The Marcus(MCS) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The consolidated financial statements present The Marcus Corporation's financial position as of September 26, 2019, and December 27, 2018, and its results of operations and cash flows for the 13 and 39 weeks then ended, highlighting a significant increase in total assets to $1.34 billion primarily due to the Movie Tavern acquisition and ASC 842 adoption, while net earnings for the 39-week period decreased to $34.2 million from $44.7 million year-over-year Consolidated Balance Sheets Total assets increased significantly from $989.3 million at year-end 2018 to $1.34 billion as of September 26, 2019, driven by $229.1 million in operating lease right-of-use assets from ASC 842 adoption, an increase in net property and equipment to $932.8 million, and a rise in goodwill to $75.8 million following the Movie Tavern acquisition, with total liabilities also growing primarily from $233.9 million in operating lease obligations, and shareholders' equity increasing to $622.5 million from $490.1 million Key Balance Sheet Items (in millions) | Account | Sep 26, 2019 | Dec 27, 2018 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,340.1 | $989.3 | +35.5% | | Cash and cash equivalents | $7.5 | $17.1 | -56.5% | | Net property and equipment | $932.8 | $840.0 | +11.0% | | Operating lease right-of-use assets | $229.1 | $0 | N/A | | Goodwill | $75.8 | $43.2 | +75.6% | | Total Liabilities | $717.6 | $499.2 | +43.8% | | Operating lease obligations | $233.9 | $0 | N/A | | Long-term debt | $235.8 | $228.9 | +3.0% | | Total Shareholders' Equity | $622.5 | $490.1 | +27.0% | - The adoption of the new lease accounting standard (ASC 842) on December 28, 2018, resulted in the recognition of significant operating lease right-of-use assets and corresponding liabilities on the balance sheet for the first time[22][56] Consolidated Statements of Earnings For the 39 weeks ended September 26, 2019, total revenues increased 15.4% YoY to $614.0 million, driven by the Movie Tavern acquisition, but operating income declined 20.0% to $54.8 million, and net earnings attributable to The Marcus Corporation fell 23.4% to $34.2 million, with diluted EPS for Common Stock at $1.10, down from $1.56 in the prior year period, while the third quarter showed similar trends, with revenues up 24.0% but net earnings down 12.0% Consolidated Earnings Summary (in millions, except per share data) | Metric | 39 Weeks 2019 | 39 Weeks 2018 | YoY Change | 13 Weeks 2019 | 13 Weeks 2018 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $614.0 | $532.1 | +15.4% | $211.5 | $170.6 | +24.0% | | Operating Income | $54.8 | $68.5 | -20.0% | $22.4 | $22.4 | -0.1% | | Net Earnings | $34.2 | $44.7 | -23.4% | $14.3 | $16.2 | -12.0% | | Diluted EPS (Common) | $1.10 | $1.56 | -29.5% | $0.46 | $0.56 | -17.9% | Consolidated Statements of Cash Flows For the 39 weeks ended September 26, 2019, net cash from operating activities increased to $86.0 million from $77.1 million in the prior year, net cash used in investing activities rose sharply to $86.2 million from $46.1 million primarily due to $30.3 million for the Movie Tavern acquisition and higher capital expenditures, and net cash used in financing activities decreased to $9.2 million from $39.1 million, reflecting a net increase in borrowings on the revolving credit facility compared to a net decrease in the prior year Cash Flow Summary (39 Weeks Ended, in millions) | Activity | Sep 26, 2019 | Sep 27, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $86.0 | $77.1 | | Net cash used in investing activities | ($86.2) | ($46.1) | | Net cash used in financing activities | ($9.2) | ($39.1) | | Net decrease in cash | ($9.4) | ($8.1) | - Investing activities were significantly impacted by the $30.3 million cash portion of the Movie Tavern acquisition and a $5.0 million increase in capital expenditures year-over-year[17] Condensed Notes to Consolidated Financial Statements The notes detail significant accounting policies, the Movie Tavern acquisition, the adoption of the new lease standard (ASC 842), debt instruments, and segment performance, showing that the Movie Tavern acquisition on February 1, 2019, had a total purchase price of $139.5 million, the adoption of ASC 842 resulted in the recognition of $76.2 million in operating lease right-of-use assets and $81.5 million in operating lease liabilities, and segment data indicates that while Theatres segment revenue grew significantly due to the acquisition, its operating income for the 39-week period declined, as did the Hotels/Resorts segment's operating income primarily due to a key property's renovation and rebranding - On February 1, 2019, the company acquired 22 dine-in theatres from Movie Tavern for a total purchase price of $139.5 million, comprising $30 million in cash and 2.45 million shares of common stock valued at $109.2 million[49] - The company adopted the new lease accounting standard, ASC 842, on December 28, 2018, using a modified retrospective approach, resulting in recognizing operating lease right-of-use assets of $76.2 million and lease obligations of $81.5 million on the balance sheet at the date of adoption[45][56] Business Segment Operating Income (39 Weeks Ended, in millions) | Segment | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Theatres | $57.7 | $66.3 | -13.1% | | Hotels/Resorts | $11.4 | $15.7 | -27.3% | | Corporate (Loss) | ($14.3) | ($13.5) | -5.7% | | Total Operating Income | $54.8 | $68.5 | -20.0% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 15.4% year-to-date revenue growth primarily to the Movie Tavern acquisition, but consolidated operating income decreased by 20.0% due to nonrecurring acquisition and preopening expenses of $2.0 million for Movie Tavern and $5.5 million in preopening expenses and start-up losses from the Saint Kate hotel conversion, with the Theatres division seeing increased revenue but lower operating income due to a weaker film slate and higher fixed costs, and the Hotels and Resorts division's operating income significantly impacted by the InterContinental Milwaukee's renovation into the Saint Kate hotel, while the company maintains adequate liquidity with $110 million in unused credit lines Overall Results Consolidated revenues for the first three quarters of fiscal 2019 rose 15.4% to $614.0 million, while operating income fell 20.0% to $54.8 million, and net earnings decreased 23.4% to $34.2 million, with the decline in profitability driven by nonrecurring expenses, including approximately $2.0 million in acquisition/preopening costs for Movie Tavern and $5.5 million in preopening/start-up losses for the Saint Kate hotel conversion, negatively impacting EPS by approximately $0.05 and $0.13 per share, respectively Overall Results Summary (First Three Quarters, in millions) | Metric | F2019 | F2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $614.0 | $532.1 | +15.4% | | Operating income | $54.8 | $68.5 | -20.0% | | Net earnings | $34.2 | $44.7 | -23.4% | | Diluted EPS | $1.10 | $1.56 | -29.5% | - Operating income was negatively impacted by non-recurring expenses in the first three quarters of 2019: approximately $2.0 million for the Movie Tavern acquisition and approximately $5.5 million for the Saint Kate hotel conversion[86][87] Theatres Segment The Theatres division reported a 24.2% revenue increase to $414.1 million for the first three quarters, driven by the Movie Tavern acquisition, but operating income fell 13.1% to $57.7 million, attributed to a weaker film slate in early 2019 which reduced attendance at comparable theatres, and higher fixed costs, though comparable theatre admission revenues decreased 5.7% year-to-date, outperforming the U.S. box office decline of 6.2%, and average ticket prices and concession revenues per person at comparable theatres increased by 2.8% and 7.3%, respectively Theatres Segment Performance (First Three Quarters, in millions) | Metric | F2019 | F2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $414.1 | $333.4 | +24.2% | | Operating Income | $57.7 | $66.3 | -13.1% | | Operating Margin | 13.9% | 19.9% | -6.0 p.p. | - Comparable theatre admission revenues decreased 5.7% YTD, outperforming the U.S. box office decline of 6.2% by 0.5 percentage points[101][103] - Excluding Movie Tavern, comparable theatres saw a 2.8% increase in average ticket price and a 7.3% increase in average concession revenues per person for the first three quarters of 2019[104][107] Hotels and Resorts Segment The Hotels and Resorts division's revenues for the first three quarters were flat at $199.6 million, while operating income decreased 27.3% to $11.4 million, with this decline entirely due to $5.5 million in preopening expenses and start-up losses from the conversion of the InterContinental Milwaukee to the Saint Kate hotel, as excluding this property, the division's operating income would have increased by 11%, and for the seven comparable company-owned hotels, Revenue Per Available Room (RevPAR) increased by 0.9% year-to-date, driven by a 1.6% increase in Average Daily Rate (ADR) Hotels and Resorts Segment Performance (First Three Quarters, in millions) | Metric | F2019 | F2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $199.6 | $198.4 | +0.6% | | Operating Income | $11.4 | $15.7 | -27.3% | | Operating Margin | 5.7% | 7.9% | -2.2 p.p. | - The decline in operating income was entirely due to $5.5 million in costs related to the Saint Kate hotel conversion, and excluding this hotel, operating income would have improved by approximately $1.8 million, or 11%[121] Comparable Company-Owned Hotel Statistics (First Three Quarters) | Metric | F2019 | F2018 | % Change | | :--- | :--- | :--- | :--- | | Occupancy | 75.2% | 75.7% | -0.6% | | ADR | $155.91 | $153.47 | +1.6% | | RevPAR | $117.19 | $116.09 | +0.9% | Liquidity and Capital Resources The company maintains strong liquidity, with $86.0 million in cash from operations for the first three quarters of 2019 and approximately $110 million available under its credit lines, while capital expenditures totaled $50.1 million, with $21.8 million for the Theatres division and $28.3 million for Hotels and Resorts, primarily for the Saint Kate and Hilton Madison renovations, and the company anticipates total fiscal 2019 capital expenditures to be between $60-$70 million, with the debt-to-capitalization ratio improving to 0.28 from 0.33 at year-end 2018 - The company generated $86.0 million in net cash from operating activities during the first three quarters of 2019[135] - Total capital expenditures were $50.1 million for the first three quarters of 2019 and are projected to be $60-$70 million for the full fiscal year[137][145] - The debt-to-capitalization ratio (excluding lease obligations) was 0.28 at the end of the quarter[140] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its market risk exposures since the end of the previous fiscal year, December 27, 2018 - No material changes in market risk exposures were reported since December 27, 2018[146] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period, and there were no significant changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls - The principal executive officer and principal financial officer concluded that disclosure controls and procedures are effective[147] - No significant changes to internal control over financial reporting were identified during the quarter[149] PART II – OTHER INFORMATION Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 27, 2018 - No material change to risk factors has occurred during the 39 weeks ended September 26, 2019[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of fiscal 2019, the company repurchased 14,272 shares of its Common Stock at an average price of $33.46 per share, with these repurchases made in conjunction with the exercise of stock options, and as of September 26, 2019, approximately 2.8 million shares remained available for repurchase under existing Board authorizations Share Repurchases (Q3 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | June 28 – Sep 26 | 14,272 | $33.46 | - As of September 26, 2019, 2,756,561 shares remained available for repurchase under the company's authorized programs[152] Item 4. Mine Safety Disclosures This item is not applicable to The Marcus Corporation - Not applicable[153] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and financial statements formatted in XBRL - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32) and XBRL data files (101)[156]