SECURITIES AND EXCHANGE COMMISSION
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedAugust 29,November 28, 2013 | ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number1-12604
| THE MARCUS CORPORATION | |
| (Exact name of registrant as specified in its charter) | |
| | |
Wisconsin | | 39-1139844 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer |
incorporation or organization)Identification No.) | | Identification No.) |
| | |
100 East Wisconsin Avenue, Suite 1900 Milwaukee, Wisconsin | | 53202-4125 | |
Milwaukee, Wisconsin | | 53202-4125 |
(Address of principal executive offices) | | (Zip Code) |
| |
Registrant’s telephone number, including area code: (414) 905-1000 |
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 Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One).
| Large accelerated filer | ¨ | | Accelerated filer | x |
| Non-accelerated filer | ¨ | | Smaller reporting company | ¨ |
(Do | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
COMMON STOCK OUTSTANDING AT
SEPTEMBER 30,DECEMBER 31, 2013 –
18,296,25118,311,620
CLASS B COMMON STOCK OUTSTANDING AT
SEPTEMBER 30,DECEMBER 31, 2013 –
8,757,0398,753,227THE MARCUS CORPORATION
INDEX
THE MARCUS CORPORATION
INDEX
PART I – FINANCIAL INFORMATION | Page |
| | |
Item 1. | Consolidated Financial Statements: | |
| | |
| Consolidated Balance Sheets | |
| (August 29,November 28, 2013 and May 30, 2013) | 3 |
| | |
| Consolidated Statements of Earnings | |
| (13 and 26 weeks ended August 29,November 28, 2013 and August 30,November 29, 2012) | 5 |
| | |
| Consolidated Statements of Comprehensive Income | |
| (13 and 26 weeks ended August 29,November 28, 2013 and August 30,November 29, 2012) | 6 |
| | |
| Consolidated Statements of Cash Flows | |
| (1326 weeks ended August 29,November 28, 2013 and August 30,November 29, 2012) | 7 |
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| Condensed Notes to Consolidated Financial Statements | 8 |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1315 |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 2326 |
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Item 4. | Controls and Procedures | 2326 |
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PART II – OTHER INFORMATION | |
| | |
Item 1A. | Risk Factors | 2427 |
| | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 2427 |
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Item 4. | Mine Safety Disclosures | 2427 |
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Item 6. | Exhibits | 2528 |
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| Signatures | S-1 |
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements Consolidated Balance Sheets | | August 29, | | | May 30, | |
(in thousands, except share and per share data) | | 2013 | | | 2013 | |
| | | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 12,214 | | | $ | 10,158 | |
Restricted cash | | | 6,891 | | | | 7,895 | |
Accounts and notes receivable, net of reserves | | | | | | | | |
of $1,330 and $1,324, respectively | | | 11,712 | | | | 8,568 | |
Refundable income taxes | | | ─ | | | | 255 | |
Deferred income taxes | | | 2,895 | | | | 2,877 | |
Other current assets | | | 6,717 | | | | 6,384 | |
Total current assets | | | 40,429 | | | | 36,137 | |
| | | | | | | | |
Property and equipment: | | | | | | | | |
Land and improvements | | | 95,253 | | | | 95,295 | |
Buildings and improvements | | | 578,164 | | | | 575,166 | |
Leasehold improvements | | | 61,871 | | | | 61,726 | |
Furniture, fixtures and equipment | | | 253,581 | | | | 250,203 | |
Construction in progress | | | 11,722 | | | | 11,414 | |
Total property and equipment | | | 1,000,591 | | | | 993,804 | |
Less accumulated depreciation and amortization | | | 377,286 | | | | 368,047 | |
Net property and equipment | | | 623,305 | | | | 625,757 | |
| | | | | | | | |
Other assets: | | | | | | | | |
Investments in joint ventures | | | 3,022 | | | | 2,713 | |
Goodwill | | | 43,963 | | | | 43,997 | |
Condominium units | | | 3,508 | | | | 3,508 | |
Other | | | 35,071 | | | | 34,584 | |
Total other assets | | | 85,564 | | | | 84,802 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 749,298 | | | $ | 746,696 | |
(in thousands, except share and per share data) | | November 28, 2013 | | May 30, 2013 | |
| | | | | | | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 12,530 | | $ | 10,158 | |
Restricted cash | | | 7,463 | | | 7,895 | |
Accounts and notes receivable, net of reserves of $1,432 and $1,324, respectively | | | 10,311 | | | 8,568 | |
Refundable income taxes | | | – | | | 255 | |
Deferred income taxes | | | 2,912 | | | 2,877 | |
Other current assets | | | 6,594 | | | 6,384 | |
Total current assets | | | 39,810 | | | 36,137 | |
| | | | | | | |
Property and equipment: | | | | | | | |
Land and improvements | | | 95,059 | | | 95,295 | |
Buildings and improvements | | | 583,916 | | | 575,166 | |
Leasehold improvements | | | 61,847 | | | 61,726 | |
Furniture, fixtures and equipment | | | 254,483 | | | 250,203 | |
Construction in progress | | | 14,379 | | | 11,414 | |
Total property and equipment | | | 1,009,684 | | | 993,804 | |
Less accumulated depreciation and amortization | | | 384,325 | | | 368,047 | |
Net property and equipment | | | 625,359 | | | 625,757 | |
| | | | | | | |
Other assets: | | | | | | | |
Investments in joint ventures | | | 2,706 | | | 2,713 | |
Goodwill | | | 43,928 | | | 43,997 | |
Condominium units | | | 3,508 | | | 3,508 | |
Other | | | 35,083 | | | 34,584 | |
Total other assets | | | 85,225 | | | 84,802 | |
| | | | | | | |
TOTAL ASSETS | | $ | 750,394 | | $ | 746,696 | |
See accompanying condensed notes to consolidated financial statements.
Consolidated Balance Sheets | | August 29, | | | May 30, | |
(in thousands, except share and per share data) | | 2013 | | | 2013 | |
| | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 19,636 | | | $ | 25,330 | |
Income taxes | | | 8,223 | | | | ─ | |
Taxes other than income taxes | | | 13,638 | | | | 14,000 | |
Accrued compensation | | | 7,839 | | | | 10,940 | |
Other accrued liabilities | | | 27,423 | | | | 25,183 | |
Current portion of capital lease obligation | | | 4,636 | | | | 4,562 | |
Current maturities of long-term debt | | | 32,084 | | | | 11,193 | |
Total current liabilities | | | 113,479 | | | | 91,208 | |
| | | | | | | | |
Capital lease obligation | | | 27,076 | | | | 28,241 | |
| | | | | | | | |
Long-term debt | | | 202,801 | | | | 231,580 | |
| | | | | | | | |
Deferred income taxes | | | 43,330 | | | | 43,516 | |
| | | | | | | | |
Deferred compensation and other | | | 36,003 | | | | 35,455 | |
| | | | | | | | |
Equity: | | | | | | | | |
Shareholders’ equity attributable to The Marcus Corporation | | | | | | | | |
Preferred Stock, $1 par; authorized 1,000,000 shares; | | | | | | | | |
none issued | | | ─ | | | | ─ | |
Common Stock, $1 par; authorized 50,000,000 shares; | | | | | | | | |
issued 22,432,474 shares at August 29, 2013 and | | | | | | | | |
May 30, 2013 | | | 22,433 | | | | 22,433 | |
Class B Common Stock, $1 par; authorized 33,000,000 | | | | | | | | |
shares; issued and outstanding 8,757,039 shares at | | | | | | | | |
August 29, 2013 and May 30, 2013 | | | 8,757 | | | | 8,757 | |
Capital in excess of par | | | 52,256 | | | | 51,979 | |
Retained earnings | | | 289,734 | | | | 278,536 | |
Accumulated other comprehensive loss | | | (3,561 | ) | | | (3,828 | ) |
| | | 369,619 | | | | 357,877 | |
Less cost of Common Stock in treasury (4,112,386 shares at | | | | | | | | |
August 29, 2013 and 4,117,217 shares at May 30, 2013) | | | (51,359 | ) | | | (51,175 | ) |
Total shareholders' equity attributable to The Marcus Corporation | | | 318,260 | | | | 306,702 | |
Noncontrolling interests | | | 8,349 | | | | 9,994 | |
Total equity | | | 326,609 | | | | 316,696 | |
| | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 749,298 | | | $ | 746,696 | |
(in thousands, except share and per share data) | | November 28, 2013 | | May 30, 2013 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 21,763 | | $ | 25,330 | |
Income taxes | | | 2,680 | | | – | |
Taxes other than income taxes | | | 15,679 | | | 14,000 | |
Accrued compensation | | | 11,075 | | | 10,940 | |
Other accrued liabilities | | | 27,219 | | | 25,183 | |
Current portion of capital lease obligation | | | 4,712 | | | 4,562 | |
Current maturities of long-term debt | | | 32,902 | | | 11,193 | |
Total current liabilities | | | 116,030 | | | 91,208 | |
| | | | | | | |
Capital lease obligation | | | 25,860 | | | 28,241 | |
| | | | | | | |
Long-term debt | | | 201,714 | | | 231,580 | |
| | | | | | | |
Deferred income taxes | | | 42,534 | | | 43,516 | |
| | | | | | | |
Deferred compensation and other | | | 35,924 | | | 35,455 | |
| | | | | | | |
Equity: | | | | | | | |
Shareholders’ equity attributable to The Marcus Corporation | | | | | | | |
Preferred Stock, $1 par; authorized 1,000,000 shares; none issued | | | – | | | – | |
Common Stock, $1 par; authorized 50,000,000 shares; issued 22,432,474 shares at November 28, 2013 and May 30, 2013 | | | 22,433 | | | 22,433 | |
Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 8,757,039 shares at November 28, 2013 and May 30, 2013 | | | 8,757 | | | 8,757 | |
Capital in excess of par | | | 52,856 | | | 51,979 | |
Retained earnings | | | 290,746 | | | 278,536 | |
Accumulated other comprehensive loss | | | (3,825) | | | (3,828) | |
| | | 370,967 | | | 357,877 | |
Less cost of Common Stock in treasury (4,118,890 shares at November 28, 2013 and 4,117,217 shares at May 30, 2013) | | | (51,222) | | | (51,175) | |
Total shareholders' equity attributable to The Marcus Corporation | | | 319,745 | | | 306,702 | |
Noncontrolling interests | | | 8,587 | | | 9,994 | |
Total equity | | | 328,332 | | | 316,696 | |
| | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 750,394 | | $ | 746,696 | |
See accompanying condensed notes to consolidated financial statements.
Consolidated Statements of Earnings(in thousands, except per share data) | | 13 Weeks Ended | |
| | August 29, 2013 | | | August 30, 2012 | |
Revenues: | | | | | | |
Theatre admissions | | $ | 42,109 | | | $ | 38,478 | |
Rooms | | | 32,570 | | | | 29,964 | |
Theatre concessions | | | 23,689 | | | | 20,979 | |
Food and beverage | | | 15,530 | | | | 14,769 | |
Other revenues | | | 15,134 | | | | 13,749 | |
Total revenues | | | 129,032 | | | | 117,939 | |
| | | | | | | | |
Costs and expenses: | | | | | | | | |
Theatre operations | | | 34,623 | | | | 32,566 | |
Rooms | | | 10,692 | | | | 9,857 | |
Theatre concessions | | | 6,138 | | | | 5,557 | |
Food and beverage | | | 11,546 | | | | 10,729 | |
Advertising and marketing | | | 6,884 | | | | 6,405 | |
Administrative | | | 12,244 | | | | 10,762 | |
Depreciation and amortization | | | 8,327 | | | | 8,313 | |
Rent | | | 2,125 | | | | 2,113 | |
Property taxes | | | 3,422 | | | | 3,635 | |
Other operating expenses | | | 8,684 | | | | 7,547 | |
Total costs and expenses | | | 104,685 | | | | 97,484 | |
| | | | | | | | |
Operating income | | | 24,347 | | | | 20,455 | |
| | | | | | | | |
Other income (expense): | | | | | | | | |
Investment income | | | 3 | | | | 24 | |
Interest expense | | | (2,394 | ) | | | (2,074 | ) |
Gain on disposition of property, equipment and other assets | | | 17 | | | | 22 | |
Equity losses from unconsolidated joint ventures, net | | | (83 | ) | | | (40 | ) |
| | | (2,457 | ) | | | (2,068 | ) |
| | | | | | | | |
Earnings before income taxes | | | 21,890 | | | | 18,387 | |
Income taxes | | | 9,044 | | | | 7,708 | |
Net earnings | | | 12,846 | | | | 10,679 | |
Net loss attributable to noncontrolling interests | | | (585 | ) | | | - | |
Net earnings attributable to The Marcus Corporation | | $ | 13,431 | | | $ | 10,679 | |
| | | | | | | | |
Net earnings per share – basic: | | | | | | | | |
Common Stock | | $ | 0.51 | | | $ | 0.38 | |
Class B Common Stock | | $ | 0.47 | | | $ | 0.35 | |
| | | | | | | | |
Net earnings per share – diluted: | | | | | | | | |
Common Stock | | $ | 0.50 | | | $ | 0.37 | |
Class B Common Stock | | $ | 0.46 | | | $ | 0.34 | |
| | | | | | | | |
Dividends per share: | | | | | | | | |
Common Stock | | $ | 0.085 | | | $ | 0.085 | |
Class B Common Stock | | $ | 0.077 | | | $ | 0.077 | |
(in thousands, except per share data) | | November 28, 2013 | | November 29, 2012 | |
| | 13 Weeks | | 26 Weeks | | 13 Weeks | | 26 Weeks | |
Revenues: | | | | | | | | | | | | | |
Theatre admissions | | $ | 27,973 | | $ | 70,082 | | $ | 30,660 | | $ | 69,138 | |
Rooms | | | 28,548 | | | 61,118 | | | 26,580 | | | 56,544 | |
Theatre concessions | | | 15,876 | | | 39,565 | | | 16,542 | | | 37,521 | |
Food and beverage | | | 15,546 | | | 31,076 | | | 14,890 | | | 29,659 | |
Other revenues | | | 12,645 | | | 27,779 | | | 11,961 | | | 25,710 | |
Total revenues | | | 100,588 | | | 229,620 | | | 100,633 | | | 218,572 | |
| | | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | | |
Theatre operations | | | 25,461 | | | 60,084 | | | 25,698 | | | 58,264 | |
Rooms | | | 10,160 | | | 20,852 | | | 9,290 | | | 19,147 | |
Theatre concessions | | | 4,768 | | | 10,906 | | | 4,403 | | | 9,960 | |
Food and beverage | | | 11,491 | | | 23,037 | | | 10,556 | | | 21,285 | |
Advertising and marketing | | | 6,529 | | | 13,413 | | | 6,102 | | | 12,507 | |
Administrative | | | 11,126 | | | 23,370 | | | 12,301 | | | 23,063 | |
Depreciation and amortization | | | 8,457 | | | 16,784 | | | 8,586 | | | 16,899 | |
Rent | | | 2,115 | | | 4,240 | | | 2,118 | | | 4,231 | |
Property taxes | | | 3,752 | | | 7,174 | | | 3,520 | | | 7,155 | |
Other operating expenses | | | 7,919 | | | 16,603 | | | 7,925 | | | 15,472 | |
Impairment charge | | | – | | | – | | | 417 | | | 417 | |
Total costs and expenses | | | 91,778 | | | 196,463 | | | 90,916 | | | 188,400 | |
| | | | | | | | | | | | | |
Operating income | | | 8,810 | | | 33,157 | | | 9,717 | | | 30,172 | |
| | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | |
Investment income | | | 17 | | | 20 | | | 19 | | | 43 | |
Interest expense | | | (2,584) | | | (4,978) | | | (2,317) | | | (4,391) | |
Gain (loss) on disposition of property, equipment and other assets | | | (789) | | | (772) | | | 4 | | | 26 | |
Equity earnings (losses) from unconsolidated joint ventures, net | | | 54 | | | (29) | | | 17 | | | (23) | |
| | | (3,302) | | | (5,759) | | | (2,277) | | | (4,345) | |
| | | | | | | | | | | | | |
Earnings before income taxes | | | 5,508 | | | 27,398 | | | 7,440 | | | 25,827 | |
Income taxes | | | 2,026 | | | 11,070 | | | 2,653 | | | 10,361 | |
Net earnings | | | 3,482 | | | 16,328 | | | 4,787 | | | 15,466 | |
Net earnings (loss) attributable to noncontrolling interests | | | 237 | | | (348) | | | 63 | | | 63 | |
Net earnings attributable to The Marcus Corporation | | $ | 3,245 | | $ | 16,676 | | $ | 4,724 | | $ | 15,403 | |
| | | | | | | | | | | | | |
Net earnings per share – basic: | | | | | | | | | | | | | |
Common Stock | | $ | 0.12 | | $ | 0.64 | | $ | 0.17 | | $ | 0.56 | |
Class B Common Stock | | $ | 0.11 | | $ | 0.58 | | $ | 0.16 | | $ | 0.52 | |
| | | | | | | | | | | | | |
Net earnings per share – diluted: | | | | | | | | | | | | | |
Common Stock | | $ | 0.12 | | $ | 0.62 | | $ | 0.17 | | $ | 0.54 | |
Class B Common Stock | | $ | 0.11 | | $ | 0.58 | | $ | 0.16 | | $ | 0.52 | |
| | | | | | | | | | | | | |
Dividends per share: | | | | | | | | | | | | | |
Common Stock | | $ | 0.085 | | $ | 0.170 | | $ | 0.085 | | $ | 0.170 | |
Class B Common Stock | | $ | 0.077 | | $ | 0.155 | | $ | 0.077 | | $ | 0.155 | |
See accompanying condensed notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income(in thousands except per share data) | | 13 Weeks Ended | |
| | August 29, 2013 | | | August 30, 2012 | |
| | | | | | |
Net earnings | | $ | 12,846 | | | $ | 10,679 | |
| | | | | | | | |
Other comprehensive income (loss): | | | | | | | | |
Change in unrealized loss on available for sale investments, net of tax benefit of $1 and $0, respectively | | | (1 | ) | | | ─ | |
Amortization of loss on swap agreement, net of tax effect of $0 and $11, respectively | | | ─ | | | | 17 | |
Change in fair value of interest rate swap, net of tax effect of $176 and $0, respectively | | | 268 | | | | ─ | |
| | | | | | | | |
Other comprehensive income | | | 267 | | | | 17 | |
| | | | | | | | |
Comprehensive income | | | 13,113 | | | | 10,696 | |
| | | | | | | | |
Comprehensive loss attributable to noncontrolling interests | | | (585 | ) | | | ─ | |
| | | | | | | | |
Comprehensive income attributable to The Marcus Corporation | | $ | 13,698 | | | $ | 10,696 | |
(in thousands) | | November 28, 2013 | | November 29, 2012 | |
| | 13 Weeks | | 26 Weeks | | 13 Weeks | | 26 Weeks | |
| | | | | | | | | | | | | |
Net earnings | | $ | 3,482 | | $ | 16,328 | | $ | 4,787 | | $ | 15,466 | |
| | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | |
Change in unrealized loss on available for sale investments, net of tax benefit of $0, $1, $0 and $0, respectively | | | – | | | (1) | | | – | | | – | |
Amortization of loss on swap agreement, net of tax effect of $0, $0, $11, and $23, respectively | | | – | | | – | | | 17 | | | 34 | |
Change in fair value of interest rate swap, net of tax (benefit) effect of $(174), $1, $0 and $0, respectively | | | (264) | | | 4 | | | – | | | – | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) | | | (264) | | | 3 | | | 17 | | | 34 | |
| | | | | | | | | | | | | |
Comprehensive income | | | 3,218 | | | 16,331 | | | 4,804 | | | 15,500 | |
| | | | | | | | | | | | | |
Comprehensive income (loss) attributable to noncontrolling interests | | | 237 | | | (348) | | | 63 | | | 63 | |
| | | | | | | | | | | | | |
Comprehensive income attributable to The Marcus Corporation | | $ | 2,981 | | $ | 16,679 | | $ | 4,741 | | $ | 15,437 | |
See accompanying condensed notes to consolidated financial statements.
Consolidated Statements of Cash Flows | | 13 Weeks Ended | |
(in thousands) | | August 29, 2013 | | | August 30, 2012 | |
| | | | | | |
OPERATING ACTIVITIES: | | | | | | |
Net earnings | | $ | 12,846 | | | $ | 10,679 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | |
Losses on investments in joint ventures | | | 83 | | | | 40 | |
Distribution from joint venture | | | ─ | | | | 94 | |
Gain on disposition of property, equipment and other assets | | | (17 | ) | | | (22 | ) |
Amortization of loss on swap agreement | | | ─ | | | | 28 | |
Amortization of favorable lease right | | | 83 | | | | 83 | |
Depreciation and amortization | | | 8,327 | | | | 8,313 | |
Stock compensation expense | | | 386 | | | | 574 | |
Deferred income taxes | | | (345 | ) | | | (634 | ) |
Deferred compensation and other | | | 499 | | | | (1,369 | ) |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts and notes receivable | | | (3,140 | ) | | | (2,076 | ) |
Other current assets | | | (333 | ) | | | (939 | ) |
Accounts payable | | | (3,914 | ) | | | (3,013 | ) |
Income taxes | | | 8,478 | | | | 7,280 | |
Taxes other than income taxes | | | (362 | ) | | | (350 | ) |
Accrued compensation | | | (3,101 | ) | | | (5,208 | ) |
Other accrued liabilities | | | 2,240 | | | | 1,641 | |
Total adjustments | | | 8,884 | | | | 4,442 | |
Net cash provided by operating activities | | | 21,730 | | | | 15,121 | |
| | | | | | | | |
INVESTING ACTIVITIES: | | | | | | | | |
Capital expenditures | | | (8,724 | ) | | | (5,292 | ) |
Proceeds from disposals of property, equipment and other assets | | | 115 | | | | 27 | |
Decrease (increase) in restricted cash | | | 1,004 | | | | (283 | ) |
Decrease (increase) in other assets | | | 24 | | | | (59 | ) |
Contribution to joint venture | | | (343 | ) | | | ─ | |
Net cash used in investing activities | | | (7,924 | ) | | | (5,607 | ) |
| | | | | | | | |
FINANCING ACTIVITIES: | | | | | | | | |
Debt transactions: | | | | | | | | |
Proceeds from issuance of long-term debt | | | 64,500 | | | | 32,000 | |
Principal payments on long-term debt | | | (72,388 | ) | | | (37,176 | ) |
Debt issuance costs | | | (276 | ) | | | ─ | |
Equity transactions: | | | | | | | | |
Treasury stock transactions, except for stock options | | | (554 | ) | | | (1,217 | ) |
Exercise of stock options | | | 261 | | | | 892 | |
Dividends paid | | | (2,233 | ) | | | (2,393 | ) |
Distributions to noncontrolling interest | | | (1,060 | ) | | | ─ | |
Net cash used in financing activities | | | (11,750 | ) | | | (7,894 | ) |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 2,056 | | | | 1,620 | |
Cash and cash equivalents at beginning of period | | | 10,158 | | | | 6,020 | |
Cash and cash equivalents at end of period | | $ | 12,214 | | | $ | 7,640 | |
| | | | | | | | |
Supplemental Information: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 1,119 | | | $ | 845 | |
Income taxes paid | | $ | 822 | | | $ | 932 | |
| | 26 Weeks Ended | |
(in thousands) | | November 28, 2013 | | November 29, 2012 | |
| | | | | | | |
OPERATING ACTIVITIES: | | | | | | | |
Net earnings | | $ | 16,328 | | $ | 15,466 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | |
Losses on investments in joint ventures | | | 29 | | | 23 | |
Distribution from joint venture | | | – | | | 120 | |
(Gain) loss on disposition of property, equipment and other assets | | | 772 | | | (26) | |
Impairment charge | | | – | | | 417 | |
Amortization of loss on swap agreement | | | – | | | 57 | |
Amortization of favorable lease right | | | 167 | | | 167 | |
Depreciation and amortization | | | 16,784 | | | 16,899 | |
Stock compensation expense | | | 1,036 | | | 947 | |
Deferred income taxes | | | (949) | | | (2,022) | |
Deferred compensation and other | | | 469 | | | (1,190) | |
Changes in operating assets and liabilities: | | | | | | | |
Accounts and notes receivable | | | (1,734) | | | (1,314) | |
Other current assets | | | 136 | | | (292) | |
Accounts payable | | | (2,064) | | | 3,159 | |
Income taxes | | | 3,020 | | | 4,764 | |
Taxes other than income taxes | | | 1,679 | | | 1,641 | |
Accrued compensation | | | 135 | | | (2,426) | |
Other accrued liabilities | | | 2,036 | | | (1) | |
Total adjustments | | | 21,516 | | | 20,923 | |
Net cash provided by operating activities | | | 37,844 | | | 36,389 | |
| | | | | | | |
INVESTING ACTIVITIES: | | | | | | | |
Capital expenditures | | | (20,954) | | | (10,538) | |
Proceeds from disposals of property, equipment and other assets | | | 876 | | | 57 | |
Decrease (increase) in restricted cash | | | 432 | | | (1,607) | |
Increase in other assets | | | (640) | | | (667) | |
Purchase of interest in joint venture | | | – | | | (444) | |
Contribution to joint venture | | | (706) | | | – | |
Cash advanced to joint venture | | | (231) | | | (30) | |
Net cash used in investing activities | | | (21,223) | | | (13,229) | |
| | | | | | | |
FINANCING ACTIVITIES: | | | | | | | |
Debt transactions: | | | | | | | |
Proceeds from issuance of long-term debt | | | 71,000 | | | 74,000 | |
Principal payments on long-term debt | | | (79,157) | | | (70,407) | |
Debt issuance costs | | | (276) | | | – | |
Equity transactions: | | | | | | | |
Treasury stock transactions, except for stock options | | | (1,035) | | | (19,248) | |
Exercise of stock options | | | 744 | | | 892 | |
Dividends paid | | | (4,466) | | | (4,688) | |
Distributions to noncontrolling interest | | | (1,059) | | | – | |
Net cash used in financing activities | | | (14,249) | | | (19,451) | |
| | | | | | | |
Net increase in cash and cash equivalents | | | 2,372 | | | 3,709 | |
Cash and cash equivalents at beginning of period | | | 10,158 | | | 6,020 | |
Cash and cash equivalents at end of period | | $ | 12,530 | | $ | 9,729 | |
| | | | | | | |
Supplemental Information: | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 4,055 | | $ | 4,172 | |
Income taxes paid | | $ | 8,832 | | $ | 8,123 | |
See accompanying condensed notes to consolidated financial statements.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 AND 26 WEEKS ENDED AUGUST 29,NOVEMBER 28, 2013
1. General
GeneralAccounting Policies – Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended May 30, 2013, contained in the Company’s Annual Report on Form 10-K for such year, for a description of the Company’s accounting policies.
Basis of Presentation – The unaudited consolidated financial statements for the 13 and 26 weeks ended AugustNovember 28, 2013 and November 29, 20132012 have been prepared by the Company. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the unaudited interim financial information at August 29,November 28, 2013, and for all periods presented, have been made. The results of operations during the interim periods are not necessarily indicative of the results of operations for the entire year or other interim periods. However, the unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 30, 2013. Depreciation and Amortization – Depreciation and amortization of property and equipment are provided using the straight-line method over the shorter of the estimated useful lives of the assets or any related lease terms. Depreciation expense totaled $8,207,000$8,332,000 and $8,259,000$16,539,000 for the 13 and 26 weeks ended AugustNovember 28, 2013, respectively, and $8,533,000 and $16,792,000 for the 13 and 26 weeks ended November 29, 2012, respectively.
Long-Lived Assets– The Company periodically considers whether indicators of impairment of long-lived assets held for use are present. If such indicators are present, the Company determines whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amounts. The Company recognizes any impairment losses based on the excess of the carrying amount of the assets over their fair value. For the purpose of determining fair value, defined as the amount at which an asset or group of assets could be bought or sold in a current transaction between willing parties, the Company utilizes currently available market valuations of similar assets in its respective industries, often expressed as a given multiple of operating cash flow. The Company evaluated the ongoing value of its property and equipment and other long-lived assets as of November 28, 2013 and August 30,November 29, 2012 respectively.and determined that there was no significant impact on the Company’s results of operations, other than an impairment charge recorded in the fiscal 2013 second quarter related to a theatre that closed in the fiscal 2013 second quarter. The Company determined that the fair value of this theatre, measured using Level 3 pricing inputs, was less than its carrying value, and recorded a $417,000 pre-tax impairment loss.
Accumulated Other Comprehensive Loss – Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets consists of the following, all presented net of tax: | | Swap Agreements | | | Available for Sale Investments | | | Pension Obligation | | | Accumulated Other Comprehensive Loss | |
| | (in thousands) | |
| | | | | | | | | | | | |
Balance at May 30, 2013 | | $ | 18 | | | $ | (10 | ) | | $ | (3,836 | ) | | $ | (3,828 | ) |
Other comprehensive income (loss) before reclassifications | | | 241 | | | | (1 | ) | | | - | | | | 240 | |
Amounts reclassified from accumulated other comprehensive loss(1) | | | 27 | | | | - | | | | - | | | | 27 | |
Net other comprehensive income (loss) | | | 268 | | | | (1 | ) | | | - | | | | 267 | |
Balance at August 29, 2013 | | $ | 286 | | | $ | (11 | ) | | $ | (3,836 | ) | | $ | (3,561 | ) |
| | Swap Agreements | | | Available for Sale Investments | | | Pension Obligation | | | Accumulated Other Comprehensive Loss | |
| | (in thousands) | |
| | | | | | | | | | | | |
Balance at May 31, 2012 | | $ | (58 | ) | | $ | (8 | ) | | $ | (4,073 | ) | | $ | (4,139 | ) |
Other comprehensive income (loss) before reclassifications | | | - | | | | - | | | | - | | | | - | |
Amounts reclassified from accumulated other comprehensive loss(1) | | | 17 | | | | - | | | | - | | | | 17 | |
Net other comprehensive income | | | 17 | | | | - | | | | - | | | | 17 | |
Balance at August 30, 2012 | | $ | (41 | ) | | $ | (8 | ) | | $ | (4,073 | ) | | $ | (4,122 | ) |
| (1) | Amounts are included in interest expense in the consolidated statements of earnings |
| | Swap Agreements | | Available for Sale Investments | | Pension Obligation | | Accumulated Other Comprehensive Loss | |
| | (in thousands) | |
Balance at May 30, 2013 | | $ | 18 | | $ | (10) | | $ | (3,836) | | $ | (3,828) | |
Other comprehensive loss before reclassifications | | | (53) | | | (1) | | | - | | | (54) | |
Amounts reclassified from accumulated other comprehensive loss (1) | | | 57 | | | - | | | - | | | 57 | |
Net other comprehensive income (loss) | | | 4 | | | (1) | | | - | | | 3 | |
Balance at November 28, 2013 | | $ | 22 | | $ | (11) | | $ | (3,836) | | $ | (3,825) | |
| | Swap Agreements | | Available for Sale Investments | | Pension Obligation | | Accumulated Other Comprehensive Loss | |
| | (in thousands) | |
Balance at May 31, 2012 | | $ | (58) | | $ | (8) | | $ | (4,073) | | $ | (4,139) | |
Other comprehensive income (loss) before reclassifications | | | - | | | - | | | - | | | - | |
Amounts reclassified from accumulated other comprehensive loss (1) | | | 34 | | | - | | | - | | | 34 | |
Net other comprehensive income | | | 34 | | | - | | | - | | | 34 | |
Balance at November 29, 2012 | | $ | (24) | | $ | (8) | | $ | (4,073) | | $ | (4,105) | |
(1)Amounts are included in interest expense in the consolidated statements of earnings.
Earnings Per Share – Net earnings per share (EPS) of Common Stock and Class B Common Stock is computed using the two class method. Basic net earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding. Diluted net earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options using the treasury method. Convertible Class B Common Stock is reflected on an if-converted basis. The computation of the diluted net earnings per share of Common Stock assumes the conversion of Class B Common Stock, while the diluted net earnings per share of Class B Common Stock does not assume the conversion of those shares. Holders of Common Stock are entitled to cash dividends per share equal to 110%110% of all dividends declared and paid on each share of Class B Common Stock. As such, the undistributed earnings for each period are allocated based on the proportionate share of entitled cash dividends. The computation of diluted net earnings per share of Common Stock assumes the conversion of Class B Common Stock and, as such, the undistributed earnings are equal to net earnings for that computation. The following table illustrates the computation of Common Stock and Class B Common Stock basic and diluted net earnings per share for net earnings and provides a reconciliation of the number of weighted-average basic and diluted shares outstanding:
| | 13 Weeks Ended August 29, 2013 | | | 13 Weeks Ended August 30, 2012 | |
| | (in thousands, except per share data) | |
Numerator: | | | | | | |
Net earnings attributable to The Marcus Corporation | | $ | 13,431 | | | $ | 10,679 | |
Denominator: | | | | | | | | |
Denominator for basic EPS | | | 27,071 | | | | 28,921 | |
Effect of dilutive employee stock options | | | 23 | | | | 43 | |
Denominator for diluted EPS | | | 27,094 | | | | 28,964 | |
Net earnings per share – basic: | | | | | | | | |
Common Stock | | $ | 0.51 | | | $ | 0.38 | |
Class B Common Stock | | $ | 0.47 | | | $ | 0.35 | |
Net earnings per share – diluted: | | | | | | | | |
Common Stock | | $ | 0.50 | | | $ | 0.37 | |
Class B Common Stock | | $ | 0.46 | | | $ | 0.34 | |
| | 13 Weeks Ended November 28, 2013 | | 13 Weeks Ended November 29, 2012 | | 26 Weeks Ended November 28, 2013 | | 26 Weeks Ended November 29, 2012 | |
| | (in thousands, except per share data) | |
Numerator: | | | | | | | | | | | | | |
Net earnings attributable to The Marcus Corporation | | $ | 3,245 | | $ | 4,724 | | $ | 16,676 | | $ | 15,403 | |
Denominator: | | | | | | | | | | | | | |
Denominator for basic EPS | | | 27,059 | | | 28,139 | | | 27,065 | | | 28,530 | |
Effect of dilutive employee stock options | | | 71 | | | 9 | | | 43 | | | 19 | |
Denominator for diluted EPS | | | 27,130 | | | 28,148 | | | 27,108 | | | 28,549 | |
Net earnings per share – basic: | | | | | | | | | | | | | |
Common Stock | | $ | 0.12 | | $ | 0.17 | | $ | 0.64 | | $ | 0.56 | |
Class B Common Stock | | $ | 0.11 | | $ | 0.16 | | $ | 0.58 | | $ | 0.52 | |
Net earnings per share – diluted: | | | | | | | | | | | | | |
Common Stock | | $ | 0.12 | | $ | 0.17 | | $ | 0.62 | | $ | 0.54 | |
Class B Common Stock | | $ | 0.11 | | $ | 0.16 | | $ | 0.58 | | $ | 0.52 | |
Equity-– Activity impacting total shareholders'shareholders’ equity attributable to The Marcus Corporation and noncontrolling interests for the 1326 weeks ended AugustNovember 28, 2013 and November 29, 20132012 was as follows: | | Total Shareholders’ Equity | | | | |
| | Attributable to The Marcus | | | Noncontrolling | |
| | Corporation | | | Interests | |
| | (in thousands) | |
Balance at May 30, 2013 | | $ | 306,702 | | | $ | 9,994 | |
Net earnings attributable to The Marcus Corporation | | | 13,431 | | | | - | |
Net loss attributable to noncontrolling interests | | | - | | | | (585 | ) |
Distributions to noncontrolling interests | | | - | | | | (1,060 | ) |
Cash dividends | | | (2,233 | ) | | | - | |
Exercise of stock options | | | 261 | | | | - | |
Treasury stock transactions, except for stock options | | | (554 | ) | | | - | |
Share-based compensation | | | 386 | | | | - | |
Other comprehensive income, net of tax | | | 267 | | | | - | |
Balance at August 29, 2013 | | $ | 318,260 | | | $ | 8,349 | |
| | Total Shareholders’ Equity Attributable to The Marcus Corporation | | Noncontrolling Interests | |
| | (in thousands) | |
Balance at May 30, 2013 | | $ | 306,702 | | $ | 9,994 | |
Net earnings attributable to The Marcus Corporation | | | 16,676 | | | – | |
Net loss attributable to noncontrolling interests | | | – | | | (348) | |
Distributions to noncontrolling interests | | | – | | | (1,059) | |
Cash dividends | | | (4,466) | | | – | |
Exercise of stock options | | | 744 | | | – | |
Treasury stock transactions, except for stock options | | | (1,035) | | | – | |
Share-based compensation | | | 1,036 | | | – | |
Other | | | 85 | | | – | |
Other comprehensive income, net of tax | | | 3 | | | – | |
Balance at November 28, 2013 | | $ | 319,745 | | $ | 8,587 | |
| | Total Shareholders Equity | | | | |
| | Attributable to | | Noncontrolling | |
| | The Marcus Corporation | | Interests | |
| | (in thousands) | |
Balance at June 1, 2012 | | $ | 343,789 | | $ | - | |
Net earnings attributable to The Marcus Corporation | | | 15,403 | | | - | |
Net earnings attributable to noncontrolling interests | | | - | | | 63 | |
Cash dividends | | | (4,688) | | | - | |
Exercise of stock options | | | 892 | | | - | |
Purchase of treasury stock | | | (19,397) | | | - | |
Reissuance of treasury stock | | | 149 | | | | |
Share-based compensation | | | 947 | | | - | |
Other | | | - | | | 213 | |
Equity contribution | | | - | | | 4,000 | |
Other comprehensive income, net of tax | | | 34 | | | - | |
Balance at November 29, 2012 | | $ | 337,129 | | $ | 4,276 | |
Fair Value Measurements – Certain financial assets and liabilities are recorded at fair value in the consolidated financial statements. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. A fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
The Company’s assets and liabilities measured at fair value are classified in one of the following categories:
Level 1 – Assets or liabilities for which fair value is based on quoted prices in active markets for identical instruments as of the reporting date. At August 29,November 28, 2013 and May 30, 2013, the Company’s $70,000$70,000 and $71,000,$71,000, respectively, of available for sale securities were valued using Level 1 pricing inputs and were included in other current assets. Level 2 – Assets or liabilities for which fair value is based on pricing inputs that were either directly or indirectly observable as of the reporting date. At August 29,November 28, 2013 and May 30, 2013, respectively, the $474,000$35,000 and $30,000$30,000 asset related to the Company’s interest rate swap contract was valued using Level 2 pricing inputs.At November 28, 2013, the Company’s investment in a hotel joint venture was valued using Level 2 pricing inputs, resulting in a loss on disposition of property, equipment and other assets of $750,000.
Level 3 – Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates. At August 29,November 28, 2013 and May 30, 2013, none of the Company’s fair value measurements were valued using Level 3 pricing inputs. Defined Benefit Plan – The components of the net periodic pension cost of the Company’s unfunded nonqualified, defined-benefit plan are as follows: | | 13 Weeks EndedAugust 29, 2013 | | | 13 Weeks EndedAugust 30, 2012 | |
| | (in thousands) | |
Service cost | | $ | 176 | | | $ | 178 | |
Interest cost | | | 293 | | | | 275 | |
Net amortization of prior service cost and actuarial loss | | | 67 | | | | 71 | |
Net periodic pension cost | | $ | 536 | | | $ | 524 | |
| | 13 Weeks Ended November 28, 2013 | | 13 Weeks Ended November 29, 2012 | | 26 Weeks Ended November 28, 2013 | | 26 Weeks Ended November 29, 2012 | |
| | (in thousands) | |
Service cost | | $ | 175 | | $ | 178 | | $ | 351 | | $ | 356 | |
Interest cost | | | 294 | | | 275 | | | 587 | | | 550 | |
Net amortization of prior service cost and actuarial loss | | | 67 | | | 72 | | | 134 | | | 143 | |
Net periodic pension cost | | $ | 536 | | $ | 525 | | $ | 1,072 | | $ | 1,049 | |
Reclassifications– Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.
During the first quarter of fiscal 2014, the Company entered into a note purchase agreement with several purchasers pursuant to which the Company issued and sold $50,000,000$50,000,000 in aggregate principal amount of its 4.02%4.02% senior notes due August 14, 2025 in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. Interest on the notes is payable semi-annually in February and August of each year and at maturity, commencing on February 14, 2014. Beginning in August 2021 and each August thereafter, to and including August 2024, the Company will be required to prepay $10,000,000$10,000,000 of the principal amount of the notes. The entire unpaid principal balance of the notes will be due and payable in August 2025. The Company utilizes derivatives principally to manage market risks and reduce its exposure resulting from fluctuations in interest rates. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions.
The Company entered into an interest rate swap agreement on February 28, 2013 covering $25,000,000$25,000,000 of floating rate debt, which expires January 22, 2018, and requires the Company to pay interest at a defined rate of 0.96%0.96% while receiving interest at a defined variable rate of one-month LIBOR (0.19% (0.19% at August 29,November 28, 2013). The Company recognizes derivatives as either assets or liabilities on the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. Derivatives that do not qualify for hedge accounting must be adjusted to fair value through earnings. The Company’s interest rate swap agreement is considered effective and qualifies as a cash flow hedge. For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of August 29,November 28, 2013, the interest rate swap was considered effective. The increase (decrease) in fair value of the interest rate swap of $444,000$(438,000) ($268,000(264,000) net of tax) and $5,000 ($4,000 net of tax) was included in other comprehensive loss for the 13 and 26 weeks ended August 29, 2013.November 28, 2013, respectively. The notional amount of the swap is $25,000,000$25,000,000 and the fair value of the swap was $474,000$35,000 and $30,000$30,000 as of August 29,November 28, 2013 and May 30, 2013, respectively, and is included in other (long-term assets). The Company does not expect the interest rate swap to have any material effect on earnings within the next 12 months. On February 29, 2008, the Company entered into an interest rate swap agreement covering $25,000,000$25,000,000 of floating rate debt, which required the Company to pay interest at a defined rate of 3.49%3.49% while receiving interest at a defined variable rate of three-month LIBOR. The interest rate swap agreement was considered effective and qualified as a cash flow hedge. On March 19, 2008, the Company terminated the swap, at which time cash flow hedge accounting ceased. The fair value of the swap on the date of termination was a liability of $567,000$567,000 ($338,000 net of tax). For the 13 and 26 weeks ended August 30,November 29, 2012, the Company reclassified $28,000$28,000 ($17,000 net of tax) and $57,000 ($34,000 net of tax), respectively, from accumulated other comprehensive loss to interest expense. The liability was fully amortized as of May 30, 2013.
3. Capital Lease Obligation During fiscal 2012, the Company entered into a master licensing agreement with CDF2 Holdings, LLC, a subsidiary of Cinedigm Digital Cinema Corp (CDF2), whereby CDF2 purchased on the Company’s behalf, and then deployed and licensed back to the Company, digital cinema projection systems (the “systems”) for use by the Company in its theatres. As of August 29,November 28, 2013, 642 of the Company’s screens were utilizing the systems under a 10-year10-year master licensing agreement with CDF2. Included in furniture, fixtures and equipment is $45,510,000$45,510,000 related to the digital systems as of August 29,November 28, 2013 and May 30, 2013. Accumulated amortization of the digital systems was $8,580,000$9,718,000 and $7,441,000$7,441,000 as of August 29,November 28, 2013 and May 30, 2013, respectively. Under the terms of the master licensing agreement, the Company made an initial one-time payment to CDF2. The Company expects that the balance of CDF2’s costs to deploy the systems will be covered primarily through the payment of virtual print fees (VPF’s) from film distributors to CDF2 each time a digital movie is booked on one of the systems deployed on a Company screen. The Company agreed to make an average number of bookings of eligible digital movies on each screen on which a licensed system has been deployed to provide for a minimum level of VPF’s paid by distributors (standard booking commitment) to CDF2. To the extent the VPF’s paid by distributors are less than the standard booking commitment, the Company must make a shortfall payment to CDF2. Based upon the Company’s historical booking patterns, the Company does not expect to make any shortfall payments during the life of the agreement. ASCAccounting Standards Codification No. 840,Leases, requires that the Company consider the entire amount of the standard booking commitment minimum lease payments for purposes of determining the capital lease obligation. The maximum amount per year that the Company could be required to pay is approximately $6,163,000$6,163,000 until the obligation is fully satisfied. The Company’s capital lease obligation is being reduced as VPF’s are paid by the film distributors to CDF2. The Company has recorded the reduction of the obligation associated with the payment of VPF’s as a reduction of the interest related to the obligation and the amortization incurred related to the systems, as the payments represent a specific reimbursement of the cost of the systems by the studios. Based on the Company’s expected minimum number of eligible movies to be booked, the Company expects the obligation to be reduced by at least $4,636,000$4,712,000 within the next 12 months. This reduction will be recognized as an offset to amortization and is expected to offset the majority of the amortization of the systems.
The Company’s effective income tax rate, adjusted for earnings from noncontrolling interests, for the 13 and 26 weeks ended AugustNovember 28, 2013 was 38.4% and 39.9%, respectively, and was 36.0% and 40.2% for the 13 and 26 weeks ended November 29, 2013 and August 30, 2012, was 40.2% and 41.9%, respectively.respectively. The Company does not include the income tax expense or benefit related to the net earnings or loss attributable to noncontrolling interest in its income tax expense as the entities are considered pass-through entities and, as such, the income tax expense or benefit is attributable to its owners.
5. ContingenciesOn July 7, 2005, the Company amended its office lease in order to exit leased office space for the Company’s former limited-service lodging division. To induce the landlord to amend the lease, the Company guaranteed the lease obligations of the new tenant of the relinquished space through November 2013. The maximum amount of future payments the Company could be required to pay if the new tenant defaults on its lease obligations was approximately $119,000 as of August 29, 2013.
6. Business Segment Information
The Company’s primary operations are reported in the following business segments: Theatres and Hotels/Resorts. Corporate items include amounts not allocable to the business segments. Corporate revenues consist principally of rent and the corporate operating loss includes general corporate expenses. Corporate information technology costs and accounting shared services costs are allocated to the business segments based upon several factors, including actual usage and segment revenues.
Following is a summary of business segment information for the 13
and 26 weeks ended
August 29,November 28, 2013 and
August 30,November 29, 2012 (in thousands):
13 Weeks Ended August 29, 2013 | | Theatres | | | Hotels/ Resorts | | | Corporate Items | | | Total | |
Revenues | | $ | 69,112 | | | $ | 59,810 | | | $ | 110 | | | $ | 129,032 | |
Operating income (loss) | | | 16,913 | | | | 10,898 | | | | (3,464 | ) | | | 24,347 | |
Depreciation and amortization | | | 3,986 | | | | 4,181 | | | | 160 | | | | 8,327 | |
13 Weeks Ended August 30, 2012 | | Theatres | | | Hotels/ Resorts | | | Corporate Items | | | Total | |
Revenues | | $ | 62,352 | | | $ | 55,439 | | | $ | 148 | | | $ | 117,939 | |
Operating income (loss) | | | 13,278 | | | | 10,233 | | | | (3,056 | ) | | | 20,455 | |
Depreciation and amortization | | | 4,210 | | | | 3,976 | | | | 127 | | | | 8,313 | |
13 Weeks Ended November 28, 2013 | | Theatres | | Hotels/ Resorts | | Corporate Items | | Total | |
Revenues | | $ | 46,772 | | $ | 53,704 | | $ | 112 | | $ | 100,588 | |
Operating income (loss) | | | 5,307 | | | 7,045 | | | (3,542) | | | 8,810 | |
Depreciation and amortization | | | 4,147 | | | 4,169 | | | 141 | | | 8,457 | |
13 Weeks Ended November 29, 2012 | | Theatres | | Hotels/ Resorts | | Corporate Items | | Total | |
Revenues | | $ | 50,013 | | $ | 50,447 | | $ | 173 | | $ | 100,633 | |
Operating income (loss) | | | 8,720 | | | 4,819 | | | (3,822) | | | 9,717 | |
Depreciation and amortization | | | 4,278 | | | 4,180 | | | 128 | | | 8,586 | |
26 Weeks Ended November 28, 2013 | | Theatres | | Hotels/ Resorts | | Corporate Items | | Total | |
Revenues | | $ | 115,884 | | $ | 113,514 | | $ | 222 | | $ | 229,620 | |
Operating income (loss) | | | 22,220 | | | 17,943 | | | (7,006) | | | 33,157 | |
Depreciation and amortization | | | 8,133 | | | 8,350 | | | 301 | | | 16,784 | |
26 Weeks Ended November 29, 2012 | | Theatres | | Hotels/ Resorts | | Corporate Items | | Total | |
Revenues | | $ | 112,365 | | $ | 105,886 | | $ | 321 | | $ | 218,572 | |
Operating income (loss) | | | 21,998 | | | 15,052 | | | (6,878) | | | 30,172 | |
Depreciation and amortization | | | 8,488 | | | 8,156 | | | 255 | | | 16,899 | |
THE MARCUS CORPORATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Special Note Regarding Forward-Looking Statements Certain matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q 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 such statements include words such as we “believe,” “anticipate,” “expect” or words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which may cause results to differ materially from those expected, including, but not limited to, the following: (1) the availability, in terms of both quantity and audience appeal, of motion pictures for our theatre division, as well as other industry dynamics such as the maintenance of a suitable window between the date such motion pictures are released in theatres and the date they are released to other distribution channels; (2) the effects of increasing depreciation expenses, reduced operating profits during major property renovations, and preopening and start-up costs due to the capital intensive nature of our businesses; (3) the effects of adverse economic conditions in our markets, particularly with respect to our hotels and resorts division; (4) the effects of adverse weather conditions, particularly during the winter in the Midwest and in our other markets; (5) the effects on our occupancy and room rates of the relative industry supply of available rooms at comparable lodging facilities in our markets; (6) the effects of competitive conditions in our markets; (7) our ability to identify properties to acquire, develop and/or manage and the continuing availability of funds for such development; and (8) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in the United States or incidents such as the tragedy in a movie theatre in Colorado.Colorado in July 2012. Shareholders, potential investors and other readers are urged to consider these factors 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 made only as of the date of this Form 10-Q and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
We report our consolidated and individual segment results of operations on a 52- or 53-week fiscal year ending on the last Thursday in May. Fiscal 2014 is a 52-week year, as was fiscal 2013. We divide our fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. Our primary operations are reported in the following two business segments: movie theatres and hotels and resorts.
The following table sets forth revenues, operating income, other income (expense), net earnings and net earnings per common share for the comparable
second quarter and first
quartershalf of fiscal 2014 and 2013 (in millions, except for per share and variance percentage data):
| | First Quarter | |
| | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | | Pct. | |
| | | | | | | | | | | | |
Revenues | | $ | 129.0 | | | $ | 117.9 | | | $ | 11.1 | | | | 9.4 | % |
Operating income | | | 24.3 | | | | 20.5 | | | | 3.8 | | | | 19.0 | % |
Other income (expense) | | | (2.5 | ) | | | (2.1 | ) | | | (0.4 | ) | | | -18.8 | % |
Net loss attributable to noncontrolling interests | | | 0.6 | | | | ─ | | | | 0.6 | | | | N/A | |
Net earnings attributable to The Marcus Corp. | | | 13.4 | | | | 10.7 | | | | 2.7 | | | | 25.8 | % |
| | | | | | | | | | | | | | | | |
Net earnings per common share – diluted | | $ | 0.50 | | | $ | 0.37 | | | $ | 0.13 | | | | 35.1 | % |
| | Second Quarter | | | First Half | |
| | | | | | | | Variance | | | | | | | | | Variance | |
| | F2014 | | F2013 | | Amt. | | Pct. | | | F2014 | | F2013 | | Amt. | | Pct. | |
Revenues | | $ | 100.6 | | $ | 100.6 | | $ | – | | | – | % | | $ | 229.6 | | $ | 218.6 | | $ | 11.0 | | | 5.1 | % |
Operating Income | | | 8.8 | | | 9.7 | | | (0.9) | | | 9.3 | % | | | 33.2 | | | 30.2 | | | 3.0 | | | 9.9 | % |
Other income (expense) | | | (3.3) | | | (2.3) | | | (1.0) | | | -45.0 | % | | | (5.8) | | | (4.3) | | | (1.5) | | | -32.5 | % |
Net earnings (loss) attributable to noncontrolling interests | | | 0.2 | | | 0.1 | | | 0.1 | | | 276.2 | % | | | (0.3) | | | 0.1 | | | (0.4) | | | -652.4 | % |
Net earnings attributable to The Marcus Corp. | | $ | 3.2 | | $ | 4.7 | | $ | (1.5) | | | -31.3 | % | | $ | 16.7 | | $ | 15.4 | | $ | 1.3 | | | 8.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings per common share – diluted: | | $ | 0.12 | | $ | 0.17 | | $ | (0.05) | | | -29.4 | % | | $ | 0.62 | | $ | 0.54 | | $ | 0.08 | | | 14.8 | % |
Revenues, operating income (earnings before other income/expense and income taxes) and net earnings attributable to The Marcus Corporation
increaseddecreased during the
firstsecond quarter of fiscal 2014 compared to the same period last year due to
improveddecreased operating results from our theatre division, partially offset by record second quarter operating results from our hotels and resorts division. Improved operating results from both our theatre division and our hotels and resorts
division.division contributed to our improved performance during the first half of fiscal 2014 compared to the first half of fiscal 2013. Operating results from our theatre division were
positivelynegatively impacted by
increaseddecreased attendance due to a
strongerweaker slate of movies during the fiscal 2014
firstsecond quarter compared to the same period last
year.year, partially offsetting significantly increased operating results in the first quarter of fiscal 2014. Operating results from our hotels and resorts division were favorably impacted by higher
occupancy rates and average daily room rates during the fiscal 2014
first quarterperiods compared to the
first quartersame periods last year.
We did not have any significant variations An increase in investment income, gains or lossesour interest expense during the fiscal 2014 periods and a loss on the disposition of property, equipment and other assets or net equity losses from unconsolidated joint venturesduring our fiscal 2014 second quarter negatively impacted our operating results during the first quarter of fiscal 2014 compared to the same quarter last year. The timing of periodic sales of our property and equipment varies from quarter to quarter, resulting in variations in our reported gains or losses on disposition of property and equipment.
periods.
Our interest expense totaled
$2.4$2.6 million and $5.0 million for the
second quarter and first
quarterhalf of fiscal 2014,
respectively, compared to
$2.1$2.3 million
and $4.4 million, respectively, during the same
periodperiods last year, an increase of approximately $300,000, or
15.4%.11.5%, and $600,000, or 13.4%, respectively. The increase in interest expense during the
first quarter of fiscal 2014
periods was
primarily the result ofdue in part to increased borrowings during the
periodperiods compared to the same
quarter last year.periods during fiscal 2013. Our borrowings increased due to an assumption of a mortgage related to our acquisition of The Cornhusker, A Marriott Hotel,
in Lincoln, Nebraska during the second quarter last year, as well as new borrowings incurred during our third quarter last year in order to fund the payment of a special dividend.
Due to the stronger cash flow from our operating divisions during the summer months, ourOur borrowing levels
are typically
at their lowest point at the end ofincrease later in our fiscal
first quarter. It is likely that our borrowing levels will increase later this fiscal year as
we intend to increase our capital spending throughout the year even though our operating cash flows decline
and our capital expenditures increase during our slower operating months.
Late
Our interest expense also increased during our fiscal 2014 second quarter compared to the prior year quarter due to the fact that, late in our fiscal 2014 first quarter, we closed on our previously-disclosed issuance of $50 million of unsecured senior notes privately placed with several purchasers. We used the proceeds from the notes, which bear interest at 4.02% and mature in 2025, to reduce borrowings under our revolving credit facility and for general corporate purposes. Assuming no other change in our borrowing levels, we expect that the increase in our
average interest
rateexpense resulting from the new senior notes,
replacing less expensivewhich replace short-term borrowings
with a lower interest rate, will be approximately $300,000 in each of our remaining fiscal 2014 quarters compared to the prior year quarters. Changes in our borrowing levels due to variations in our operating results, capital expenditures, share repurchases and asset sale proceeds, among other items, may impact our actual reported interest expense in future periods.
We reported a loss on disposition of property, equipment and other assets of $789,000 during the second quarter of fiscal 2014. Approximately $750,000 of this loss was related to our recent sale of our 15% joint venture ownership interest in the Columbus Westin hotel in Columbus, Ohio to the majority partner in that venture. Pursuant to the sale arrangement, we also ceased providing management services for this hotel in December 2013. The timing of periodic sales or disposals of our property, equipment and other assets varies from quarter to quarter, resulting in variations in our reported gains or losses on disposition of such assets.
We did not have any significant variations in investment income or net equity earnings or losses from unconsolidated joint ventures during the second quarter and first half of fiscal 2014 compared to the same periods last year.
We reported income tax expense for the
second quarter and first
quarterhalf of fiscal 2014 of
$9.0$2.0 million
an increase of $1.3and $11.1 million,
or 17.3%,respectively, compared to
income tax expense of $7.7$2.7 million
and $10.4 million, respectively, during the same
periodperiods of fiscal 2013. Our fiscal 2014 first
quarterhalf effective income tax rate, after adjusting for a loss from noncontrolling interests that is not tax-effected because the entities involved are tax pass-through entities, was
40.2%39.9%, compared to our fiscal 2013 first
quarterhalf effective income tax rate of
41.9%40.2%.
As a result of our receipt of a preliminary proposed tax audit adjustment from a state taxing authority during our fiscal 2013 first quarter, we increased our liability for unrecognized tax benefits during fiscal 2013 by over $300,000, unfavorably impacting our fiscal 2013 effective income tax rate. We successfully challenged this particular adjustment during our second quarter of fiscal 2013, so comparisons of our reported results for the upcoming fiscal 2014 second quarter to the second quarter of fiscal 2013 will be negatively impacted by a $300,000 favorable adjustment during the second quarter of fiscal 2013. We currently anticipate that our effective income tax rate for the remaining quarters of fiscal 2014 will remain close to our historical 40% average, excluding any changes in our liability for unrecognized tax benefits or potential changes in federal and state income tax rates. Our actual fiscal 2014 effective income tax rate may be different from our estimated quarterly rates depending upon actual facts and circumstances.
The
We include the operating results of two majority-owned hotels, The Skirvin Hilton and The Cornhusker, A Marriott Hotel,
are included in the hotels and resorts division revenue and operating income, and
we add or deduct the after-tax net earnings or loss attributable to noncontrolling interests
is deductedto or from
or added to net earnings on the consolidated statement of earnings. We reported
net earnings attributable to noncontrolling interests of $237,000 and $63,000, respectively, during the second quarter of fiscal 2014 and 2013. We reported a net loss attributable to noncontrolling interests of
$585,000$348,000 during the
first half of fiscal 2014
first quarter. This loss isdue primarily
due to
aan approximately $500,000 true-up of a prior year allocation of earnings attributable to noncontrolling interests.
The following table sets forth revenues, operating income and operating margin for our theatre division for the
second quarter and first
quartershalf of fiscal 2014 and 2013 (in millions, except for variance percentage and operating margin):
| | First Quarter | |
| | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | | Pct. | |
| | | | | | | | | | | | |
Revenues | | $ | 69.1 | | | $ | 62.4 | | | $ | 6.7 | | | | 10.8 | % |
Operating income | | | 16.9 | | | | 13.3 | | | | 3.6 | | | | 27.4 | % |
Operating margin (% of revenues) | | | 24.5 | % | | | 21.3 | % | | | | | | | | |
| | Second Quarter | | | First Half | |
| | | | | | | | | | Variance | | | | | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | Pct. | | | F2014 | | | F2013 | | | Amt. | | Pct. | |
Revenues | | $ | 46.8 | | | $ | 50.0 | | | $ | (3.2) | | | -6.5 | % | | $ | 115.9 | | | $ | 112.4 | | | $ | 3.5 | | | 3.1 | % |
Operating income | | | 5.3 | | | | 8.7 | | | | (3.4) | | | -39.1 | % | | | 22.2 | | | | 22.0 | | | | 0.2 | | | 1.0 | % |
Operating margin (% of revenues) | | | 11.3 | % | | | 17.4 | % | | | | | | | | | | 19.2 | % | | | 19.6 | % | | | | | | | |
Consistent with the seasonal nature of the motion picture exhibition industry, the
firstsecond quarter
is typically the strongest period of our fiscal year
is typically the slowest period for our theatre
division. Our theatre division
revenues and operating income decreased during the fiscal 2014 second quarter compared to prior year’s same period due primarily to a decrease in attendance. Our theatre division revenues and operating income increased during the fiscal 2014 first half compared to prior year’s same period due primarily to an overall increase in attendance, due to
the traditionallyvery strong
summer movie season. Fiscalfiscal 2014 first quarter
revenues,operating results. Both fiscal 2014 periods benefitted from an increase in our average concession sales per person. Our fiscal 2014 second quarter operating income and operating margin
in our theatre division increased comparedwere negatively impacted by the fact that several theatres had auditoriums closed during the period as they were being renovated. We also incurred unusually high advertising and marketing costs during the fiscal 2014 second quarter related to
a new “$5 Tuesday” pricing promotion that we introduced during the
same period in the prior year due primarily to increased attendance as a result of a stronger film slate during this year’squarter. Our fiscal 2013 second quarter and first
quarter. Fiscal 2014 first quarterhalf operating income
was a new fiscal first quarter record forand operating margin were negatively impacted by the fact that we recognized an approximately $400,000 impairment charge related to our
closing of an eight-screen theatre
division.in Milwaukee, Wisconsin.
The following table
breaks downsets forth a breakdown of the components of revenues for the theatre division for the
second quarter and first
quartershalf of fiscal 2014 and 2013 (in millions, except for variance percentage):
| | First Quarter | |
| | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | | Pct. | |
| | | | | | | | | | | | |
Box office receipts | | $ | 42.1 | | | $ | 38.5 | | | $ | 3.6 | | | | 9.4 | % |
Concession revenues | | | 23.7 | | | | 21.0 | | | | 2.7 | | | | 12.9 | % |
Other revenues | | | 3.3 | | | | 2.9 | | | | 0.4 | | | | 14.9 | % |
Total revenues | | $ | 69.1 | | | $ | 62.4 | | | $ | 6.7 | | | | 10.8 | % |
| | Second Quarter | | | First Half | |
| | | | | | | | Variance | | | | | | | | | Variance | |
| | F2014 | | F2013 | | Amt. | | Pct. | | | F2014 | | F2013 | | Amt. | | Pct. | |
Box office receipts | | $ | 28.0 | | $ | 30.6 | | $ | (2.6) | | | -8.7 | % | | $ | 70.1 | | $ | 69.1 | | $ | 1.0 | | | 1.4 | % |
Concession revenues | | | 15.9 | | | 16.5 | | | (0.6) | | | -4.0 | % | | | 39.6 | | | 37.5 | | | 2.1 | | | 5.4 | % |
Other revenues | | | 2.9 | | | 2.9 | | | - | | | - | % | | | 6.2 | | | 5.8 | | | 0.4 | | | 9.3 | % |
Total revenues | | $ | 46.8 | | $ | 50.0 | | $ | (3.2) | | | -6.5 | % | | $ | 115.9 | | $ | 112.4 | | $ | 3.5 | | | 3.1 | % |
The decrease in our box office receipts for the second quarter of fiscal 2014 compared to the same period last year was due primarily to a decrease in comparable theatre attendance. Our average ticket price also decreased 1.2% during the fiscal 2014 second quarter compared to the same period last year. The decrease in our average ticket price contributed approximately $340,000, or approximately 14%, of the decrease in our box office receipts during our fiscal 2014 second quarter compared to the second quarter of fiscal 2013 and was attributable primarily to the introduction of a new “$5 Tuesday” pricing promotion for all movies. We rolled out the new promotion, which we coupled with a free 44-oz popcorn for a temporary time period, to our entire circuit in mid-November after a successful test in several markets this fall. The goal of the pricing strategy is to increase overall attendance by reaching mid-week value customers who may have reduced their movie-going frequency or stopped going to the movies because of price. Coupled with an aggressive local marketing campaign, we have seen our Tuesday attendance increase dramatically since the introduction of the new promotion. We believe this promotion has created another “weekend” day for us, without adversely impacting the movie-going habits of our regular weekend customers.
The increase in our box office receipts for the first
quarterhalf of fiscal 2014 compared to the same period last year was due primarily to an increase in comparable theatre attendance. Our average ticket price
also increased
2.2%0.8% during the
first half of fiscal 2014
first quarter compared to the same period last year. The increase in our average ticket price contributed approximately
$900,000,$565,000, or approximately
25%39%, of the increase in our box office receipts during
ourthe first half of fiscal 2014
first quarter compared to the first
quarterhalf of fiscal
2013 and was attributable primarily to small increases in ticket prices. Although four of our top five films were available in 3D, our overall box office revenues from 3D presentations were actually down slightly during the fiscal 2014 first quarter compared to the prior year quarter, so 3D, with its corresponding premium price, did not have a disproportionate impact on our average admission price during the fiscal 2014 first quarter compared to the prior year quarter.2013.
Our fiscal 2014
firstsecond quarter concession revenues
increaseddecreased compared to the same period last year as a result of
increaseddecreased attendance at comparable theatres,
andpartially offset by a
5.6%3.9% increase in our average concession revenues per person compared to our fiscal 2013
firstsecond quarter. The increase in our average concession revenues per person at comparable theatres contributed approximately
$1.2$604,000 to our concession revenues during our fiscal 2014 second quarter compared to the same period last year. Our fiscal 2014 first half concession revenues increased compared to the same period last year due to an increase in theatre attendance and a 4.8% increase in our average concession revenues per person compared to the prior year same period. The increase in our average concession revenues per person contributed approximately $1.8 million, or
44%approximately 78%, of the increase in our concession revenues during
ourthe first half of fiscal 2014
first quarter compared to the same period last year. Selected price increases and a change in concession product mix, including increased sales of higher priced non-traditional food and beverage items, were the primary reasons for our increased average concession sales per person during
the fiscal 2014 periods. Other revenues remained the same during our fiscal 2014
firstsecond quarter compared to the same period last
year. The fact that our top two filmsyear and increased during the
first half of fiscal 2014
first quarter were animated family movies also likely contributed to our increase in concession sales per person, as these types of films typically result in stronger concession sales compared to more adult-oriented films. Other revenues increased during our fiscal 2014 first quarter compared to the same period last year due primarily to an increase in marketing and advertising income.
Comparable theatre attendance increased 7.9%decreased 7.1% during the firstsecond quarter of fiscal 2014 compared to the same period last year. June was our strongest month duringSeptember movies outperformed the summer,prior year, but our results were strong throughout the current-year quarter, as we experienced increaseda weaker slate of movies resulted in seven straight weeks of decreased box office results in 10October and November until the last week of the 13 weeks duringquarter when the latest installment of The Hunger Games films was released. In addition, our fiscal 2014 first2013 second quarter compared toincluded the same weeksweek after Thanksgiving, which includes a traditionally strong holiday weekend, favorably impacting last year’s reported results. This year, the week after Thanksgiving will be included in the prior year.our third quarter. Our highest grossing films during the second quarter of fiscal 2014 first quarter includedDespicable Me 2The Hunger Games: Catching Fire(3D),Monsters UniversityGravity (3D),Man of SteelThor: The Dark World (3D),The Heat andWorld War ZCloudy with a Chance of Meatballs 2 (3D) and Captain Phillips. The film slate during the firstsecond quarter of last year included the outstanding performance of the final installment of theDark KnightTwilight film franchise, butand the overall depth of the film product was notvery strong, contributing to our record second quarter results last year. The quantity of top performing films also decreased during the second quarter of fiscal 2014, as strong. This is evidenced byonly seven movies produced box office receipts of over $1.0 million for our circuit during our fiscal 2014 second quarter, compared to nine films that reached that milestone during the fact that oursame period last year. Notwithstanding the decrease in the number of top fiveperforming films in the second quarter of fiscal 2014, comparable theatre attendance increased 1.3% during the first half of fiscal 2014 compared to the same period last year and 15was primarily attributable to a very strong slate of films during our fiscal 2014 first quarter accounted for 39% and 69%, respectively,quarter.
Box office performance during the early weeks of our totalfiscal 2014 third quarter, including the important holiday period, have thus far exceeded the box office results compared to 44% and 76%, respectively, forperformance from the top five and 15 films during the first quarter of last year, both expressed as a percentage of the total box office receipts for the period. This is an indication that the next tier of films (nos. 16 and higher) during the fiscal 2014 first quarter performed significantly better than the next tier of films during the same period last year.September is typically the slowest month of the year for our theatre division. Film product for the second quarter of fiscal 2014 has thus far produced box office results slightly higher than the same periodcomparable weeks last year due to the strong performanceinclusion of the Thanksgiving weekend and a good slate of movies. Top performing holiday films such asthis year include November holdovers Insidious Chapter 2,Cloudy with a Chance of Meatballs 2Frozen (3D) and the GravityHunger Games film, as well as December releases such as The Hobbit: The Desolation of Smaug (3D), Anchorman 2: The Legend Continues, American Hustle, Saving Mr. Banks, The Wolf of Wall Street and The Secret Life of Walter Mitty. Films scheduled to be released this fall and during the upcoming Thanksgiving holiday periodremainder of our fiscal 2014 third quarter that may also generate substantial box office interest include:include Captain PhillipsJack Ryan: Shadow Recruit,The Counselor,Ender’s Game,Thor: The Dark WorldLego Movie (3D) and, The Wolf of Wall Street. Our fiscal 2014 second quarter concludes with the opening ofThe Hunger Games: Catching FireMonuments Men, the second installment of this popular series. We reported record operating results during our second quarter last year, so we expect that comparisons to last year’s results will be difficult. The highest grossing films released during the second quarter last year includedThe Twilight Saga: Breaking Dawn – Part 2RoboCop,Skyfall, Wreck-It Ralph(3D),Taken 2Winter’s Tale andHotel TransylvaniaPompeii (3D). Revenues for the theatre business and the motion picture industry in general are heavily dependent on the general audience appeal of available films, together with studio marketing, advertising and support campaigns and the maintenance of the current “windows” between the date a film is released in theatres and the date a motion picture is released to other channels, including video on-demand and DVD. These are factors over which we have no control.
We ended the firstsecond quarter of fiscal 2014 with a total of 674 company-owned screens in 53 theatres and 11 managed screens in two theatres compared to 684676 company-owned screens in 5453 theatres and 11 managed screens in two theatres at the end of the same period last year. We closed one eight screenan eight-screen theatre in Milwaukee, Wisconsin during our fiscal 2013.2013 second quarter. We also closed two individual screens at separate theatres during the second half of fiscal 2013 in conjunction with the construction of a newTake Five Lounge andUltraScreen® at the respective theatres.each such theatre. We opened our fifthTake Five Lounge, which also servesZaffiro’s pizza, at our remodeled Point Cinema in Madison, Wisconsin during our fiscal 2014 first quarter. In addition, we renamed the former 20 Grand Cinema the Majestic Cinema of Omaha following an extensive renovation that included the addition of our sixthTake Five Lounge, aZaffiro’s Express and premiumour spacious DreamLoungerSM electric all-recliner seating in all auditoriums. We opened our 16th premium large-screen UltraScreen auditorium in Gurnee, Illinois late in our fiscal 2014 second quarter. The new auditorium features a 70-foot wide screen and the latest in immersive sound technology.
The initial guest response to these new features has been outstanding. Construction also continues onoutstanding, and as a result, we recently added our 15th premium large-screenUltraScreen auditorium in Gurnee, Illinois. The new auditorium, featuring a 70-foot wide screen and the latest immersive sound technology, is scheduled to open in November 2013. We also expect to add our all-new DreamLounger™DreamLounger premium seating concept to three additional theatres in time for the busy 2013 holiday season. Late inThese three theatres are also the first to debut our fiscal 2013 first quarter, we opened our thirdZaffiro’s Pizzeria and BarUltraat our theatre in New Berlin, Wisconsin.We recently launched our new Theatre Entertainment Network, offering weekday alternate programming at 29 theatres across our chain. The special programming includes classic movies, live performances, comedy shows and children’s performances. We believe this type of programming is more impactful when presented on the big screen and providesScreen DLX™ concept that combines an opportunity to expand our audience base beyond traditional moviegoers.
During our fiscal 2014 first quarter, Rolando B. Rodriguez joined us asUltraScreen with all-reserved DreamLounger recliner seating. At two of the new president and chief executive officerUltraScreen DLX auditoriums, we have taken the concept even further with the installation of Marcus Theatres and executive vice president of The Marcus Corporation. Rolando comesthe Dolby® Atmos® immersive sound platform. This next-generation technology enables filmmakers to us with extensive experiencecreate lifelike virtual reality sound by placing or moving sounds anywhere in the motion picture industry. Fortheatre auditorium. We plan to install additional Dolby Atmos systems at select screens over the pastnext two years, he served as CEO, presidentyears. We are also currently reviewing plans to install our DreamLounger seating at up to five additional theatres by the end of fiscal 2014. In addition, we have plans for four or five new Take Five Lounges and a board memberthree additional Zaffiro’s Expresses at select theatres during the remainder of Rave Cinemas, which had been the fifth largest theatre circuit in the U.S. until its sale in May 2013. He also served AMC Theatres, the world’s second-largest motion picture exhibitor, for 30 years in various positions and spent five years with Wal-Mart as well. He currently serves on the executive board of the National Association of Theatre Owners (NATO) and has won numerous awards in the industry. We believe that Rolando’s proven leadership experience and strong roots in the motion picture exhibition industry make him extremely qualified to build on our theatre division’s long history of success. Rolando succeeds Bruce J. Olson, who retired in September after a 39-year career with us.
fiscal 2014.
The following table sets forth revenues, operating income and operating margin for our hotels and resorts division for the
second quarter and first
quartershalf of fiscal 2014 and 2013 (in millions, except for variance percentage and operating margin):
| | First Quarter | |
| | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | | Pct. | |
| | | | | | | | | | | | |
Revenues | | $ | 59.8 | | | $ | 55.4 | | | $ | 4.4 | | | | 7.9 | % |
Operating income | | | 10.9 | | | | 10.2 | | | | 0.7 | | | | 6.5 | % |
Operating margin (% of revenues) | | | 18.2 | % | | | 18.5 | % | | | | | | | | |
| | Second Quarter | | | First Half | |
| | | | | | | | | | Variance | | | | | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | Pct. | | | F2014 | | | F2013 | | | Amt. | | Pct. | |
Revenues | | $ | 53.7 | | | $ | 50.4 | | | $ | 3.3 | | 6.5 | % | | $ | 113.5 | | | $ | 105.9 | | | $ | 7.6 | | 7.2 | % |
Operating income | | | 7.0 | | | | 4.8 | | | | 2.2 | | 46.2 | % | | | 17.9 | | | | 15.1 | | | | 2.8 | | 19.2 | % |
Operating margin (% of revenues) | | | 13.1 | % | | | 9.6 | % | | | | | | | | | 15.8 | % | | | 14.2 | % | | | | | | |
Our
firstsecond quarter is historically the
second strongest quarter of our fiscal year for our hotels and resorts division due to
increasedgenerally strong business and group travel during the
summer months at our predominantly Midwestern properties.fall months. Division revenues and operating income increased during our fiscal 2014
first quarterperiods compared to the
priorsame periods last year
first quarter due
primarily to
bothan increased
occupancy percentage and average daily room rate. Division revenues were also favorably impacted
in the current year periods by the addition of a new hotel, The Cornhusker, A Marriott Hotel, during last year’s second quarter. Conversely, division operating income
for the first half of fiscal 2014 was negatively impacted by a small operating loss at The Cornhusker, which we believe was attributable to the significant disruption caused by a major renovation currently underway at this hotel.
Our fiscal 2013 second quarter and first half operating income was negatively impacted by costs incurred with then-ongoing litigation related to the Platinum Hotel & Spa in Las Vegas, Nevada, including a settlement of a significant number of claims totaling approximately $750,000 during the fiscal 2013 second quarter. We will benefit from another favorable comparison during our fiscal 2014 third quarter due to the fact that we reported another $1.4 million of legal and settlement costs related to this litigation during the third quarter of fiscal 2013.
The following table sets forth certain operating statistics for the
second quarter and first
quartershalf of fiscal 2014 and 2013, including our average occupancy percentage (number of occupied rooms as a percentage of available rooms), our average daily room rate, or ADR, and our total revenue per available room, or RevPAR, for company-owned properties:
| | First Quarter(1) | |
| | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | | Pct. | |
| | | | | | | | | | | | |
Occupancy percentage | | | 86.0 | % | | | 84.9 | % | | | 1.1 pts | | | | 1.3 | % |
ADR | | $ | 155.39 | | | $ | 150.72 | | | $ | 4.67 | | | | 3.1 | % |
RevPAR | | $ | 133.68 | | | $ | 127.95 | | | $ | 5.73 | | | | 4.5 | % |
| (1) | These operating statistics represent averages of our eight distinct company-owned hotels and resorts, branded and unbranded, in different geographic markets with a wide range of individual hotel performance. The statistics are not necessarily representative of any particular hotel or resort. |
| | Second Quarter | | | First Half | |
| | | | | | | | | | Variance | | | | | | | | | | | Variance | |
| | F2014 | | | F2013 | | | Amt. | | | Pct. | | | F2014 | | | F2013 | | | Amt. | | | Pct. | |
Occupancy pct. | | | 76.8 | % | | | 76.8 | % | | | 0.0 | pts | | - | % | | | 81.4 | % | | | 80.8 | % | | | 0.6 | pts | | 0.7 | % |
ADR | | $ | 148.21 | | | $ | 142.72 | | | $ | 5.49 | | | 3.8 | % | | $ | 152.01 | | | $ | 146.92 | | | $ | 5.09 | | | 3.5 | % |
RevPAR | | $ | 113.73 | | | $ | 109.56 | | | $ | 4.17 | | | 3.8 | % | | $ | 123.71 | | | $ | 118.75 | | | $ | 4.96 | | | 4.2 | % |
(1) These operating statistics represent averages of our eight distinct comparable company-owned hotels and resorts, branded and unbranded, in different geographic markets with a wide range of individual hotel performance. The statistics are not necessarily representative of any particular hotel or resort.
RevPAR increased at
six of our eight comparable company-owned properties during the second quarter of fiscal 2014 and seven of our eight
comparable company-owned properties during the first
quarterhalf of fiscal 2014 compared to the same
periodperiods last
year, with the only decrease resulting fromyear. The RevPAR increases in our important Milwaukee market exceeded our overall average, despite a
difficult group room comparison to the prior year quarter at one of our Milwaukee hotels. Anrecent increase in room supply
in Milwaukee during the past
yearyear. Fiscal year-to-date, however, we believe the new supply may have had a small impact on our results in that
important market
of ours (three hotels), as our RevPAR increases in this market were less than our overall
average. As a result, our RevPAR increase was slightly lower than comparable industry results duringaverage for the first
quarterhalf of fiscal 2014. According to data received from Smith Travel Research and compiled by us in order to evaluate our fiscal 2014
second quarter and first
quarterhalf results, comparable “upper upscale” hotels throughout the United States experienced an increase in RevPAR of
5.5%5.2% and 5.4% during our fiscal 2014
second quarter and first
quarter compared to our fiscal 2013 first quarter, greater than the increase of 4.5% we experienced.half, respectfully.
The lodging industry continued to recover at a steady pace during the
second quarter
and first half of our fiscal 2014 after several very difficult years. In order to better understand our fiscal 2014
first quarter results compared to
pre-recessionarypre-recession levels, the following table compares our fiscal 2014
second quarter and first
quarterhalf operating statistics to our fiscal 2008
first quarter operating statistics for the same eight
comparable company-owned properties:
| | First Quarter | |
| | | | | | | | Variance | |
| | F2014 | | | F2008 | | | Amt. | | | Pct. | |
| | | | | | | | | | | | |
Occupancy percentage | | | 86.0 | % | | | 78.5 | % | | | 7.5 pts | | | | 9.6 | % |
ADR | | $ | 155.39 | | | $ | 158.45 | | | $ | (3.06 | ) | | | -1.9 | % |
RevPAR | | $ | 133.68 | | | $ | 124.45 | | | $ | 9.23 | | | | 7.4 | % |
| | Second Quarter | | | First Half | |
| | | | | | | | | | Variance | | | | | | | | | | | Variance | |
| | F2014 | | | F2008 | | | Amt. | | Pct. | | | F2014 | | | F2008 | | | Amt. | | Pct. | |
Occupancy pct. | | | 76.8 | % | | | 71.7 | % | | | 5.1 | pts | 7.1 | % | | | 81.4 | % | | | 75.1 | % | | | 6.3 | pts | 8.4 | % |
ADR | | $ | 148.21 | | | $ | 152.77 | | | $ | (4.56) | | -3.0 | % | | $ | 152.01 | | | $ | 155.74 | | | $ | (3.73) | | -2.4 | % |
RevPAR | | $ | 113.73 | | | $ | 109.48 | | | $ | 4.25 | | 3.9 | % | | $ | 123.71 | | | $ | 116.96 | | | $ | 6.75 | | 5.8 | % |
As indicated by the tables above, fiscal 2014
second quarter and first
quarterhalf occupancy rates
again showed improvement over the same
periodperiods during the prior year and
in fact, continued to be at record levels for this division, significantly higher than they were prior to the recession-driven downturn in the hotel industry. However, one of the
biggest challenges facing our hotels and resorts division, and the industry as a whole, has been the overall decline in ADR compared to pre-recession levels, as highlighted in the above comparisons to fiscal 2008. As the
comparisoncomparisons to fiscal 2008
indicates,indicate, our fiscal 2014
second quarter and first
quarterhalf RevPAR exceeded pre-recession levels (not adjusted for inflation), but our increase in occupancy percentage was partially offset by the fact that ADR
remainsremained below fiscal 2008 levels. However, recent trends in ADR
continue to behave been positive, and we were pleased to report our
11th12th straight quarter of year-over-year ADR increases during our fiscal 2014
firstsecond quarter.
Leisure travel
remainsremained strong, but that is one of the reasons why
there continueswe continued to
beexperience rate pressure, as that customer tends to be very loyal to online travel agencies. While we have been selective in choosing the online portals to which we grant access to our inventory, such portals are part of the booking landscape today and our goal is to use them in the most efficient way possible. Non-group business travel was also strong
during the second quarter and
steady duringfirst half of our fiscal
2014 first quarter.2014. Non-group travelers
arehave increasingly
lookinglooked for package deals, whether it is with parking, breakfast or access to club rooms like the ones we recently added to our Pfister Hotel and Grand Geneva Resort and Spa. Group business was steady as well,
not slowing downshowing no slow-down but
also no significant
increases either.increase. The challenge with group business
continuescontinued to be a tendency towards smaller, shorter meetings, often booked and executed within a window as short as 90 days. Groups have also tended to contract for less food and beverage during their stay compared to what we typically experienced prior to the recent recession.
This
The above-described change in our RevPAR mix has had the effect of limiting our ability to rapidly increase our operating margins during the ongoing U.S. economic recovery. Approximately
37%43% of the revenue increases that we experienced during the first
quarterhalf of fiscal 2014 flowed through to our operating income (after adjusting for the impact of The Cornhusker described above and certain legal costs incurred during the prior year
quarter related to our Las Vegas property), compared to a 50% flow through that we would target during a higher ADR environment. Operating costs traditionally increase as occupancy increases, which usually negatively impacts our operating margins until we
also begin to
also achieve corresponding improvements in our ADR.
Notwithstanding The fact that dynamic, sevenan increase in our ADR was the entire reason for our overall increased RevPAR during our fiscal 2014 second quarter demonstrates this relationship, as we achieved our targeted 50% flow through during the second quarter and we reported a healthy increase in our operating margin during the period.
We are encouraged by the fact that six of our eight comparable company-owned properties reported increases in ADR during the
second quarter and first half of fiscal 2014
first quarter compared to the same
periodperiods last year, and the gap between our current ADR and our pre-recession ADR was the smallest it has been since the recession. We hope that the recent increases we have experienced in our ADR will continue, but in order to realize ADRs at or above pre-recession levels, we believe we will need to continue to regain the ability to increase prices for our business and group travelers and continue a customer mix shift away from lower priced customer segments (such as those using alternate internet booking channels).
Whether the current positive trends continue depends in large part on the economic environment in which we operate, as hotel revenues have historically tracked very closely with traditional macroeconomic statistics such as the Gross Domestic Product. We generally expect our favorable revenue trends to continue in future periods and to
generally track the overall industry trends.
Group businessBusiness already booked for our upcoming fiscal 2014
second quarterthird and fourth quarters is solid, and with
anticipated continued strength from
the non-group and leisure
segments,travelers, we expect
another quarter ofcontinued improved operating results in this
division.division during the remainder of fiscal 2014. We also expect that comparisons to last year during the third and fourth quarters of fiscal 2014 will benefit from the fact that last year’s operating results were negatively impacted by the settlement of the Las Vegas legal matters and
the start-up operating losses from The Cornhusker.
We continue to monitor our important Milwaukee market very closely, as this market has experienced a recent increase in room supply. Three new hotels have opened in this market within
At the past year, including two duringbeginning of our fiscal 2014 first quarter. It is too early to quantify any specific impact of this new supply, particularly during our busy summer season in Milwaukee, but without additional demand, it is likely that our Milwaukee hotels will be negatively impacted to some degree by the new supply in the coming years. We have initiated aggressive marketing and operating strategies to try to maintain our market share under these challenging conditions. In general, there has been minimal lodging room supply growth on a national basis, a trendsecond quarter, we expect may continue at least in the near-term.We recently opened our secondMiller Time Pub & Grill restaurant as part of the multi-million dollar renovation currently underway at The Cornhusker. The concept, which was initially developed at the Hilton Milwaukee, has a comfortable, relaxing atmosphere with a focus on pairing great beer with great food. TheWe are pleased with the initial response to the new restaurant has been well received byfrom guests and locals alike. The new restaurant is the first of many new features and amenities that we have planned for The Cornhusker, which is the only full-service hotel in downtown Lincoln, Nebraska. The extensive renovation of this landmark propertyThe Cornhusker is well underway,nearing completion, with the majority of the hotel’s 297 guest rooms now completed.
completed and work now underway to update the lobby, public space and meeting rooms in this landmark property. In addition, the renovation of the Westin Atlanta Perimeter North in Atlanta, Georgia, is currently underway as well. We have an 11% interest in the joint venture that owns this hotel. We have also recently begun a major renovation of the guest rooms in the modern tower addition of The Pfister hotel in Milwaukee, Wisconsin.
We have a number of additional potential growth opportunities that we are currently pursuing. The timing and nature of the opportunities may vary and include pure management contracts, management contracts with equity and joint venture investments.
LIQUIDITY AND CAPITAL RESOURCES
Our movie theatre and hotels and resorts businesses each generate significant and consistent daily amounts of cash, subject to previously noted seasonality, because each segment’s revenue is derived predominantly from consumer cash purchases. We believe that these relatively consistent and predictable cash sources, as well as the availability of approximately $175 million of unused credit lines as of the end of our fiscal 2014
firstsecond quarter,
shouldwill be adequate to support the ongoing operational liquidity needs of our businesses during the remainder of fiscal 2014.
On August 14, 2013, we closed on the issuance and sale of $50 million of our 4.02% senior notes due August 14, 2025 in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. We used the net proceeds from the notes to reduce existing borrowings under our revolving credit facility and for general corporate purposes. The notes are described in detail in our fiscal 2013 Annual Report on Form 10-K and in Note 2 of the Condensed Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Current maturities of long-term debt on our balance sheet as of
August 29,November 28, 2013 included a
$21.1$21.0 million mortgage related to our downtown Chicago hotel, which matures in June 2014. We currently expect to refinance this debt agreement during
the second half of fiscal 2014, at which time these borrowings would be reclassified as long-term debt.
Net cash provided by operating activities increased by
$6.6$1.4 million during the first
quarterhalf of fiscal 2014 to
$21.7$37.8 million, compared to
$15.1$36.4 million during the first
quarterhalf of the prior year. The increase was due primarily to increased net earnings and the favorable timing in the payment of accrued compensation
and other accrued liabilities, partially offset by the unfavorable timing of the payment of accounts payable and income
taxes and deferred compensation and other.taxes.
Net cash used in investing activities during the
first half of fiscal 2014
first quarter totaled
$7.9$21.2 million, compared to
$5.6$13.2 million during the
first half of fiscal
2013 first quarter.2013. The increase in net cash used in investing activities was the result of increased capital expenditures, partially offset by a decrease in restricted
cash.cash and the receipt of proceeds from the disposal of property, equipment and other assets related primarily to the sale of a land parcel adjacent to one of our theatres in the current year period. Total cash capital expenditures (including normal continuing capital maintenance and renovation projects) totaled
$8.7$21.0 million during the first
quarterhalf of fiscal 2014 compared to
$5.3$10.5 million during the first
quarterhalf of the prior year. We did not incur any acquisition-related capital expenditures or capital expenditures related to developing new theatres or hotels during the fiscal 2014 and 2013 reported periods.
Fiscal
Capital expenditures for the first half of fiscal 2014 first quarter capital expenditures included approximately $4.8$12.6 million incurred in our theatre division, including costs associated with the renovation of a theatre in Omaha, Nebraska, the addition of aTake Five Lounge at theatres in Omaha and Madison, Wisconsin, and the construction of anUltraScreen in Gurnee, Illinois and the addition of DreamLounger recliner seating in theatres in Oakdale, Minnesota, Columbus, Ohio and Addison, Illinois. We also incurred capital expenditures in our hotel division during the first quarterhalf of fiscal 2014 of approximately $3.9$8.3 million, including costs associated with the ongoing renovation of The Cornhusker. FiscalCapital expenditures for the first half of fiscal 2013 first quarter capital expenditures included approximately $3.6$5.9 million incurred in our theatre division, including costs associated with the completion of our newesta Zaffiro’s Pizzeria & Bar andUltraScreen at two theatres, several additional digital cinema installations, as well as another theatre renovation. The largest expenditure in our hotels and resorts division during the first half of fiscal 2013 was the renovation of the Monarch Lounge at our Hilton Milwaukee property.
Net cash used in financing activities during the first quarterhalf of fiscal 2014 totaled $11.8$14.2 million compared to $7.9$19.5 million during the first quarterhalf of fiscal 2013. The decrease in net cash used in financing activities was due to a significant decrease in share repurchases during the first half of fiscal 2014 compared to the same period last year, partially offset by a net decrease in our debt.
We used excess cash during both periods to reduce our borrowings under our revolving credit facility. As short-term borrowings became due, we replaced them as necessary with new short-term borrowings. As a result, we added
$64.5$71.0 million of new debt (including the $50 million senior notes described above) and we made
$72.4$79.2 million of principal payments on long-term debt during
the first half of our fiscal 2014
first quarter (net reduction in long-term debt of
$7.9$8.2 million) compared to
$32.0$74.0 million of new debt added and
$37.2$70.4 million of principal payments made during
the first half of our fiscal 2013
first quarter (net
reductionincrease in long-term debt of
$5.2 million), accounting for$3.6 million, excluding the
majorityassumption of
The Cornhusker existing mortgage during the
increase in net cash used in financing activities.period). Our debt-to-capitalization ratio was 0.42 at
August 29,November 28, 2013 compared to 0.44 at our fiscal 2013 year-end.
We repurchased approximately
48,00097,000 shares of our common stock for approximately
$600,000$1.2 million during the first
quarterhalf of fiscal 2014 in conjunction with the exercise of stock options and the purchase of shares in the open market, compared to approximately
97,0001.7 million shares repurchased for approximately
$1.26$19.4 million during the first
quarterhalf of fiscal 2013. As of
August 29,November 28, 2013, approximately
3.63.5 million shares remained available for repurchase under prior Board of Directors repurchase authorizations. We expect that any future repurchases will be executed on the open market or in privately negotiated transactions depending upon a number of factors, including prevailing market conditions. We also resumed our regular quarterly dividend payment during the first
quarterand second quarters of fiscal 2014 after accelerating to December 2012 the payment of the quarterly dividends that would have normally been paid during the third and fourth quarters of fiscal 2013. During the first
quarterhalf of fiscal 2014, we made distributions to noncontrolling interests of $1.1 million.
We previously indicated that we expected our full-year fiscal 2014 capital expenditures, including potential purchases of interests in joint ventures (but excluding any significant unidentified acquisitions), to be in the $60-$90 million range.
We are still finalizing the scope and timingAt this stage of
the various projects requested by our
two divisions, but at this time, we are not adjusting this estimate. Some of these projects could carry over to the next fiscal year,
and ifbarring any growth opportunities that
occurred, it would be less likely thatcould arise in the remaining months, we
would incurbelieve our actual fiscal 2014 capital expenditures
in the current year at the top endmay approximate $60-$70 million, with as much as $50 million of that
range.amount scheduled to be expended in our theatre division. The actual timing and extent of the implementation of all of our current expansion plans will depend in large part on industry and general economic conditions, our financial performance and available capital, the competitive environment, evolving customer needs and trends and the availability of attractive opportunities. It is likely that our plans will continue to evolve and change in response to these and other factors.
We also continue to pursue an opportunity to be the developer of a previously-described
mixed usemixed-use retail development known as The Corners of
Brookfield.Brookfield in Brookfield, Wisconsin. During the
firstsecond quarter of fiscal 2014,
we continued to make progress on our negotiations with the local government
as we seekapproved a development agreement pursuant to which it will provide financial support for certain infrastructure costs related to this project. We also made progress in our continuing negotiations with our potential equity partners
andwith respect to a preliminary joint venture structure that would include a minority
ownership interest for
us is beginning to take form.us. The project also needs a sufficient number of leases to satisfy financing requirements and we believe that we made progress on this matter during the
firstsecond quarter of fiscal
2014. The actual timing and extent of any additional expenditures2014, as we announced ten initial tenants for
this project may change, depending upon the satisfactory and timely completion of the items noted above. If the project
proceeds asin addition to the anchor department store, Von Maur. We are currently
planned, we believeworking to meet the necessary milestones in order to begin construction
may begin in
Springthe spring of 2014, which would allow the entire project to possibly open in
Fallthe fall of 2015.
Item 3. Quantitative Our agreements with Von Maur and Qualitative Disclosures About Market Risk
the Town of Brookfield, as well as the majority of our current tenants, allows for a later opening if necessary.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We have not experienced any material changes in our market risk exposures since May 30, 2013.
Item 4. Controls and Procedures
| Item 4. | Controls and Procedures |
| a. | Evaluation of disclosure controls and procedures |
Based on their evaluations and the evaluation of management, as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
| b. | Changes in internal control over financial reporting |
There were no significant changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Risk factors relating to us are contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 30, 2013. No material change to such risk factors has occurred during the 1326 weeks ended August 29,November 28, 2013.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table sets forth information with respect to purchases made by us or on our behalf of our Common Stock during the periods indicated. All of these repurchases were made in conjunction with the exercise of stock options and the purchase of shares in the open market and pursuant to the publicly announced repurchase authorization described below.
Period | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs (1) | | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (1) | |
May 31 – June 27 | | | 18,413 | | | $ | 12.14 | | | | 18,413 | | | | 3,586,457 | |
June 28 – July 25 | | | - | | | | - | | | | - | | | | 3,586,457 | |
July 26 – August 29 | | | 29,835 | | | | 12.51 | | | | 29,835 | | | | 3,556,622 | |
Total | | | 48,248 | | | $ | 12.37 | | | | 48,248 | | | | 3,556,622 | |
| (1) | Through August 29, 2013, our Board of Directors had authorized the repurchase of up to approximately 11.7 million shares of our outstanding Common Stock. Under these authorizations, we may repurchase shares of our Common Stock from time to time in the open market, pursuant to privately negotiated transactions or otherwise. As of August 29, 2013, we had repurchased approximately 8.1 million shares of our Common Stock under these authorizations. The repurchased shares are held in our treasury pending potential future issuance in connection with employee benefit, option or stock ownership plans or other general corporate purposes. These authorizations do not have an expiration date. |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs (1) | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (1) | |
August 30 – September 26 | | | 40,688 | | $ | 12.46 | | | 40,688 | | | 3,515,934 | |
September 27 – October 31 | | | 1,521 | | | 14.81 | | | 1,521 | | | 3,514,413 | |
November 1 – November 28 | | | 6,086 | | | 14.98 | | | 6,086 | | | 3,508,327 | |
Total | | | 48,295 | | $ | 12.85 | | | 48,295 | | | 3,508,327 | |
(1) Through November 28, 2013, our Board of Directors had authorized the repurchase of up to approximately 11.7 million shares of our outstanding Common Stock. Under these authorizations, we may repurchase shares of our Common Stock from time to time in the open market, pursuant to privately negotiated transactions or otherwise. As of November 28, 2013, we had repurchased approximately 8.2 million shares of our Common Stock under these authorizations. The repurchased shares are held in our treasury pending potential future issuance in connection with employee benefit, option or stock ownership plans or other general corporate purposes. These authorizations do not have an expiration date.
Item 4. Mine Safety Disclosures
Not applicable.
4.110 | Note Purchase Agreement, dated asForm of June 27, 2013, by and among The Marcus Corporation 2004 Equity and the several purchasers listed in Schedule A attached thereto. [Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 27, 2013.] |
| |
10.1 | The Marcus Corporation Retirement Income and Supplemental RetirementIncentive Awards Plan as amended and restated.Stock Option Award Agreement for awards granted after January 8, 2013 (Employees).* |
| |
31.1 | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31.2 | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
32 | Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350. |
| |
101 | The following materials from The Marcus Corporation’s Quarterly Report on Form 10-Q for the quarter ended August 29,November 28, 2013 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) the Condensed Notes to Consolidated Financial Statements. |
* This Exhibit 10 was previously shown as filed as Exhibit 10.17 to The Marcus Corporation’s Annual Report on Form 10-K for the fiscal year ended May 30, 2013, but was inadvertently omitted from the EDGAR filing of that report.
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.
DATE: October 8, 2013January 7, 2014 | | By: | /s/ Gregory S. Marcus |
| | | Gregory S. Marcus |
| | | President and Chief Executive Officer |
| |
| |
DATE: October 8, 2013January 7, 2014 | | By: | /s/ Douglas A. Neis |
| | | Douglas A. Neis |
| | | Chief Financial Officer and Treasurer |