The Marcus Corporation Form 10-Q Summary
Business context and reporting period
The filing covers the 13 and 39 weeks ended February 23, 2012, corresponding to fiscal 2012 third quarter and year-to-date results. The company operates primarily through movie theatres and hotels/resorts. Fiscal 2012 is a 53-week year, with the additional week scheduled in the fourth quarter. The financial statements are unaudited.
Key financial metrics
| Metric | 13 weeks ended February 23, 2012 | 13 weeks ended February 24, 2011 | 39 weeks ended February 23, 2012 | 39 weeks ended February 24, 2011 |
|---|---|---|---|---|
| Revenue | $92.1 million | $84.0 million | $306.1 million | $284.7 million |
| Operating income | $4.1 million | $0.1 million | $33.7 million | $24.9 million |
| Operating margin | 4.4% | 0.1% | 11.0% | 8.8% |
| Net earnings | $0.7 million | $(2.0) million | $16.0 million | $10.1 million |
| Diluted EPS, Common Stock | $0.03 | $(0.07) | $0.55 | $0.34 |
| Interest expense | $2.3 million | $2.6 million | $7.0 million | $7.8 million |
| Net cash from operations | Not provided for the quarter | Not provided for the quarter | $54.3 million | $46.6 million |
The year-to-date effective tax rate was 37.9%, compared with 38.0% in the prior-year period. The company paid dividends of $0.085 per Common Stock share and $0.077 per Class B share during the quarter; year-to-date dividends were $0.255 and $0.232, respectively.
At February 23, 2012, cash and cash equivalents were $13.7 million, including $6.0 million of restricted cash. Cash and cash equivalents for cash-flow purposes were $7.7 million. Current assets were $29.6 million versus current liabilities of $100.0 million, although the company reported approximately $117 million of unused credit lines.
Balance-sheet debt included $29.9 million of current maturities, $176.3 million of long-term debt and $36.8 million of capital lease obligations, for approximately $243.0 million in total reported debt and lease obligations. The debt-capitalization ratio was 0.37 at February 23, 2012, compared with 0.39 at fiscal 2011 year-end.
Material changes versus the prior comparable period
- Third-quarter revenue increased 9.6% and year-to-date revenue increased 7.5%.
- Third-quarter net earnings improved from a $2.0 million loss to $0.7 million of income; year-to-date earnings increased 59.2% to $16.0 million.
- Theatre revenue increased 11.7% in the quarter and 6.5% year to date. Theatre operating margin increased to 21.2% from 15.5% in the quarter and to 20.0% from 17.5% year to date.
- Comparable theatre attendance increased 8.7% in the quarter and 2.1% year to date. Average concession revenue per person increased 6.6% in the quarter and 10.1% year to date.
- Hotels and resorts revenue increased 6.6% in the quarter and 8.8% year to date. Year-to-date operating margin increased to 7.2% from 4.3%; the division remained seasonally unprofitable in the quarter, with a $(4.4) million operating loss.
- Hotel third-quarter occupancy increased to 55.7% from 52.6%, ADR increased to $121.24 from $117.00, and RevPAR increased to $67.49 from $61.50.
- Operating cash flow increased $7.7 million year to date, while capital expenditures and acquisitions increased to $31.3 million from $20.1 million.
- Interest expense declined $0.3 million for the quarter and $0.8 million year to date, primarily because of lower borrowings.
- The prior-year period included an approximately $700,000 negative adjustment to estimated interest income on funds advanced for a Milwaukee parking garage. Fiscal 2012 recorded investment income instead.
- Fiscal 2012 year-to-date results included net losses from unconsolidated joint ventures, compared with net earnings in the prior year, partly because the prior year benefited from a joint-venture debt refinancing gain.
Guidance, outlook, risks and unusual items
- Management expected fiscal 2012 capital expenditures to approximate $35 million to $45 million, excluding the proposed Corners of Brookfield mixed-use development.
- Management expected the additional fiscal 2012 week to benefit fourth-quarter results, particularly theatres, but stated that the magnitude could not be predicted.
- The company’s near-term hotel outlook was optimistic, supported by improving group bookings, business travel and advanced booking pace. Management expected favorable comparative revenue trends to continue into the fourth quarter and early fiscal 2013.
- Management cautioned that hotel margins remain pressured because occupancy-related costs are rising faster than ADR, and ADR remained below fiscal 2008 levels.
- Expected increases in hotel room supply in Milwaukee could pressure the company’s market share and results over the next 18 to 24 months.
- The digital cinema master licensing arrangement covers 618 screens under a 10-year agreement and created a capital lease obligation. The maximum potential annual shortfall payment under the booking commitment is approximately $5.9 million, although management does not expect shortfall payments based on historical booking patterns.
- The company recorded a $635,000 deferred gain related to the digital-system sale-leaseback. It expects virtual print fee payments to reduce the related obligation by at least $4.2 million over the next 12 months.
- A prior legal judgment related to the Platinum Hotel & Spa condominium development was mediated in the fourth quarter, reducing the accrued liability from $1.145 million to $955,000. Separate related lawsuits remain pending, and potential losses could not be estimated as of February 23, 2012.
- The company guaranteed approximately $799,000 of remaining lease obligations for a former office tenant if that tenant defaults.
- Key operating risks include film availability and audience appeal, competition, economic and weather conditions, hotel supply and demand, capital requirements, interest rates, consumer spending and the timing of theatrical release windows.
- Management reported no material change in market-risk exposures, no material change in stated risk factors, and effective disclosure controls and procedures.
Investor verification points
- Confirm that the requested “2011 Q3” period refers to the filing’s fiscal 2012 third quarter ended February 23, 2012.
- Reconcile the $13.7 million balance-sheet cash balance with the $7.7 million cash-flow statement balance, particularly the $6.0 million of restricted cash.
- Review debt maturities, revolving-credit availability and the effect of the $36.8 million digital cinema capital lease obligation on liquidity.
- Assess whether theatre attendance and concession spending remain strong after the unusually favorable film slate and whether the 53rd week produces the expected benefit.
- Monitor hotel ADR relative to occupancy, new Milwaukee room supply and the sustainability of RevPAR gains.
- Review the digital cinema booking commitment, virtual print fee assumptions and potential shortfall payments.
- Track the Platinum Hotel & Spa litigation, the $955,000 accrued liability and any additional exposure from related lawsuits.
- Evaluate planned capital spending, theatre acquisitions and the proposed Corners of Brookfield development, including financing and local-government support.