The Marcus Corporation — Form 10-Q Summary
Business context and reporting period
The filing covers the 13 and 26 weeks ended November 29, 2012, representing the second quarter and first half of fiscal 2013. The company operates primarily through its Theatres and Hotels/Resorts segments. Fiscal 2013 is a 52-week year; the comparable fiscal 2012 year had 53 weeks.
Financial performance and key metrics
| Metric | Second quarter FY2013 | Second quarter FY2012 | First half FY2013 | First half FY2012 |
|---|---|---|---|---|
| Revenue | $100.6 million | $90.1 million | $218.6 million | $214.0 million |
| Operating income | $9.7 million | $6.3 million | $30.2 million | $29.6 million |
| Operating margin | 9.7% | 7.0% | 13.8% | 13.8% |
| Net earnings attributable to Marcus | $4.7 million | $2.8 million | $15.4 million | $15.3 million |
| Diluted EPS, Common Stock | $0.17 | $0.10 | $0.54 | $0.52 |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $36.4 million | $35.5 million |
- Second-quarter revenue increased 11.7%, operating income increased 55.2%, net earnings increased 67.3%, and diluted Common Stock EPS increased 70.0% year over year.
- First-half revenue increased 2.1%, operating income increased 1.9%, and net earnings attributable to Marcus increased 0.7%.
- Second-quarter theatre revenue was $50.0 million, up 21.7%, with operating income of $8.7 million and a 17.4% operating margin versus 11.3% in the prior-year quarter.
- First-half theatre revenue was $112.4 million, up 1.3%, and operating income was $22.0 million, up 2.2%.
- Second-quarter Hotels/Resorts revenue increased 3.4% to $50.4 million, while operating income decreased 5.2% to $4.8 million, primarily because of a $750,000 Platinum Hotel & Spa litigation settlement.
- First-half Hotels/Resorts revenue increased 3.1% to $105.9 million and operating income increased 4.8% to $15.1 million.
- First-half effective income tax rate was 40.1%, compared with 38.6% in the prior-year period.
Liquidity, debt, cash flow, and capital allocation
- At November 29, 2012, cash and cash equivalents were $9.7 million and restricted cash was $8.0 million.
- Total current assets were $37.7 million versus $33.6 million at May 31, 2012. Current liabilities were $88.4 million versus $171.3 million, reflecting the reclassification of $75.0 million of credit-facility borrowings to long-term debt.
- Long-term debt was $221.4 million, compared with $106.3 million at May 31, 2012. Capital lease obligations totaled $34.4 million.
- The debt-capitalization ratio was 0.41 at November 29, 2012 versus 0.37 at fiscal year-end.
- First-half operating cash flow was $36.4 million. Investing cash use was $13.2 million, including $10.5 million of capital expenditures. Financing cash use was $19.5 million.
- The company reported approximately $100 million of unused credit lines at quarter-end and stated that operating cash flow and available credit were expected to support fiscal 2013 liquidity needs.
- The company received commitments for a new five-year, $225 million credit agreement, consisting of a $50 million term loan and a $175 million revolving facility, maturing in January 2018.
- First-half share repurchases totaled approximately 1.7 million shares for $19.4 million. Approximately 1.0 million shares remained available under existing authorizations at November 29, 2012.
- On January 8, 2013, the board authorized repurchase of up to an additional 3.0 million shares.
Material changes, outlook, risks, and unusual items
- Theatre performance benefited from a strong film slate, 16.9% comparable attendance growth in the second quarter, a 2.5% increase in average ticket price, and a 5.5% increase in average concession revenue per person.
- First-half comparable theatre attendance declined 2.6%, primarily because of lower August attendance during the Olympics and calendar differences involving Memorial Day.
- The company closed an eight-screen Milwaukee theatre and recorded a $417,000 pre-tax impairment charge. It ended the quarter with 676 company-owned screens in 53 theatres and 11 managed screens in two theatres.
- The company acquired a 73% interest in the Cornhusker Hotel and Office Plaza joint venture in Lincoln, Nebraska. The joint venture assumed a $25.7 million non-recourse mortgage and recognized $4.0 million of noncontrolling interest. A multi-million-dollar renovation was planned for calendar 2013.
- Comparable Hotels/Resorts occupancy was 76.8% in the second quarter, ADR was $142.72, and RevPAR was $109.56. ADR increased for the eighth consecutive quarter, but Milwaukee occupancy was pressured by reduced convention activity.
- Management expects increased interest expense in the third and fourth quarters because of the Cornhusker mortgage and borrowings used to fund the special dividend.
- Management revised estimated fiscal 2013 capital expenditures to approximately $35 million to $50 million, excluding the approximately $30 million non-cash Cornhusker acquisition.
- On December 28, 2012, the company paid a combined $30.9 million special and accelerated dividend, including a $1.00-per-share special dividend. Regular quarterly dividends were expected to resume in August 2013.
- Management expects the effective tax rate for the third and fourth quarters to be near its historical 40% average, subject to tax adjustments and changes in tax rates.
- Remaining Platinum Hotel & Spa litigation consisted of portions of two lawsuits. Management expected no material remaining exposure, although the matters were still being defended.
- Other risks include film availability and audience appeal, competition, economic and weather conditions, lodging supply and pricing pressure, capital requirements, and consumer spending on travel, leisure, and entertainment.
- Management stated that disclosure controls were effective and that no significant changes to internal control over financial reporting occurred during the period.
Important facts for investors to verify
- Verify the final terms, borrowing levels, covenants, and interest rates under the new $225 million credit agreement.
- Assess the effect of the $30.9 million dividend and related borrowings on leverage, interest expense, and liquidity.
- Monitor theatre attendance, film release strength, concession spending, and the impact of the Milwaukee theatre closure.
- Evaluate the Cornhusker acquisition, renovation funding requirements, mortgage obligations, and expected contribution to earnings.
- Track Milwaukee hotel supply, occupancy, ADR, RevPAR, and the unresolved Platinum Hotel & Spa litigation.
- Confirm whether projected fiscal 2013 capital expenditures remain within the revised $35 million to $50 million range and whether The Corners of Brookfield proceeds.
- Review the company’s seasonal cash-flow pattern, future debt maturities, capital lease commitments, and potential share repurchases.