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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 24, 2020

OR

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

For the transition period from __________ to __________

Commission File Number 1-12604

THE MARCUS CORPORATION

(Exact name of registrant as specified in its charter)

Wisconsin

 

39-1139844

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

100 East Wisconsin Avenue, Suite 1900
Milwaukee, Wisconsin

 

53202-4125

(Address of principal executive offices)

 

(Zip Code)

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

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

MCS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.

Yes

 

No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

 

No

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

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

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

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

Yes

 

No

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 October 30, 2020 – 23,139,038

CLASS B COMMON STOCK OUTSTANDING AT October 30, 2020 – 7,925,254

THE MARCUS CORPORATION

INDEX

   

Page

PART I – FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements:

Consolidated Balance Sheets
(September 24, 2020 and December 26, 2019)

3

Consolidated Statements of Earnings (Loss)
(13 and 39 weeks ended September 24, 2020 and September 26, 2019)

5

Consolidated Statements of Comprehensive Income (Loss)
(13 and 39 weeks ended September 24, 2020 and September 26, 2019)

6

Consolidated Statements of Cash Flows
(39 weeks ended September 24, 2020 and September 26, 2019)

7

Condensed Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

48

PART II – OTHER INFORMATION

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 4.

Mine Safety Disclosures

59

Item 6.

Exhibits

60

Signatures

S-1

2

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

THE MARCUS CORPORATION

Consolidated Balance Sheets

September 24,

December 26,

(in thousands, except share and per share data)

    

2020

    

2019

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

8,244

$

20,862

Restricted cash

 

8,509

 

4,756

Accounts receivable, net of reserves of $1,034 and $762, respectively

 

6,907

 

29,465

Refundable income taxes

 

54,434

 

5,916

Assets held for sale

2,119

Other current assets

 

11,477

 

18,265

Total current assets

 

91,690

 

79,264

Property and equipment:

 

 

  

Land and improvements

 

149,299

 

152,434

Buildings and improvements

 

762,206

 

761,511

Leasehold improvements

 

166,628

 

164,083

Furniture, fixtures and equipment

 

381,749

 

377,404

Finance lease right-of-use assets

 

74,794

 

74,357

Construction in progress

 

6,826

 

4,043

Total property and equipment

 

1,541,502

 

1,533,832

Less accumulated depreciation and amortization

 

663,800

 

610,578

Net property and equipment

 

877,702

 

923,254

Operating lease right-of-use assets

236,632

 

243,855

Other assets:

 

  

 

  

Investments in joint ventures

 

2,084

 

3,595

Goodwill

 

75,211

 

75,282

Other

 

33,103

 

33,936

Total other assets

 

110,398

 

112,813

TOTAL ASSETS

$

1,316,422

$

1,359,186

See accompanying condensed notes to consolidated financial statements.

3

THE MARCUS CORPORATION

Consolidated Balance Sheets

    

September 24,

    

December 26,

(in thousands, except share and per share data)

 

2020

 

2019

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

15,824

$

49,370

Taxes other than income taxes

 

16,638

 

20,613

Accrued compensation

 

10,796

 

18,055

Other accrued liabilities

 

50,842

 

61,134

Short-term borrowings

89,932

Current portion of finance lease obligations

 

2,908

 

2,571

Current portion of operating lease obligations

 

20,646

 

13,335

Current maturities of long-term debt

 

12,927

 

9,910

Total current liabilities

 

220,513

 

174,988

 

 

  

Finance lease obligations

 

20,256

 

20,802

 

 

  

Operating lease obligations

 

231,552

 

232,111

 

 

  

Long-term debt

 

199,357

 

206,432

 

 

Deferred income taxes

 

46,838

 

48,262

 

 

  

Deferred compensation and other

 

58,938

 

55,133

 

 

  

Equity:

 

 

  

Shareholders’ equity attributable to The Marcus Corporation

Preferred Stock, $1 par; authorized 1,000,000 shares; none issued

 

 

Common Stock, $1 par; authorized 50,000,000 shares; issued 23,264,259 shares at September 24, 2020 and 23,253,744 shares at December 26, 2019

 

23,264

 

23,254

Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 7,925,254 shares at September 24, 2020 and 7,935,769 shares at December 26, 2019

 

7,926

 

7,936

Capital in excess of par

 

152,598

 

145,549

Retained earnings

 

370,919

 

461,884

Accumulated other comprehensive loss

 

(12,614)

 

(12,648)

 

542,093

 

625,975

Less cost of Common Stock in treasury (125,652 shares at September 24, 2020 and 242,853 shares at December 26, 2019)

 

(3,125)

 

(4,540)

Total shareholders' equity attributable to The Marcus Corporation

 

538,968

 

621,435

Noncontrolling interest

 

 

23

Total equity

 

538,968

 

621,458

 

 

  

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

1,316,422

$

1,359,186

See accompanying condensed notes to consolidated financial statements.

4

THE MARCUS CORPORATION

Consolidated Statements of Earnings (Loss)

September 24, 2020

September 26, 2019

(in thousands, except per share data)

    

13 Weeks

    

39 Weeks

    

13 Weeks

    

39 Weeks

Revenues:

 

 

  

 

  

Theatre admissions

$

3,118

$

58,667

$

69,753

$

211,777

Rooms

 

9,772

 

27,618

 

34,185

 

81,317

Theatre concessions

 

3,243

 

50,277

 

57,051

 

172,126

Food and beverage

 

5,420

 

19,620

 

20,170

 

54,568

Other revenues

 

8,813

 

30,886

 

22,872

 

66,234

 

30,366

 

187,068

 

204,031

 

586,022

Cost reimbursements

 

3,225

 

13,916

 

7,431

 

27,979

Total revenues

 

33,591

 

200,984

 

211,462

 

614,001

 

 

 

 

Costs and expenses:

 

 

 

 

Theatre operations

 

14,150

 

76,806

 

66,971

 

199,542

Rooms

 

4,611

 

16,132

 

10,829

 

30,173

Theatre concessions

 

2,592

 

25,634

 

21,471

 

63,789

Food and beverage

 

5,109

 

20,725

 

15,842

 

44,353

Advertising and marketing

 

1,981

 

8,446

 

6,653

 

17,664

Administrative

 

11,645

 

40,555

 

18,053

 

54,862

Depreciation and amortization

 

18,690

 

56,568

 

19,226

 

53,484

Rent

 

6,594

 

19,876

 

6,806

 

19,087

Property taxes

 

5,950

 

18,004

 

5,666

 

16,527

Other operating expenses

 

6,266

 

18,094

 

10,127

 

31,729

Impairment charges

765

9,477

Reimbursed costs

 

3,225

 

13,916

 

7,431

 

27,979

Total costs and expenses

 

81,578

 

324,233

 

189,075

559,189

 

 

 

 

Operating income (loss)

 

(47,987)

 

(123,249)

 

22,387

 

54,812

 

 

 

 

Other income (expense):

 

 

 

 

Investment income

 

66

 

207

 

187

 

835

Interest expense

 

(4,132)

 

(10,177)

 

(2,807)

 

(8,959)

Other expense

 

(590)

 

(1,771)

 

(481)

 

(1,441)

Loss on disposition of property, equipment and other assets

 

(251)

 

(299)

 

(129)

 

(269)

Equity losses from unconsolidated joint ventures, net

 

(1,054)

 

(1,539)

 

(84)

 

(252)

 

(5,961)

 

(13,579)

 

(3,314)

 

(10,086)

Earnings (loss) before income taxes

 

(53,948)

 

(136,828)

 

19,073

 

44,726

Income taxes (benefit)

 

(14,508)

 

(50,984)

 

4,843

 

10,465

Net earnings (loss)

 

(39,440)

 

(85,844)

 

14,230

 

34,261

Net earnings (loss) attributable to noncontrolling interests

 

 

(23)

 

(59)

 

46

Net earnings (loss) attributable to The Marcus Corporation

$

(39,440)

$

(85,821)

$

14,289

$

34,215

 

 

 

 

Net earnings (loss) per share - basic:

 

 

 

 

Common Stock

$

(1.30)

$

(2.84)

$

0.47

$

1.18

Class B Common Stock

$

(1.18)

$

(2.57)

$

0.43

$

1.02

 

 

 

 

Net earnings (loss) per share - diluted:

 

 

 

 

Common Stock

$

(1.30)

$

(2.84)

$

0.46

$

1.10

Class B Common Stock

$

(1.18)

$

(2.57)

$

0.43

$

1.01

See accompanying condensed notes to consolidated financial statements.

5

THE MARCUS CORPORATION

Consolidated Statements of Comprehensive Income (Loss)

September 24, 2020

September 26, 2019

(in thousands)

    

13 Weeks

    

39 Weeks

    

13 Weeks

    

39 Weeks

Net earnings (loss)

$

(39,440)

$

(85,844)

$

14,230

$

34,261

 

 

  

 

 

  

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

Amortization of the net actuarial loss and prior service credit related to the pension, net of tax effect of $64, $194, $30 and $89, respectively

 

184

 

549

 

79

 

238

Fair market value adjustment of interest rate swaps, net of tax benefit of $10, $358, $35 and $340, respectively

 

(30)

 

(1,015)

 

(138)

 

(968)

 

  

 

  

 

  

 

  

Reclassification adjustment on interest rate swaps included in interest expense, net of tax effect of $81, $177, $11 and $19, respectively

 

227

 

500

 

32

 

53

Other comprehensive income (loss)

 

381

 

34

 

(27)

 

(677)

Comprehensive income (loss)

 

(39,059)

 

(85,810)

 

14,203

 

33,584

Comprehensive income (loss) attributable to noncontrolling interests

 

 

(23)

 

(59)

 

46

Comprehensive income (loss) attributable to The Marcus Corporation

$

(39,059)

$

(85,787)

$

14,262

$

33,538

See accompanying condensed notes to consolidated financial statements.

6

THE MARCUS CORPORATION

Consolidated Statements of Cash Flows

39 Weeks Ended

(in thousands)

September 24, 2020

    

September 26, 2019

OPERATING ACTIVITIES:

 

  

 

  

Net earnings (loss)

$

(85,844)

$

34,261

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:

 

 

Losses on investments in joint ventures

 

1,539

 

252

Distributions from joint ventures

 

 

200

Loss on disposition of property, equipment and other assets

 

299

 

269

Impairment charges

 

9,477

 

Depreciation and amortization

 

56,568

 

53,484

Amortization of debt issuance costs and discount on convertible notes

 

697

 

232

Share-based compensation

 

3,286

 

2,594

Deferred income taxes

 

(2,787)

 

(572)

Deferred compensation and other

 

3,938

 

592

Contribution of the Company’s stock to savings and profit-sharing plan

 

1,315

 

1,181

Changes in operating assets and liabilities:

 

Accounts receivable

 

22,558

 

2,118

Other assets

1,604

 

566

Operating leases

 

8,519

(280)

Accounts payable

 

(31,852)

 

(7,524)

Income taxes

 

(48,518)

 

8,506

Taxes other than income taxes

 

(3,975)

 

626

Accrued compensation

 

(7,259)

 

1,671

Other accrued liabilities

(10,214)

 

(12,218)

Total adjustments

 

5,195

 

51,697

Net cash provided by (used in) operating activities

 

(80,649)

 

85,958

 

 

INVESTING ACTIVITIES:

 

 

Capital expenditures

 

(18,687)

 

(50,097)

Acquisition of theatres, net of cash acquired and working capital assumed

 

 

(30,287)

Proceeds from disposals of property, equipment and other assets

 

1,602

 

22

Capital contribution in joint venture

(28)

Proceeds from sale of trading securities

5,184

Other investing activities

 

220

 

(5,809)

Net cash used in investing activities

 

(11,709)

 

(86,171)

 

FINANCING ACTIVITIES:

 

Debt transactions:

Proceeds from borrowings on revolving credit facility

 

209,000

 

246,000

Repayment of borrowings on revolving credit facility

(280,000)

 

(215,000)

Proceeds from short-term borrowings

90,800

Proceeds from convertible senior notes

100,050

Principal payments on long-term debt

 

(9,356)

 

(24,203)

Proceeds received from PPP loans expected to be repaid

 

3,147

Debt issuance costs

(6,543)

Principal payments on finance lease obligations

 

(1,389)

(1,908)

Equity transactions:

 

Treasury stock transactions, except for stock options

 

(542)

 

(747)

Exercise of stock options

 

379

 

1,344

Capped call transactions

(16,908)

Dividends paid

 

(5,145)

 

(14,478)

Distributions to noncontrolling interest

 

 

(185)

Net cash provided by (used in) financing activities

83,493

 

(9,177)

 

 

Net decrease in cash, cash equivalents and restricted cash

(8,865)

(9,390)

Cash, cash equivalents and restricted cash at beginning of period

 

25,618

 

21,927

Cash, cash equivalents and restricted cash at end of period

$

16,753

12,537

Supplemental Information:

Interest paid, net of amounts capitalized

$

9,313

9,540

Income taxes paid

322

2,530

Change in accounts payable for additions to property, equipment and other assets

(2,640)

7,406

See accompanying condensed notes to consolidated financial statements.

7

THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 24, 2020

1. General

Basis of Presentation - The unaudited consolidated financial statements for the 13 and 39 weeks ended September 24, 2020 and September 26, 2019 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 September 24, 2020, 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 26, 2019.

Accounting Policies - Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended December 26, 2019, 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 $18,698,000 and $56,584,000 for the 13 and 39 weeks ended September 24, 2020, respectively, and $19,194,000 and $53,433,000 for the 13 and 39 weeks ended September 26, 2019, 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 September 24, 2020, assets held for sale consists primarily of excess land.

Long-Lived Assets – The Company periodically considers whether indicators of impairment of long-lived assets held for use are present. This includes quantitative and qualitative factors, including evaluating the historical actual operating performance of the long-lived assets and assessing the potential impact of recent events and transactions impacting the long-lived assets. If such indicators are present, the Company determines if the long-lived assets are recoverable by assessing whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amounts. If the long-lived assets are not recoverable, the Company recognizes any impairment losses based on the excess of the carrying amount of the assets over their fair value. During the first quarter of fiscal 2020 and the third quarter of fiscal 2020, the Company determined that indicators of impairment were present. As such, the Company evaluated the value of its property and equipment and the value of its operating lease right-of-use assets and recorded impairment charges as discussed in Note 3.

Goodwill – The Company reviews goodwill for impairment annually or more frequently if certain indicators arise. The Company performs its annual impairment test on the last day of its fiscal year. Goodwill is tested for impairment at a reporting unit level, determined to be at an operating segment level. When reviewing goodwill for impairment, the Company considers the amount of excess fair value over the carrying value of the reporting unit, the period of time since its last quantitative test, and other factors to determine whether or not to first perform a qualitative test. When performing a qualitative test, the Company assesses numerous factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying value. Examples of qualitative factors that the Company assesses include its share price, its financial performance, market and competitive factors in its industry, and other events specific to the reporting unit. If the Company concludes that it is more likely than not that the fair value of its reporting unit is less than it carrying value, the Company performs a quantitative impairment test by comparing the carrying value of the reporting unit to the estimated fair value.

8

During the first quarter of fiscal 2020 and the third quarter of fiscal 2020, the Company determined that indicators of impairment were present and performed quantitative tests as of the quarter-end dates. In order to determine fair value, the Company used assumptions based on information available to it as of March 26, 2020 (the last day of the Company’s first quarter) and September 24, 2020 (the last day of the Company’s third quarter), including both market data and forecasted future cash flows. The Company then used this information to determine fair value. The Company determined that the fair value of the Company's goodwill was greater than its carrying value and thus was not impaired as of March 26, 2020 or September 24, 2020.

Trade Name Intangible Asset – The Company recorded a trade name intangible asset in conjunction with the Movie Tavern acquisition (See Note 4) that was determined to have an indefinite life. The Company reviews its trade name intangible asset for impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. During the first quarter of fiscal 2020 and the third quarter of fiscal 2020, the Company determined that indicators of impairment were present. As such, the Company evaluated the value of its trade name intangible asset and recorded an impairment charge during the first quarter of fiscal 2020 as discussed in Note 3.

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 and convertible debt instruments using the treasury method. Convertible Class B Common Stock is 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 and Class B Common Stock basic and diluted net earnings (loss) per share for net earnings (loss) and provides a reconciliation of the number of weighted-average basic and diluted shares outstanding:

13 Weeks

13 Weeks

39 Weeks

39 Weeks

Ended

Ended

Ended

Ended

    

September 24, 2020

    

September 26, 2019

    

September 24, 2020

    

September 26, 2019

    

(in thousands, except per share data)

Numerator:

 

  

 

  

 

  

 

  

 

Net earnings (loss) attributable to The Marcus Corporation

$

(39,440)

$

14,289

$

(85,821)

$

34,215

Denominator:

Denominator for basic EPS

 

31,064

 

30,918

 

31,033

 

30,566

Effect of dilutive employee stock options

 

 

443

 

 

518

Denominator for diluted EPS

 

31,064

 

31,361

 

31,033

 

31,084

Net earnings (loss) per share – basic:

Common Stock

$

(1.30)

$

0.47

$

(2.84)

$

1.18

Class B Common Stock

$

(1.18)

$

0.43

$

(2.57)

$

1.02

Net earnings (loss) per share- diluted:

 

 

 

 

Common Stock

$

(1.30)

$

0.46

$

(2.84)

$

1.10

Class B Common Stock

$

(1.18)

$

0.43

$

(2.57)

$

1.01

For the periods when the Company reports a net loss, common stock equivalents are excluded from the computation of diluted loss per share as their inclusion would have an antidilutive effect.

It is the Company’s intent to settle the principal amount of its convertible senior notes in cash and settle the conversion spread of its convertible senior notes in the Company’s shares. As such, the Company uses the treasury method to calculate diluted earnings per share, unless the effect would be antidilutive.

9

Shareholders’ Equity - Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interests for the 13 and 39 weeks ended September 24, 2020 and September 26, 2019 was as follows (in thousands, except per share data):

    

    

    

    

    

    

    

Shareholders’ 

    

    

Equity 

Accumulated 

Attributable 

Class B 

Capital 

Other 

to The 

Non- 

Common

Common 

in Excess 

Retained 

Comprehensive 

Treasury 

Marcus 

controlling 

Total 

Stock

Stock

of Par

Earnings

Loss

Stock

Corporation

Interests

Equity

BALANCES AT DECEMBER 26, 2019

$

23,254

$

7,936

$

145,549

$

461,884

$

(12,648)

$

(4,540)

$

621,435

$

23

$

621,458

Cash Dividends:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

$.15 Class B Common Stock

 

 

 

 

(1,224)

 

 

 

(1,224)

 

 

(1,224)

$.16 Common Stock

 

 

 

 

(3,921)

 

 

 

(3,921)

 

 

(3,921)

Exercise of stock options

 

 

 

5

 

 

 

40

 

45

 

 

45

Purchase of treasury stock

 

 

 

 

 

 

(274)