Company Quick10K Filing
Quick10K
Marcus
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$37.18 31 $1,150
10-Q 2019-03-28 Quarter: 2019-03-28
10-K 2018-12-27 Annual: 2018-12-27
10-Q 2018-09-27 Quarter: 2018-09-27
10-Q 2018-06-28 Quarter: 2018-06-28
10-Q 2018-03-29 Quarter: 2018-03-29
10-K 2017-12-28 Annual: 2017-12-28
10-Q 2017-09-28 Quarter: 2017-09-28
10-Q 2017-06-29 Quarter: 2017-06-29
10-Q 2017-03-30 Quarter: 2017-03-30
10-K 2016-12-29 Annual: 2016-12-29
10-Q 2016-09-29 Quarter: 2016-09-29
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-11-26 Quarter: 2015-11-26
10-Q 2015-08-27 Quarter: 2015-08-27
10-K 2015-05-28 Annual: 2015-05-28
10-Q 2015-02-26 Quarter: 2015-02-26
10-Q 2014-11-27 Quarter: 2014-11-27
10-Q 2014-08-28 Quarter: 2014-08-28
10-K 2014-05-29 Annual: 2014-05-29
10-Q 2014-02-27 Quarter: 2014-02-27
10-Q 2013-11-28 Quarter: 2013-11-28
8-K 2019-05-07 Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2019-02-04 Other Events, Exhibits
8-K 2019-02-01 Enter Agreement, M&A, Earnings, Sale of Shares, Regulation FD, Exhibits
8-K 2018-11-01 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-08 Shareholder Vote
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-22 Earnings, Exhibits
INN Summit Hotel Properties 1,300
RYAM Rayonier Advanced Materials 461
LOGC LogicBio Therapeutics 317
STKS One Group Hospitality 108
TSRI TSR 10
LGTG Lightning Gaming 0
MMND Mastermind 0
PGAS Petrogress 0
SCA Syncora Holdings 0
HPR Highpoint Resources 0
MCS 2019-03-28
Part I - Financial Information
Item 1. Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II - Other Information
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 4.Mine Safety Disclosures
Item 6.Exhibits
EX-31.1 tv520333_ex31-1.htm
EX-31.2 tv520333_ex31-2.htm
EX-32 tv520333_ex32.htm

Marcus Earnings 2019-03-28

MCS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv520333_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 28, 2019

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number 1-12604

 

THE MARCUS CORPORATION

 

(Exact name of registrant as specified in its charter)

 

Wisconsin   39-1139844

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

100 East Wisconsin Avenue, Suite 1900

Milwaukee, Wisconsin

  53202-4125
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (414) 905-1000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 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.

 

Yes x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

Yes x   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check One).

 

Large accelerated filer ¨   Accelerated filer x
Non-accelerated filer ¨   Smaller reporting company ¨
      Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨   No x

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, $1.00 par value MCS New York Stock Exchange

 

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 May 3, 2019 – 22,956,292

CLASS B COMMON STOCK OUTSTANDING AT May 3, 2019 – 7,935,872

 

 

 

 

 

 

THE MARCUS CORPORATION

 

INDEX

 

  Page
PART I – FINANCIAL INFORMATION
     
Item 1. Consolidated Financial Statements:  
     
  Consolidated Balance Sheets
(March 28, 2019 and December 27, 2018)
3
     
  Consolidated Statements of Earnings
(13 weeks ended March 28, 2019 and March 29, 2018)
5
     
  Consolidated Statements of Comprehensive Income
(13 weeks ended March 28, 2019 and March 29, 2018)
6
     
  Consolidated Statements of Cash Flows
(13 weeks ended March 28, 2019 and March 29, 2018)
7
     
  Condensed Notes to Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
     
Item 4. Controls and Procedures 35
   
PART II – OTHER INFORMATION  
     
Item 1A. Risk Factors 36
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
     
Item 4. Mine Safety Disclosures 36
     
Item 6. Exhibits 37
     
  Signatures S-1

 

 2 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

THE MARCUS CORPORATION

Consolidated Balance Sheets

 

(in thousands, except share and per share data)  March 28,
2019
   December 27,
2018
 
         
ASSETS          
Current assets:          
Cash and cash equivalents  $8,361   $17,114 
Restricted cash   4,893    4,813 
Accounts and notes receivable, net of reserves of $272 and $361, respectively   20,329    25,684 
Refundable income taxes   5,882    5,983 
Other current assets   16,759    15,355 
Total current assets   56,224    68,949 
           
Property and equipment:          
Land and improvements   150,247    150,122 
Buildings and improvements   744,139    745,886 
Leasehold improvements   163,190    98,885 
Furniture, fixtures and equipment   343,420    314,875 
Finance lease right-of-use assets   74,197    72,631 
Construction in progress   21,956    12,513 
Total property and equipment   1,497,149    1,394,912 
Less accumulated depreciation and amortization   562,995    554,869 
Net property and equipment   934,154    840,043 
           
Operating lease right-of-use assets   235,181     
           
Other assets:          
Investments in joint ventures   3,785    4,069 
Goodwill   74,844    43,170 
Other   38,208    33,100 
Total other assets   116,837    80,339 
           
TOTAL ASSETS  $1,342,396   $989,331 

 

See accompanying condensed notes to consolidated financial statements.

 

 3 

 

 

THE MARCUS CORPORATION

Consolidated Balance Sheets

 

(in thousands, except share and per share data)  March 28,
2019
   December 27,
2018
 
         
LIABILITIES AND SHAREHOLDERS' EQUITY          
Current liabilities:          
Accounts payable  $35,263   $37,452 
Taxes other than income taxes   17,219    18,743 
Accrued compensation   14,731    17,547 
Other accrued liabilities   49,866    59,645 
Current portion of finance lease obligations   5,260    5,912 
Current portion of operating lease obligations   12,591     
Current maturities of long-term debt   10,062    9,957 
Total current liabilities   144,992    149,256 
           
Finance lease obligations   22,556    22,208 
           
Operating lease obligations   224,827     
           
Long-term debt   263,576    228,863 
           
Deferred income taxes   41,845    41,977 
           
Deferred compensation and other   46,741    56,908 
           
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 23,253,641 shares at March 28, 2019 and 22,843,096 shares at December 27, 2018   23,254    22,843 
Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 7,935,872 shares at March 28, 2019 and 8,346,417 shares at December 27, 2018   7,936    8,347 
Capital in excess of par   143,094    63,830 
Retained earnings   436,222    439,178 
Accumulated other comprehensive loss   (7,055)   (6,758)
    603,451    527,440 
Less cost of Common Stock in treasury (312,557 shares at March 28, 2019 and 2,839,079 shares at December 27, 2018)   (5,576)   (37,431)
Total shareholders' equity attributable to The Marcus Corporation   597,875    490,009 
Noncontrolling interest   (16)   110 
Total equity   597,859    490,119 
           
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $1,342,396   $989,331 

 

See accompanying condensed notes to consolidated financial statements.

 

 4 

 

 

THE MARCUS CORPORATION

Consolidated Statements of Earnings

 

   13 Weeks Ended 
(in thousands, except per share data)  March 28, 2019   March 29, 2018 
         
Revenues:          
Theatre admissions  $58,969   $63,006 
Rooms   18,938    20,671 
Theatre concessions   47,155    41,413 
Food and beverage   15,783    15,803 
Other revenues   20,829    19,526 
    161,674    160,419 
Cost reimbursements   8,365    7,772 
Total revenues   170,039    168,191 
           
Costs and expenses:          
Theatre operations   56,378    54,655 
Rooms   9,035    9,501 
Theatre concessions   17,269    11,961 
Food and beverage   13,609    14,065 
Advertising and marketing   4,910    5,114 
Administrative   17,859    17,282 
Depreciation and amortization   15,985    13,904 
Rent   5,403    2,951 
Property taxes   5,393    5,214 
Other operating expenses   10,883    8,756 
Reimbursed costs   8,365    7,772 
Total costs and expenses   165,089    151,175 
           
Operating income   4,950    17,016 
           
Other income (expense):          
Investment income (loss)   473    (36)
Interest expense   (3,059)   (3,309)
Other expense   (480)   (496)
Gain on disposition of property, equipment and other assets   7     
Equity earnings (losses) from unconsolidated joint ventures, net   (84)   52 
    (3,143)   (3,789)
           
Earnings before income taxes   1,807    13,227 
Income taxes   13    3,421 
Net earnings   1,794    9,806 
Net loss attributable to noncontrolling interests   (66)   (15)
Net earnings attributable to The Marcus Corporation  $1,860   $9,821 
           
Net earnings per share - basic:          
Common Stock  $0.06   $0.36 
Class B Common Stock  $0.06   $0.33 
           
Net earnings per share - diluted:          
Common Stock  $0.06   $0.35 
Class B Common Stock  $0.06   $0.32 

 

See accompanying condensed notes to consolidated financial statements.

 

 5 

 

 

THE MARCUS CORPORATION

Consolidated Statements of Comprehensive Income

 

   13 Weeks Ended 
(in thousands)  March 28, 2019   March 29, 2018 
         
Net earnings  $1,794   $9,806 
           
Other comprehensive income (loss), net of tax:          
           
Amortization of the net actuarial loss and prior service credit related to the pension, net of tax effect of $30 and $41, respectively   79    114 
           
Fair market value adjustment of interest rate swaps, net of tax benefit of $142 and $63, respectively   (386)   (170)
           
Reclassification adjustment on interest rate swaps included in interest expense, net of tax effect of $4 and $10, respectively   10    26 
           
Other comprehensive loss   (297)   (30)
           
Comprehensive income   1,497    9,776 
           
Comprehensive loss attributable to noncontrolling interests   (66)   (15)
           
Comprehensive income attributable to The Marcus Corporation  $1,563   $9,791 

 

See accompanying condensed notes to consolidated financial statements.

 

 6 

 

 

THE MARCUS CORPORATION

Consolidated Statements of Cash Flows

 

   13 Weeks Ended 
(in thousands)  March 28, 2019   March 29, 2018 
         
OPERATING ACTIVITIES:          
Net earnings  $1,794   $9,806 
Adjustments to reconcile net earnings to net cash provided by operating activities:          
Losses (earnings) on investments in joint ventures   84    (52)
Distributions from joint ventures   200     
Gain on disposition of property, equipment and other assets   (7)    
Amortization of favorable lease right       83 
Depreciation and amortization   15,985    13,904 
Amortization of debt issuance costs   71    73 
Share-based compensation   777    596 
Deferred income taxes   (1)   54 
Deferred compensation and other   (16)   (201)
Contribution of the Company’s stock to savings and profit-sharing plan   1,181    1,130 
Changes in operating assets and liabilities:          
Accounts and notes receivable   5,355    8,073 
Other assets   2,023   238 
Accounts payable   (3,354)   (13,641)
Income taxes   101    3,614 
Taxes other than income taxes   (1,703)   (2,367)
Accrued compensation   (2,816)   (1,985)
Other liabilities   (11,654)   (7,348)
Total adjustments   6,226    2,171 
Net cash provided by operating activities   8,020    11,977 
           
INVESTING ACTIVITIES:          
Capital expenditures   (13,724)   (15,974)
Acquisition of theatres, net of cash acquired and working capital assumed   (29,626)    
Proceeds from disposals of property, equipment and other assets   9    23 
Contribution in joint venture       (117)
Other investing activities   (2,745)   (81)
Net cash used in investing activities   (46,086)   (16,149)
           
FINANCING ACTIVITIES:          
Debt transactions:          
Proceeds from borrowings on revolving credit facility   73,000    49,000 
Repayment of borrowings on revolving credit facility   (38,000)   (48,000)
Principal payments on long-term debt   (217)   (173)
Principal payments on capital lease obligations   (587)   (432)
Equity transactions:          
Treasury stock transactions, except for stock options   (381)   (404)
Exercise of stock options   454    929 
Dividends paid   (4,816)   (4,070)
Distributions to noncontrolling interest   (60)   (19)
Net cash provided by (used in) financing activities   29,393    (3,169)
           
Net decrease in cash, cash equivalents and restricted cash   (8,673)   (7,341)
Cash, cash equivalents and restricted cash at beginning of period   21,927    20,747 
Cash, cash equivalents and restricted cash at end of period  $13,254   $13,406 
           
Supplemental Information:          
Interest paid, net of amounts capitalized  $3,574   $3,727 
Income taxes refunded   88    147 
Change in accounts payable for additions to property, equipment and other assets   1,165    (7,082)

 

See accompanying condensed notes to consolidated financial statements.

 

 7 

 

 

THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED MARCH 28, 2019

 

1. General

 

Basis of Presentation - The unaudited consolidated financial statements for the 13 weeks ended March 28, 2019 and March 29, 2018 have been prepared by the Company. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary to present fairly the unaudited interim financial information at March 28, 2019, 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 December 27, 2018.

 

Accounting Policies - Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended December 27, 2018, contained in the Company’s Annual Report on Form 10-K for such year, for a description of the Company’s accounting policies.

 

During the 13 weeks ended March 28, 2019, there were no significant changes made to the Company’s significant accounting policies other than the changes attributable to the adoption of the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which was adopted on December 28, 2018. The lease policy updates are applied prospectively in the Company’s financial statements from December 28, 2018 forward. Reported financial information for the historical comparable period was not revised and continues to be reported under the accounting standards in effect during the historical periods. See Note 3 for further discussion.

 

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 $15,955,000 and $14,036,000 for the 13 weeks ended March 28, 2019 and March 29, 2018, respectively.

 

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.

 

 8 

 

 

Holders of Common Stock are entitled to cash dividends per share equal to 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 
   March 28, 2019   March 29, 2018 
   (in thousands, except per share data) 
Numerator:          
Net earnings attributable to The Marcus Corporation  $1,860   $9,821 
Denominator:          
Denominator for basic EPS   29,883    27,895 
Effect of dilutive employee stock options   616    539 
Denominator for diluted EPS   30,499    28,434 
Net earnings per share - basic:          
Common Stock  $0.06   $0.36 
Class B Common Stock  $0.06   $0.33 
Net earnings per share - diluted:          
Common Stock  $0.06   $0.35 
Class B Common Stock  $0.06   $0.32 

 

Shareholders’ Equity - Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interests for the 13 weeks ended March 28, 2019 and March 29, 2018 was as follows (in thousands, except per share data):

 

   Common
Stock
   Class B
Common
Stock
   Capital
in Excess
of Par
   Retained
Earnings
   Accumulated
Other
Comprehensive
Loss
   Treasury
Stock
   Shareholders’
Equity
Attributable
to The
Marcus
Corporation
   Non-
controlling
Interests
   Total
Equity
 
BALANCES AT DECEMBER 27, 2018  $22,843   $8,347   $63,830   $439,178   $(6,758)  $(37,431)  $490,009   $110   $490,119 
Cash Dividends:                                             
$.15 Class B Common Stock   -    -    -    (1,183)   -    -    (1,183)   -    (1,183)
$.16 Common Stock   -    -    -    (3,633)   -    -    (3,633)   -    (3,633)
Exercise of stock options   -    -    (78)   -    -    532    454    -    454 
Purchase of treasury stock   -    -    -    -    -    (428)   (428)   -    (428)
Savings and profit-sharing contribution   -    -    810    -    -    371    1,181    -    1,181 
Reissuance of treasury stock   -    -    31    -    -    16    47    -    47 
Issuance of non-vested stock   -    -    (127)   -    -    127    -    -    - 
Shared-based compensation   -    -    777    -    -    -    777    -    777 
Reissuance of treasury stock-acquisition   -    -    77,960    -    -    31,237    109,197    -    109,197 
Other   -    -    (109)   -    -    -    (109)   -    (109)
Conversions of Class B Common Stock   411    (411)   -    -    -    -    -    -    - 
Distributions to noncontrolling interest   -    -    -    -    -    -    -    (60)   (60)
Comprehensive income (loss)   -    -    -    1,860    (297)   -    1,563    (66)   1,497 
BALANCES AT MARCH 28, 2019  $23,254   $7,936   $143,094   $436,222   $(7,055)  $(5,576)  $597,875   $(16)  $597,859 

 

 9 

 

 

   Common
Stock
   Class B
Common
Stock
   Capital
in Excess
of Par
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income (Loss)
   Treasury
Stock
   Shareholders'
Equity
Attributable
to The
Marcus
Corporation
   Non-
controlling
Interests
   Total
Equity
 
BALANCES AT DECEMBER 28, 2017  $22,656   $8,534   $61,452   $403,206   $(7,425)  $(43,399)  $445,024   $100   $445,124 
Amount reclassified to retained earnings on December 29, 2017 in connection with the adoption of ASU No. 2016-01   -    -    -    (11)   11    -    -    -    - 
Amount reclassified to retained earnings on December 29, 2017 in connection with the adoption of ASU No. 2018-02   -    -     -   1,574    (1,574)   -    -    -    - 
Amount reclassified to retained earnings on December 29, 2017 in connection with the adoption of ASU No. 2014-09   -    -    -    (2,568)   -    -    (2,568)   -    (2,568)
Cash Dividends:                                             
$.14 Class B Common Stock   -    -    -    (1,163)   -    -    (1,163)   -    (1,163)
$.15 Common Stock   -    -    -    (2,907)   -    -    (2,907)   -    (2,907)
Exercise of stock options   -    -    (62)   -    -    991    929    -    929 
Purchase of treasury stock   -    -    -    -    -    (453)   (453)   -    (453)
Savings and profit-sharing contribution   -    -    651    -    -    479    1,130    -    1,130 
Reissuance of treasury stock   -    -    26    -    -    23    49    -    49 
Issuance of non-vested stock   -    -    (108)   -    -    108    -    -    - 
Shared-based compensation   -    -    596    -    -         596    -    596 
Conversions of Class B Common Stock   8    (8)   -    -    -    -    -    -    - 
Distributions to noncontrolling interest   -    -    -    -    -    -    -    (19)   (19)
Comprehensive income (loss)   -    -    -    9,821    (30)   -    9,791    (15)   9,776 
BALANCES AT MARCH 29, 2018  $22,664   $8,526   $62,555   $407,952   $(9,018)  $(42,251)  $450,428   $66   $450,494 

 

Accumulated Other Comprehensive Loss – Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets consists of the following, all presented net of tax:

 

   March 28,
2019
   December 27,
2018
 
   (in thousands) 
Unrecognized loss on interest rate swap agreements  $(525)  $(149)
Net unrecognized actuarial loss for pension obligation   (6,530)   (6,609)
   $(7,055)  $(6,758)

 

Fair Value Measurements - Certain financial assets and liabilities are recorded at fair value in the consolidated financial statements. Some are measured on a recurring basis while others are measured on a non-recurring basis. 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 March 28, 2019 and December 27, 2018, respectively, the Company’s $5,697,000 and $5,302,000 of debt and equity 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 March 28, 2019 and December 27, 2018, respectively, the Company’s $719,000 and $205,000 liability related to the Company’s interest rate swap contracts was valued using Level 2 pricing inputs.

 

 10 

 

 

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 March 28, 2019 and December 27, 2018, none of the Company’s fair value measurements were valued using Level 3 pricing inputs, other than those discussed in Note 2.

 

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 Ended 
   March 28, 2019   March 29, 2018 
   (in thousands) 
Service cost  $209   $232 
Interest cost   371    341 
Net amortization of prior service cost and actuarial loss   109    155 
Net periodic pension cost  $689   $728 

 

Service cost is included in Administrative expense while all other components are recorded within Other expense outside of operating income in the consolidated statements of earnings.

 

Revenue Recognition – The disaggregation of revenues by business segment for the 13 weeks ended March 28, 2019 is as follows (in thousands):

 

   Reportable Segment     
   Theatres   Hotels/Resorts   Corporate   Total 
Theatre admissions  $58,969   $-   $-   $58,969 
Rooms   -    18,938    -    18,938 
Theatre concessions   47,155    -    -    47,155 
Food and beverage   -    15,783    -    15,783 
Other revenues (1)   8,569    12,167    93    20,829 
Cost reimbursements   192    8,173    -    8,365 
Total revenues  $114,885   $55,061   $93   $170,039 

 

(1)Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers under ASC Topic 606.

 

 11 

 

 

The disaggregation of revenues by business segment for the 13 weeks ended March 29, 2018 is as follows (in thousands):

 

   Reportable Segment     
   Theatres   Hotels/Resorts   Corporate   Total 
Theatre admissions  $63,006   $-   $-   $63,006 
Rooms   -    20,671    -    20,671 
Theatre concessions   41,413    -    -    41,413 
Food and beverage   -    15,803    -    15,803 
Other revenues (1)   8,037    11,401    88    19,526 
Cost reimbursements   479    7,293    -    7,772 
Total revenues  $112,935   $55,168   $88   $168,191 

 

(1)Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers under ASC Topic 606.

 

The Company had deferred revenue from contracts with customers of $36,562,000 and $37,048,000 as of March 28, 2019 and December 27, 2018, respectively. The Company had no contract assets as of March 28, 2019 and December 27, 2018. During the 13 weeks ended March 28, 2019, the Company recognized revenue of $10,183,000 that was included in deferred revenues as of December 27, 2018.

 

A significant majority of the Company’s revenue is recorded in less than one year from the original contract. As of March 28, 2019, the amount of transaction price allocated to the remaining performance obligations under the Company’s advanced ticket sales was $4,823,000 and is reflected in the Company consolidated balance sheet as part of deferred revenues, which is included in other accrued liabilities. The Company recognizes revenue as the tickets are redeemed, which is expected to occur with the next two years. As of March 28, 2019, the amount of transaction price allocated to the remaining performance obligations under the Hotels and Resorts loyalty program was $192,000, of which, $71,000 is reflected in the Company’s consolidated balance sheet in deferred compensation and other. The Company recognizes revenue upon reward redemption, which is expected to occur within the next two years. As of March 28, 2019, the amount of transaction price allocated to the remaining performance obligations related to the amount of Hotels and Resorts non-redeemed gift cards was $2,342,000 and is reflected in the Company’s consolidated balance sheet as part of deferred revenues. The Company recognizes revenue as the gift cards are redeemed, which is expected to occur within the next two years.

 

New Accounting Pronouncements – On December 28, 2018, the Company adopted ASU No. 2016-02, Leases (Topic 842), which is intended to improve financial reporting related to leasing transactions. ASC 842 requires a lessee to recognize on the balance sheet assets and liabilities for rights and obligations created by leased assets with lease terms of more than 12 months. The new guidance also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from the leases. See Note 3 for further discussion.

 

 12 

 

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment, which eliminates Step 2 of the goodwill impairment test that had required a hypothetical purchase price allocation. Rather, entities should apply the same impairment assessment to all reporting units and recognize an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for the Company in fiscal 2020 and must be applied prospectively. The Company does not believe the new standard will have a material effect on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General, designed to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. ASU No. 2018-14 is effective for the Company in fiscal 2021 and early application is permitted. The Company is evaluating the effect that the guidance will have on its financial statement disclosures.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, (ASU No. 2018-13). The purpose of ASU No. 2018-13 is to improve the disclosures related to fair value measurements in the financial statements. The improvements include the removal, modification and addition of certain disclosure requirements primarily related to Level 3 fair value measurements. ASU No. 2018-13 is effective for the Company in fiscal 2020. The amendments in ASU No. 2018-13 should be applied prospectively. The Company does not expect ASU No. 2018-13 to have a significant impact on its consolidated financial statements.

 

2. Acquisition

 

On February 1, 2019, the Company acquired 22 dine-in theatres with 208 screens located in nine Southern and Eastern states from VSS-Southern Theatres LLC (Movie Tavern) for a total purchase price of $138,856,000, consisting of $30,000,000 in cash, subject to certain adjustments, and 2,450,000 shares of the company’s Common Stock with a value of $109,197,000, based on the Company’s closing share price as of January 31, 2019. Acquisition costs incurred as a result of the Movie Tavern acquisition were approximately $1,153,000 and $1,507,000 during fiscal 2019 and fiscal 2018, respectively, and were expensed as incurred and included in administrative expense in the consolidated statements of earnings.

 

The preliminary purchase price allocation reflected in the Company’s consolidated balance sheet on the acquisition date is as follows (in thousands):

 

Other current assets  $1,266 
Property and equipment   95,888 
Operating lease right-of-use-assets   161,996 
Other (long-term assets)   10,360 
Goodwill   31,697 
Taxes other than income   (179)
Other accrued liabilities   (2,997)
Operating lease obligations   (159,175)
Total  $138,856 

 

The preliminary fair value measurement of tangible and intangible assets and liabilities was based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. Level 3 fair market values were determined using a variety of information, including estimated future cash flows and market comparables. The Company is in the process of completing the purchase price allocation and expects to have it finalized within the 12 month measurement period.

 

 13 

 

 

3. Leases

  

The Company determines if an arrangement is a lease at inception. The Company evaluates each lease for classification as either a finance lease or an operating lease according to accounting guidance ASU No. 2016-02, Leases (Topic 842). The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. The Company leases real estate and equipment with lease terms of one year to 45 years, some of which include options to extend and/or terminate the lease. The exercise of lease renewal options is done at the Company’s sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term and related right-of-use asset and lease liability. The depreciable life of the asset is limited to the expected term. The Company’s lease agreements do not contain any residual value guarantees or any restrictions or covenants.

 

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and labilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in the lease in determining the present value of lease payments. When the lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the fixed rate the Company could borrow for a similar amount, over a similar lease term with similar collateral. The Company recognizes right-of-use assets for all assets subject to operating leases in an amount equal to the operating lease liabilities, adjusted for the balances of long-term prepaid rent, favorable lease intangible assets, deferred lease expense, unfavorable lease liabilities and deferred lease incentive liabilities. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

 

The majority of the Company’s lease agreements include fixed rental payments. For those leases with variable payments based on increases in an index subsequent to lease commencement, such payments are recognized as variable lease expense as they occur. Variable lease payments that do not depend on an index or rate, including those that depend on the Company’s performance or use of the underlying asset, are also expensed as incurred.

 

 14 

 

 

The Company adopted ASC 842 on the first day of fiscal 2019 using the modified retrospective approach. Under this method, the Company was allowed to initially apply the new lease standard at the adoption date and recognize the assets and liabilities in the period of adoption. As such, upon adoption, no adjustments were made to prior period financial information or disclosures and the new lease standard did not result in a cumulative effect adjustment to retained earnings. Finance lease accounting remained substantially unchanged. The adoption of ASC 842 had the following effect on the Company’s financial statements as follows (all relating to operating lease right-of-use assets and obligations):

 

  

Balance at
December 27, 2018

   ASC 842
Adjustments
  

Balance at
December 28, 2018

 
   (in thousands) 
Assets               
Other current assets  $15,355   $(690)  $14,665 
Operating lease right-of-use assets   -    76,178    76,178 
Other assets (long term)   33,100    (8,868)   24,232 
                
Liabilities               
Other accrued liabilities   59,645    (4,396)   55,249 
Current portion of operating lease obligations   -    5,909    5,909 
Operating lease obligations   -    75,608    75,608 
Deferred compensation and other   56,908    (10,501)   46,407 

 

As part of the Company’s adoption of ASC 842, the Company elected the following practical expedients: i) to forego reassessment of its prior conclusion related to lease identification, lease classification and initial direct costs, ii) to not separate lease and non-lease components for all of its leases, and iii) to make a policy election not to apply the lease recognition requirements for short-term leases. As a result, the Company does not recognize right-of use assets or lease liabilities for short-term leases that qualify for the policy election (those with an initial term of 12 months or less which do not include a purchase or renewal option which is reasonably certain to be exercised), but will recognize these lease payments as lease costs on a straight-line basis over the lease term.

 

 15 

 

 

Total lease cost consists of the following:

 

Lease Cost  Classification  March 28, 2019 
      (in thousands) 
Finance lease costs:        
Amortization of finance lease assets  Depreciation and amortization  $891 
Interest on lease liabilities  Interest expense   294 
Operating lease costs  Rent expense   5,040 
Variable lease cost  Rent expense   253 
Short-term lease cost  Rent expense   110 
Total lease costs     $6,588 

 

Other Information 

13 Weeks

Ended

March 28, 2019

 
   (in thousands) 
Cash paid for amounts included in the measurement of lease liabilities:              
Financing cash flows from finance leases  $587 
Operating cash flows from finance leases   294 
Operating cash flows from operating leases   5,213 
       
Right of use assets obtained in exchange for new lease obligations:     
Finance lease liabilities  1,566 
Operating lease liabilities, including from acquisitions   159,175 

 

   March 28, 2019 
   (in thousands) 
Finance leases:     
Property and equipment – gross  $74,197 
Accumulated depreciation and amortization   (47,563)
Property and equipment - net  $26,634 

 

Lease Term and Discount Rate  March 28, 2019 
        
Weighted-average remaining lease terms:     
Finance leases   10 years 
Operating leases   16 years 
      
Weighted-average discount rates:     
Finance leases   4.88%
Operating leases   4.64%

 

 16 

 

 

Maturities of lease liabilities as of March 28, 2019 are as follows (in thousands):

 

Fiscal Year  Operating Leases   Finance Leases 
2019 (excluding the 13 weeks ended March 28, 2019)  $ 17,176   $5,652
2020   24,638    3,532 
2021   23,925    2,949 
2022   24,349    2,904 
2023   23,136    2,820 
2024 and thereafter     218,998    16,948 
Total lease payments   332,222    34,805 
Less: amount representing interest   (94,804)   (6,989)
Total lease liabilities  $237,418   $27,816 

 

Aggregate minimum lease commitments as of December 27, 2018 under Accounting Standard Codification Topic 840 are as follows (in thousands):

 

Fiscal Year  Operating Leases   Capital Leases 
2019  $11,317   $3,073 
2020   10,169    2,978 
2021   9,670    2,679 
2022   9,910    2,718 
2023   9,038    2,718 
2024 and thereafter   80,523    16,940 
Total minimum lease payments  $130,627    31,106 
Less: amount representing interest        (6,978)
Total present value of minimum capital lease payments       $24,128 

 

In fiscal 2018, the Company entered into a build-to-suit lease arrangement in which the Company is responsible for the construction of a new leased theatre and for paying construction costs during development. Construction costs will be reimbursed by the landlord up to an agreed upon amount. During construction, the Company is deemed to not have control of the assets or the leased premises and has recorded the development expenditures in other assets on the consolidated balance sheet. The lease will commence when the Company has access to the right-of-use asset, which is expected to be upon project completion.

 

Digital Cinema Projection Systems - 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 March 28, 2019, 642 of the Company’s screens were utilizing the systems under a 10-year master licensing agreement with CDF2. Included in Finance lease right-of-use assets is $45,510,000 related to the digital systems as of March 28, 2019 and December 27, 2018, which is being amortized over the remaining estimated useful life of the assets. Accumulated amortization of the digital systems was $42,191,000 and $40,647,000 as of March 28, 2019 and December 27, 2018, 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. Accounting Standards Codification No. 842, Leases, requires that the Company consider the entire amount of the standard booking commitment minimum lease payments for purposes of determining the finance lease obligation. The maximum amount per year that the Company could be required to pay is approximately $6,163,000 until the obligation is fully satisfied.

 

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The Company’s finance 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 $2,675,000 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.

 

4. Long-Term Debt

 

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 two interest rate swap agreements on March 1, 2018 covering $50,000,000 of floating rate debt. The first agreement has a notional amount of $25,000,000, expires March 1, 2021, and requires the Company to pay interest at a defined rate of 2.559% while receiving interest at a defined variable rate of one-month LIBOR (2.50% at March 28, 2019). The second agreement has a notional amount of $25,000,000, expires March 1, 2023, and requires the Company to pay interest at a defined rate of 2.687% while receiving interest at a defined variable rate of one-month LIBOR (2.50% at March 28, 2019). 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. 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 income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The Company’s interest rate swap agreements are considered effective and qualify as cash flow hedges. The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. As of March 28, 2019, the interest rate swaps were considered highly effective. The fair value of the interest rate swaps on March 28, 2019 and December 27, 2018, respectively, was a liability of $719,000 and $205,000, and was included in deferred compensation and other in the consolidated balance sheets. The Company does not expect the interest rate swaps to have a material effect on earnings within the next 12 months.

 

 18 

 

 

The Company had an interest rate swap that expired in January 2018. The swap agreement covered $25,000,000 of floating rate debt that required the Company to pay interest at a defined fixed rate of 0.96% while receiving interest at a defined variable rate of one-month LIBOR. The Company’s interest rate swap agreement was considered effective and qualified as a cash flow hedge from inception through June 16, 2016, at which time the derivative was undesignated and the balance in accumulated other comprehensive loss was reclassified into interest expense. As of June 16, 2016, the swap was considered ineffective for accounting purposes and the change in fair value was recorded as an increase or decrease in interest expense. As such, the $13,000 decrease in fair value of the swap for the 13 weeks ended March 29, 2018 was recorded to interest expense.

 

Subsequent to March 28, 2019, a note that was scheduled to mature in January 2020 with a balance of $14,653,000 as of March 28, 2019, was repaid and replaced with borrowings on the Company’s revolving credit facility.

 

5. Income Taxes

 

The Company’s effective income tax rate, adjusted for losses from noncontrolling interests, for the 13 weeks ended March 28, 2019 and March 29, 2018 was 0.7% and 25.8%, respectively. The reduction in the Company’s effective income tax rate is related to excess tax benefits on share-based compensation that the Company recorded during the 13 weeks ended March 28, 2019. The Company does not include the income tax expense or benefit related to the net earnings or loss attributable to noncontrolling interests in its income tax expense as the entity is considered a pass-through entity and, as such, the income tax expense or benefit is attributable to its owners.

 

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.

 

 19 

 

 

Following is a summary of business segment information for the 13 weeks ended March 28, 2019 and March 29, 2018 (in thousands):

 

13 Weeks Ended

March 28, 2019

  Theatres  

Hotels/

Resorts

  

Corporate

Items

   Total 
Revenues  $114,885   $55,061   $93   $170,039 
Operating income (loss)   12,594    (3,153)   (4,491)   4,950 
Depreciation and amortization   11,127    4,767    91    15,985 

 

13 Weeks Ended

March 29, 2018

  Theatres  

Hotels/

Resorts

  

Corporate

Items

   Total 
Revenues  $112,935   $55,168   $88   $168,191 
Operating income (loss)   23,983    (2,649)   (4,318)   17,016 
Depreciation and amortization   9,228    4,590    86    13,904 

 

 20 

 

 

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, including the expectation that the Movie Tavern acquisition will be accretive to earnings, earnings per share and cash flows in the first 12 months following the closing of the transaction. 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 adverse economic conditions in our markets, particularly with respect to our hotels and resorts division; (3) the effects on our occupancy and room rates of the relative industry supply of available rooms at comparable lodging facilities in our markets; (4) the effects of competitive conditions in our markets; (5) our ability to achieve expected benefits and performance from our strategic initiatives and acquisitions; (6) the effects of increasing depreciation expenses, reduced operating profits during major property renovations, impairment losses, and preopening and start-up costs due to the capital intensive nature of our businesses; (7) the effects of weather conditions, particularly during the winter in the Midwest and in our other markets; (8) our ability to identify properties to acquire, develop and/or manage and the continuing availability of funds for such development; (9) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in the United States or other incidents of violence in public venues such as hotels and movie theatres; (10) a disruption in our business and reputational and economic risks associated with civil securities claims brought by shareholders; and (11) our ability to timely and successfully integrate the Movie Tavern operations into our own circuit. 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.

 

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RESULTS OF OPERATIONS

 

General

 

We report our consolidated and individual segment results of operations on a 52-or 53-week fiscal year ending on the last Thursday in December. Fiscal 2019 is a 52-week year beginning on December 28, 2018 and ending on December 26, 2019. Fiscal 2018 was a 52-week year beginning December 29, 2017 and ended on December 27, 2018.

 

We divide our fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. The first quarter of fiscal 2019 consisted of the 13-week period beginning on December 28, 2018 and ended on March 28, 2019. The first quarter of fiscal 2018 consisted of the 13-week period beginning December 29, 2017 and ended on March 29, 2018. Our primary operations are reported in the following two business segments: movie theatres and hotels and resorts.

 

Implementation of New Accounting Standards

 

During the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), intended to improve financial reporting related to leasing transactions. ASC Topic 842 requires a lessee to recognize a right-of-use (ROU) asset and a lease liability for most leases. The new guidance requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from the leases. Leases are now classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of net earnings. ASU No. 2018-11, Leases (Topic 842): Targeted Improvements amended ASU No. 2016-02 and allows entities the option to initially apply Topic 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted the new accounting standard as of the first day of fiscal 2019 using the modified retrospective approach, which results in the cumulative effect of adoption recognized at the date of application, rather than as of the earliest period presented. As a result, no adjustment was made to prior period financial information and disclosures and no cumulative effect adjustment to retained earnings was necessary.  

 

In conjunction with the adoption of the new standard, companies are able to elect several practical expedients to aid in the transition to Topic 842. We elected the package of practical expedients which permits us to forego reassessment of our prior conclusions related to lease identification, lease classification and initial direct costs. Topic 842 also provides practical expedients for an entity’s ongoing accounting. We elected the practical expedient to not separate lease and non-lease components for all of our leases. We also made a policy election not to apply the lease recognition requirements for short-term leases. As a result, we did not recognize right-of-use assets or lease liabilities for short-term leases that qualify for the policy election (those with an initial term of 12 months or less which do not include a purchase or renewal option which is reasonably certain to be exercised), but instead will recognize these lease payments as lease costs on a straight-line basis over the lease term.

 

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Adoption of this new standard resulted in a material impact related to the recognition of ROU assets and lease liabilities on the consolidated balance sheet for assets currently subject to operating leases. We recognized lease liabilities representing the present value of the remaining future minimum lease payments for all of our operating leases as of December 28, 2018 of $81.5 million. We recognized ROU assets for all assets subject to operating leases in an amount equal to the operating lease liabilities, adjusted for the balances of long-term prepaid rent, favorable lease intangible assets, deferred lease expense, unfavorable lease liabilities and deferred lease incentive liabilities as of December 28, 2018.

 

The adoption of the new standard did not have a material effect on our consolidated statements of net earnings.

 

Overall Results

 

The following table sets forth revenues, operating income, other income (expense), net earnings and net earnings per common share for the first quarter of fiscal 2019 and fiscal 2018 (in millions, except for per share and variance percentage data):

 

   First Quarter 
           Variance 
   F2019   F2018   Amt.   Pct. 
Revenues  $170.0   $168.2   $1.8    1.1%
Operating income   5.0    17.0    (12.0)   -70.9%
Other income (expense)   (3.1)   (3.8)   0.7    17.0%
Net loss attributable to noncontrolling interests   (0.1)   -    (0.1)   N/A 
Net earnings attributable to The Marcus Corp.   1.9    9.8    (7.9)   -81.1%
Net earnings per common share - diluted  $0.06   $0.35   $(0.29)   -82.9%

 

Revenues increased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to increased revenues from our theatre division. Operating income (earnings before other income/expense and income taxes) decreased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to a decrease in theatre division operating income and increased operating losses from our hotels and resorts division and corporate items. Both of our divisions were negatively impacted by nonrecurring expenses during the first quarter of fiscal 2019. Net earnings attributable to The Marcus Corporation decreased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to decreased operating income, partially offset by increased investment income and decreased interest expense and income taxes.

 

On February 1, 2019, we acquired the assets of Movie Tavern®, a New Orleans-based industry leading circuit known for its in-theatre dining concept featuring chef-driven menus, premium quality food and drink and luxury seating. Now branded Movie Tavern by Marcus, the acquired circuit consisted of 208 screens at 22 locations in nine states – Arkansas, Colorado, Georgia, Kentucky, Louisiana, New York, Pennsylvania, Texas and Virginia. The purchase price consisted of $30 million in cash, subject to certain adjustments, and 2,450,000 shares of our common stock (157,056 of which have been placed in escrow to secure certain post-closing indemnification obligations of the seller under the asset purchase agreement), for a total purchase price of approximately $139 million, based upon our closing share price on January 31, 2019. We financed the cash portion of the purchase price from existing sources of cash. The share portion of the purchase price was issued out of treasury stock. We anticipate that the acquired Movie Tavern business will be accretive to earnings, earnings per share and cash flow in the first 12 months following the closing of the transaction.

 

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The acquisition increased our total number of screens by an additional 23%, resulting in increased revenues from our theatre division during the first quarter of fiscal 2019 compared to the prior year period. Operating income from our theatre division was unfavorably impacted by reduced attendance at our comparable theatres due to a weaker slate of movies during the fiscal 2019 first quarter compared to the first quarter of fiscal 2018, partially offset by increased concession sales per person due to our expanded food and beverage offerings. Acquisition and preopening expenses related to the Movie Tavern acquisition negatively impacted our operating income during the first quarter of fiscal 2019 by approximately $1.8 million, or $0.04 per diluted common share.

 

We closed the InterContinental Milwaukee hotel in early January 2019 and began a substantial renovation project that will convert this hotel into an experiential arts hotel named Saint Kate – The Arts Hotel. Revenues from our hotels and resorts division during the first quarter of fiscal 2019 compared to the prior year period were unfavorably impacted by this closing. Division revenues were also negatively impacted by a major renovation currently under way at our Hilton Madison hotel, partially offset by increased room revenues and food and beverage revenues for our other six owned hotels during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. An increased operating loss from our hotels and resorts division during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 was entirely due to preopening expenses related to the Saint Kate hotel conversion of approximately $1.2 million, or $0.03 per diluted common share.

 

Operating losses from our corporate items, which include amounts not allocable to the business segments, increased slightly during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due in part to increased long-term incentive compensation expenses. This increase is the result of our improved financial performance and stock performance during the past several years.

 

We recognized investment income of $473,000 during the first quarter of fiscal 2019 compared to an investment loss of $36,000 during the first quarter of fiscal 2018. Investment income increased during the fiscal 2019 first quarter due to increases in the value of marketable securities.

 

Our interest expense totaled $3.1 million for the first quarter of fiscal 2019 compared to $3.3 million for the first quarter of fiscal 2018, a decrease of approximately $200,000, or 7.6%. The decrease in interest expense during the first quarter of fiscal 2019 was due to reduced borrowing levels compared to the first quarter of fiscal 2018, partially offset by a higher average interest rate during the first quarter of fiscal 2019 as a result of increases in short-term interest rates on our variable rate debt. In addition, on March 1, 2018, we entered into two interest rate swap agreements, effectively converting $50.0 million in variable rate borrowings to a fixed rate. 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, as would further changes in short-term interest rates and changes in the mix between fixed rate debt and variable rate debt in our debt portfolio.

 

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We did not have any significant variations in other expenses, gains on disposition of property, equipment and other assets or net equity earnings (losses) from unconsolidated joint ventures during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. The timing of periodic sales and disposals 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.

 

We reported income tax expense for the first quarter of fiscal 2019 of $13,000, a decrease of approximately $3.4 million, or 99.6%, compared to income tax expense of $3.4 million for the first quarter of fiscal 2018. The decrease in income tax expense was primarily the result of the reduced earnings before income taxes. Our fiscal 2019 first quarter effective income tax rate, after adjusting for a loss from noncontrolling interests that is not tax-effected because the entity involved is a tax pass-through entity, was 0.7% and benefitted from excess tax benefits on share-based compensation and nonrecurring adjustments specific to the quarter, compared to our fiscal 2018 first quarter effective income tax rate of 25.8%. We continue to anticipate that our effective income tax rate for the remaining quarters of fiscal 2019 will be in the 24-26% range, depending upon the amount of excess tax benefits on share-based compensation that we recognize and excluding any potential changes in federal and state income tax rates. Our actual fiscal 2019 effective income tax rate may be different from our estimated quarterly rates depending upon actual facts and circumstances.

 

The operating results of one majority-owned hotel, The Skirvin Hilton, are included in the hotels and resorts division revenue and operating income during the first quarters of fiscal 2019 and fiscal 2018, and the after-tax net earnings or loss attributable to noncontrolling interests is deducted from or added to net earnings on the consolidated statements of earnings. We reported net losses attributable to noncontrolling interests of $66,000 and $15,000, respectively, during the first quarters of fiscal 2019 and fiscal 2018.

 

Theatres

 

The following table sets forth revenues, operating income and operating margin for our theatre division for the first quarter of fiscal 2019 and fiscal 2018 (in millions, except for variance percentage and operating margin):

 

   First Quarter 
           Variance 
   F2019   F2018   Amt.   Pct. 
Revenues  $114.9   $112.9   $2.0    1.7%
Operating income   12.6    24.0    (11.4)   -47.5%
Operating margin (% of revenues)   11.0%   21.2%          

 

Our theatre division revenues increased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to the newly acquired Movie Tavern theatres and an increase in our average concession revenues per person, partially offset by the impact of decreased attendance due to a weaker film slate and a lower average ticket price at our comparable theatres.

 

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Our theatre division operating income and operating margin decreased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due primarily to the impact of the reduced attendance and revenues at comparable theatres. Due to the significant investments we have made in our theatres over the last five years, we have higher fixed costs, such as rent, depreciation and amortization, and higher labor expenses, due in part to our increased number of new food and beverage outlets in our theatres. As a result, it is more difficult to remove costs when attendance declines as it did in the first quarter of fiscal 2019, and operating margins are more likely to decline when that happens. Conversely, during periods with a strong film slate, operating margins potentially increase, as that same “leverage” should benefit our theatre division.

 

Our theatre division operating margin also declined during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to the inclusion of two months of Movie Tavern operating results. Our Movie Tavern theatres will have a lower operating margin than our legacy theatres due to the fact that all 22 acquired theatres are leased rather than owned (rent expense is generally significantly higher than depreciation expense). In addition, the fact that a larger portion of Movie Tavern revenues are derived from the sale of in-theatre food and beverage will also contribute to lower operating margins, as food and labor costs are generally higher for those items compared to traditional concession items.

 

As described above, our operating income and operating margin were also negatively impacted during the first quarter of fiscal 2019 by approximately $1.8 million of acquisition and preopening expenses related to the Movie Tavern acquisition. In addition, severe winter weather conditions in the Midwest during the first quarter of fiscal 2019 may have slightly negatively impacted attendance at our theatres and increased our snow removal and heating costs by approximately $250,000 compared to the first quarter of fiscal 2018.

 

The following table provides a further breakdown of the components of revenues for the theatre division for the first quarter of fiscal 2019 and fiscal 2018 (in millions, except for variance percentage):

 

   First Quarter 
           Variance 
   F2019   F2018   Amt.   Pct. 
Admission revenues  $59.0   $63.0   $(4.0)   -6.4%
Concession revenues   47.2    41.4    5.8    13.9%
Other revenues   8.5    8.0    0.5    6.6%
    114.7    112.4    2.3    2.0%
Cost reimbursements   0.2    0.5    (0.3)   -59.9%
Total revenues  $114.9   $112.9   $2.0    1.7%

 

As described above, on February 1, 2019, we acquired 22 theatres and 208 screens in conjunction with our Movie Tavern acquisition, favorably impacting our overall decrease in admission revenues and contributing the entire increase to our concession revenues during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. Excluding the Movie Tavern theatres, admission revenues and concession revenues for comparable theatres decreased 17.8% and 12.2%, respectively, during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018.

 

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According to data received from Rentrak (a national box office reporting service for the theatre industry) and compiled by us to evaluate our fiscal 2019 first quarter results, United States box office receipts (excluding new builds for the top 10 theatre circuits) decreased 16.5% during our fiscal 2019 first quarter, indicating that our decrease in admission revenues during the first quarter of fiscal 2019 of 17.8% for our comparable theatres underperformed the industry by 1.3 percentage points. Our goal is to continue our past pattern of outperforming the industry, but with the majority of our renovations now completed for our legacy circuit, our ability to do so in any given quarter will likely be partially dependent upon film mix, weather, the competitive landscape in our markets and the impact of local sporting events. During the first quarter of fiscal 2019, we believe colder and snowier weather in the Midwest negatively impacted the performance of our comparable theatres compared to the U.S. averages. As discussed further below, we also believe film mix impacted our relative performance versus the nation during the fiscal 2019 period.

 

Our average ticket price increased 0.5% during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018, due entirely to the addition of Movie Tavern theatres in certain markets where competitive pricing is slightly higher than in our legacy Midwestern markets. Excluding Movie Tavern, our average ticket price at comparable theatres decreased 1.4% during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. We believe that a change in film product mix had an unfavorable impact on our average ticket price during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. Last year’s top film, Black Panther, performed extremely well in our premium large format (PLF) screens, with a corresponding price premium, favorably impacting our average ticket price during the first quarter of fiscal 2018. Conversely, two of our top five films this year, How to Train Your Dragon: The Hidden World and The Lego Movie 2: The Second Part, were animated films that generally appeal to a younger audience (resulting in a higher percentage of lower-priced children’s tickets sold), negatively impacting our average ticket price during the first quarter of fiscal 2019 compared to the prior year, when none of our top five films were animated films. The decrease in average ticket price unfavorably impacted our admission revenues of our comparable theatres by approximately $750,000 during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018.

 

At the beginning of the second quarter of fiscal 2019, we implemented selected ticket price increases at certain locations in order to reflect the competitive market in which those theatres operate. In addition, we enacted a modest price increase for our proprietary PLF screens and converted our admission ticket pricing to a sales tax additive (or “tax-on-top”) model, consistent with the majority of our competitors. These modest ticket price increases will likely have a favorable impact on our average ticket price in future periods.

 

Our concession revenues increased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to the addition of new Movie Tavern theatres and an increase in our average concession revenues per person, partially offset by decreased attendance at comparable theatres. Our average concession revenues per person increased by 22.4% during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018, due in large part to the addition of the Movie Tavern theatres. Excluding Movie Tavern, our average concession revenues per person at comparable theatres increased 5.4% during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. The increase in our average concession revenues per person contributed approximately $1.9 million to our comparable theatre concession revenues during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018.

 

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A change in concession product mix, including increased sales of non-traditional food and beverage items from our increased number of Take Five LoungeSM, Zaffiro’s® Express, Reel Sizzle® and in-theatre dining outlets were the primary reasons for our increased average concession sales per person during the fiscal 2019 first quarter. Conversely, we believe that the above-described change in film product mix during the first quarter of fiscal 2019 may have slightly reduced the growth of our overall average concession sales per person during the fiscal 2019 first quarter, as family-oriented and animated films such as the two films in our top five during the first quarter of fiscal 2019 described above tend not to contribute to sales of non-traditional food and beverage items as much as adult-oriented films. We expect the recently-acquired Movie Tavern theatres will continue to have a significant (20% or more) favorable impact on our overall average concession sales per person, as the average concession sales per person at these dine-in theatres are, on average, more than double the average concession sales per person we generally achieve at our theatres that do not offer a dine-in option.

 

Other revenues increased by approximately $500,000 during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. This increase was entirely due to internet surcharge ticketing fees and preshow advertising income from our new Movie Tavern locations.

 

Total theatre attendance decreased 6.8% during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. Excluding Movie Tavern, comparable theatre attendance decreased 16.6% during the quarter, due primarily to a weaker film slate in the current year period. Attendance and admission revenues decreased significantly during January and February, and was partially offset by improved performance during March. January of fiscal 2018 benefited from several strong 2017 holdover films, such as Star Wars; The Last Jedi, Jumanji: Welcome to the Jungle and The Greatest Showman. We did not have as many strong holdovers from 2018 to benefit the first quarter of fiscal 2019. The reduction in February 2019 attendance and admission revenues was due to the fact that our highest grossing film of fiscal 2018, Black Panther, was released during February 2018 and February 2019 film product could not come close to matching those results. We also believe that snowier and colder Midwestern weather and film mix this quarter compared to last year may also have had a slight negative impact on our comparative performance versus the overall industry. We believe our Midwestern circuit outperformed our normal share of the total box office on all three of the above referenced 2017 holdover films last year, negatively impacting our relative performance to the U.S. box office in January this year. Conversely, due to the fact that we underperformed the industry on Black Panther last year, our relative performance to the U.S. improved in February 2019. Finally, our attendance and admission revenues underperformed slightly during March 2019, primarily due to underperformance during the last week of the first quarter when the top film, Us, generally underperformed in the Midwest.

 

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Our highest grossing films during the fiscal 2019 first quarter included Captain Marvel, How to Train Your Dragon: The Hidden World, Aquaman, The Lego Movie 2: The Second Part, and The Upside. The film slate during the first quarter of fiscal 2019 was weighted slightly less towards blockbuster movies compared to the prior year, as evidenced by the fact that our top five films during our fiscal 2019 first quarter accounted for 39% of our total box office results, compared to 46% for the top five films during the first quarter of fiscal 2018, both expressed as a percentage of the total admission revenues for the period. This reduced reliance on blockbuster films during the fiscal 2019 first quarter had the effect of very slightly decreasing our film rental costs during the period, as generally the better a particular film performs, the greater the film rental cost tends to be as a percentage of box office receipts.

 

We are pleased with the Movie Tavern performance to date and the integration is progressing on schedule. We immediately introduced our popular $5 Tuesday movie program at these locations, as well as other promotional and marketing initiatives. Although the Movie Tavern theatres were affected by the weaker film slate during the fiscal 2019 first quarter as were our other locations, data available to us for prior year performance of the Movie Tavern theatres indicates that these theatres outperformed the national box office on a relative basis during March – an indication that our programs are having an impact on their performance. Building on that, we plan to launch our Magical Movie Rewards® loyalty program at all Movie Tavern locations in the second quarter.

 

Film product performance for the second quarter of fiscal 2019 started off slowly compared to the same period of fiscal 2018, likely due in part to the fact that Easter, with corresponding school vacations, was later this year than the prior year. The busy summer film season began in earnest, however, with the record-setting opening of Avengers: Endgame in late April. Other films scheduled to be released during the next three months that may generate substantial box office interest include Pokémon: Detective Pikachu, John Wick: Chapter 3, Aladdin, Godzilla: King of the Monsters, Rocketman, The Secret Life of Pets 2, X-Men: Dark Phoenix, Men in Black: International, Toy Story 4, Spider-Man: Far From Home, The Lion King, Once Upon A Time in Hollywood and Fast and Furious Presents: Hobbs & Shaw (the last four films will be released during our fiscal 2019 third quarter). The fiscal 2018 second quarter films performed very well and we significantly outperformed last year compared to the U.S. averages, so it remains to be seen whether the fiscal 2019 second quarter film product can match that performance. The anticipated film slate for the second half of fiscal 2019 is currently expected to be quite strong. 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 first quarter of fiscal 2019 with a total of 1,092 company-owned screens in 89 theatres and 6 managed screens in one theatre, compared to 884 company-owned screens in 67 theatres and 11 managed screens in two theatres at the end of the first quarter of fiscal 2018. In addition to the screens added due to the Movie Tavern acquisition, we opened one new UltraScreen DLX® at an existing Marcus Wehrenberg theatre during the first quarter of fiscal 2019. We ceased managing one five-screen theatre during the second quarter of fiscal 2018. Early in our fiscal 2019 second quarter, we completed the addition of DreamLoungerSM recliner seating to three Movie Tavern theatres and we converted 10 Movie Tavern auditoriums to our SuperScreen DLX® concept. We anticipate converting additional Movie Tavern auditoriums to our proprietary PLF concepts during fiscal 2019. We also recently announced that a new eight-screen theatre currently under construction in Brookfield, Wisconsin will be branded Movie Tavern by Marcus. The new theatre is currently expected to open in October 2019.

 

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Hotels and Resorts

 

The following table sets forth revenues, operating loss and operating margin for our hotels and resorts division for the first quarter of fiscal 2019 and fiscal 2018 (in millions, except for variance percentage and operating margin):

 

   First Quarter 
           Variance 
   F2019   F2018   Amt.   Pct. 
Revenues  $55.1   $55.2   $(0.1)   -0.2%
Operating loss   (3.2)   (2.6)   (0.6)   -19.0%
Operating margin (% of revenues)   -5.7%   -4.8%          

 

The following table provides a further breakdown of the components of revenues for the hotels and resorts division for the first quarter of fiscal 2019 and fiscal 2018 (in millions, except for variance percentage):

 

   First Quarter 
           Variance 
   F2019   F2018   Amt.   Pct. 
Room revenues  $18.9   $20.7   $(1.8)   -8.4%
Food and beverage revenues   15.8    15.8    -    -0.1%
Other revenues   12.2    11.4    0.8    6.7%
    46.9    47.9    (1.0)   -2.1%
Cost reimbursements   8.2    7.3    0.9    12.1%
Total revenues  $55.1   $55.2   $(0.1)   -0.2%

 

Our first quarter is typically the weakest quarter of our fiscal year for our hotels and resorts division due to the traditionally reduced level of travel at our predominantly Midwestern portfolio of owned properties. Division revenues decreased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due entirely to the fact that we closed the former InterContinental Milwaukee hotel during the first week of January in order to begin a major renovation that will convert this hotel into an experiential arts hotel named Saint Kate – The Arts Hotel. Excluding this hotel, total revenues during the first quarter of fiscal 2019 increased by 4.5% compared to the first quarter of fiscal 2018, due to increased food and beverage revenues and other revenues at our owned hotels and resorts and increased cost reimbursements from our managed hotels.

 

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Room revenues decreased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to the closing of the InterContinental hotel and decreased revenue per available room, or RevPAR at our remaining seven company-owned hotels. Excluding the closed hotel, room revenues during the first quarter of fiscal 2019 decreased by 1.8% compared to the first quarter of fiscal 2018, due primarily to the fact that our Hilton Madison hotel was undergoing a major renovation during the first quarter of fiscal 2019. Food and beverage revenues decreased slightly during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to the closed hotel. Excluding the closed hotel, food and beverage revenues during the first quarter of fiscal 2019 increased by 5.9% compared to the first quarter of fiscal 2018, due primarily to increased banquet and catering revenues. Other revenues increased due in part to increased ski revenues from our Grand Geneva Resort & Spa, as well as increased management fees and miscellaneous revenues. Cost reimbursements also increased during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 due to an increase in the number of management contracts in this division.

 

Our hotels and resorts division operating loss increased and operating margin declined during our fiscal 2019 first quarter compared to the first quarter of fiscal 2018 due entirely to $1.2 million of preopening expenses related to our conversion of the InterContinental Milwaukee hotel into the Saint Kate. Excluding this hotel, our fiscal 2019 first quarter operating loss would have improved by approximately $700,000, or 32%, compared to the prior year period. This same-hotel improvement can be attributed to increased revenues and a continued focus on cost controls and operating efficiency. We currently estimate that we will incur additional nonrecurring preopening expenses of at least $1.2-$1.4 million during the second quarter of fiscal 2019 as well, negatively impacting our reported operating income from our hotels and resorts division during that period. We anticipate opening the newly-renovated hotel on approximately June 1, 2019.

 

The following table sets forth certain operating statistics for the first quarter of fiscal 2019 and fiscal 2018, 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 
   F2019   F2018   Amt.   Pct. 
Occupancy percentage   64.6%   65.9%   -1.3 pts    -2.0%
ADR  $130.05   $129.98   $0.07    0.1%
RevPAR  $84.05   $85.72   $(1.67)   -1.9%

 

(1)These operating statistics represent averages of our seven 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. The statistics exclude the closed former InterContinental Milwaukee hotel.

 

RevPAR decreased at five of our seven comparable company-owned properties during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018, with the largest decrease occurring at our Hilton Madison hotel, which was undergoing a major renovation during the fiscal 2019 first quarter. Excluding the Hilton Madison, our remaining six comparable company-owned hotels experienced a RevPAR increase of 2.6% during the first quarter of fiscal 2019 compared to the prior year period. According to data received from Smith Travel Research and compiled by us in order to evaluate our fiscal 2019 first quarter results, comparable “upper upscale” hotels throughout the United States experienced an increase in RevPAR of 1.2% during our fiscal 2019 first quarter compared to the same weeks last year. Data received from Smith Travel Research for our various “competitive sets” – hotels identified in our specific markets that we deem to be competitors to our hotels – indicates that these hotels experienced an increase in RevPAR of 3.2% during our fiscal 2019 first quarter.

 

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Group business decreased slightly overall, but two of our three largest properties experienced meaningful increases in group business during the fiscal 2019 first quarter compared to the prior year period, contributing to our increased RevPAR performance for our comparable company-owned hotels (excluding the Hilton Madison). The increase in group business at these two properties, plus a significant increase in group business at one of the condominium hotels that we manage where all of the food and beverage revenues are retained by us, accounted for the majority of the increase in banquet and catering revenues described above. Once again excluding the under-renovation Hilton Madison, our comparable hotel RevPAR growth of 2.6% during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 was entirely the result of an increase in occupancy percentage, as our comparable ADR decreased slightly during the first quarter of fiscal 2019. It is generally more difficult to increase ADR during our slower winter season, as overall occupancy is at its lowest. Three of our seven comparable company-owned hotels (including the Hilton Madison, but excluding the Saint Kate) reported increased ADR during the fiscal 2019 first quarter compared to the first quarter of fiscal 2018.

 

Looking to future periods, our company-owned hotels experienced an increase in group bookings during the first quarter of fiscal 2019 compared to the same period last year. As of the date of this report, our group room revenue bookings for future periods in fiscal 2019 - commonly referred to in the hotels and resorts industry as “group pace” - is running ahead of our group room revenue bookings for future periods last year at this time. Banquet and catering revenue pace for fiscal 2019 is also currently ahead of where we were last year at this same time.

 

Nationally, the pace of RevPAR growth has been declining over the past several years and many published reports by those who closely follow the hotel industry suggest that the United States lodging industry will experience very limited overall growth in RevPAR in calendar 2019, with some markets possibly experiencing small declines. Whether the relatively positive trends in the lodging industry over the last several years will continue depends in large part on the economic environment, as hotel revenues have historically tracked very closely with traditional macroeconomic statistics such as the Gross Domestic Product. We also continue to monitor hotel supply in our markets, as increased supply without a corresponding increase in demand may have a negative impact on our results. Several of our markets, including Oklahoma City, Oklahoma, Chicago, Illinois and Milwaukee, Wisconsin, have experienced an increase in room supply over the past several years that may be an impediment to any substantial increases in ADR in the near term. We believe that our hotels are less impacted by additional room supply than other hotels in the markets in which we compete, particularly in the Milwaukee market, due in large part to recent renovations that we have made to our hotels. Milwaukee was recently awarded the Democratic National Convention in the summer of 2020, which we believe will not only favorably impact that future year’s results, but has the potential to have a positive long-term impact on the overall market. Overall, we generally expect our revenue trends to track or exceed the overall industry trends, particularly in our respective markets.

 

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Our hotels and resorts division operating results during the first quarter of fiscal 2019 benefited from three management contracts added during fiscal 2018 – the Murieta Inn and Spa in Rancho Murieta, California, along with the DoubleTree by Hilton Hotel El Paso Downtown and Courtyard by Marriott El Paso Downtown/Convention Center, both in El Paso, Texas. On April 1, 2019, we assumed management of the Hyatt Regency Schaumburg hotel in Schaumburg, Illinois. This 468-room hotel recently completed a $15 million renovation and offers upscale accommodations, robust amenities and more than 30,000 square feet of indoor and outdoor meeting and event space, including a 3,100 square foot starlit terrace. This is our first Hyatt-branded hotel under management and the addition increases our current portfolio to 22 owned and managed properties across the country. Conversely, we currently manage the Heidel House Resort & Spa in Green Lake, Wisconsin, and the owners of this resort recently announced that they intend to close this property permanently on May 20, 2019.

 

We continue to explore additional potential growth opportunities and we would also consider opportunities to monetize selected existing owned hotels in the future. The extent of any impact from these opportunities would likely depend upon the timing and nature of the growth opportunity (pure management contract, management contract with equity, joint venture investment, or other opportunity) or divestiture (management retained, equity interest retained, etc.).

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity

 

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 $106 million of unused credit lines as of the end of our fiscal 2019 first quarter, will be adequate to support the ongoing operational liquidity needs of our businesses during the remainder of fiscal 2019.

 

Financial Condition

 

Net cash provided by operating activities totaled $8.0 million during the first quarter of fiscal 2019, compared to $12.0 million during the first quarter of the fiscal 2018. The $4.0 million decrease in cash provided by operating activities was due primarily to reduced net earnings and the unfavorable timing in the collection of accounts and notes receivable and payment of income taxes and other liabilities during the first quarter of fiscal 2019, partially offset by the favorable timing in the payment of accounts payable.

 

Net cash used in investing activities during the first quarter of fiscal 2019 totaled $46.1 million, compared to $16.1 million during the first quarter of fiscal 2018. The increase in net cash used in investing activities of $30.0 million was primarily the result of the $29.6 million cash consideration in the Movie Tavern acquisition. We did not incur any acquisition-related capital expenditures during the first quarter of fiscal 2018. An increase in other assets primarily related to development expenditures of a previously-described new theatre (that will subsequently be reimbursed by the landlord) also contributed to the increase in net cash used in investing activities during the first quarter of fiscal 2019, partially offset by a decrease in capital expenditures compared to the first quarter of fiscal 2018. Total cash capital expenditures (including normal continuing capital maintenance and renovation projects) totaled $13.7 million during the first quarter of fiscal 2019 compared to $16.0 million during the first quarter of fiscal 2018.

 

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Fiscal 2019 first quarter cash capital expenditures included approximately $4.9 million incurred in our theatre division, including costs associated with the addition of DreamLounger recliner seating and new UltraScreen and SuperScreen DLX auditoriums to existing theatres. We also incurred capital expenditures in our hotels and resorts division during the first quarter of fiscal 2019 of approximately $8.7 million, consisting primarily of costs associated with the renovation of the Saint Kate and Hilton Madison hotels, as well as normal maintenance capital projects at our other properties. Fiscal 2018 first quarter cash capital expenditures included approximately $13.8 million incurred in our theatre division, including costs associated with the addition of DreamLounger recliner seating, new UltraScreen and SuperScreen DLX auditoriums and new Zaffiro’s Express and Take Five Lounge outlets to existing theatres. We also incurred capital expenditures in our hotels and resorts division during the first quarter of fiscal 2018 of approximately $2.2 million, consisting primarily of normal maintenance capital projects.

 

Net cash provided by financing activities during the first quarter of fiscal 2019 totaled $29.4 million compared to net cash used in financing activities of $3.2 million during the first quarter of fiscal 2018. 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. We also used borrowings from our revolving credit facility to fund the cash consideration in the Movie Tavern acquisition. As a result, we added $73.0 million of new short-term borrowings and we made $38.0 million of repayments on short-term borrowings during the first quarter of fiscal 2019 (net increase in borrowings on our credit facility of $35.0 million) compared to $49.0 million of new short-term borrowings and $48.0 million of repayments on short-term borrowings made during the first quarter of fiscal 2018 (net increase in borrowings on our credit facility of $1.0 million).

 

We did not issue any new long-term debt during the first quarters of fiscal 2019 and fiscal 2018. Principal payments on long-term debt were $217,000 during the first quarter of fiscal 2019 compared to payments of $173,000 during the first quarter of fiscal 2018. Our debt-to-capitalization ratio (excluding our finance and operating lease obligations) was 0.31 at March 28, 2019, compared to 0.33 at December 27, 2018.

 

We repurchased approximately 11,000 shares of our common stock for approximately $428,000 in conjunction with the exercise of stock options during the first quarter of fiscal 2019, compared to 15,000 shares repurchased for approximately $453,000 in conjunction with the exercise of stock options during the first quarter of fiscal 2018. As of March 28, 2019, approximately 2.8 million shares remained available for repurchase under prior Board of Directors repurchase authorizations. We expect that we will execute any future repurchases on the open market or in privately-negotiated transactions, depending upon a number of factors, including prevailing market conditions.

 

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In conjunction with the Movie Tavern acquisition, we issued 2,450,000 shares of our common stock to the seller during the first quarter of fiscal 2019 (157,056 of which have been placed in escrow to secure certain post-closing indemnification obligations of the seller under the asset purchase agreement). This non-cash transaction reduced treasury stock and increased capital in excess of par by the value of the shares at closing of approximately $109.2 million.

 

Dividend payments during the first quarter of fiscal 2019 totaled $4.8 million compared to dividend payments of $4.1 million during the first quarter of fiscal 2018. The increase in dividend payments was the result of an increased number of outstanding shares and a 6.7% increase in our regular quarterly dividend payment rate initiated in March 2019.

 

We previously indicated that we expected our full-year fiscal 2019 capital expenditures, including the cash consideration in our Movie Tavern acquisition (but excluding any significant unidentified acquisitions), to be in the $105-$125 million range. We are still finalizing the scope and timing of the various projects requested by our two divisions, but at this time, we are not adjusting this estimate. Some of these projects may carry over to the next fiscal year. 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.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

We have not experienced any material changes in our market risk exposures since December 27, 2018.

 

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

 

During the quarter ended March 28, 2019, the Company adopted the new lease standard, Topic 842. The Company updated its lease policy and added additional controls over financial reporting by using a company-wide lease system to gather lease information required for financial statement presentation, as well as to provide for the additional disclosure information required by the new standard. There were no other 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.

 

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PART II – OTHER INFORMATION

 

Item 1A.Risk Factors

 

Risk factors relating to us are contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 27, 2018. No material change to such risk factors has occurred during the 13 weeks ended March 28, 2019.

 

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)
 
December 28 – January 24    113   $42.80    113    2,786,587 
January 25 – February 28                2,786,587 
March 1 – March 28    10,404    40.63    10,404    2,776,183 
Total    10,517   $40.65    10,517    2,776,183 

 

(1)Through March 28, 2019, 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 March 28, 2019, we had repurchased approximately 8.9 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.

 

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Item 6.Exhibits

 

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 March 28, 2019 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.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

THE MARCUS CORPORATION

 

DATE:  May 7, 2019 By: /s/ Gregory S. Marcus
    Gregory S. Marcus
President and Chief Executive Officer
     
DATE:  May 7, 2019 By: /s/ Douglas A. Neis
    Douglas A. Neis
Executive Vice President, Chief Financial
Officer and Treasurer

 

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