (3,777) 1,846 Other current assets (646) (1,078) Accounts payable 4,485 (7,026) Income taxes 4,316 4,189 Taxes other than income taxes (436) (518) Accrued compensation 1,928 1,244 Other accrued liabilities 551 2,312 ------- ------ Total adjustments 30,019 20,158 ------- ------ Net cash provided by operating activities 53,036 42,283 INVESTING ACTIVITIES: Capital expenditures (56,337) (80,386) Net proceeds from disposals of property, equipment and other assets 1,323 1,770 Increase in other assets (1,113) (2,459) Cash received from (advanced to) joint ventures (188) 4,464 ------- ------- Net cash used in investing activities (56,315) (76,611) FINANCING ACTIVITIES: Debt transactions: Net proceeds from issuance of notes payable and long-term debt 16,489 98,053 Principal payments on notes payable and long-term debt (11,799) (55,495) Equity transactions: Treasury stock transactions, except for stock options (383) (55) Exercise of stock options 1,104 155 Dividends paid (3,078) (2,830) ------- ------- Net cash provided by financing activities 2,333 39,828 ------- ------- Net increase (decrease) in cash and cash equivalents (946) 5,500 Cash and cash equivalents at beginning of year 7,991 15,466 ------- ------- Cash and cash equivalents at end of period $ 7,045 $ 20,966 ======= ======= See accompanying notes to consolidated financial statements. THE MARCUS CORPORATION CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE TWELVE AND THIRTY-SIX WEEKS ENDED FEBRUARY 5, 1998 (Unaudited) A. Refer to the Company's audited financial statements (including footnotes) for the fiscal year ended May 29, 1997, contained in the Company's Form 10-K Annual Report for such fiscal year, for a description of the Company's accounting policies. B. The consolidated financial statements for the twelve and thirty-six weeks ended February 5, 1998 and February 6, 1997 have been prepared by the Company without audit. In the opinion of management, all adjustments consisting only of normal recurring accruals necessary to present fairly the unaudited interim financial information at February 5, 1998, and for all periods presented, have been made. C. The Company's Board of Directors declared a three-for-two stock split, effected in the form of a 50% stock dividend, distributed on December 5, 1997, to all holders of Common Stock and Class B Common Stock. All per share and weighted average shares outstanding data prior to December 5, 1997, have been adjusted to reflect this dividend. D. Pursuant to an Agreement and Plan of Reorganization dated June 30, 1997 between The Marcus Corporation and Guest House Inn, Inc. ("GHI"), the Company issued on October 1, 1997 610,173 Common Shares in exchange for the net operating assets of GHI and issued 449,320 new Class B Shares in exchange for and cancellation of 449,320 existing Class B Shares owned by GHI. All share data has been adjusted to reflect the three-for-two stock split. GHI is owned and controlled by certain officers, directors and/or principal shareholders of the Company. For financial reporting purposes, the assets acquired from GHI were recorded at the historical book value of GHI rather than fair value because GHI and the Company were controlled by the same shareholders. The Common Shares issued to complete the GHI Transaction were recorded at their fair value and the excess of this fair value over the historical book value of the assets was recorded as a distribution. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Special Note Regarding Forward-Looking Statements Certain matters discussed in this Management's Discussion and Analysis of Results of Operations and Financial Condition are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks, assumptions and uncertainties which are described in close proximity to such statements and which may cause actual results to differ materially from those currently anticipated. Shareholders, potential investors and other readers are urged to consider these risks, assumptions and uncertainties carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and the Company undertakes no obligation to publicly update such forward- looking statements to reflect subsequent events or circumstances. RESULTS OF OPERATIONS General The Company reports its results of operations on a 52-or 53-week fiscal year which ends on the last Thursday in May. Each fiscal year is divided into three 12-week quarters and a final quarter consisting of 16 or 17 weeks. The final quarter of fiscal 1998 will consist of 17 weeks for the Company's restaurant division, while the Company and its other remaining divisions will report a 16-week fourth quarter. Due to the relative size of the Company's restaurant division compared to the Company's other divisions, the division's additional week of results in fiscal 1998 is not anticipated to materially impact the Company's consolidated results of operations for the fiscal year. Fiscal 1997 was a 53-week fiscal year for the Company's motel and hotels/resorts divisions, while the Company and its remaining divisions reported a 52-week year in fiscal 1997. Beginning in fiscal 1999, the Company will begin dividing its fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. The Company is making this change in order to simplify its reporting process and provide greater consistency between quarters. The Company plans to provide comparative quarterly revenue and income data to allow for meaningful quarterly comparisons. The Company's fiscal year end will not change. Revenues for the third quarter of fiscal 1998 ended February 5, 1998 totaled $71.2 million, an increase of $8.0 million, or 12.7%, from revenues of $63.2 million for the third quarter of fiscal 1997. For the first three quarters of fiscal 1998, revenues were $232.5 million, an increase of $26.6 million, or 12.9%, from revenues of $205.9 million in the first three quarters of fiscal 1997. All four operating segments contributed to the increase in revenues for the fiscal 1998 third quarter. Net earnings for the third quarter of fiscal 1998 were $3.0 million, or $.10 per share, down 18.3% and 16.7%, respectively, from net earnings of $3.7 million, or $.12 per share, for the same quarter in the prior year. For the first three quarters of fiscal 1998, net earnings were $23.0 million, or $.76 per share. This represented a respective 4.0% and 2.7% increase over net earnings of $22.1 million, or $.74 per share, for the first three quarters of fiscal 1997. All earnings per share data have been adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend on December 5, 1997. In the third quarter of fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share". Prior period amounts have been restated under the new standard. All per share data presented is on a diluted basis. Operating income (earnings before other income/expense and income taxes) totaled $8.1 million during the third quarter of fiscal 1998, a decrease of $0.6 million, or 7.5%, compared to the prior year same period. For the first three quarters of fiscal 1998, operating income was $46.0 million, an increase of $2.3 million, or 5.3%, over operating income of $43.7 million for the first three quarters of fiscal 1997. The Company's interest expense, net of investment income, totaled $3.2 million for the third quarter and $8.0 million for the first three quarters of fiscal 1998. This represents increases of $0.7 million and $1.2 million, respectively, over the same periods last year and was the result of increased long-term debt levels necessary to help finance the Company's capital expansion program, combined with reduced investment income. The Company is conducting a review of its computer systems to identify those areas that could be affected by the Year 2000 issue and is developing an implementation plan to resolve the issue. The Company is also assessing the impact of this issue with its key vendors and suppliers. Motels Total revenues for the third quarter of fiscal 1998 for the motel division were $27.0 million, an increase of $1.7 million, or 6.6%, compared to $25.3 million during the same period in fiscal 1997. Total revenues for the first three quarters of fiscal 1998 for the motel division were $99.2 million, an increase of $9.5 million, or 10.6%, compared to $89.7 million during the first three quarters of fiscal 1997. The motel division's operating income for the fiscal 1998 third quarter totaled $2.7 million, a decrease of $2.9 million, or 51.7%, from the $5.6 million earned by the division during the same period of fiscal 1997. The motel division's operating income for the first three quarters of fiscal 1998 totaled $24.1 million, a decrease of $3.3 million, or 12.0%, from the $27.4 million earned by the division during the same period of fiscal 1997. Compared to the end of the third quarter of fiscal 1997, 7 new Company- owned or operated Budgetel Inns, 11 new franchised Budgetel Inns and 1 new Company-owned Woodfield Suites were in operation at the end of the fiscal 1998 third quarter. The Company's newly opened motels contributed additional revenues of $1.9 million to the division's fiscal 1998 third quarter revenues. The Company experienced lower occupancy rates and slightly higher average daily room rates for comparable Budgetel Inns in the third quarter of fiscal 1998, compared to the same quarter last year. The result of the occupancy decline and average daily rate increases was a 2.5% decrease in the division's revenue per available room, or RevPAR, for comparable Budgetel Inns for the fiscal 1998 third quarter. For the first three quarters of fiscal 1998, RevPAR for comparable Budgetel Inns remained constant with the same period last year. The motel division's results continue to be impacted by the increasing limited service segment room supply, resulting in no RevPAR growth and pressure on the division's operating margins. The increased room supply is especially prevalent in the Midwestern and Southern portions of the country, where the Company has a large number of properties. The reduced occupancy, during what is already traditionally a slow season for the travel industry, combined with increased payroll costs from a tight labor market and recent minimum wage increases, resulted in reduced operating margins during the fiscal 1998 third quarter compared to the prior year same period. The increased room supply has also contributed to below average performance of new properties, negatively impacting the division's fiscal 1998 operating results to date. Shortly after the end of the fiscal 1998 third quarter, the Company announced that it is planning to change the name of its Budgetel Inns to Baymont Inns by October 31, 1998. The Company believes that the Budgetel name no longer reflects all of the current product's features and amenities. The name change, which was endorsed by the Budgetel Franchise Advisory Council, is intended to help expand the Company's customer base, increase RevPAR and increase development opportunities. As a result of the name change and the expanded market potential, the Company's goal is to have between 400 and 500 locations under the Baymont banner within five years, an increase from the Company's prior goal of 300 Budgetel Inns by the year 2000. The Company's ability to reach this goal will be significantly impacted by its ability to increase the number of franchised locations at a pace faster than what has been achieved under the Budgetel name as well as industry and economic conditions, the competitive environment and other factors. The Company anticipates reporting an after-tax charge against earnings in its fiscal 1998 fourth quarter of approximately $2.5 million, or $.08 per share, for the write-off of existing signage and other one-time expenses associated with the name change. At the end of the fiscal 1998 third quarter, the Company-owned or operated 106 Budgetel Inns and franchised an additional 46 Inns, bringing the total number of Budgetel Inns in operation to 152. In addition, there are currently 17 franchised Budgetel/Baymont Inns under construction, 5 of which are scheduled to open before the end of fiscal 1998. An additional 4 Company-owned and 9 franchised Budgetel/Baymont Inns are under development and should begin construction in the near future. The Company also owns and operates 5 Woodfield Suites all-suite motels. Three company-owned Woodfield Suites are currently under development, with a new franchise program set to be launched later this fiscal year. Theatres The theatre division's fiscal 1998 third quarter revenues were $25.7 million, an increase of $4.3 million, or 20.0%, over revenues of $21.4 million during the same period in fiscal 1997. Operating income for the third quarter in fiscal 1998 totaled $7.0 million, an increase of $2.1 million, or 41.9%, over operating income of $4.9 million during the same period last year. The theatre division's fiscal 1998 first three quarters revenues were $63.8 million, an increase of $9.9 million, or 18.4%, over revenues of $53.9 million during the first three quarters of fiscal 1997. Operating income for the first three quarters of fiscal 1998 was $14.9 million, an increase of $4.2 million, or 39.5%, over $10.7 million of operating income during the first three quarters of fiscal 1997. Total box office receipts for the fiscal 1998 third quarter increased $2.3 million, or 15.7%, over box office receipts during the same period last year, despite having five less screens operating this year compared to the prior year. Early in the third quarter of fiscal 1998, the Company experienced a fire loss at its North Shore Cinema in Mequon, Wisconsin, reducing the number of screens operating during the quarter. The theatre is expected to be closed until late in the fiscal 1998 fourth quarter. Total box office receipts for the first three quarters totaled $42.3 million, an increase of $5.6 million, or 15.3%, over $36.7 million during the same period last year. The increase in box office receipts for the first three quarters of fiscal 1998 compared to the same period in the prior year was due to additional screens, a 3.3% increase in average ticket prices and more popular films distributed during the year compared to the same period last year. Vending revenues for the fiscal 1998 third quarter increased $1.8 million, or 29.4%, over vending revenues during the same period last year. Vending revenues for the first three quarters of the year were $19.0 million, an increase of $3.7 million, or 24.0%, over $15.3 million during the first three quarters of fiscal 1997. The increase in vending revenues may be attributed to an overall increase in attendance, including new screens, and an 11.6% increase in vending revenues per person. For the first three quarters of fiscal 1998, theatre attendance at comparable screens has increased 2.1%. Theatre attendance is largely dependent upon the audience appeal of available films, a factor over which the Company has limited control. The Company did not add any new screens during the third quarter of fiscal 1998, ending the third quarter with a total of 297 total screens in 40 theatres compared to 291 screens in 40 theatres at the end of the same period last year. Due to the previously mentioned fire, only 286 screens were in operation for the majority of the fiscal 1998 third quarter. Early in the fiscal 1998 fourth quarter, the Company opened a new 12- screen complex in Menomonee Falls, Wisconsin and converted an existing five-screen complex into a budget-oriented theatre. The Company currently has 49 additional screens under construction, including two 16-screen ultraplexes in Columbus, Ohio, one IMAX/R/ 2D/3D large-screen theatre at one of the new Columbus complexes and 16 screens being added to five existing locations. The Company also began a recent capital program to retrofit the majority of its existing screens to stadium seating and expects to complete the purchase of six suburban Minneapolis/St. Paul theatres with a total of 44 screens during the fiscal 1998 fourth quarter. Hotels and Resorts Total revenues for the hotels and resorts division during the third quarter of fiscal 1998 increased by $1.7 million, or 15.7%, to $12.4 million, compared to $10.7 million during the previous year's comparable period. Operating losses decreased by $30,000, or 2.8%, to $1.1 million during the fiscal 1998 third quarter, compared to an operating loss of $1.2 million during the third quarter of fiscal 1997. Consistent with the seasonality of group and convention business in the Midwest, the third quarter of the Company's fiscal year is typically the slowest period for its hotels and resorts division. Total revenues from the hotels and resorts division during the first three quarters of fiscal 1998 totaled $49.2 million, an increase of $6.0 million, or 13.9%, over total first three quarters revenues of $43.2 million in fiscal 1997. Operating income increased by $1.6 million during the first three quarters of fiscal 1998, or 26.8%, to $7.7 million, compared to $6.1 million during the prior year's first three quarters. For the first three quarters of the year, occupancy rates and average daily rates have increased at all three of the Company's comparable owned hotels and resorts, contributing to the increased revenues and operating income in the fiscal 1998 first three quarters compared to the fiscal 1997 first three quarters. Late in the fiscal 1998 third quarter, the Company opened its second resort, the Miramonte Resort in Indian Wells, California, contributing to the increased revenues for the division during the third quarter. Fiscal 1998 third quarter and year to date results were negatively impacted by approximately $350,000 and $650,000, respectively, of pre-opening costs and anticipated start-up operating losses at the Miramonte Resort. Due to these anticipated start-up expenses, this resort is expected to have a slightly negative impact on the division's fiscal 1998 results. The division's total RevPAR for comparable properties increased 5.5% in fiscal 1998's third quarter compared to the same quarter last year and has increased over 11% for the first three quarters of fiscal 1998 compared to the same period last year. The Company announced during the fiscal 1998 third quarter that it had executed a management contract to operate its first property in Michigan, the Mission Point Resort on Mackinac Island. This is the Company's third resort and fourth management contract, increasing the hotel and resort division's properties to eight. The Mission Point Resort is a seasonal property and is not expected to materially impact the division's fiscal 1998 operating income. In addition, the Company expects to begin construction during the fourth quarter of fiscal 1998 on a 250-room expansion of the Milwaukee Hilton, which will create the largest hotel in Wisconsin. The addition is currently scheduled to open late in calendar 1999. Restaurants Restaurant division revenues totaled $6.0 million for the third quarter of fiscal 1998, an increase of $400,000, or 6.9%, over fiscal 1997 third quarter revenues of $5.6 million. The division's operating income for the fiscal 1998 third quarter totaled $660,000, an increase of $220,000, or 50.5%, over operating income of $440,000 during the third quarter of fiscal 1997. Restaurant division revenues totaled $19.9 million for the first three quarters of fiscal 1998, an increase of $1.2 million, or 6.4%, over first three quarters fiscal 1997 revenues of $18.7 million. The division's operating income for the first three quarters of fiscal 1998 totaled $2.5 million, an increase of $750,000, or 42.3%, over fiscal 1997 first three quarters operating income of $1.8 million. The increases in revenues and operating income for both the third quarter and first three quarters of fiscal 1998, compared to the same periods last year, were primarily the result of increased rental income from closed restaurant locations, customer count and average guest check increases related to recent successful KFC product introductions, continued strong home delivery sales and results from the Company's first 2-in-1 KFC/Taco Bell conversion, combined with reduced food costs. The Company operated 30 KFC restaurants and 1 KFC/Taco Bell 2-in-1 restaurant at the end of the third quarter of fiscal 1998, compared to 31 KFC restaurants at the end of the fiscal 1997 third quarter. FINANCIAL CONDITION The Company's lodging, movie theatre and restaurant businesses each generate significant and consistent daily amounts of cash because each segment's revenue is derived predominantly from consumer cash purchases. The Company believes that these consistent and predictable cash sources, together with the availability to the Company of $40 million of unused credit lines at the end of the third quarter, should be adequate to support the ongoing operational liquidity needs of the Company's businesses. Net cash provided by operating activities increased by $10.7 million during the first three quarters of fiscal 1998 to $53.0 million, compared to $42.3 million during the prior year's first three quarters. The increase over the same period last year was primarily the result of increased net earnings and depreciation/amortization, combined with timing differences in payments of accounts payable and receipts of accounts and notes receivable. Net cash used in investing activities during the fiscal 1998 first three quarters totaled $56.3 million, compared to $76.6 million during the fiscal 1997 first three quarters. Capital expenditures to support the Company's continuing expansion program totaled $59.5 million in the first three quarters of fiscal 1998 compared to $80.4 million in the prior year's first three quarters. The fiscal 1998 capital expenditures total of $59.5 million includes a $3.2 million non-cash acquisition of operating assets of a related company, Guest House Inn, Inc. The Company issued 610,173 shares of its Common Stock (adjusted for the three-for-two stock split) in conjunction with the acquisition. A reduction in the number of company-owned Budgetel Inn projects and the timing of theatre screen additions accounts for the majority of the decrease in capital expenditures. A total of 72 new theatre screens, including 27 acquired screens, were added in the fiscal 1997 first three quarters, compared to none during the fiscal 1998 first three quarters. Due to the pending theatre acquisition and screens under construction at the end of the fiscal 1998 third quarter, the Company currently anticipates that its total capital expenditures for fiscal 1998 will be approximately $100 million, with the theatre division spending a greater portion of the total than in the past. Cash provided by financing activities during the fiscal 1998 first three quarters totaled $2.3 million, compared to $39.8 million during the first three quarters of fiscal 1997. During the fiscal 1998 first three quarters, the Company received $16.5 million of net proceeds from the issuance of notes payable and long-term debt, compared to $98.1 million during the first three quarters of fiscal 1997. Included in the fiscal 1997 proceeds was $85 million of senior unsecured long-term notes privately placed with six institutional lenders. The Company used a portion of the fiscal 1997 proceeds from the senior notes to pay off existing debt, resulting in total principal payments on notes payable and long-term debt of $55.5 million during the first three quarters of fiscal 1997, compared to only $11.8 million during the same period this year. The Company has the ability to issue up to $115 million of additional senior notes under the private placement program through February 1999 and anticipates issuing additional long-term debt in fiscal 1998 to help fund the Company's ongoing expansion plans. The actual timing and extent of the implementation of the Company's current expansion plans will depend in large part on continuing favorable industry and general economic conditions, the 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 current expansion goals will continue to evolve and change in response to these and other factors. PART II - OTHER INFORMATION Item 6. Exhibits Exhibit 27 - Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE MARCUS CORPORATION (Registrant) DATE: March 20, 1998 By: \s\ Stephen H. Marcus Stephen H. Marcus, Chairman of the Board, President and Chief Executive Officer DATE: March 20, 1998 By: \s\ Douglas A. Neis Douglas A. Neis Chief Financial Officer and Treasurer THE MARCUS CORPORATION FORM 10-Q FOR 36 - WEEKS ENDED FEBRUARY 5, 1998 EXHIBIT INDEX Exhibit Description 27 Financial Data Schedule EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCUS CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAY-28-1998 MAY-30-1997 FEB-05-1998 7,045 0 9,308 0 0 21,844 704,526 180,836 563,117 56,118 174,229 0 0 31,190 269,974 563,117 214,977 232,457 107,277 186,486 0 0 8,828 38,383 15,366 23,017 0 0 0 23,017 .77 .76
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