Annual Report (Form 10-K), fiscal year 1994

Item 1. Business.
The Marcus Corporation and its subsidiaries (collectively referred to herein as the "Company") are engaged in four business segments: motels; hotels and resorts; restaurants; and movie theatres. The Company began in 1935 as the operator of a single movie theatre and currently owns, operates or franchises 99 motels, five hotels, one resort, 68 restaurants, and 36 movie theatres with an aggregate of 189 screens.
The Company's motel operations include a chain of 98 Budgetel Inn economy motels in 26 states and one Woodfield Suites all-suite motel in Wisconsin. Of the 98 Budgetel Inns, 76 are owned or operated by the Company and 22 are franchised.
The Company's hotel and resort operations include The Pfister and the Marc Plaza, full-service hotels in the Milwaukee, Wisconsin metropolitan area, and The Grand Geneva Resort & Spa, a full-facility destination resort in Lake Geneva, Wisconsin. The Company also operates or manages three hotels, the Sheraton Mayfair Inn in Milwaukee, Wisconsin, The Mead Inn in Wisconsin Rapids, Wisconsin, and the Crowne-Plaza Northstar in Minneapolis, Minnesota.
The Company's restaurant division includes 35 KFC (Kentucky Fried Chicken) restaurants in Wisconsin; four Marc's Big Boy restaurants in Wisconsin and Minnesota; 13 Marc's Cafe and Coffee Mill restaurants in Wisconsin; 13 Applebee's Neighborhood Grill & Bar ("Applebee's") restaurants in Wisconsin and Illinois; two Big Boy Express restaurants in Wisconsin; and one Original Gino's East of Chicago Restaurant in Wisconsin.
The Company operates 36 movie theatres with an aggregate of 189 screens throughout Wisconsin and in northern Illinois.
Business Segment Data
Set forth below is certain business segment data for the Company's three most recent fiscal years relating to the Company's four industry segments. As a result of the substantial expansion of the Company's hotel and resort operations in fiscal 1994 and the increasingly different operating characteristics of the Company's hotels and resort from the Company's motels, the Company has commenced separate business segment reporting for its hotel and resort division and its motel division and has restated retroactively the following segment reporting information accordingly. Intersegment sales and transfers are not material.
Fiscal Year(1) 1994 1993 1992
(Dollars in thousands) Revenues from unaffiliated customers:(2) Motels $88,973 $80,596 $74,575 Hotels and resort 32,391 28,485 28,101 Restaurants 71,108 59,138 56,110 Theatres 51,389 43,880 42,959 Corporate items(3) 2,454 1,919 2,552 -------- ------- ------- $246,315 $214,018 $204,297 ======== ======== ======== Operating profit or (loss):
Motels $ 25,971 $ 23,775 $ 19,874 Hotels and resort 2,611 2,116 1,830 Restaurants 2,203 723 434 Theatres 12,378 9,660 9,130 Corporate items(3) (8,509) (9,232) (9,302) -------- -------- ------- $ 34,654 $ 27,042 $ 21,966 ======== ========= ======== Identifiable assets:
Motels $182,174 $166,193 $154,578 Hotels and resort 45,787 24,041 21,747 Restaurants 51,896 46,282 35,800 Theatres 47,244 36,898 35,994 Corporate items(3) 34,505 36,041 26,275 -------- -------- -------- $361,606 $309,455 $274,394 ======== ======== ======== _______________
(1) Fiscal year 1992 consisted of 53 weeks in each of the hotels and resort, motels and restaurants segments; all other segments and years consisted of 52 weeks.
(2) Included revenues from affiliated customers are not material.
(3) Corporate items include amounts not allocable to specific business segments. Revenues consist principally of earnings on cash equivalents. Operating profit includes earnings on cash equivalents, less interest expense and general corporate expenses. Assets include primarily cash and cash equivalents, notes receivable, receivables from joint ventures and land held for development.
Motel Operations
Budgetel Inns
The Company owns, operates or franchises 98 economy motels, with over 10,000 rooms, under the name "Budgetel Inn" in 26 states. The Company operates 22 Budgetel Inns through franchisees. The remaining Budgetel Inns are either Company-owned (68) or operated under joint venture agreements (eight).
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. Budgetel Inn daily room rates generally vary between $30 and $45 per night.
The Company believes that providing amenities not typically associated with economy-priced motels help 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, no smoking rooms, in-room coffeemakers 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 most of its 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.
Budgetel Inns operates a nationwide guest reservation center, where travelers can call 1-800-4-BUDGET toll-free to obtain Budgetel Inn room reservations and other information.
The Company has a national franchise program for its Budgetel Inns. Franchisees pay an initial franchise fee and annual marketing assessments, reservation system assessments and royalty fees based on room revenues. To facilitate continued growth in Budgetel Inn franchising, the Company offers certain financial assistance plans to its franchisees. The Company is qualified to sell, and anticipates ultimately selling, franchises in all 50 states.
During fiscal 1994, five new Company-owned units opened and one franchised unit was opened. Since the end of fiscal 1994, two new Company-owned Budgetel Inns have opened, with an additional five new Company-owned and two new franchised units under various stages of construction. Depending upon continuing favorable industry conditions and other factors, the Company currently plans to add a substantial number of new Budgetel Inns over the next five fiscal years through internal expansion, franchising and acquisition.
Woodfield Suites
The Company operates a mid-priced, all-suite motel under the name "Woodfield Suites" and plans to open two more Woodfield Suites in fiscal 1995 using its new prototype all-suites motel design. Woodfield Suites offers all of its guests the use of its centrally-located swimming pool, whirlpool and game room. Each suite has a bedroom and separate living room and features 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.
Hotel and Resort Operations
The Pfister Hotel
The Company owns and operates The Pfister Hotel, a 307-room, full service luxury hotel, in downtown Milwaukee. In fiscal 1994, The Pfister Hotel earned its 18th consecutive four-diamond award from the American Automobile Association. The Pfister is also a member of the Preferred Hotels and Resorts Worldwide Association, an organization of independent luxury hotels and resorts, and the Association of Historic Hotels of America.
In 1988, The Pfister Hotel initiated a five-year exterior and interior restoration and refurbishment plan which was completed prior to May 1993, when The Pfister celebrated its centennial anniversary. The renovation and centennial celebration contributed to increased occupancy levels in fiscal 1994.
The Marc Plaza Hotel
The Company owns and operates the 500-room Marc Plaza Hotel, located in downtown Milwaukee. The Company leases office suites on two floors of The Marc Plaza to professional and other business tenants on a short- to intermediate-term basis and provides such tenants with various secretarial and other office-type services.
As a result of the planned opening of a new and expanded municipal convention center adjacent to the Marc Plaza, the Company will commence work on a major refurbishment of the Marc Plaza's existing facilities in November 1994, with completion targeted for May 1995. Additionally, the Marc Plaza plans to add an additional 250 rooms.
The Grand Geneva Resort & Spa
In July 1993, the Company acquired the Americana Lake Geneva Resort in Lake Geneva, Wisconsin and renamed it the Grand Geneva Resort & Spa. Originally opened in 1968, the Grand Geneva Resort & Spa is a full- facility destination resort located on 1,300 acres. The resort includes 355 guest rooms, a convention center, three speciality restaurants, two championship golf courses, several ski-hills, indoor tennis courts, a fitness and sports complex, horse stables and an on-site airport. The resort was closed by the Company in September 1993 for a complete renovation and reopened in May 1994.
Operated and Managed Hotels
The Company operates the 150-room Sheraton Mayfair Inn in the Milwaukee metropolitan area under a operating agreement which expires in April 1995. The Company is currently evaluating the economic feasibility of renewing this operating agreement and may enter into negotiations to continue its operation of the Sheraton Mayfair Inn if the proposed economic terms and conditions indicate that such a renewal would be in the best interests of the Company.
The Company manages the 226-room Crowne Plaza - Northstar in Minneapolis, Minnesota pursuant to a 15-year management agreement. Formerly known as the Northstar Hotel, the property was substantially remodeled in early 1994 and renamed the Crowne Plaza-Northstar, the luxury brand of the Holiday Inn system.
The Company also manages the 154-room Mead Inn in Wisconsin Rapids, Wisconsin, pursuant to a 15-year management agreement, with the Company having an option to extend the term of the agreement for three successive five-year periods.
Restaurant Operations
The restaurant division operates facilities under a number of different restaurant concepts and the Company is continually trying to position its restaurants in order to best respond to changing consumer tastes and preferences. These efforts include closing or selling less profitable locations, converting them into different concepts or remodeling them. The Company's current principal emphasis is on casual- theme dining, as evidenced through the Company's continuing expansion of its successful Applebee's facilities. The Company also actively considers developing or being the franchisee for new restaurant concepts. At the close of fiscal 1994, the Company operated 13 Applebee's Neighborhood Grill & Bars, 35 KFCs, 13 Marc's Cafe and Coffee Mills, four Marc's Big Boys, two Big Boy Expresses and one Original Gino's East of Chicago.
KFC Restaurants
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 34 years. The Company currently operates 35 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, including the introduction of the new Colonel's Rotisserie Gold non-fried chicken in fiscal 1994.
In 1988, the KFC franchisor, Pepsico, Inc., began efforts to change the KFC dining concept from providing facilities with only carryout services ("carryout stores") to providing facilities with carryout, drive- thru and sit-down service ("KFC restaurants"). In response to these efforts, the Company has renovated, rebuilt or renovated 32 of its 35 carryout stores into KFC restaurants, providing virtually all new facilities with inside seating for approximately 40 customers, drive-thru windows and updated electronic equipment to better facilitate food preparation and order processing. In fiscal 1994, the Company replaced two carryout units with new KFC restaurants in Milwaukee. The Company plans to build two or three new KFC's in late fiscal 1995.
Applebee's Neighborhood Grill & Bar Restaurants
The Company has the exclusive franchise rights to develop and operate Applebee's restaurants in the Chicago metropolitan area and surrounding counties and for substantially all of Wisconsin. The Applebee's restaurant system is franchised by Applebee's International, Inc., a publicly-held company headquartered in Kansas City, Missouri. A majority of the restaurants in the Applebee's system are operated by franchisees, such as the Company. The Company owns and operates 13 Applebee's, including four in the Milwaukee metropolitan area, two in Madison, Wisconsin, one in Appleton, Wisconsin, and six in the Chicago metropolitan area. During early fiscal 1995, the Company opened three new units, one in Green Bay, Wisconsin and two in Illinois. The Company has seven additional Applebee's in various stages of development in Wisconsin and in the Chicago metropolitan area. The Company plans to open a total of six to eight Applebee's in fiscal 1995.
Applebee's restaurants are local neighborhood establishments, with a comfortable and casual atmosphere appealing to all ages. Menu items consisting of beef, chicken, seafood and pasta entrees prepared in a variety of cuisines include traditional favorites and innovative dishes, in addition to a full range of appetizers and snack foods. The Company's Applebee's restaurants generally have about 35 to 40 tables and seat approximately 165 customers, with a centrally located bar.
Marc's Cafe and Coffee Mill Restaurants
The Company owns and operates 13 Marc's Cafe and Coffee Mill restaurants. Renovated from former Big Boy restaurants, the updated decor in each Marc's Cafe includes brass, greenery, rich upholstery and warm, relaxing colors. Local memorabilia decorate the walls for a hometown touch in each facility. Marc's Cafes are intended to provide customers with a casual, intimate atmosphere, with menus featuring, among other items, freshly-brewed specialty coffees, rotisserie chicken, beer and wine. Operating in a highly competitive segment of the restaurant industry, the Company continues to examine alternatives and refinements to this internally-developed restaurant concept.
Marc's Big Boy Restaurants/Big Boy Express
The Company operates four Marc's Big Boy restaurants and has non- exclusive franchise rights to operate restaurants under the "Big Boy" name in Wisconsin, Illinois and Iowa and exclusive rights in Minnesota. In response to changing consumer tastes and preferences, the Company has closed, sold or converted 54 of its former Big Boy restaurants over the last six years in order to focus on more promising locations and restaurant concepts. The Company expects to ultimately close or convert all of its remaining Marc's Big Boy locations as appropriate alternatives arise.
The Company operates two Big Boy Express double drive-thru, carryout restaurants in metropolitan Milwaukee, designed with a 1950s art deco motif. Intended as a test concept, Big Boy Express features outdoor patio seating and enclosed walk-up windows and serves the "Big Boy" doubledecker hamburger sandwich, other sandwiches, french fries and milkshakes. The Company continues to evaluate the potential long-term feasibility of this concept.
The Original Gino's East of Chicago Restaurants
In September 1993, the Company acquired exclusive franchise rights to operate Original Gino's East of Chicago restaurants in Wisconsin, Minnesota, Iowa and selected sights in Illinois. Gino's East specializes in Chicago-style (deep dish) pizza, together with pasta, salads, sandwiches and Italian cuisine. In fiscal 1994, the Company opened a Gino's East restaurant in Milwaukee.
Restaurant Franchise Agreements
The Company's restaurant franchise agreements impose various specifications as to the preparation of the franchised products as well as general operating procedures, including advertising, maintenance of records and protection of trademarks. Such agreements also provide, among other things, for inspection, counseling and advisory services by the franchisors.
The Company's KFC locations operate under individual franchise agreements ranging in terms from 10 to 20 years in length. Franchise fees approximate 4% of gross sales and, in addition, an initial flat fee of $20,000 is payable for each new KFC restaurant. The KFC franchise arrangement has been, and is expected to continue to be, material to the success of the Company's restaurant division.
The Company's Big Boy franchise agreement provides for payment of a franchise fee of 1% of gross sales. The Big Boy franchise is non- exclusive and continues in perpetuity, provided the Company complies with the conditions of the franchise agreement, which relate primarily to operating procedures and use of trademarks. The Company's exclusive franchise rights in Wisconsin, Illinois and Iowa terminated as of August 1, 1994 as a result of the Company not maintaining a specified minimum number of Big Boys in the franchise area. Given the Company's deemphasis of the Big Boy concept, the Company does not believe this change in its franchise rights impacts adversely its restaurant operations.
The Company's development agreements with the Applebee's franchisor for its Chicago and Wisconsin franchise territories require the Company, among other things, to build a specified number of Applebee's restaurants in each territory in accordance with a development timetable. The Applebee's franchisor charges an initial franchise fee of either $30,000 or $35,000 (depending on location) for each Applebee's restaurant developed. A royalty fee of 4% of monthly gross sales is payable to the franchisor. Additionally, as franchisee, the Company is required to pay an advertising fee to the franchisor for national advertising purposes and to spend certain amounts for local advertising. Applebee's franchise agreements have a term of 20 years and can be renewed for an additional 20 years.
The Company's franchise agreement with the Gino's East franchisor provides for an initial franchise fee of $25,000 for each Gino's East franchise opened. A royalty fee of between 3% and 7% of total gross sales is payable to the franchisor, depending upon individual franchise sales levels. The Company's master development agreement for Gino's East restaurants requires the Company, among other things, to open a specified number of Gino's East restaurants within the Company's franchised territory in accordance with a development schedule.
Each of the Company's restaurant franchisors, to varying degrees, specify certain product requirements and provide for certain approved suppliers of products and supplies in order to maintain the respective franchise's quality standards.
Theatre Operations
The Company operates 36 movie theatres with an aggregate of 189 screens in Wisconsin and northern Illinois. The Company's facilities include 32 automated multi-screen theatres, three single-screen theatres and one outdoor twin theatre. The Company's long-term growth strategy is to focus on multi-screen theatres, which typically vary in seating capacity from 150 to 450 seats per screen. Multi-plex theatres allow the Company to offer a diversified selection of films to attract additional customers, to shift movies to larger or smaller auditoriums within the same theatre depending on the popularity of the movie and to benefit from the economies of having common box office, concession, projection and lobby facilities. Virtually all of the Company's movie theatres feature exclusively first-run films.
The results of the Company's movie theatre business (and the movie theatre industry in general) are largely dependent upon the box office appeal and marketing of available first-run films. Stimulated in large part by additional demand from ancillary markets such as home video, pay- per-view and cable television, as well as increased demand from European film markets, the annual number of first-run film releases has more than doubled since 1981. Over 160 first-run films were released in fiscal 1994, including such box office hits as Mrs. Doubtfire, Philadelphia, Grumpy Old Men, Jurassic Park, The Firm, Schindler's List, Sleepless in Seattle, The Fugitive, In the Line of Fire and The Pelican Brief. In fiscal 1993, approximately 150 first-run films were released.
In fiscal 1994, the Company opened a new 10-plex theatre at Gurnee Mills, Illinois. Three theatres with a total of five screens were closed in fiscal 1994, two of which were sold; the Company also sold one of its outdoor theatres. Since the end of fiscal 1988, the number of screens in the Company's theatre circuit has grown by 49, representing a 35% increase. In fiscal 1995, the Company anticipates opening a new eight- plex theatre in Delafield, Wisconsin and adding up to 11 screens to existing theatres. The Company currently plans to add up to 33 additional screens in fiscal 1996, including additional theatres in Illinois, and to aggressively continue its expansion thereafter as appropriate opportunities arise.
The Company obtains its films from various national motion picture production and distribution companies, has never experienced difficulties in obtaining an adequate supply of available first-run films and is not dependent on any one motion picture supplier. Bookings, 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 DTS (digital sound) Dolby 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 and allow tracking of attendance by film title and time. Most of the Company's theatres are fully handicapped-accessible and provide wireless headphones, as well as some closed-captioned films, for hearing-impaired moviegoers. The Company also operates an exclusive customer information telephone system in Milwaukee and Madison, allowing customers to call for information as to the locations, times and titles of movies being shown by the Company throughout each metropolitan area. In fiscal 1994, the Company introduced digital sound systems at seven of its screens in four of its theatres, with additional theatres scheduled to be upgraded to digital sound in fiscal 1995.
The Company sells refreshments and other concessions at all of its movie theatres. The Company believes a wide variety of food and refreshment items, properly merchandized, increases concession revenue per patron. Although popcorn still remains the traditional favorite with moviegoers, the Company continues to attempt 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, frozen yogurt, coffee, mineral water, juices and dessert.
Competition
All of the Company's business segments are highly competitive and there are other facilities in close proximity to many of the Company's facilities which compete directly with those of the Company. 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.
The Company's Budgetel Inns compete with such national economy 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 hotels compete in the Milwaukee metropolitan area with the hotels operated by Hilton Hotels, Hyatt Corporation, Marriott Corporation, Ramada Inns, Holiday Inns and Wyndham Hotels. The Grand Geneva Resort & Spa and the Company's managed and operated hotels compete with other hotels, motels and resorts located in proximity to such facilities.
In the restaurant business, the Company's Marc's Big Boy, Marc's Cafe and Coffee Mill, Applebee's and Gino's East restaurants compete with national chains such as Denny's, Shoney's, Cracker Barrel, Perkin's, Red Lobster, TGI Friday's, Chili's and Olive Garden, among others, as well as smaller regionalized restaurant chains and individual restaurants. The Company's KFC restaurants compete locally with Hardee's, Popeye's and similar national, as well as regional, fast food chains and individual restaurants offering chicken.
The Company's movie theatres compete with national large movie theatre operators, such as United Artists, Cinemark and Carmike Cinemas, Inc., as well as with a wide array of smaller exhibitors. Although movie exhibitors in general also compete with the home video, pay-per-view and cable television markets, the Company believes that such markets have assisted the growth of the movie theatre industry in general by encouraging a significant increase in the number of first-run movies produced and released for initial movie theatre exhibition.
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 period (i.e., late spring through the July 4th holiday season) coincides with the typical summer seasonality of the movie theatre industry and the summer strength of the travel and food service aspects of the Company's business. However, the Company has been experiencing less seasonality in its theatre segment over the past several fiscal years due to the continued increased movie industry emphasis on producing films directed to more diverse and mature audiences.
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 increased 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 1994, the Company had approximately 7,500 employees, a majority of whom were employed on a part-time basis. A majority of the Company's hotel employees in Milwaukee and Minneapolis are covered by collective bargaining agreements. Relations with employees have been satisfactory and there have been no work stoppages due to labor disputes.
Item 2.



Item 2. Properties.
The Company owns a substantial portion of its facilities, including The Pfister Hotel, the Marc Plaza Hotel and the Grand Geneva Resort and Spa, and leases the remainder. The Company also manages or operates three hotel properties. 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 or leased by the Company as of May 26, 1994 are summarized in the following table:
Certain of the above individual properties or facilities are subject to purchase money or construction mortgages or commercial lease financing arrangements, none of which encumbrances are considered in the aggregate to be material to the Company.
Assuming exercise by the Company of all renewal and extension options, the terms of the Company's operating property leases expire on various dates, with over 90% of the leases expiring after 1995.
Item 3.

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 1994 fiscal year.
Item 4.

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 1994 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 59
Bruce J. Olson Group Vice President 44
H. Fred Delmenhorst Vice President-Human Resources 53
Kenneth A. MacKenzie Chief Financial Officer, Treasurer and Controller 60
Thomas F. Kissinger Secretary and Director of Legal Affairs 34
Stephen H. Marcus became Chairman of the Board of the Company in December 1991. He has been the President of the Company for more than the past five years. He also served as Treasurer of the Company prior to the election of Mr. MacKenzie to such position in September 1987. In December 1988, he became the Chief Executive Officer of the Company, in addition to Chief Operating Officer.
Bruce J. Olson has been employed in his present position with the Company since July 1991. 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.
H. Fred Delmenhorst has been the Vice President-Human Resources since he joined the Company in December 1984.
Kenneth A. MacKenzie has been the Controller of the Company or its Marcus Restaurants, Inc. subsidiary since June 1979. He was elected Treasurer of the Company in September 1987 and Chief Financial Officer in June 1993.
Thomas F. Kissinger joined the Company in August 1993 as Secretary and Director of Legal Affairs. Prior thereto, Mr. Kissinger was associated with the law firm of Foley & Lardner for five years.
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.

Item 5. Market for the Company's Common Equity and Related Shareholder Matters.
Last Sale Price Range of Common Stock*
First Second Third Fourth Quarter Quarter Quarter Quarter
Fiscal Year Ended May 26, 1994
High $24 1/4 $26 1/4 $29 1/4 $28 1/2
Low $20 1/2 $23 1/4 $23 1/4 $25 3/4
Fiscal Year Ended May 27, 1993
High $15 5/8 $17 3/4 $23 1/2 $26 3/4
Low $11 1/2 $14 1/8 $16 1/4 $21 3/8
*The Company's Common Stock began trading on the New York Stock Exchange on December 14, 1993. Prior thereto, the Common Stock was quoted on the Nasdaq National Market.
On August 12, 1994, there were 1,749 shareholders of record for the Common Stock and 36 shareholders of record for the Class B Common Stock.
See Item 6

Item 6. Selected Financial Data.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
Results of Operations - General
The Marcus Corporation and its divisions report their consolidated results of operations on either a 52-or 53-week fiscal year. Both fiscal 1994 and fiscal 1993 were 52-week years for the Company and all of its divisions. Fiscal 1992 was a 53-week year for the motel, hotels and resort and restaurant divisions. Fiscal 1995 will be a 52-week fiscal year for the Company and all of its divisions.
Total consolidated revenues for fiscal 1994 were $246.3 million, an increase of $32.3 million, or 15.1%, compared to fiscal 1993 consolidated revenues of $214.0 million. Net earnings for fiscal 1994 were $22.8 million, or $1.74 per share. Net earnings increased $6.3 million, or 38.5%, over fiscal 1993 net earnings of $16.5 million, or $1.42 per share. Earnings per share in fiscal 1994 increased by a smaller percentage, 22.5%, than net earnings due to the effect on weighted average shares outstanding resulting from the 1,755,000 shares of Common Stock issued by the Company in its March 1993 public offering. Weighted average shares outstanding for fiscal 1994 were 13.1 million compared to 11.6 million for fiscal 1993. Fiscal 1994 earnings included a one-time $1.8 million tax benefit, or $0.14 per share, resulting from the Company's adoption of SFAS 109 "Accounting for Income Taxes." Excluding the tax benefit, fiscal 1994 earnings were $21.0 million, or $1.60 per share.
The Company's income tax expense for fiscal 1994 was $13.6 million, an increase of $3.0 million from fiscal 1993. The Company's effective tax rate for fiscal 1994 was 39.3% versus the prior year's 39.1%.
Inflation has not had a material impact on the Company's consolidated results of operation.
As a result of the substantial expansion of the Company's hotel and resort operations in fiscal 1994 and the increasingly different operating characteristics of the Company's hotels and resort from the Company's motels, the Company has commenced separate business segment reporting for its hotel and resort division and its motel division. All segment information has been retroactively restated to take into account the Company's change in segment reporting.
Motels
Fiscal 1994 Versus Fiscal 1993
Total revenues in fiscal 1994 for the motel division were $89.0 million, an increase of $8.4 million, or 10.4%, compared to fiscal 1993. The motel division's operating profits in fiscal 1994 totaled $26.0 million, an increase of $2.2 million, or 9.2%, over the division's fiscal 1993 operating profits of $23.8 million.
Occupancy and average daily room rates continued to increase at the Company's motels in fiscal 1994 principally as a result of improved economic conditions and an effective Budgetel advertising campaign. The Company's motel occupancy percentage increased by 1.4 percentage points in fiscal 1994 from fiscal 1993 and the average daily motel room rate increased by 4.0% in fiscal 1994 from 1993. The increased average occupancy percentage and daily room rate contributed almost $3.8 million to the motel division's increased fiscal 1994 revenues.
At the close of fiscal 1994, there were 98 Budgetel Inns and one Woodfield Suites in operation, compared to 92 Budgetel Inns and one Woodfield Suites at 1993 fiscal year-end. Five new Company-owned Budgetel locations and one new franchised Budgetel location opened in fiscal 1994. Together, the six new facilities contributed additional revenues of $4.6 million and nominal operating profits in fiscal 1994.
The Company currently anticipates that up to seven additional Company-owned Budgetel Inns and two new Woodfield Suites will be opened during fiscal 1995, together with up to six new franchised Budgetel Inns.
Fiscal 1993 Versus Fiscal 1992
Total revenues for the motel division in fiscal 1993 were $80.6 million, an increase of $6.0 million, or 8.1%, compared to fiscal 1992. Operating profits for the motel division in fiscal 1993 totaled $23.8 million, an increase of $3.9 million, or 19.6%, over the division's fiscal 1992 operating profits of $19.9 million. The extra operating week in fiscal 1992 had an immaterial impact on the foregoing comparisons.
Theatres
Fiscal 1994 Versus Fiscal 1993
The theatre division's fiscal 1994 revenues were $51.4 million, an increase of $7.5 million, or 17.1%, over fiscal 1993. Operating profits for fiscal 1994 were $12.4 million, an increase of $2.7 million, or 28.1%, over fiscal 1993. At fiscal 1994 year-end, the Company operated 189 screens at 36 locations in Wisconsin and Illinois, compared to 184 screens at 38 locations at the end of fiscal 1993. Consistent with the Company's long-term strategic plan to focus on operating large multi- screen theatres, the Company opened its first Illinois location in fiscal 1994 at Gurnee Mills in metropolitan Chicago, sold a previously closed outdoor theatre, sold two indoor theatres having a total of three screens and closed one twin screen theatre. These theatre sales and closure resulted in a reduction of approximately $445,000 of revenues from fiscal 1993. The Company intends to add 19 screens during fiscal 1995, including a new eight-plex theatre in suburban Milwaukee and 11 screens to existing theatres.
Revenues of the theatre business are heavily dependent on the audience appeal of available films, a factor over which the Company has no control. In fiscal 1994, over 160 first-run films were released, including such box office hits as Jurassic Park, Mrs. Doubtfire, The Fugitive, Sleepless in Seattle, The Firm and Schindler's List. Each of these films produced box office receipts in excess of $1.0 million for the theatre division.
Total box office receipts in fiscal 1994 were $35.5 million, an increase of almost $5.0 million, or 16.2% from fiscal 1993. This increase can be attributed to a 7.4% increase in attendance and an 8.1% increase in the average ticket price. The increase in attendance was due principally to the abundance of high-quality popular films released in fiscal 1994 and the opening of the Gurnee Mills ten-plex theatre.
Vending revenues in fiscal 1994 were $13.6 million, an increase of $1.7 million, or 14.6%, over fiscal 1993, due to the increase in theatre attendance and the 6.4% increase in the average concession sales per person in fiscal 1994 from fiscal 1993.
Fiscal 1993 Versus Fiscal 1992
The theatre division's total fiscal 1993 revenues were $43.9 million, an increase of $921,000, or 2.1%, over fiscal 1992. Operating profits for fiscal 1993 were $9.7 million, an increase of $530,000, or 5.8%, over fiscal 1992.
The Company opened six new screens in fiscal 1993. During fiscal 1993, the Company closed three theatres with a total of seven screens.
Hotels and Resort
Fiscal 1994 Versus Fiscal 1993
Total revenues from the Company's hotel and resort division in fiscal 1994 increased by $3.9 million, or 13.7%, to $32.4 million, over the previous fiscal year, while operating profits increased by $500,000, or 23.4%, to $2.6 million, over fiscal 1993. Fiscal 1994 occupancy rates at the Company's three continuing hotels increased by 5.8% and average room rates for the hotel division increased by 1.4% in fiscal 1994. The increase in occupancy and room rates contributed $1.2 million to the division's revenues in fiscal 1994. The remainder of the division's increase in revenues in fiscal 1994 was attributable principally to the opening of the Grand Geneva Resort & Spa and, to a significantly lesser extent, management fees derived from the partial year of operating the Company's two newly managed hotels during fiscal 1994.
As indicated above, during fiscal 1994, the hotel and resort division added three new properties totaling 735 rooms through the Company's July 1993 purchase of The Grand Geneva Resort & Spa and by entering into two hotel management contracts, one for the 226-room Crowne Plaza-Northstar in November 1993, and the other for the 154-room Mead Inn in February 1994. The Company intends to continue pursuing additional hotel and resort acquisitions and management contracts.
Fiscal 1993 Versus Fiscal 1992
Total revenues for the hotel and resort division in fiscal 1993 were $28.5 million, an increase of $400,000, or 1.4%, compared to fiscal 1992. Operating profits for the hotel and resort division in fiscal 1993 totaled $2.1 million, an increase of $286,000, or 15.6%, over the division's fiscal 1992 operating profits of $1.8 million. The hotel and resort division reported results for a 53-week year in fiscal 1992, with the additional week generating approximately $300,000 in added revenues and $100,000 in operating profits. Excluding the additional week in fiscal 1992, the division's revenue increase in fiscal 1993 was negligible over fiscal 1992, and the comparative operating profits increase was $386,000 or 22.3%.
Restaurants
Fiscal 1994 Versus Fiscal 1993
The restaurant division operates facilities under a number of different restaurant concepts and the Company is continually trying to position its restaurants in order to best respond to changing consumer tastes and preferences. These efforts include closing or selling less profitable locations, converting them into different concepts or remodeling them. The Company also actively considers developing or being the franchisee for new restaurant concepts. At the close of fiscal 1994, the Company operated 13 Applebee's Neighborhood Grill & Bars, 35 KFCs, 13 Marc's Cafe and Coffee Mills, four Marc's Big Boys, two Big Boy Expresses and one Original Gino's East of Chicago.
Restaurant division revenues totaled $71.1 million for fiscal 1994, an increase of $12.0 million, or 20.2%, from fiscal 1993. The revenue increase was due almost entirely to the Company's newly opened Applebee's and increasing customer counts and average check amounts at the Company's continuing Applebee's and KFC restaurants. The division's operating profits for fiscal 1994 were $2.2 million, an increase of $1.5 million, or 204.7%, from fiscal 1993. Fiscal 1994 operating profit improvements were derived principally from improved same store sales at continuing Applebee's and cost savings realized from closing or selling a number of underperforming Big Boy restaurants during the last two fiscal years.
In fiscal 1994, the Company's continuing Applebee's restaurants achieved an 8.8% increase in same store sales and a 3.9% increase in guest counts. These factors contributed a $715,000 increase in the division's fiscal 1994 revenues.
Additionally, the Company opened two new Applebee's restaurants during fiscal 1994 in its metropolitan Chicago franchise market, together with one new restaurant and one expanded location in its Wisconsin franchise area. These new and expanded locations contributed $4.3 million in additional revenues in fiscal 1994, although start-up costs associated with the new restaurants resulted in a $278,000 reduction in the division's operating profits. In fiscal 1995, the Company plans to open six to eight new Applebee's restaurants.
KFC experienced an increase in guest counts, coupled with an increase in average check amounts, which resulted in a same store sales increase of 5.2%, or approximately $ 1.2 million, over fiscal 1993. During fiscal 1994, the Company's KFC restaurants introduced two new franchisor-sponsored products, The Colonel's Rotisserie Gold Chicken in the fall of 1993, and a new eight-piece fried chicken cut with larger breast pieces in May 1994. These new products contributed approximately $2 million in revenues in fiscal 1994. Additionally, the Company realized $288,000 in additional revenue during the year from the relocation of two KFC restaurants in Milwaukee. The Company plans to open two or three new KFCs late in fiscal 1995.
The Company continued to reduce its number of underperforming Marc's Big Boy restaurants by closing one Big Boy during fiscal 1994 and plans to ultimately close its remaining four Big Boy locations. The Big Boy closing, combined with the other Big Boy closings in fiscal 1993, resulted in a loss of $2.1 million of fiscal 1993 revenues, but had a positive impact of $340,000 on the division's fiscal 1994 operating profits.
The Marc's Cafe and Coffee Mill concept entered its second year in fiscal 1994, continuing its developmental process as customer counts and same store sales varied by location. On an aggregate basis, revenues and operating profits in fiscal 1994 from Marc's Cafes were flat compared to fiscal 1993. This family-oriented restaurant segment is highly competitive and the Company continues to examine alternatives and refinements to this restaurant concept in order to improve further the division's over-all results.
The Company continues to monitor closely the operating performance and consumer acceptance of its two Big Boy Express restaurant locations and its newly opened Gino's East of Chicago restaurant. These locations contributed nominally to the division's revenues in fiscal 1994 and experienced operating losses because of anticipated start-up expenses.
Fiscal 1993 Versus Fiscal 1992
Restaurant division revenues totaled $59.1 million for fiscal 1993, an increase of $3.0 million, or 5.4%, from fiscal 1992. The division's fiscal 1993 results were based on 52 weeks, versus 53 weeks in fiscal 1992. Excluding the additional week in fiscal 1992, revenues in fiscal 1993 increased approximately 6.3% from the prior year. The division's operating profits for fiscal 1993 were $723,000, an increase of $289,000, or 66.6%, from fiscal 1992 operating profits of $434,000. The operating profits from the additional week in fiscal 1992 were approximately $150,000.
Financial Condition
At the end of fiscal 1994, the Company's current ratio was .67, compared to .90 at the end of fiscal 1993. Given the cash nature of the Company's various businesses and the availability to the Company of $15 million in unused credit lines at fiscal 1994 year-end, the Company believes that the cash generated from its ongoing operations and available credit facilities are adequate to support the ongoing operational liquidity needs of the Company's businesses.
Net cash provided from operations increased $13.3 million in fiscal 1994 to $50.1 million compared to fiscal 1993. The increase resulted from increased net earnings, an increase in depreciation and amortization expense reflecting the Company's continuing facilities expansion and an increase in net liabilities resulting from differences in the timing of payments on accounts payable.
Investing activity increased $29.2 million to $74.8 million in fiscal 1994 primarily resulting from capital expenditures to support the Company's expansion. The most significant amount of capital spent by the Company during fiscal 1994 was on the renovation of the Grand Geneva Resort & Spa. The Grand Geneva renovation is expected to be completed by the fall of 1994. Other significant capital expenditures in fiscal 1994 were made in opening new motels, theatres and restaurants.
Principally as a result of funding a portion of the Company's fiscal 1994 facility expansions and renovations, the Company's total debt increased to $112.0 million at the close of fiscal 1994 compared to $89.0 million at the end of fiscal 1993. In addition to the incurrence of $23.7 million of new debt to finance expansion, approximately $41.0 million in debt was raised to refinance at reduced interest rates existing debt. The Company's debt- capitalization ratio at May 26, 1994 was .37 compared to .34 at May 27, 1993.
The Company is currently undertaking an aggressive five-year expansion plan which will impact all four of its business segments. The current aggregate estimated cost of these expansion plans is between $350 million and $400 million, with total estimated capital expenditures in fiscal 1995 (including normal continuing capital maintenance projects) expected to be almost $90 million. The Company's fiscal 1995 expansion plans are expected to be funded by cash generated from operations and up to $55 million in additional long-term debt.
Item 8.


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 as of May 26, 1994 and May 27, 1993, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended May 26, 1994. 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 Marcus Corporation at May 26, 1994 and May 27, 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 26, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, effective May 28, 1993, the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Milwaukee, Wisconsin July 22, 1994
THE MARCUS CORPORATION
CONSOLIDATED BALANCE SHEETS May 26, May 27, 1994 1993 (In Thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9,974 $ 15,839 Accounts and notes receivable (Note 2) 6,359 5,497 Receivables from joint ventures (Note 8) 7,983 10,372 Other current assets 3,049 1,674 -------- -------- Total current assets 27,365 33,382
PROPERTY AND EQUIPMENT, NET (Note 2) 321,871 267,841
OTHER ASSETS: Investments in joint ventures (Notes 7 and 8) 662 1,223 Other (Note 9) 11,708 7,009 -------- ------- Total other assets 12,370 8,232 -------- ------- Total assets $361,606 $309,455 ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable (Note 8) $ 4,533 $ 5,017 Accounts payable 13,248 6,850 Income taxes 2,796 261 Taxes other than income taxes 7,307 7,319 Accrued compensation 1,448 1,554 Other accrued liabilities 6,978 5,706 Current maturities on long-term debt (Note 3) 4,357 10,503 -------- ------- Total current liabilities 40,667 37,210
LONG-TERM DEBT (Note 3) 107,681 78,995
DEFERRED INCOME TAXES (Note 6) 15,999 16,138
DEFERRED COMPENSATION AND OTHER (Note 5) 3,341 3,132
COMMITMENTS, LICENSE RIGHTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Note 4): Preferred Stock, $1 par; authorized 500,000 shares; none issued Common Stock:
Common Stock, $1 par; authorized 20,000,000 shares; issued 7,365,987 shares in 1994 and 7,269,457 shares in 1993 7,366 7,269 Class B Common Stock, $1 par; authorized 9,000,000 shares; issued and outstanding 6,225,333 shares in 1994 and 6,321,863 shares in 1993 6,225 6,322 Capital in excess of par 44,745 44,557 Retained earnings 139,777 120,429 -------- -------- 198,113 178,577 Less cost of Common Stock in treasury (559,608 shares in 1994 and 604,117 shares in 1993) 4,195 4,597 -------- ------- Total shareholders' equity 193,918 173,980 -------- ------- Total liabilities and shareholders' equity $361,606 $309,455 ======= ========
See accompanying notes.
THE MARCUS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED MAY 26, 1994
May 26, May 27, May 28, 1994 1993 1992 (In Thousands, Except Per Share Data) REVENUES: Rooms and telephone $100,691 $ 91,332 $ 84,788 Food and beverage 81,948 69,225 66,517 Theatre operations 50,263 43,551 42,959 Other income 13,413 9,910 10,033 ------- ------- ------- Total revenues 246,315 214,018 204,297
COSTS AND EXPENSES: Rooms and telephone 37,100 33,603 32,876 Food and beverage 64,241 54,565 52,896 Theatre operations 30,212 26,285 25,364 Administrative and selling 36,056 32,265 29,462 Depreciation and amortization 20,385 18,273 17,563 Rent (Note 7) 3,572 3,028 2,963 Property taxes 8,873 8,320 7,611 Other operating expenses 4,291 3,437 4,601 Interest 6,931 7,200 8,995 ------- ------- ------- Total costs and expenses 211,661 186,976 182,331 ------- ------- -------
EARNINGS BEFORE INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE 34,654 27,042 21,966 INCOME TAXES (Note 6) 13,607 10,560 8,677 ------- ------- ------- EARNINGS BEFORE CHANGE IN ACCOUNTING PRINCIPLE 21,047 16,482 13,289 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (Note 6) 1,782 -- -- ------- ------- ------- NET EARNINGS $ 22,829 $ 16,482 $ 13,289 ======= ======= ======= EARNINGS PER SHARE: EARNINGS BEFORE CHANGE IN ACCOUNTING PRINCIPLE $ 1.60 $ 1.42 $ 1.18 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES .14 -- -- ------- ------- ------ NET EARNINGS $ 1.74 $ 1.42 $ 1.18 ======== ======= ====== WEIGHTED AVERAGE SHARES OUTSTANDING (Note 4) 13,107 11,648 11,255 ======== ======= =======
See accompanying notes.
See accompanying notes.
See accompanying notes.
THE MARCUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 26, 1994
1. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the accounts of The Marcus Corporation and all of its subsidiaries (the Company). Investments in 50%-owned affiliates for which the Company has the ability to exercise significant influence 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.
Cash Equivalents - The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Inventories - Inventories, consisting principally of food and beverages, are stated at average cost or at first-in, first-out cost.
Preopening Costs - Costs pertaining to new or remodeled motels and certain restaurant concepts are charged to operations over 12 months. Similar expenses incurred in connection with the opening and remodeling of theatres and all other restaurants are charged to operations at the time of opening. Costs incurred in connection with the opening of the Grand Geneva Resort have been capitalized and will be charged to operations over three years.
Depreciation and Amortization - Depreciation and amortization of property and equipment, including capital leases, is provided using the straight-line method over the following estimated useful lives:
Years
Land improvements 10 33 Buildings and improvements 10 33 Leasehold improvements 3 33 Furniture, fixtures and equipment 3 15
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.
Capitalization of Interest - The Company capitalizes interest on borrowed funds during construction periods by adding such interest to the cost of property and equipment. Interest of approximately $726,000, $314,000 and $177,000 was capitalized in fiscal 1994, 1993 and 1992, respectively.
2. Additional Balance Sheet Information
The composition of accounts and notes receivable is as follows:
May 26, 1994 May 27, 1993 (In Thousands) Trade receivables $2,720 $ 2,336 Notes receivable 1,603 2,011 Other receivables 2,036 1,150 ------ ------ $6,359 $5,497 ====== ======
The composition of property and equipment, which is stated at cost, is as follows:
May 26, 1994 May 27, 1993 (In Thousands) Land and improvements $ 49,618 $ 41,919
Buildings and improvements 231,905 209,891 Leasehold improvements 7,565 8,150 Furniture, fixtures and equipment 118,123 103,935 Construction in progress 37,302 13,174 ------- ------- Total property and equipment 444,513 377,069 Less accumulated depreciation and amortization 122,642 109,228 ------- ------- $321,871 $267,841 ======== ========
3. Long-Term Debt
Long-term debt is summarized as follows:
May 26, 1994 May 27, 1993 (In Thousands) Mortgage notes due to 2006 $ 13,130 $32,889 Senior notes, unsecured, due 2005 at 10.22% 28,773 30,000 Industrial Development Revenue Bonds due to 2006 10,135 14,903 Unsecured term notes 60,000 -- Commercial paper -- 8,606 Revolving credit agreement -- 3,100 ------- ------- 112,038 89,498 Less current maturities 4,357 10,503 ------- ------- $107,681 $78,995 ======= =======
Substantially all of the mortgage notes, both fixed rate and adjustable, bear interest from 6% to 9% at May 26, 1994. Adjustable rate Industrial Development Revenue Bonds ($5,745,000 at May 26, 1994) bear interest at 76.5% of prime plus 1%, or are adjustable based on high quality tax-exempt obligation rates. The Company's remaining Industrial Development Revenue Bonds bear interest at approximately 8.8%.
The mortgage notes and the Industrial Development Revenue Bonds are secured by land, buildings and equipment with a cost of approximately $33,580,000 and a net book value of $21,544,000 at May 26, 1994.
The Company has three unsecured term notes outstanding, as follows:
May 26, (In thousands) Note due May 31, 2004, with quarterly principal payments of $781,250 due beginning May 31, 1996. The variable interest rate is based on the LIBOR rate with an effective rate of 5.375% at May 26, 1994. $25,000
Note due February 1, 2001, with quarterly principal payments of $714,286 due beginning May 1, 1997. The variable interest rate is based on the LIBOR rate with an effective rate of 4.38% at May 26, 1994. 20,000
Note due November 1, 2000, with quarterly principal payments of $750,000 due beginning January 1, 1996. The variable interest rate is based on the LIBOR rate with an effective rate of 4.6875% at May 26, 1994. 15,000 ------ $60,000 ======
The Company 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 26, 1994, the Company had $15,000,000 of unused credit lines available under various bank revolving credit agreements. There is an annual commitment fee of .25% of the unused portion of $10,000,000 of these commitments.
Scheduled annual principal payments on long-term debt for the five years subsequent to May 26, 1994, are:
Fiscal Year (In Thousands)
1995 $ 4,357 1996 8,559 1997 9,566 1998 15,710 1999 11,890
Interest paid, net of amounts capitalized, in 1994, 1993 and 1992 totaled $7,266,000, $7,277,000 and $9,205,000, respectively.
The Company has entered into interest rate swap agreements on a notional amount aggregating $30,000,000. Two of the swap agreements covering $15,000,000 expire June 30, 1995, and require the Company to pay interest at defined variable rates (3.50% and 5.25%) and receive interest at defined fixed rates (4.13% and 4.57%). The remaining swap agreement covering $15,000,000 expires October 31, 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 LIBOR. The Company recorded expense related to these swap agreements in 1994 totaling $94,000. The accompanying consolidated balance sheet at May 26, 1994, does not reflect the fair market value of these swap agreements which totals approximately $680,000.
4. 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 6, 1992, to all holders of Common and Class B Common Stock. All per share, weighted average shares outstanding and stock option data prior to November 6, 1992, 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 562,500 shares of Common Stock under 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 four and one-half years after the date of the grant. At May 26, 1994, there were 147,255 shares available for grants under the plans.
Transactions with respect to the Company's stock option plans for each of the three years in the period ended May 26, 1994, are summarized as follows:
Price Range Number of Shares
Outstanding at May 30, 1991 $ 7.00 - $ 9.67 226,500 Exercised $ 7.00 - $ 9.67 (14,865) Canceled $ 7.00 - $ 9.67 (46,860) ------- Outstanding at May 28, 1992 $ 7.00 - $ 9.67 164,775 Granted $15.00 119,550 Exercised $ 7.00 - $ 9.67 (64,080) Canceled $ 7.00 - $ 9.67 (7,080) ------- Outstanding at May 27, 1993 $ 7.00 - $15.00 213,165 Granted $ 20.75 - $27.00 140,850 Exercised $ 7.00 - $15.00 (32,085) Canceled $ 7.00 - $15.00 (28,215) ------- Outstanding at May 26, 1994 $ 7.00 - $27.00 293,715 ======= Shares exercisable at May 26, 1994 $ 7.00 - $ 7.67 24,300 =======
The Company's Board of Directors has approved the repurchase of up to 750,000 shares of Common Stock to be held in treasury. The Company intends to reissue these shares upon the exercise of stock options. The Company purchased 6,167; 3,451 and 100,535 shares pursuant to this plan during 1994, 1993 and 1992, respectively. At May 26, 1994, there were 236,538 shares available for repurchase under this authorization.
The Company's loan agreements include, among other covenants, restrictions on retained earnings and maintenance of certain financial ratios. At May 26, 1994, retained earnings of approximately $56,107,000 were unrestricted.
5. 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 operates unfunded nonqualified defined benefit and deferred compensation plans. Pension and profit-sharing expense for all plans was $1,138,000, $902,000 and $789,000 for 1994, 1993 and 1992, respectively.
6. Income Taxes
Income tax expense consists of the following:
Year Ended May 26, May 27, May 28, 1994 1993 1992 (In Thousands) Currently payable: Federal, after jobs tax credits of $300,000, $250,000 and $350,000, respectively $ 9,470 $ 7,068 $6,176 State 2,494 1,912 1,830 Deferred 1,643 1,580 671 ------ ------ ----- $13,607 $10,560 $8,677 ====== ====== ======
Effective May 28, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this 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.
As of May 28, 1993, the Company recorded a tax benefit of $1,782,000, or $.14 per share, which amount represents the net change in its deferred income tax assets and liabilities at that date. Such amount has been reflected in the consolidated statement of earnings as the cumulative effect of change in accounting for income taxes.
The components of the net deferred tax liability as of May 26, 1994, were as follows (in thousands):
Deferred tax assets: Tax credit carryforwards $ 921 Accrued employee benefits 604 Other accrued liabilities 203 ------- Total deferred assets 1,728 Deferred tax liability - Depreciation and amortization 17,727 ------- Net deferred tax liability included in balance sheet $15,999 =======
Deferred income taxes in 1993 and 1992 also related principally to differences between financial and tax reporting of depreciation and amortization.
A reconciliation of the statutory federal tax rate to the effective tax rate follows:
Year ended May 26, May 27, May 28, 1994 1993 1992
Expected tax expense: 35.0% 34.0% 34.0% State income taxes, net of federal income tax benefit 5.3 5.3 5.2 Jobs tax credits (.6) (0.9) (1.6) Other (.4) 0.7 1.9 ----- ----- ----- 39.3% 39.1% 39.5% ===== ===== ======
Income taxes paid in 1994, 1993 and 1992 totaled $9,445,000, $10,610,000 and $8,502,000, respectively.
7. 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 operating leases was as follows:
Year ended May 26, May 27, May 28, 1994 1993 1992 (In Thousands)
Fixed minimum rentals $2,519 $2,208 $1,986 Percentage rentals 1,218 1,012 1,016 Sublease rental income (165) (192) (39) ------ ------ ------ $3,572 $3,028 $2,963 ====== ====== ======
Payments to affiliated parties for operating lease obligations were approximately $390,000, $491,000 and $460,000 in 1994, 1993 and 1992, respectively.
Aggregate minimum rental commitments at May 26, 1994, are as follows:
Fiscal Year Operating Leases (In Thousands) 1995 $ 1,669 1996 1,450 1997 1,298 1998 1,089 1999 1,041 After 1999 10,994 ------ $17,541 =======
Included in the above commitments is $1,675,000 in minimum rental commitments to affiliated parties.
Construction Commitments - The Company has commitments for the completion of construction at various properties totaling approximately $14,582,000 at May 26, 1994.
License Rights - The Company owns the license rights in certain areas to operate a number of its restaurants and to sell products using the Applebee s, Big Boy, Original Gino s East of Chicago and Kentucky Fried Chicken trademarks. Under the terms of the licenses, the Company is obligated to pay fees based on defined gross sales. Three of these licenses also require the Company to pay an additional fee for each new location established.
Contingencies - The Company is contingently liable for debt guarantees of joint ventures totaling approximately $6,958,000 at May 26, 1994.
8. Joint Venture Transactions
At May 26, 1994 and May 27, 1993, the Company held investments of $662,000 and $1,223,000, respectively, in various approximately 50%-owned affiliates (joint ventures) which are accounted for under the equity method. In fiscal 1992, the Company paid $50,000 (net of $750,000 cash acquired in the purchase) to acquire complete ownership of four previously partially owned joint ventures. In connection with the acquisitions (which were accounted for using the purchase method) and consolidation of joint ventures, the assets acquired and liabilities assumed were as follows:
(In Thousands) Fair value of assets acquired $15,354 Net cash paid for joint ventures (50) ------ Liabilities assumed $15,304 =======
The Company has receivables from the joint ventures of $7,983,000 and $10,372,000 at May 26, 1994 and May 27, 1993, respectively. The Company earns interest on $7,373,000 and $9,702,000 of the receivables at approximately prime to prime plus 1.5%.
Included in notes payable at May 26, 1994 and May 27, 1993, is $1,223,000 and $1,735,000, 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.
9. Business Segment Information
The Company operates principally in four business segments: Restaurants, Theatres, Hotels/Resorts and Motels. Prior to 1994, the Company reported in three business segments. However, due to the expansion of the hotel operations and the increasingly different operating characteristics of the hotel division from the motel division, the Company has commenced separate business segment reporting in 1994 for the hotel and motel divisions, resulting in four segments. All prior year segment information has been restated to reflect this change. Following is a summary of business segment information for 1992 through 1994:
Corporate items include amounts not allocable to the business segments. Corporate revenues consist principally of earnings on cash equivalents and operating profit includes earnings on cash equivalents less interest expense and general corporate expenses. Corporate assets primarily include cash and cash equivalents, notes receivable, receivables from joint ventures and land held for development.
The 1992 results of operations for the Restaurants, Hotels/Resorts and Motels segments include 53 weeks. All other periods include 52 weeks.
During 1994, the Company entered into contracts to manage two hotel properties. The Company also loaned $2,860,000 to one of these hotels which bears interest at the prime rate plus 1% and matures December 31, 2008.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10.



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 Proxy Statement. The required information with respect to executive officers appears at the end of Part I of this Form 10-K.
Item 11.

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.

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.

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.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed, and incorporated by reference herein, as a part of this report:
Form 10-K Page Reference
1. Financial Statement Schedules.
Independent Auditors' Report - Ernst & Young N/A LLP (incorporated by reference from Exhibit 23.1)
Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters and Employees other than Related Parties
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Income Statement Information
All other 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) No reports on Form 8-K were required to be filed by the Company during the fourth quarter of fiscal 1994.
__________________
* 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, 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 24, 1994 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, George R. Slater, Director Chairman of the Board and President (Chief Executive Officer)
By: /s/ Kenneth A. MacKenzie By: /s/ Lee Sherman Dreyfus Kenneth A. MacKenzie, Lee Sherman Dreyfus, Director Treasurer and Controller (Chief Financial and Accounting Officer)
By: /s/ Ben Marcus By: /s/ Daniel F. McKeithan, Jr. Ben Marcus, Director Daniel F. McKeithan, Jr., Director
By: /s/ John L. Murray By: /s/ Diane Marcus Gershowitz John L. Murray, Director Diane Marcus Gershowitz, Director
THE MARCUS CORPORATION - FORM 10-K FOR YEAR-ENDED MAY 26, 1994 SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION THREE YEARS ENDED MAY 26, 1994
(Dollars in thousands)
1994 1993 1992
Maintenance and repairs $10,980 $9,884 $8,804 Taxes, other than payroll and income taxes 8,570 8,067 7,690
Advertising costs 13,172 11,037 10,344
Amounts for amortization of intangible assets and royalties are not presented as such amounts are less than 1% of revenues.
EXHIBIT INDEX
Sequential Page No.
3.1 Articles of Incorporation. [Incorporated N/A by reference to Exhibit 3.1 to the Company's Form S-3 Registration Statement (No. 33-57468).]
3.2 Bylaws. 53
4 Senior Note Purchase Agreement dated N/A 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 From 10-K for the fiscal year ended May 31, 1990.]
4.1 Other than as set forth in Exhibit (4), the N/A 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 Franchise Contract dated August 29, 1958 N/A between Big Boy Franchises, Inc. and Marc's Big Boy Corporation. [Incorporated by reference to Exhibit 13.5 to the Company's Registration Statement on Form S-1 (Reg. No. 2-45091).]
10.2 Franchise Contract dated November 20, 1959 N/A between Big Boy Franchises, Inc. and Marc's Big Boy Corporation. [Incorporated by reference to Exhibit 13.6 to the Company's Registration Statement on Form S-1 (Reg. No. 2-45091).]
10.3 Franchise Contract dated November 20, 1959 N/A between Big Boy Franchises, Inc. and Marc's Big Boy Corporation. [Incorporated by reference to Exhibit 13.7 to the Company's Registration Statement on Form S-1 (Reg. No. 2-45091).]
10.4 The Company is the guarantor and/or obligor N/A 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.
*10.5 1987 Stock Option Plan. [Incorporated by N/A reference to Exhibit A to the Company's Proxy Statement for its Annual Meeting of Shareholders held on September 29, 1987.]
*10.6 Form of Incentive Stock Option Agreement N/A used in connection with 1987 stock option plan. [Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Reg. No. 33-21060).]
*10.7 Form of Nonstatutory Stock Option Agreement N/A used in connection with 1987 Stock Option Plan. [Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Reg. No. 33-21060).]
10.8 Form of Addendum dated March 6, 1985 to Big N/A Boy Franchise Contracts listed as Exhibits 10.2, 10.3 and 10.4 between the Company and Marriott Corporation. [Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended May 29, 1986.]
10.9 Comprehensive Image Enhancement Agreement N/A 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.]
10.10 Form of individual Kentucky Fried Chicken N/A franchise agreement between the Company and KFC Corporation. [Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1989.]
10.11 Standard Form - Applebee's Neighborhood 76 Grill & Bar Development Agreement for Chicago, Illinois A.D.I. dated April 8, 1994 between Marcus Restaurants, Inc. and Applebee's International, Inc.
10.12 Standard Form - Applebee's Neighborhood N/A Grill & Bar Development Agreement for Milwaukee, Wisconsin, Madison, Wisconsin, La Crosse-Eau Claire, Wisconsin, Wausau-Rhinelander, Wisconsin and Green Bay-Appleton, Wisconsin A.D.I.s dated December 29, 1989 between Marcus Restaurants, Inc. and Applebee's International, Inc. [Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1990.]
10.13 Amendment to Applebee's Neighborhood Grill N/A & Bar Development Agreement for Milwaukee, Madison, LaCrosse-Eau Claire, Wausau- Rhinelander and Green Bay-Appleton, Wisconsin A.D.I.s dated April 8, 1993 between Marcus Restaurants, Inc. and Applebee's International, Inc. [Incorporated by reference to Exhibit 10.14 to the Company's Form 10-K Annual Report for the year ended May 27, 1993.]
10.14 Area Development Agreement dated September N/A 27, 1993 between Gino's East Restaurant Corp. and Marcus Restaurants, Inc. for the State of Wisconsin Development Area. [Incorporated by reference to Exhibit 10.16 to the Company's Form 10-Q/A for its fiscal quarter ended August 19, 1993.] [Marcus Restaurants, Inc. is a party to Area Development Agreements dated September 27, 1993 with Gino's East Restaurant Corp. for the State of Iowa Development Area and State of Minnesota Development Area, respectively, each of which Area Development Agreements are substantially identical in all material respects with the Area Development Agreement incorporated by reference herein, except with respect to the designated market area and applicable restaurant development schedules. Such other Area Development Agreements are not being filed or incorporated by reference herein, but a copy thereof will be provided to the Commission upon request.]
10.15 Master Development Agreement dated N/A September 27, 1993 between Gino's East Restaurant Corp. and Marcus Restaurants, Inc. [Incorporated by reference to Exhibit 10.17 to the Company's Form 10-Q/A for its fiscal quarter ended August 19, 1993.]
10.16 Form of Gino's East Restaurant Corp. N/A Franchise Agreement between Gino's East Restaurant Corp. and Marcus Restaurants, Inc. [Incorporated by reference to Exhibit 10.18 to the Company's Form 10-Q/A for its fiscal quarter ended August 19, 1993.]
21 Subsidiaries of the Company as of May 26, 186 1994.
23.1 Consent of Ernst & Young LLP. 188
99 Proxy Statement for Annual Meeting of N/A Shareholders scheduled to be held on September 30, 1994. (To be filed with the Securities and Exchange Commission under Regulation 14A within 120 days of May 26, 1994 and, upon such filing, to be hereby incorporated by reference herein to the extent indicated).
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* 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.
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