MARCUS CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended
March 28, 2024
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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
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THE
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| (Exact name of registrant as specified in its charter) | ||
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(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code:
(
414
)
905-1000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
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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.
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x | No | o | ||||||||||||||
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).
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x | No | o | ||||||||||||||
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 | o |
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x | ||||||||
| Non-accelerated filer | o | Smaller reporting company |
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| Emerging growth company |
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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.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | o | No |
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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 APRIL 30, 2024 –
25,170,383
CLASS B COMMON STOCK OUTSTANDING AT APRIL 30, 2024 –
6,984,584
THE MARCUS CORPORATION
INDEX
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S-
1
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2
PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
THE MARCUS CORPORATION
Consolidated Balance Sheets
(in thousands, except share and per share data)
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March 28,
2024 |
December 28,
2023 |
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| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Restricted cash |
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Accounts receivable, net of reserves of $
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| Assets held for sale |
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| Other current assets |
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| Total current assets |
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| Property and equipment: | |||||||||||
| Land and improvements |
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| Buildings and improvements |
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| Leasehold improvements |
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| Furniture, fixtures and equipment |
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| Finance lease right-of-use assets |
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| Construction in progress |
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| Total property and equipment |
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| Less accumulated depreciation and amortization |
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| Net property and equipment |
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| Operating lease right-of-use assets |
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| Other assets: | |||||||||||
| Investments in joint ventures |
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| Goodwill |
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| Deferred incomes taxes |
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| Other |
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| Total other assets |
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| TOTAL ASSETS | $ |
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$ |
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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,
2024 |
December 28,
2023 |
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ |
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$ |
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| Taxes other than income taxes |
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| Accrued compensation |
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| Other accrued liabilities |
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| Current portion of finance lease obligations |
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| Current portion of operating lease obligations |
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| Current maturities of long-term debt |
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| Total current liabilities |
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| Finance lease obligations |
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| Operating lease obligations |
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| Long-term debt |
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| Deferred income taxes |
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| Other long-term obligations |
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| Shareholders’ Equity: | |||||||||||
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Preferred Stock, $
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Common Stock, $
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Class B Common Stock, $
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| Capital in excess of par |
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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Less cost of Common Stock in treasury (
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(
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(
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| Total shareholders’ equity |
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| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ |
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$ |
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See accompanying condensed notes to consolidated financial statements.
4
THE MARCUS CORPORATION
Consolidated Statements of Earnings (Loss)
(in thousands, except per share data)
| 13 Weeks Ended | |||||||||||
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March 28,
2024 |
March 30,
2023 |
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| Revenues: | |||||||||||
| Theatre admissions | $ |
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$ |
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| Rooms |
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| Theatre concessions |
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| Food and beverage |
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| Other revenues |
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| Cost reimbursements |
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| Total revenues |
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| Costs and expenses: | |||||||||||
| Theatre operations |
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| Rooms |
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| Theatre concessions |
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| Food and beverage |
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| Advertising and marketing |
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| Administrative |
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| Depreciation and amortization |
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| Rent |
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| Property taxes |
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| Other operating expenses |
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| Loss on disposition of property, equipment and other assets |
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| Reimbursed costs |
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| Total costs and expenses |
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| Operating loss |
(
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(
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| Other income (expense): | |||||||||||
| Investment income |
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| Interest expense |
(
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(
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| Other income (expense) |
(
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(
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| Equity losses from unconsolidated joint ventures |
(
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(
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(
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(
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| Loss before income taxes |
(
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(
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| Income tax benefit |
(
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(
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| Net loss | $ |
(
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$ |
(
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| Net loss per share - basic: | |||||||||||
| Common Stock | $ |
(
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$ |
(
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| Class B Common Stock | $ |
(
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$ |
(
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| Net loss per share - diluted: | |||||||||||
| Common Stock | $ |
(
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$ |
(
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| Class B Common Stock | $ |
(
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$ |
(
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See accompanying condensed notes to consolidated financial statements.
5
THE MARCUS CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
| 13 Weeks Ended | |||||||||||
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March 28,
2024 |
March 30,
2023 |
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| Net loss | $ |
(
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$ |
(
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| Other comprehensive loss, net of tax: | |||||||||||
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Amortization of the net actuarial loss and prior service credit related to the pension, net of tax benefit of $
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(
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(
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Fair market value adjustment of interest rate swap, net of tax benefit of $
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(
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Reclassification adjustment on interest rate swap included in interest expense, net of tax benefit of $
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(
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| Other comprehensive loss |
(
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(
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| Comprehensive loss | $ |
(
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$ |
(
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See accompanying condensed notes to consolidated financial statements.
6
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
| 13 Weeks Ended | |||||||||||
| March 28, 2024 | March 30, 2023 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net loss | $ |
(
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$ |
(
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| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Losses on investments in joint ventures |
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| Loss on disposition of property, equipment and other assets |
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| Depreciation and amortization |
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| Amortization of debt issuance costs |
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| Share-based compensation |
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| Deferred income taxes |
(
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(
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| Other long-term obligations |
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| Contribution of the Company’s stock to savings and profit-sharing plan |
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| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable |
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| Other assets |
(
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(
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| Operating leases |
(
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(
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| Accounts payable |
(
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(
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| Income taxes |
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| Taxes other than income taxes |
(
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(
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| Accrued compensation |
(
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(
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| Other accrued liabilities |
(
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(
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| Total adjustments |
(
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| Net cash used in operating activities |
(
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(
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| INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures |
(
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(
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| Proceeds from disposals of property, equipment and other assets |
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| Capital contribution in joint venture |
(
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| Subscription and sale of joint venture interests |
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| Proceeds from sale of trading securities |
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| Purchase of trading securities |
(
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(
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| Other investing activities |
(
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(
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| Net cash used in investing activities |
(
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(
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| FINANCING ACTIVITIES: | |||||||||||
| Debt transactions: | |||||||||||
| Proceeds from borrowings on revolving credit facility |
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| Repayment of borrowings on revolving credit facility |
(
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(
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| Principal payments on long-term debt |
(
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(
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| Debt issuance costs |
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(
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| Principal payments on finance lease obligations |
(
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(
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| Equity transactions: | |||||||||||
| Treasury stock transactions, except for stock options |
(
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(
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| Exercise of stock options |
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| Dividends paid |
(
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(
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| Distributions to noncontrolling interest |
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(
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| Net cash provided by (used in) financing activities |
(
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| Net decrease in cash, cash equivalents and restricted cash |
(
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(
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period | $ |
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$ |
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| Supplemental Information: | |||||||||||
| Interest paid, net of amounts capitalized | $ |
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$ |
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| Income taxes paid, including interest earned |
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| Change in accounts payable for additions to property, equipment and other assets |
(
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(
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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, 2024
(in thousands, except share and per share data)
1.
General
Basis of Presentation
- The unaudited consolidated financial statements for the 13 weeks ended March 28, 2024 and March 30, 2023 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, 2024, 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 28, 2023.
Accounting Policies
- Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended December 28, 2023, contained in the Company’s Annual Report on Form 10-K for such year, for a description of the Company’s accounting policies.
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 $
16,014
and $
15,868
for the 13 weeks ended March 28, 2024, and March 30, 2023, respectively.
Assets Held for Sale
– Long-lived assets that are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria are classified as assets held for sale and included within current assets on the consolidated balance sheet. Assets held for sale are measured at the lower of their carrying value or their fair value less costs to sell the asset. As of March 28, 2024, assets held for sale consisted of
one
closed theatre that was sold subsequent to March 28, 2024.
Goodwill
– The Company reviews goodwill for impairment annually or more frequently if certain indicators arise. The Company performs its annual impairment test on the first day of the fiscal fourth quarter. There were no indicators of impairment identified during the 13 weeks ended March 28, 2024 or March 30, 2023.
Earnings (Loss) Per Share
- Net earnings (loss) per share (EPS) of Common Stock and Class B Common Stock is computed using the two class method. Basic net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding. Diluted net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options, restricted stock units, performance stock units and convertible debt instruments using the if-converted method. Convertible Class B Common Stock and convertible debt instruments are reflected on an if-converted basis when dilutive to Common Stock. The computation of the diluted net earnings (loss) per share of Common Stock assumes the conversion of Class B Common Stock in periods that have net earnings since it would be dilutive to Common Stock earnings per share, while the diluted net earnings (loss) per share of Class B Common Stock does not assume the conversion of those shares.
Holders of Common Stock are entitled to cash dividends per share equal to
110
% of all dividends declared and paid on each share of Class B Common Stock. As such, the undistributed earnings (losses) for each period are allocated based on the proportionate share of entitled cash dividends.
The following table illustrates the computation of Common Stock basic and diluted net loss per share, provides a reconciliation of the number of weighted-average basic and diluted shares outstanding, when applicable, and provides the weighted-average number of anti-dilutive shares excluded from the computation of diluted weighted-average shares outstanding:
| 13 Weeks Ended | |||||||||||
| March 28, 2024 | March 30, 2023 | ||||||||||
| Net loss per share - basic: | |||||||||||
| Common Stock | $ |
(
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$ |
(
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| Class B Common Stock | $ |
(
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$ |
(
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| Net loss per share - diluted: | |||||||||||
| Common Stock | $ |
(
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$ |
(
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| Class B Common Stock | $ |
(
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$ |
(
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| Numerator: | |||||||||||
| Net loss | $ |
(
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$ |
(
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| Denominator (in thousands): | |||||||||||
| Basic and diluted weighted-average shares outstanding |
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| Weighted-average number of anti-dilutive shares excluded from denominator: | |||||||||||
| Employee stock options |
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| Restricted stock units |
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| Performance stock units |
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| Convertible senior notes |
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| Total |
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For the periods when the Company reports a net loss, common stock equivalents, restricted stock units, performance stock units, and shares related to the convertible senior notes are excluded from the computation of diluted loss per share as their inclusion would have an anti-dilutive effect. Performance stock units are considered anti-dilutive if the performance targets upon which the issuance of the shares are contingent have not been achieved and the respective performance period has not been completed as of the end of the current period. Shares related to the convertible senior notes are excluded from the computation of diluted earnings per share in periods when the effect would have been anti-dilutive using the if-converted method.
Shareholders’ Equity
-
Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interest for the 13 weeks ended March 28, 2024 and March 30, 2023 was as follows:
|
Common
Stock |
Class B
Common Stock |
Capital
in Excess of Par |
Retained
Earnings |
Accumulated
Other Comprehensive Loss |
Treasury
Stock |
Total Shareholders’
Equity |
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| BALANCES AT DECEMBER 28, 2023 | $ |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Cash dividends: | |||||||||||||||||||||||||||||||||||||||||
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$
|
— | — | — |
(
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— | — |
(
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$
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— | — | — |
(
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— | — |
(
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| Purchase of treasury stock | — | — | — | — | — |
(
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(
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| Reissuance of treasury stock | — | — |
(
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— | — |
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| Issuance of non-vested stock |
|
— |
(
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— | — |
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| Shared-based compensation | — | — |
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— | — | — |
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| Conversions of Class B Common Stock |
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(
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— | — | — | — |
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| Comprehensive loss | — | — | — |
(
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(
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— |
(
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| BALANCES AT MARCH 28, 2024 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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|
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 Interest |
Total
Equity |
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| BALANCES AT DECEMBER 29, 2022 | $ |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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| Cash dividends: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$
|
— | — | — |
(
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— | — |
(
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— |
(
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$
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— | — | — |
(
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— | — |
(
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— |
(
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| Exercise of stock options | — | — |
(
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— | — |
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— |
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||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | — | — | — |
(
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(
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— |
(
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| Savings and profit-sharing contribution |
|
— |
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— | — | — |
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— |
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||||||||||||||||||||||||||||||||||||||||||||
| Reissuance of treasury stock | — | — |
(
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— | — |
|
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— |
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||||||||||||||||||||||||||||||||||||||||||||
| Issuance of non-vested stock |
|
— |
(
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— | — |
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— |
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||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — |
|
— | — | — |
|
— |
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||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — |
|
(
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— | — |
|
— |
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||||||||||||||||||||||||||||||||||||||||||||
| Conversions of Class B Common Stock |
|
(
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— | — | — | — |
|
— |
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||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — |
|
(
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(
|
||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss | — | — | — |
(
|
(
|
— |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
| BALANCES AT MARCH 30, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
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,
2024 |
December 28,
2023 |
||||||||||
| Net unrecognized actuarial loss for pension obligation | $ |
(
|
$ |
(
|
|||||||
| $ |
(
|
$ |
(
|
||||||||
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, 2024 and December 28, 2023, the Company’s $
6,821
and $
5,364
respectively, of debt and equity securities classified as trading were valued using Level 1 pricing inputs and were included in other current assets. At December 28, 2023, the Company’s $
37,018
of investments in
were valued using Level 1 pricing inputs and were included in cash and cash equivalents.
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 each of March 28, 2024 and December 28, 2023,
none
of the Company’s recorded assets or liabilities were measured using Level 2 pricing inputs.
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 each of March 28, 2024 and December 28, 2023,
none
of the Company’s recorded assets or liabilities that are measured on a recurring basis at fair market value were valued using Level 3 pricing inputs.
The carrying value of the Company’s financial instruments (including cash and cash equivalents, restricted cash, accounts receivable and accounts payable) approximates fair value. The fair value of the Company’s $
70,000
of senior notes, valued using Level 2 pricing inputs, is approximately $
66,833
at March 28, 2024, determined based upon discounted cash flows using current market interest rates for financial instruments with a similar average remaining life. The fair value of the Company's $
100,050
of convertible senior notes, valued using Level 2 pricing inputs, is approximately $
144,371
at March 28, 2024, determined based on market rates and the closing trading price of the convertible senior notes as of March 28, 2024. The carrying amounts of the Company’s remaining long-term debt approximate their fair values, determined using current rates for similar instruments, or Level 2 pricing inputs.
Defined Benefit Plan
-
The components of the net periodic pension cost of the Company’s unfunded nonqualified, defined-benefit plan are as follows:
| 13 Weeks Ended | |||||||||||
| March 28, 2024 | March 30, 2023 | ||||||||||
| Service cost | $ |
|
$ |
|
|||||||
| Interest cost |
|
|
|||||||||
| Net amortization of prior service cost and actuarial loss |
(
|
(
|
|||||||||
| Net periodic pension cost | $ |
|
$ |
|
|||||||
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, 2024 is as follows:
| 13 Weeks Ended March 28, 2024 | |||||||||||||||||||||||
| Theatres | Hotels/Resorts | Corporate | Total | ||||||||||||||||||||
| Theatre admissions | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Rooms |
|
|
|
|
|||||||||||||||||||
| Theatre concessions |
|
|
|
|
|||||||||||||||||||
| Food and beverage |
|
|
|
|
|||||||||||||||||||
|
Other revenues
(1)
|
|
|
|
|
|||||||||||||||||||
| Cost reimbursements |
|
|
|
|
|||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers.
The disaggregation of revenues by business segment for the 13 weeks ended March 30, 2023 is as follows:
| 13 Weeks Ended March 30, 2023 | |||||||||||||||||||||||
| Theatres | Hotels/Resorts | Corporate | Total | ||||||||||||||||||||
| Theatre admissions | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Rooms |
|
|
|
|
|||||||||||||||||||
| Theatre concessions |
|
|
|
|
|||||||||||||||||||
| Food and beverage |
|
|
|
|
|||||||||||||||||||
|
Other revenues
(1)
|
|
|
|
|
|||||||||||||||||||
| Cost reimbursements |
|
|
|
|
|||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers.
The Company had deferred revenue from contracts with customers of $
36,320
and $
38,034
as of March 28, 2024 and December 28, 2023, respectively. The Company had
no
contract assets as of March 28, 2024 and December 28, 2023. During the 13 weeks ended March 28, 2024, the Company recognized revenue of $
7,548
that was included in deferred revenues as of December 28, 2023. During the 13 weeks ended March 30, 2023, the Company recognized revenue of $
6,276
that was included in deferred revenues as of December 29, 2022. The majority of the Company’s deferred revenue relates to non-redeemed gift cards, advanced ticket sales and the Company’s loyalty program.
As of March 28, 2024, the amount of transaction price allocated to the remaining performance obligations under the Company’s advanced ticket sales was $
2,031
and is reflected in the Company’s consolidated balance sheet as part of deferred revenues, which is included in other accrued liabilities. As of March 28, 2024, the amount of transaction price allocated to the remaining performance obligations related to the amount of Theatres non-redeemed gift cards was $
16,055
and is reflected in the Company’s consolidated balance sheet as part of deferred revenues. The Company recognizes revenue as the tickets and gift cards are redeemed, which is expected to occur within the next
two years
.
As of March 28, 2024, the amount of transaction price allocated to the remaining performance obligations related to the amount of Hotels and Resorts non-redeemed gift cards was $
4,282
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
.
The majority of the Company’s revenue is recognized in less than one year from the original contract.
New Accounting Pronouncements
- In November 2023, the FASB issued ASU No. 2023-07,
Segment Reporting (Topic 280: Improvements to Reportable Segment Disclosures (ASU No. 2023-07)
, which requires disclosure of incremental segment information on an annual and interim basis. ASU No 2023-07 will be effective for the Company’s fiscal year ending December 26, 2024, and the Company’s interim periods beginning in fiscal 2025. The Company is evaluating the effect that the guidance will have on its consolidated financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09,
Income Taxes (Topic 740: Improvements to Income Tax Disclosures (ASU No. 2023-09
), which requires improvements to income tax disclosures primarily related to rate reconciliation and income taxes paid information. ASU No. 2023-09 will be effective for the Company in fiscal 2025 and must be applied prospectively with retrospective application permitted. The Company is evaluating the impact that ASU No. 2023-09 will have on its consolidated financial statement disclosures.
2.
Long-Term Debt
Long-term debt is summarized as follows:
| March 28, 2024 | December 28, 2023 | ||||||||||
| Senior notes | $ |
|
$ |
|
|||||||
|
Unsecured term note due February 2025, with monthly principal and interest payments of $
|
|
|
|||||||||
| Convertible senior notes |
|
|
|||||||||
| Payroll Protection Program loans |
|
|
|||||||||
| Revolving credit agreement |
|
|
|||||||||
| Debt issuance costs |
(
|
(
|
|||||||||
| Total debt, net of debt issuance costs |
|
|
|||||||||
| Less current maturities, net of issuance costs |
|
|
|||||||||
| Long-term debt | $ |
|
$ |
|
|||||||
Credit Agreement
As of March 28, 2024, the Company has a
five year
Credit Agreement that provides for a revolving credit facility that matures on October 16, 2028 with an initial maximum aggregate amount of availability of $
225,000
. At March 28, 2024, there were
no
borrowings outstanding on the revolving credit facility, which when borrowed, bear interest at the secured overnight financing rate (SOFR) plus a margin (as discussed further below), effectively
9.05
% at March 28, 2024. Availability under the $
225,000
revolving credit facility was $
220,185
as of March 28, 2024 after taking into consideration outstanding letters of credit that reduce revolver availability.
Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) the term SOFR, plus a credit spread adjustment of
0.10
%, subject to a
0
% floor, plus a specified margin based upon the Company’s net leverage ratio as of the most recent determination date, or (ii) the alternate base rate (“ABR”) (which is the highest of (a) the prime rate, (b) the greater of the federal funds rate and the overnight bank funding rate plus
0.50
% or (c) the sum of
1
% plus one-month SOFR plus a credit spread adjustment of
0.10
%), subject to a
1
% floor, plus a specified margin based upon the Company’s net leverage ratio as of the most recent determination date. The revolving credit facility also requires an annual facility fee equal to
0.175
% to
0.275
% of the total revolving commitments depending on the Company’s consolidated net leverage ratio.
8
THE MARCUS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED MARCH 28, 2024
(in thousands, except share and per share data)
The Credit Agreement includes, among other restrictions and covenants applicable to the Company, a requirement that the Company’s consolidated net leverage ratio not exceed
3.50
:1.00, provided that, with some limitations, such ratio may be increased to
4.00
:1:00 for the full fiscal quarter in which a material acquisition (in which aggregate consideration equals or exceeds $
30,000
) is consummated and the three fiscal quarters immediately thereafter, and a requirement that the Company’s interest coverage ratio at the end of any fiscal quarter not be less than
3.00
:1.00.
In connection with the Credit Agreement: (i) the Company has pledged, subject to certain exceptions, security interests and liens in and on (a) substantially all of its respective personal property assets and (b) certain of its respective real property assets, in each case, to secure the Credit Agreement and related obligations; and (ii) certain of the Company’s subsidiaries have guaranteed the Company’s obligations under the Credit Agreement.
The Credit Agreement contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then, among other things, the lenders may declare any outstanding obligations under the Credit Agreement to be immediately due and payable and exercise rights and remedies against the pledged collateral.
Note Purchase Agreements
At March 28, 2024 and December 28, 2023, the Company’s $
70,000
of senior notes consist of
two
Note Purchase Agreements maturing in 2025 through 2027, require annual principal payments in varying installments and bear interest payable semi-annually at fixed rates ranging from
4.02
% to
4.32
%.
Convertible Senior Notes
On September 17, 2020, the Company entered into a purchase agreement to issue and sell $
100,050
aggregate principal amount of its
5.00
% Convertible Senior Notes due 2025 (the “Convertible Notes.”) The Convertible Notes were issued pursuant to an indenture (the “Indenture”), dated September 22, 2020, between the Company and U.S. Bank National Association, as trustee.
The Convertible Notes bear interest from September 22, 2020 at a rate of
5.00
% per year. Interest will be payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Convertible Notes may bear additional interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the Indenture or if the Convertible Notes are not freely tradeable as required by the Indenture. The Convertible Notes will mature on September 15, 2025, unless earlier repurchased or converted. Prior to March 15, 2025, the Convertible Notes will be convertible at the option of the holders only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending on December 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Common Stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to
130
% of the conversion price on each applicable trading day; (ii) during the
business day period immediately after any
consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than
98
% of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after March 15, 2025, the Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
Upon conversion, the Convertible Notes may be settled, at the Company’s election, in cash, shares of Common Stock or a combination thereof. The initial conversion rate was 90.8038 shares of Common Stock per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $
11.01
per share of Common Stock), representing an initial conversion premium of approximately
22.5
% to the $
8.99
last reported sale price of the Common Stock on The New York Stock Exchange on September 17, 2020. The conversion rate is subject to adjustment for certain events, including distributions and dividends paid to holders of Common Stock. At March 28, 2024, the applicable conversion rate is 93.2680 shares of Common Stock per $1,000 principal amount of the Convertible Notes (equivalent to an applicable conversion price of approximately $
10.72
per share of Common Stock). If the Company undergoes certain
9
THE MARCUS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED MARCH 28, 2024
(in thousands, except share and per share data)
fundamental changes, holders of Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes for a purchase price equal to
100
% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a make-whole fundamental change occurs prior to the maturity date, the Company will, under certain circumstances, increase the conversion rate for holders who convert Convertible Notes in connection with such make-whole fundamental change. The Company may not redeem the Convertible Notes before maturity and no “sinking fund” is provided for the Convertible Notes. The Indenture includes covenants customary for securities similar to the Convertible Notes, sets forth certain events of default after which the Convertible Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company and certain of its subsidiaries after which the Convertible Notes become automatically due and payable.
Since the Company’s fiscal 2021 second quarter through the Company’s fiscal 2024 second quarter, the Company’s Convertible Notes were (are) eligible for conversion at the option of the holders as the last reported sale price of the Common Stock was greater than or equal to
130
% of the applicable conversion price for at least
20
trading days during the last
30
consecutive trading days ending on the last trading day of the preceding fiscal quarter. The Company has the ability to settle the conversion in Company stock. As such, the Convertible Notes will continue to be classified as long-term. Future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Company’s Common Stock during the prescribed measurement period. No Convertible Notes have been converted to date and the Company does not expect any to be converted within the next 12 months.
In connection with the pricing of the Convertible Notes on September 17, 2020, and in connection with the exercise by the Initial Purchasers (as defined in the Convertible Notes purchase agreement) of their option to purchase additional Convertible Notes on September 18, 2020, the Company entered into privately negotiated Capped Call Transactions (the “Capped Call Transactions”) with certain of the Initial Purchasers and/or their respective affiliates and/or other financial institutions (the “Capped Call Counterparties”). The Capped Call Transactions are expected generally to reduce potential dilution of the Company’s common stock upon any conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of such converted Convertible Notes, as the case may be, in the event that the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions, which initially corresponds to the conversion price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes. If, however, the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution to the extent that such market price exceeds the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions was initially $
17.98
per share (in no event shall the cap price be less than the strike price of $
11.0128
), which represents a premium of
100
% over the last reported sale price of the Common Stock of $
8.99
per share on The New York Stock Exchange on September 17, 2020. Under the terms of the Capped Call Transactions, the cap price is subject to adjustment for certain events, including distributions and dividends paid to holders of Common Stock. At March 28, 2024, the adjusted cap price is approximately $
17.51
per share. The Capped Call Transactions are separate transactions entered into by the Company with the Capped Call Counterparties, are not part of the terms of the Convertible Notes and will not change the rights of holders of the Convertible Notes under the Convertible Notes and the Indenture.
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 Standards Codification No. 842,
Leases
. 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 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
10
THE MARCUS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED MARCH 28, 2024
(in thousands, except share and per share data)
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. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Total lease cost consists of the following:
| 13 Weeks Ended | ||||||||||||||||||||
| Lease Cost | Classification | March 28, 2024 | March 30, 2023 | |||||||||||||||||
| Finance lease costs: | ||||||||||||||||||||
| Amortization of finance lease assets | Depreciation and amortization | $ |
|
$ |
|
|||||||||||||||
| Interest on lease liabilities | Interest expense |
|
|
|||||||||||||||||
| $ |
|
$ |
|
|||||||||||||||||
| Operating lease costs: | ||||||||||||||||||||
| Operating lease costs | Rent expense | $ |
|
$ |
|
|||||||||||||||
| Variable lease cost | Rent expense |
|
|
|||||||||||||||||
| Short-term lease cost | Rent expense |
|
|
|||||||||||||||||
| $ |
|
$ |
|
|||||||||||||||||
Additional information related to leases is as follows:
| 13 Weeks Ended | ||||||||||||||
| Other Information | March 28, 2024 | March 30, 2023 | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Financing cash flows from finance leases | $ |
|
$ |
|
||||||||||
| Operating cash flows from finance leases |
|
|
||||||||||||
| Operating cash flows from operating leases |
|
|
||||||||||||
| Right of use assets obtained in exchange for new lease obligations: | ||||||||||||||
| Finance lease liabilities |
|
|
||||||||||||
| Operating lease liabilities |
|
|
||||||||||||
| March 28, 2024 | December 28, 2023 | ||||||||||
| Finance leases: | |||||||||||
| Property and equipment – gross | $ |
|
$ |
|
|||||||
| Accumulated depreciation and amortization |
(
|
(
|
|||||||||
| Property and equipment - net | $ |
|
$ |
|
|||||||
11
THE MARCUS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED MARCH 28, 2024
(in thousands, except share and per share data)
Remaining lease terms and discount rates are as follows:
| Lease Term and Discount Rate | March 28, 2024 | December 28, 2023 | ||||||||||||
| Weighted-average remaining lease terms: | ||||||||||||||
| Finance leases |
|
|
||||||||||||
| Operating leases |
|
|
||||||||||||
| Weighted-average discount rates: | ||||||||||||||
| Finance leases |
|
% |
|
% | ||||||||||
| Operating leases |
|
% |
|
% | ||||||||||
Deferred rent payments of approximately $
647
for the Company’s operating leases have been included in the total operating lease obligations as of March 28, 2024, of which approximately $
197
is included in long-term operating lease obligations.
4.
Share Based Compensation
During the 13 weeks ended March 28, 2024, the Company granted restricted stock, restricted stock units (RSUs) and performance stock units (PSUs) to certain executives and associates.
Restricted Stock and Restricted Stock Units
During the 13 weeks ended March 28, 2024, the Company granted (i) an annual award of restricted stock and RSUs with a vesting period of
50
% after two years and
100
% after three years, and (ii) a special long-term incentive and retention award of restricted stock to certain executives with a vesting period of
100
% after four years, or upon retirement after three years. Restricted stock awards are issued and outstanding common stock at the time of the grant and become unrestricted upon the vesting date. RSU awards are payable in common stock upon vesting. The Company expenses the cost of restricted stock and RSU awards over the vesting period based on the fair value of the award at the date of grant.
Performance Stock Units
During the 13 weeks ended March 28, 2024, the Company granted PSUs with vesting subject to the Company’s achievement of performance goals expressed in terms of (i) earnings before interest, taxes, depreciation and amortization, or EBITDA, growth rate ranking relative to the Russell 2000 Index with respect to
25
% of the total number of performance stock unit awards, and (ii) the Company’s average return on invested capital, or ROIC, ranking relative to the Russell 2000 Index with respect to
75
% of the total number of performance stock unit awards. For grants awarded in fiscal 2024, the PSU performance goals relate to the
three-year
performance period from fiscal 2024-2026. PSUs are payable at the end of their respective performance period in common stock, and the number of PSUs awarded can range from
zero
to
150
% depending on the Company’s achievement of the relative performance metrics. The Company expenses the cost of PSUs based on the fair value of the awards at the date of grant and the estimated achievement of the performance metric, ratable over the performance period of three fiscal years.
12
THE MARCUS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED MARCH 28, 2024
(in thousands, except share and per share data)
A summary of the Company’s stock option, restricted stock and RSU and PSU activity and related information follows, with PSUs reflected at the target achievement percentage until the completion of the performance period (shares in thousands):
| Stock Options | Restricted Stock & RSUs | PSUs | |||||||||||||||||||||||||||||||||
| Options | Weighted-Average Exercise Price | Shares / Units | Weighted-Average Fair Value | Units | Weighted-Average Fair Value | ||||||||||||||||||||||||||||||
| December 28, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||||||||||||||||
| Granted |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Exercised
(1)
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Vested
(2)
|
|
|
(
|
|
|
|
|||||||||||||||||||||||||||||
| Forfeited |
(
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| March 28, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||||||||||||||||
(1)
Exercise activity only applicable to stock options.
(2)
Vesting activity not applicable to stock options.
Share-based compensation expense was $
2,514
and $
2,172
during the 13 weeks ended March 28, 2024 and March 30, 2023, respectively. As of March 28, 2024, total unrecognized share-based compensation expense related to stock options was $
3,385
, which will be amortized to expense over the weighted-average remaining life of
2.3
years. As of March 28, 2024, total unrecognized share-based compensation expense related to non-vested restricted stock, RSUs and PSUs was $
9,736
which will be amortized over the weighted-average remaining service period of
3.2
years.
At March 28, 2024, there were
420,766
shares available for grants of additional stock options, restricted stock, RSUs, PSUs and other types of equity awards under the current plan.
5.
Income Taxes
6.
Joint Venture Transactions
In March 2024, the Company formed a joint venture with Hempel Real Estate (“Hempel”) and Robinson Park (“RP”) to acquire the Loews Minneapolis Hotel, a
251
guest room and suite full-service lifestyle hotel located in downtown Minneapolis, Minnesota. The acquired hotel was rebranded as The Lofton Hotel (“Lofton”) under the Tapestry Collection by Hilton flag. The Company invested $
5,620
for a
33.3
% equity interest in the Lofton joint venture and entered into a management agreement for the hotel. Subsequent to its initial investment in the joint venture, the Company sold an
8.6
% interest to a minority investor for $
1,500
, reducing its equity interest in the Lofton joint venture to
24.7
%. The Company accounts for its investment in the Lofton joint venture on the equity method.
A wholly-owned subsidiary of the Lofton joint venture entity, as the borrower, financed the acquisition of and future improvements to the hotel with a mortgage loan. In connection with this mortgage loan, the Company provided an environmental indemnity and a several payment guaranty that provides that the lender can recover losses from the Company, a principal in Hempel, and a principal in RP for certain events of default of the borrower up to $
6.2
million for the Company. Under the terms of a cross-indemnity agreement among the guarantors, the other two guarantors have fully indemnified the Company under the guarantees for any losses in excess of its proportionate liability under the several payment guaranty and environmental indemnity.
13
THE MARCUS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED MARCH 28, 2024
(in thousands, except share and per share data)
7.
Business Segment Information
The Company’s primary operations are reported in the following business segments: Theatres and Hotels/Resorts. Corporate items include amounts not allocable to the business segments. Corporate revenues consist principally of rent and the corporate operating loss includes general corporate expenses. Corporate information technology costs and accounting shared services costs are allocated to the business segments based upon several factors, including actual usage and segment revenues.
Following is a summary of business segment information for the 13 weeks ended March 28, 2024 and March 30, 2023:
| 13 Weeks Ended | Theatres |
Hotels/
Resorts |
Corporate
Items |
Total | ||||||||||||||||||||||
| March 28, 2024 | ||||||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Operating loss |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
||||||||||||||||||||||
| 13 Weeks Ended | Theatres |
Hotels/
Resorts |
Corporate
Items |
Total | ||||||||||||||||||||||
| March 30, 2023 | ||||||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Operating income (loss) |
|
(
|
(
|
(
|
||||||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
||||||||||||||||||||||
14
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 Quarterly Report on Form 10-Q and the accompanying annual report to shareholders, particularly in the Shareholders’ Letter and Management’s Discussion and Analysis, are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements include words such as we “believe,” “anticipate,” “expect” or words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which may cause results to differ materially from those expected, including, but not limited to, the following: (1) the adverse effects future pandemics may have on our theatre and hotels and resorts businesses, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness; (2) the availability, in terms of both quantity and audience appeal, of motion pictures for our theatre division (including disruptions in the production of films due to events such as a strike by actors, writers or directors or future pandemics); (3) the effects of theatre 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; (4) the effects of adverse economic conditions in our markets; (5) the effects of adverse economic conditions on our ability to obtain financing on reasonable and acceptable terms, if at all; (6) the effects on our occupancy and room rates caused by the relative industry supply of available rooms at comparable lodging facilities in our markets; (7) the effects of competitive conditions in our markets; (8) our ability to achieve expected benefits and performance from our strategic initiatives and acquisitions; (9) 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 business; (10) the effects of changes in the availability of and cost of labor and other supplies essential to the operation of our business; (11) the effects of weather conditions, particularly during the winter in the Midwest and in our other markets; (12) our ability to identify properties to acquire, develop and/or manage and the continuing availability of funds for such development; (13) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in the United States, other incidents of violence in public venues such as hotels and movie theatres or epidemics; and (14) a disruption in our business and reputational and economic risks associated with civil securities claims brought by shareholders. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our forward-looking statements are based upon our assumptions, which are based upon currently available information. 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.
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 2024 is a 52-week year beginning on December 29, 2023 and ending on December 26, 2024. Fiscal 2023 was a 52-week year that began on December 30, 2022 and ended on December 28, 2023.
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 2024 consisted of the 13-week period beginning on December 29, 2023 and ended on March 28, 2024. The first quarter of fiscal 2023 consisted of the 13-week period beginning December 30, 2022 and ended on March 30, 2023. Our primary operations are reported in the following two business segments: movie theatres and hotels and resorts. Within this MD&A, amounts for totals, subtotals, and variances may not recalculate exactly within tables due to rounding as they are calculated using the unrounded numbers.
15
Overall Results
The following table sets forth revenues, operating income (loss), other income (expense), net earnings (loss) and net earnings (loss) per diluted common share for the first quarter of fiscal 2024 and fiscal 2023 (in millions, except for per share and variance percentage data):
| First Quarter | |||||||||||||||||||||||
| Variance | |||||||||||||||||||||||
| F2024 | F2023 | Amt. | Pct. | ||||||||||||||||||||
| Revenues | $ | 138.5 | $ | 152.3 | $ | (13.7) | (9.0) | % | |||||||||||||||
| Operating loss | (16.7) | (9.0) | (7.7) | (85.4) | % | ||||||||||||||||||
| Other income (expense) | (2.6) | (3.3) | 0.8 | 22.6 | % | ||||||||||||||||||
| Net loss | $ | (11.9) | $ | (9.5) | $ | (2.4) | (25.4) | % | |||||||||||||||
| Net loss per common share - diluted | $ | (0.38) | $ | (0.31) | $ | (0.07) | (22.6) | % | |||||||||||||||
Revenues decreased and operating loss, net loss and net loss per diluted common share increased during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The decline in our overall operating results was primarily due to a decrease in revenues and operating income from our theatre division during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. Revenues from our hotels and resorts division increased during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023, while operating loss increased primarily due to an increase in depreciation expense during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. Our first quarter is typically the seasonally weakest quarter of our fiscal year due to the traditionally reduced level of winter travel at our predominantly Midwestern portfolio of owned hotels. Our first quarter also often has fewer blockbuster films released by studios compared to the other quarters of our fiscal year.
Net loss during the first quarter of fiscal 2024 was favorably impacted by decreased interest expense compared to the first quarter of fiscal 2023 and increased investment income during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.
We recognized investment income of $0.7 million during the first quarter of fiscal 2024 compared to $0.3 million during the first quarter of fiscal 2023. Variations in investment income were due to changes in the value of marketable securities.
Our interest expense totaled $2.5 million for the first quarter of fiscal 2024 compared to $3.0 million for the first quarter of fiscal 2023. The decrease in interest expense in fiscal 2024 was primarily due to decreased borrowings and a decrease in non-cash amortization of deferred financing costs. Changes in our borrowing levels due to variations in our operating results, capital expenditures, acquisition opportunities (or the lack thereof) and asset sale proceeds, among other items, may impact, either favorably or unfavorably, our actual reported interest expense in future periods, as may changes in short-term interest rates.
We reported an income tax benefit for the first quarter of fiscal 2024 of $7.4 million compared to an income tax benefit of $2.8 million during the first quarter of fiscal 2023. Our fiscal 2024 first quarter effective income tax rate was 38.3%, and was negatively impacted by excess compensation subject to deduction limitations. Our fiscal 2023 first quarter effective income tax rate was 23.1%, and was favorably impacted by a decrease in valuation allowances related to deferred tax assets for state net operating loss carryforwards. We anticipate that our effective income tax rate for fiscal 2024 may be in the 36-38% range, excluding any potential changes in federal or state income tax rates, valuation allowance adjustments or other one-time tax benefits. Our actual fiscal 2024 effective income tax rate may be different from our estimated quarterly rates depending upon actual facts and circumstances.
16
Theatres
The following table sets forth revenues, operating income (loss) and operating margin for our theatre division for the first quarter of fiscal 2024 and fiscal 2023 (in millions, except for variance percentage and operating margin):
| First Quarter | |||||||||||||||||||||||
| Variance | |||||||||||||||||||||||
| F2024 | F2023 | Amt. | Pct. | ||||||||||||||||||||
| Revenues | $ | 81.3 | $ | 96.4 | $ | (15.1) | (15.7) | % | |||||||||||||||
| Operating income (loss) | (5.7) | 1.5 | (7.3) | (477.8) | % | ||||||||||||||||||
| Operating margin (% of revenues) | (7.1) | % | 1.6 | % | |||||||||||||||||||
Our theatre division revenues and operating income decreased with weaker performances from films carrying over from the holiday season into the first quarter of fiscal 2024, compared to the first quarter of fiscal 2023 which benefited from a strong carryover performance from
Avatar: The Way of Water
. In addition, the film slate in the first quarter of fiscal 2024 was negatively impacted by the content supply chain disruption from the shutdown of movie production during the WGA and SAG-AFTRA labor strikes in 2023, which contributed to a weaker slate of available films compared to the first quarter of fiscal 2023. Our operating income during the first quarter of fiscal 2024 decreased compared to the first quarter of fiscal 2023 as a result of decreased theatre attendance.
The following table provides a further breakdown of the components of revenues for the theatre division for the first quarter of fiscal 2024 and fiscal 2023 (in millions, except for variance percentage):
| First Quarter | |||||||||||||||||||||||
| Variance | |||||||||||||||||||||||
| F2024 | F2023 | Amt. | Pct. | ||||||||||||||||||||
| Admission revenues | $ | 40.6 | $ | 47.6 | $ | (7.0) | (14.8) | % | |||||||||||||||
| Concession revenues | 34.7 | 42.4 | (7.7) | (18.1) | % | ||||||||||||||||||
| Other revenues | 6.0 | 6.4 | (0.4) | (6.1) | % | ||||||||||||||||||
| Total revenues | 81.3 | 96.4 | (15.1) | (15.7) | % | ||||||||||||||||||
According to data received from Comscore (a national box office reporting service for the theatre industry) and compiled by us to evaluate our fiscal 2024 first quarter results, U.S. box office receipts decreased 9.0% during our fiscal 2024 first quarter compared to the same comparable weeks in fiscal 2023, indicating that our decrease in admission revenues for comparable theatres (excluding theatres closed during the past year) during the first quarter of fiscal 2024 of 13.8% underperformed the industry by 4.8 percentage points. We believe our underperformance during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 is attributable to an unfavorable film mix during the first quarter of fiscal 2024 that was more appealing to audiences in other parts of the U.S. than in our Midwestern markets, compared to a favorable film mix during the first quarter of fiscal 2023 that included
Avatar: The Way of Water
, which played well in our Midwestern markets. In addition, the top performing film in the first quarter of fiscal 2024 (
Dune: Part Two
) significantly outperformed on IMAX screens, which represent only approximately 2% of our premium large format screens, resulting in IMAX screens taking market share from our
Ultra
Screen and
Super
Screen premium large format screens in certain markets.
Additional data received and compiled by us from Comscore indicates our admission revenues during the first quarter of fiscal 2024 represented approximately 3.0% of the total admission revenues in the U.S. during the periods (commonly referred to as market share in our industry). Our goal is to continue our historical long-term pattern of outperforming the industry, but our ability to do so in any given quarter will likely be partially dependent upon film mix, weather and the competitive landscape in our markets.
Total theatre attendance for our comparable theatres decreased 17.5% during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023, which was primarily attributable to a weaker film slate and lower box office performance from the top film during the first quarter of fiscal 2024 (
Dune: Part Two
) versus the top film last fiscal year during the first quarter (
Avatar: The Way of Water
). During the first quarter of fiscal 2024 there were 24 wide-release films (films showed in over approximately 1,500 theatres in the U.S.) compared to 23 wide-release films during the first quarter of fiscal 2023.
17
While the number of wide-release films during the first quarter of fiscal 2024 was similar compared to the prior fiscal year period, the average opening weekend U.S. box office gross per wide release was approximately 25% lower, reflecting a weaker film slate with fewer significant franchises and a generally lower quality of product.
Our highest grossing films during the fiscal 2024 first quarter included
Dune: Part Two
,
Kung Fu Panda 4, Wonka, Bob Marley: One Love,
and
Migration
. Our top five films during our fiscal 2024 first quarter accounted for 41% of our total box office results, compared to 49% (including event cinema) for the top five films during the first quarter of fiscal 2023, both expressed as a percentage of the total admission revenues for the relevant period. A decreased concentration of blockbuster films during a given quarter often has the effect of lowering 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. As a result of a less concentrated film slate, our overall film cost as a percentage of admission revenues decreased during the first quarter of fiscal 2024 compared to the same period in the prior fiscal year.
Our average ticket price increased 4.9% during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023, and was favorably impacted by general admission ticket price increases that we implemented during the first quarter of fiscal 2023 in response to increases in labor and supply costs, pricing changes to our Value Tuesday promotion that were implemented during the last week of the first quarter of fiscal 2023, and an increase in the percentage of our weekly attendance on days other than Value Tuesday. Our average ticket price was negatively impacted by a lower percentage of ticket sales for 3D films during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The overall increase in average ticket price favorably impacted our admission revenues of our comparable theatres by $1.8 million during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.
Our average concession revenues per person increased by 0.8% during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023, respectively, primarily due to inflationary increases in concessions prices in response to increases in food and labor costs and due to the net positive impact of changes to our Value Tuesday promotion. The increase in concession pricing was partially offset by a decrease in the number of concession items purchased per customer, which we believe is attributable to an unfavorable film mix during the first quarter of fiscal 2024 that included fewer large blockbuster films that tend to result in more concession sales per customer. The overall increase in average concession revenues per person favorably impacted our concession revenues of our comparable theatres by $0.1 million during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.
Other revenues during the first quarter of fiscal 2024 decreased by $0.4 million compared to the first quarter of fiscal 2023. The decline was primarily due to the impact of decreased attendance on internet surcharge ticketing fees and preshow and in-app advertising revenue.
The quantity of films available for theatrical exhibition, including wide-release films, was negatively impacted during fiscal 2024 by the shutdown of movie production resulting from the WGA and SAG-AFTRA labor strikes that occurred during fiscal 2023. While the labor strikes were resolved in the fourth quarter of fiscal 2023 with film production resuming thereafter, we expect the quantity of new film releases available for theatrical exhibition during fiscal 2024 to be negatively impacted by the prolonged shutdown of movie production resulting in several film release dates shifting to fiscal 2025. While lead times for movie production to theatrical release are lengthy, based upon projected film and alternate content availability, we currently estimate that we may once again show an increased number of films and alternate content events on our screens during fiscal 2025 compared to fiscal 2024, but we expect the number of wide-release films shown during fiscal 2024 to decrease compared to fiscal 2023.
We ended the first quarter of fiscal 2024 with a total of 993 company-owned screens in 79 theatres, compared to 1,053 company-owned screens in 84 theatres at the end of the first quarter of fiscal 2023. We made decisions to close several underperforming theatres during fiscal 2023, including one of our owned theatres in the first quarter of fiscal 2023, two owned theatres in the second quarter of fiscal 2023, and two owned theatres and one leased theatre in the third quarter of fiscal 2023.
18
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 2024 and fiscal 2023 (in millions, except for variance percentage and operating margin):
| First Quarter | |||||||||||||||||||||||
| Variance | |||||||||||||||||||||||
| F2024 | F2023 | Amt. | Pct. | ||||||||||||||||||||
| Revenues | $ | 57.2 | $ | 55.8 | $ | 1.4 | 2.5 | % | |||||||||||||||
| Operating loss | (5.2) | (5.0) | (0.1) | (2.6) | % | ||||||||||||||||||
| Operating margin (% of revenues) | (9.0) | % | (9.0) | % | |||||||||||||||||||
Hotels and resorts revenues increased 2.5% during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. Our hotels and resorts division operating loss during the first quarter of fiscal 2024 increased compared to the first quarter of fiscal 2023 primarily due to an increase in depreciation expense from hotel renovations placed in service during fiscal 2023, offsetting the incremental profit on higher revenues.
The following table provides a further breakdown of the components of revenues for the hotels and resorts division for the first quarter of fiscal 2024 and fiscal 2023 (in millions, except for variance percentage):
| First Quarter | |||||||||||||||||||||||
| Variance | |||||||||||||||||||||||
| F2024 | F2023 | Amt. | Pct. | ||||||||||||||||||||
| Room revenues | $ | 18.2 | $ | 17.9 | $ | 0.4 | 2.0 | % | |||||||||||||||
| Food/beverage revenues | 16.2 | 15.2 | 1.0 | 6.4 | % | ||||||||||||||||||
| Other revenues | 13.6 | 13.2 | 0.4 | 3.1 | % | ||||||||||||||||||
| Total revenues before cost reimbursements | 48.0 | 46.3 | 1.7 | 3.8 | % | ||||||||||||||||||
| Cost reimbursements | 9.2 | 9.5 | (0.4) | (3.7) | % | ||||||||||||||||||
| Total revenues | $ | 57.2 | $ | 55.8 | $ | 1.4 | 2.5 | % | |||||||||||||||
Division total revenues before cost reimbursements increased $1.7 million, or 3.8%, during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 due to growth in food and beverage revenues and increased occupancy at four of our seven owned hotels.
The following table sets forth certain operating statistics for the first quarter of fiscal 2024 and fiscal 2023, 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 comparable company-owned properties:
| First Quarter | |||||||||||||||||||||||
| Variance | |||||||||||||||||||||||
| F2024 | F2023 | Amt. | Pct. | ||||||||||||||||||||
| Occupancy pct. | 53.7 | % | 50.8 | % | 2.9 pts | 5.6 | % | ||||||||||||||||
| ADR | $ | 150.11 | $ | 155.35 | $ | (5.24) | (3.4) | % | |||||||||||||||
| RevPAR | $ | 80.57 | $ | 78.95 | $ | 1.62 | 2.1 | % | |||||||||||||||
Note: 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.
RevPAR increased at three of our seven comparable company-owned properties during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. Group demand continued to grow during the fiscal 2024 first quarter, with weekday growth increasing group business as a percentage of our overall business mix. During the first quarter of fiscal 2024, our group business represented approximately 34.5% of our total rooms revenue, compared to approximately 28.9% during the first quarter of fiscal 2023. An increase in group business as a percentage of our overall business mix generally
19
increases overall occupancy while negatively impacting ADR. Non-group pricing generally decreased in some of our major markets during the first quarter of fiscal 2024, due to generally lower transient travel demand and due to a shift in pricing strategy as we optimized pricing to drive higher occupancy and overall RevPAR through lower daily rate offerings.
According to data received from Smith Travel Research and compiled by us in order to evaluate our fiscal 2024 first quarter results, comparable “upper upscale” hotels—hotels identified as our industry— throughout the United States experienced an increase in RevPAR of 2.0% during our fiscal 2024 first quarter compared to the same period during fiscal 2023, leading us to believe we slightly outperformed the industry during the fiscal 2024 first quarter by approximately 0.1 percentage points.
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 0.1% during our first quarter, again compared to the same period in fiscal 2023. Therefore, we believe we outperformed our competitive sets during the first quarter of fiscal 2024 by approximately 2.0 percentage points. We believe our outperformance to our competitive sets during the first quarter of fiscal 2024 results primarily from our strong performance in the group customer segment as well as improved revenue management and rate optimization resulting in higher occupancy growth compared to the competitive sets.
Looking to future periods, overall occupancy in the U.S. is expected to continue to slowly increase. In the near term, we expect leisure travel demand to normalize and we expect our group business to remain strong. Leisure travel in our markets has a seasonal component, peaking in the summer months and slowing down as children return to school and the weather turns colder in our primarily midwestern markets. We expect gradual increases in business travel as corporate training events, meetings, and conferences return and office occupancy increases. As of the date of this report, our group room revenue bookings for the remainder of fiscal 2024 - commonly referred to in the hotels and resorts industry as “group pace” - is running approximately 11% ahead of where we were at the same time last year, excluding bookings related to the July 2024 Republican National Convention in Milwaukee. Group room revenue bookings for fiscal 2025 is running over 60% ahead of where we were at the same time in fiscal 2023 for fiscal 2024. Banquet and catering revenue pace for fiscal 2024 and fiscal 2025 is similarly running ahead of where we were at this same time last year. We are encouraged by continuing positive trends in group bookings for the remainder of fiscal 2024, fiscal 2025 and beyond.
Adjusted EBITDA
Adjusted EBITDA is a measure used by management and our board of directors to assess our financial performance and enterprise value. We believe that Adjusted EBITDA is a useful measure for us and investors, as it eliminates certain expenses that are not indicative of our core operating performance and facilitates a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine certain annual cash bonuses and long-term incentive awards, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also used by analysts, investors and other interested parties as a performance measure to evaluate industry competitors.
Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net earnings (loss) as a measure of financial performance, or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of liquidity or free cash flow for management’s discretionary use. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
We define Adjusted EBITDA as net earnings (loss) attributable to The Marcus Corporation before investment income or loss, interest expense, other expense, gain or loss on disposition of property, equipment and other assets, impairment charges, equity earnings or losses from unconsolidated joint ventures, net earnings or losses attributable to noncontrolling interests, income taxes, depreciation and amortization and non-cash share-based compensation expense, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine Adjusted EBITDA, such as acquisition expenses, preopening expenses, accelerated depreciation, impairment charges and other adjustments. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of Adjusted EBITDA differ among companies in our
20
industries, and therefore Adjusted EBITDA disclosed by us may not be comparable to the measures disclosed by other companies.
The following table sets forth Adjusted EBITDA by reportable operating segment for the first quarter of fiscal 2024 and fiscal 2023 (in millions, except for variance percentage):
| First Quarter | |||||||||||||||||||||||
| Variance | |||||||||||||||||||||||
| F2024 | F2023 | Amt. | Pct. | ||||||||||||||||||||
| Theatres | $ | 6.2 | $ | 13.8 | $ | (7.6) | (55.4) | % | |||||||||||||||
| Hotels and resorts | — | (0.4) | 0.4 | 97.3 | % | ||||||||||||||||||
| Corporate items | (3.9) | (3.9) | 0.1 | 2.1 | % | ||||||||||||||||||
| Total Adjusted EBITDA | $ | 2.3 | $ | 9.5 | $ | (7.2) | (75.8) | % | |||||||||||||||
The following table sets forth our reconciliation of Adjusted EBITDA (in millions):
| First Quarter | |||||||||||
| F2024 | F2023 | ||||||||||
| Net earnings (loss) | $ | (11.9) | $ | (9.5) | |||||||
| Add (deduct): | |||||||||||
| Investment (income) loss | (0.7) | (0.3) | |||||||||
| Interest expense | 2.5 | 3.0 | |||||||||
| Other (income) expense | 0.3 | 0.4 | |||||||||
| Loss (gain) on disposition of property, equipment and other assets | — | 0.4 | |||||||||
| Equity (earnings) losses from unconsolidated joint ventures | 0.4 | 0.2 | |||||||||
| Income tax expense (benefit) | (7.4) | (2.8) | |||||||||
| Depreciation and amortization | 16.0 | 15.9 | |||||||||
|
Share-based compensation expenses
(1)
|
2.5 | 2.2 | |||||||||
|
Insured losses
(2)
|
0.4 | — | |||||||||
| Total Adjusted EBITDA | $ | 2.3 | $ | 9.5 | |||||||
The following tables sets forth our reconciliation of Adjusted EBITDA by reportable operating segment (in millions):
| First Quarter, F2024 | |||||||||||||||||||||||
| Theatres | Hotels & Resorts | Corp. Items | Total | ||||||||||||||||||||
| Operating income (loss) | $ | (5.7) | $ | (5.2) | $ | (5.8) | $ | (16.7) | |||||||||||||||
| Depreciation and amortization | 11.0 | 4.9 | 0.1 | 16.0 | |||||||||||||||||||
| Loss (gain) on disposition of property, equipment and other assets | — | — | — | — | |||||||||||||||||||
|
Share-based compensation
(1)
|
0.4 | 0.3 | 1.8 | 2.5 | |||||||||||||||||||
|
Insured losses
(2)
|
0.4 | — | — | 0.4 | |||||||||||||||||||
| Total Adjusted EBITDA | $ | 6.2 | $ | — | $ | (3.9) | $ | 2.3 | |||||||||||||||
21
| First Quarter, F2023 | |||||||||||||||||||||||
| Theatres | Hotels & Resorts | Corp. Items | Total | ||||||||||||||||||||
| Operating loss | $ | 1.5 | $ | (5.0) | $ | (5.5) | $ | (9.0) | |||||||||||||||
| Depreciation and amortization | 11.5 | 4.3 | 0.1 | 15.9 | |||||||||||||||||||
| Loss (gain) on disposition of property, equipment and other assets | 0.3 | 0.1 | — | 0.4 | |||||||||||||||||||
|
Share-based compensation
(1)
|
0.5 | 0.2 | 1.5 | 2.2 | |||||||||||||||||||
| Total Adjusted EBITDA | $ | 13.8 | $ | (0.4) | $ | (3.9) | $ | 9.5 | |||||||||||||||
(1)
Non-cash expense related to share-based compensation programs.
(2)
Repair costs related to insured property damage at one theatre location that are non-operating in nature.
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 unused credit lines, would be adequate to support the ongoing operational liquidity needs of our businesses.
Maintaining and protecting a strong balance sheet has always been a core value of The Marcus Corporation during our 88-year history and our financial position remains strong. As of March 28, 2024, we had a cash balance of approximately $17.3 million, $220.2 million of availability under our $225 million revolving credit facility, our debt-to-capitalization ratio was 0.27, and our net leverage ratio was 1.65x net debt to Adjusted EBITDA. With our strong liquidity position combined with cash generated from operations, we believe we are positioned to have sufficient liquidity to meet our obligations as they come due and to comply with our debt covenants for at least 12 months from the issuance date of the consolidated financial statements, as well as our longer-term capital requirements.
The following table sets forth our reconciliations of Net Debt and Net Leverage (Net Debt to Adjusted EBITDA) (in millions, except leverage ratio):
| March 28, 2024 | December 28, 2023 | ||||||||||
|
Long-term debt (GAAP measure)
(1)
|
$ | 169.8 | $ | 169.9 | |||||||
|
Finance lease obligations (GAAP measure)
(2)
|
14.7 | 15.3 | |||||||||
| Less: Cash and cash equivalents | (17.3) | (55.6) | |||||||||
| Net Debt | $ | 167.3 | $ | 129.6 | |||||||
| Net Debt | $ | 167.3 | $ | 129.6 | |||||||
| LTM Adjusted EBITDA | 101.6 | 108.7 | |||||||||
| Net Leverage (Net Debt to Adjusted EBITDA) | 1.65x | 1.19x | |||||||||
(1)
Represents total long-term debt, including the current portion of long-term debt.
(2)
Represents total finance lease obligations, including the current portion of finance lease obligations.
We believe Net Leverage is a useful measure, as it provides management and investors an indication of our indebtedness less unrestricted cash relative to our earnings performance.
We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend
22
on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material and to the extent equity is used, dilutive.
Financial Condition
Net cash used in operating activities totaled $15.1 million during the first quarter of fiscal 2024, compared to net cash used in operating activities of $7.7 million during the first quarter of fiscal 2023. The $7.4 million increase in net cash used in operating activities was primarily due to a $2.4 million decrease in net earnings, a $4.5 million increase in deferred tax benefits, a $1.3 million increase in cash matching contributions to the company’s retirement savings and profit-sharing plan, partially reduced by an increase in non-cash share-based compensation expense.
Net cash used in investing activities during the first quarter of fiscal 2024 totaled $20.8 million, compared to net cash used in investing activities of $9.5 million during the first quarter of fiscal 2023. The increase in net cash used in investing activities of $11.2 million was the result of an increase of $6.5 million in capital expenditures, a $5.6 million purchase of joint venture interests in The Lofton Hotel, and an increase in cash used in the purchase of trading securities and other investing activities, partially offset by a $1.5 million
sale of joint venture interests in The Lofton Hotel to other minority investors. Total cash capital expenditures (including normal continuing capital maintenance and renovation projects) totaled $15.4 million during the first quarter of fiscal 2024 compared to $8.9 million during the first quarter of fiscal 2023.
Fiscal 2024 first quarter cash capital expenditures included approximately $2.8 million incurred in our theatre division, primarily related to normal maintenance capital projects. We also incurred capital expenditures in our hotels and resorts division during the first quarter of fiscal 2024 of approximately $12.3 million, including costs related to guest room renovations at The Pfister Hotel, meeting space renovations at the Grand Geneva Resort and Spa and normal maintenance capital projects.
Net cash used in financing activities during the first quarter of fiscal 2024 totaled $3.4 million compared to net cash provided by financing activities of $5.6 million during the first quarter of fiscal 2023. During the first quarter of fiscal 2024, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As short-term revolving credit facility borrowings became due, we replaced them as necessary with new short-term revolving credit facility borrowings. As a result, we added $5.0 million of new short-term revolving credit facility borrowings, and we made $5.0 million of repayments on short-term revolving credit facility borrowings during the first quarter of fiscal 2024 (net zero borrowings on our credit facility). We ended the first quarter of fiscal 2024 with no outstanding borrowings under our revolving credit facility. During the first quarter of fiscal 2023, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As a result, we added $29.0 million of new short-term revolving credit facility borrowings, and we made $20.0 million of repayments on short-term revolving credit facility borrowings during the first quarter of fiscal 2023 (net $9.0 million of borrowings on our credit facility).
Principal payments on long-term debt were approximately $0.3 million during the first quarter of fiscal 2024 compared to payments of $0.4 million during the first quarter of fiscal 2023. Our debt-to-capitalization ratio (excluding our finance and operating lease obligations) was 0.27 at March 28, 2024, compared to 0.26 at December 28, 2023.
During the first quarter of fiscal 2024 and the first quarter of fiscal 2023, we did not repurchase any shares of our common stock in the open market. As of March 28, 2024, approximately 2.4 million shares remained available for repurchase under prior Board of Directors repurchase authorizations. 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, depending upon a number of factors, including prevailing market conditions.
Dividends paid during the first quarter of fiscal 2024 were $2.2 million. Dividends paid during the first quarter of fiscal 2023 were $1.5 million. We have the ability to declare quarterly dividend payments and/or repurchase shares of our common stock in the open market as we deem appropriate.
Critical Accounting Policies and Estimates
We have included a summary of our Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 28, 2023. There have been no material changes to the summary provided in that report.
23
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have not experienced any material changes in our market risk exposures since December 28, 2023.
Item 4. Controls and Procedures
a.
Evaluation of disclosure controls and procedures
Based on their evaluations and the evaluation of management, as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
b.
Changes in internal control over financial reporting
There were no significant changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II – OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 28, 2023.
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.
| 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 29 - February 1 | — | $ | — | — | 2,428,138 | |||||||||||||||||||||
| February 2 - February 29 | 20,537 | 14.67 | 20,537 | 2,407,601 | ||||||||||||||||||||||
| March 1 - March 28 | — | — | — | 2,407,601 | ||||||||||||||||||||||
| Total | 20,537 | $ | 14.67 | 20,537 | 2,407,601 | |||||||||||||||||||||
(1)
Through March 28, 2024, 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, 2024, we had repurchased approximately 9.3 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. The shares purchased during the first quarter of 2024 were purchased in connection with the vesting of grants of restricted stock in which we repurchased shares from the stockholders whose restricted shares vested in order to cover such stockholders’ related withholding taxes.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the thirteen weeks ended March 28, 2024, no director or Section 16 officer of the Company
adopted
or
terminated
a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits
| 3.1 | |||||
| 10.1 | |||||
| 10.2 |
|
||||
| 10.3 | |||||
| 10.4 | |||||
| 10.5 | |||||
| 10.6 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32 | |||||
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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 2, 2024
|
By: | /s/ Gregory S. Marcus | ||||||
| Gregory S. Marcus | ||||||||
| President and Chief Executive Officer | ||||||||
|
DATE: May 2, 2024
|
By: | /s/ Chad M. Paris | ||||||
| Chad M. Paris | ||||||||
| Chief Financial Officer and Treasurer | ||||||||
S-1
TABLE OF CONTENTS
Part I Financial InformationItem 1. Consolidated Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits