United States Securities and Exchange Commission Washington, D.C
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 23, 2006 [ ] 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.) 100 East Wisconsin Avenue, Suite 1900 Milwaukee, Wisconsin 53202-4125 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (414) 905-1000 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 JANUARY 2, 2007 – 21,555,081 CLASS B COMMON STOCK OUTSTANDING AT JANUARY 2, 2007 – 8,946,054 THE MARCUS CORPORATION INDEX PART I - FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements: Consolidated Balance Sheets (November 23, 2006 and May 25, 2006) 3 Consolidated Statements of Earnings (Thirteen and twenty-six weeks ended November 23, 2006 and November 24, 2005) 5 Consolidated Statements of Cash Flows (Twenty-six weeks ended November 23, 2006 and November 24, 2005) 6 Condensed Notes to Consolidated Financial Statements 7 Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 24 PART II - OTHER INFORMATION Item 1A. Risk Factors 25 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds; Purchases of Equity Securities by the Issuer 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 6. Exhibits 26 Signatures S-1 2 PART I — FINANCIAL INFORMATION Item 1. Consolidated Financial Statements THE MARCUS CORPORATION Consolidated Balance Sheets (Unaudited) (Audited) November 23, May 25, 2006 2006 (in thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents $ 11,507 $ 34,528 Cash held by intermediaries 11,760 1,752 Accounts and notes receivable, net of reserves 14,193 14,306 Receivables from joint ventures, net of reserves 3,441 3,385 Refundable income taxes -- 216 Deferred income taxes 6,118 5,898 Condominium units held for sale (Note 6) 76,413 -- Other current assets 19,368 11,273 Assets of discontinued operations (Note 2) 1,729 7,545 Total current assets 144,529 78,903 Property and equipment: Land and improvements 61,150 60,889 Buildings and improvements 398,280 382,555 Leasehold improvements 39,741 39,682 Furniture, fixtures and equipment 168,910 167,687 Construction in progress 35,343 17,580 Total property and equipment 703,424 668,393 Less accumulated depreciation and amortization 222,256 217,864 Net property and equipment 481,168 450,529 Other assets: Investments in joint ventures 13 7,487 Goodwill 11,168 11,196 Other 41,697 39,119 Total other assets 52,878 57,802 TOTAL ASSETS $ 678,575 $ 587,234 See accompanying notes to consolidated financial statements. 3 THE MARCUS CORPORATION Consolidated Balance Sheets (Unaudited) (Audited) November 23, May 25, 2006 2006 (in thousands, except share and per share data) LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Notes payable $ 211 $ 500 Accounts payable 14,152 19,399 Income taxes 1,896 -- Taxes other than income taxes 11,684 11,064 Accrued compensation 6,494 7,444 Other accrued liabilities 15,117 14,887 Current maturities of long-term debt 117,233 53,402 Liabilities of discontinued operations (Note 2) 2,649 1,998 Total current liabilities 169,436 108,694 Long-term debt 131,363 123,110 Deferred income taxes 29,993 27,946 Deferred compensation and other 29,263 26,161 Shareholders’ equity: Preferred Stock, $1 par; authorized 1,000,000 shares; none issued -- -- Common Stock, $1 par; authorized 50,000,000 shares; issued 22,235,822 shares at November 23, 2006 and May 25, 2006 22,236 22,236 Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 8,953,691 at November 23, 2006 and May 25, 2006 8,954 8,954 Capital in excess of par 45,590 45,911 Retained earnings 251,266 231,907 Accumulated other comprehensive loss 168 112 328,214 309,120 Less unearned compensation on restricted stock -- (293) Less cost of Common Stock in treasury (693,606 shares at November 23, 2006 and 646,544 shares at May 25, 2006) (9,694) (7,504) Total shareholders’ equity 318,520 301,323 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 678,575 $ 587,234 See accompanying notes to consolidated financial statements. 4 THE MARCUS CORPORATION Consolidated Statements of Earnings (Unaudited) November 23, 2006 November 24, 2005 (in thousands, except per share data) 13 Weeks 26 Weeks 13 Weeks 26 Weeks Revenues: Rooms and telephone $ 23,546 $ 50,121 $ 20,321 $ 43,607 Theatre admissions 17,772 47,716 19,119 47,866 Theatre concessions 8,733 23,635 8,995 22,651 Food and beverage 12,117 23,806 10,727 21,501 Other revenues 8,437 18,734 7,863 17,645 Total revenues 70,605 164,012 67,025 153,270 Costs and expenses: Rooms and telephone 8,059 16,296 6,959 14,472 Theatre operations 14,608 38,020 15,351 37,314 Theatre concessions 1,924 5,228 1,954 4,896 Food and beverage 8,716 17,178 7,847 16,034 Advertising and marketing 4,860 9,581 4,244 8,549 Administrative 7,981 16,242 7,443 14,900 Depreciation and amortization 6,303 12,708 6,579 13,060 Rent 814 1,678 914 1,838 Property taxes 2,730 5,247 2,651 5,191 Preopening expenses 931 1,206 28 364 Other operating expenses 5,212 10,979 4,756 9,866 Total costs and expenses 62,138 134,363 58,726 126,484 Operating income 8,467 29,649 8,299 26,786 Other income (expense): Investment income 661 1,457 2,140 4,117 Interest expense (3,191) (6,477) (3,593) (7,331) Gain on disposition of property, equipment and other assets 8,582 8,569 239 3,222 Equity losses from unconsolidated joint ventures (1,102) (1,399) (444) (777) 4,950 2,150 (1,658) (769) Earnings from continuing operations before income taxes 13,417 31,799 6,641 26,017 Income taxes 3,154 7,828 2,060 9,057 Earnings from continuing operations 10,263 23,971 4,581 16,960 Discontinued operations (Note 2): Loss from discontinued operations, net of income tax benefit of $32 and $68 for the 13 and 26 weeks ended November 23, 2006, respectively and $59 and $467 for the 13 and 26 weeks ended November 24, 2005, respectively (185) (209) (90) (716) Gain on sale of discontinued operations, net of income taxes (benefit) of $(13) and $174 for the 13 and 26 weeks ended November 23, 2006, respectively, and $361 and $2,800 for the 13 and 26 weeks ended November 24, 2005 13 36 553 4,289 (172) (173) 463 3,573 Net earnings $ 10,091 $ 23,798 $ 5,044 $ 20,533 Earnings per share - basic: Continuing operations $ 0.34 $ 0.79 $ 0.15 $ 0.56 Discontinued operations $ (0.01) $ (0.01) $ 0.02 $ 0.12 Net earnings per share $ 0.33 $ 0.78 $ 0.17 $ 0.68 Earnings per share - diluted: Continuing operations $ 0.33 $ 0.78 $ 0.15 $ 0.55 Discontinued operations $ -- $ (0.01) $ 0.01 $ 0.12 Net earnings per share $ 0.33 $ 0.77 $ 0.16 $ 0.67 Dividends per share: Class B Common Stock $ 0.068 $ 0.136 $ 0.050 $ 0.100 Common Stock $ 0.075 $ 0.150 $ 0.055 $ 0.110 See accompanying notes to consolidated financial statements. 5 THE MARCUS CORPORATION Consolidated Statements of Cash Flows (Unaudited) 26 Weeks Ended (in thousands) November 23, November 24, 2006 2005 OPERATING ACTIVITIES: Net earnings $ 23,798 $ 20,533 Adjustments to reconcile net earnings to net cash provided by operating activities: Losses on loans to and investments in joint ventures 1,486 670 Gain on disposition of property, equipment and other assets (7,368) (3,222) Gain on sale of condominium units (1,411) -- Gain on sale of limited-service lodging division -- (7,089) Distributions from joint ventures 184 354 Amortization of loss on swap agreement -- 184 Amortization of favorable lease right 191 338 Depreciation and amortization 12,720 13,167 Stock compensation expense 596 60 Deferred income taxes 1,739 (1,825) Deferred compensation and other 932 435 Changes in assets and liabilities: Accounts and notes receivable 607 (5,199) Real estate and development costs 3,014 834 Condominium units held for sale 19 -- Other current assets (5,243) 245 Accounts payable (5,372) (6,484) Income taxes 3,806 6,953 Taxes other than income taxes 599 1,751 Accrued compensation (950) (1,160) Other accrued liabilities (11,892) 80 Total adjustments (6,343) 92 Net cash provided by operating activities 17,455 20,625 INVESTING ACTIVITIES: Capital expenditures (39,309) (14,211) Purchase of Wyndham Milwaukee Center hotel, net of cash acquired -- (23,580) Net proceeds from disposals of property, equipment and other assets 14,368 5,718 Net proceeds from sale of condominium units 20,571 -- Net proceeds from sale of limited-service lodging division -- 12,294 Net