10-Q 1 v364267_10q.htm FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended November 28, 2013
 
¨
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
 
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     x
 
 
No      ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
 
 
Yes     x
 
 
No      ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One).
 
 
Large accelerated filer
¨
 
Accelerated filer
x
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
 
   (Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 
Yes     ¨
 
 
No      x
 
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 DECEMBER 31, 2013 – 18,311,620
CLASS B COMMON STOCK OUTSTANDING AT DECEMBER 31, 2013 – 8,753,227
 
 
 
THE MARCUS CORPORATION
 
INDEX
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Consolidated Financial Statements:
 
 
 
 
 
Consolidated Balance Sheets
(November 28, 2013 and May 30, 2013)
3
 
 
 
 
Consolidated Statements of Earnings
(13 and 26 weeks ended November 28, 2013 and November 29, 2012)
5
 
 
 
 
Consolidated Statements of Comprehensive Income
(13 and 26 weeks ended November 28, 2013 and November 29, 2012)
6
 
 
 
 
Consolidated Statements of Cash Flows
(26 weeks ended November 28, 2013 and November 29, 2012)
7
 
 
 
 
Condensed Notes to Consolidated Financial Statements
8
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
 
 
 
Item 4.
Controls and Procedures
26
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1A.
Risk Factors
27
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
27
 
 
 
Item 4.
Mine Safety Disclosures
27
 
 
 
Item 6.
Exhibits
28
 
 
 
 
Signatures
S-1
 
 
2

 
PART I - FINANCIAL INFORMATION
 
Item 1. Consolidated Financial Statements
 
THE MARCUS CORPORATION
Consolidated Balance Sheets
 
(in thousands, except share and per share data)
 
November 28, 
2013
 
May 30, 
2013
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,530
 
$
10,158
 
Restricted cash
 
 
7,463
 
 
7,895
 
Accounts and notes receivable, net of reserves of $1,432 and $1,324, respectively
 
 
10,311
 
 
8,568
 
Refundable income taxes
 
 
 
 
255
 
Deferred income taxes
 
 
2,912
 
 
2,877
 
Other current assets
 
 
6,594
 
 
6,384
 
Total current assets
 
 
39,810
 
 
36,137
 
 
 
 
 
 
 
 
 
Property and equipment:
 
 
 
 
 
 
 
Land and improvements
 
 
95,059
 
 
95,295
 
Buildings and improvements
 
 
583,916
 
 
575,166
 
Leasehold improvements
 
 
61,847
 
 
61,726
 
Furniture, fixtures and equipment
 
 
254,483
 
 
250,203
 
Construction in progress
 
 
14,379
 
 
11,414
 
Total property and equipment
 
 
1,009,684
 
 
993,804
 
Less accumulated depreciation and amortization
 
 
384,325
 
 
368,047
 
Net property and equipment
 
 
625,359
 
 
625,757
 
 
 
 
 
 
 
 
 
Other assets:
 
 
 
 
 
 
 
Investments in joint ventures
 
 
2,706
 
 
2,713
 
Goodwill
 
 
43,928
 
 
43,997
 
Condominium units
 
 
3,508
 
 
3,508
 
Other
 
 
35,083
 
 
34,584
 
Total other assets
 
 
85,225
 
 
84,802
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
 
$
750,394
 
$
746,696
 
 
See accompanying condensed notes to consolidated financial statements.
 
 
3

 
THE MARCUS CORPORATION
Consolidated Balance Sheets
 
(in thousands, except share and per share data)
 
November 28, 
2013
 
May 30, 
2013
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
 
$
21,763
 
$
25,330
 
Income taxes
 
 
2,680
 
 
 
Taxes other than income taxes
 
 
15,679
 
 
14,000
 
Accrued compensation
 
 
11,075
 
 
10,940
 
Other accrued liabilities
 
 
27,219
 
 
25,183
 
Current portion of capital lease obligation
 
 
4,712
 
 
4,562
 
Current maturities of long-term debt
 
 
32,902
 
 
11,193
 
Total current liabilities
 
 
116,030
 
 
91,208
 
 
 
 
 
 
 
 
 
Capital lease obligation
 
 
25,860
 
 
28,241
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
201,714
 
 
231,580
 
 
 
 
 
 
 
 
 
Deferred income taxes
 
 
42,534
 
 
43,516
 
 
 
 
 
 
 
 
 
Deferred compensation and other
 
 
35,924
 
 
35,455
 
 
 
 
 
 
 
 
 
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 22,432,474
    shares at November 28, 2013 and May 30, 2013
 
 
22,433
 
 
22,433
 
Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and
    outstanding 8,757,039 shares at November 28, 2013 and May 30, 2013
 
 
8,757
 
 
8,757
 
Capital in excess of par
 
 
52,856
 
 
51,979
 
Retained earnings
 
 
290,746
 
 
278,536
 
Accumulated other comprehensive loss
 
 
(3,825)
 
 
(3,828)
 
 
 
 
370,967
 
 
357,877
 
Less cost of Common Stock in treasury (4,118,890 shares at November 28,
    2013 and 4,117,217 shares at May 30, 2013)
 
 
(51,222)
 
 
(51,175)
 
Total shareholders' equity attributable to The Marcus Corporation
 
 
319,745
 
 
306,702
 
Noncontrolling interests
 
 
8,587
 
 
9,994
 
Total equity
 
 
328,332
 
 
316,696
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
750,394
 
$
746,696
 
 
See accompanying condensed notes to consolidated financial statements.
 
 
4

 
THE MARCUS CORPORATION
Consolidated Statements of Earnings
 
(in thousands, except per share data)
 
November 28, 2013
 
November 29, 2012
 
 
 
13 Weeks
 
26 Weeks
 
13 Weeks
 
26 Weeks
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Theatre admissions
 
$
27,973
 
$
70,082
 
$
30,660
 
$
69,138
 
Rooms
 
 
28,548
 
 
61,118
 
 
26,580
 
 
56,544
 
Theatre concessions
 
 
15,876
 
 
39,565
 
 
16,542
 
 
37,521
 
Food and beverage
 
 
15,546
 
 
31,076
 
 
14,890
 
 
29,659
 
Other revenues
 
 
12,645
 
 
27,779
 
 
11,961
 
 
25,710
 
Total revenues
 
 
100,588
 
 
229,620
 
 
100,633
 
 
218,572
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Theatre operations
 
 
25,461
 
 
60,084
 
 
25,698
 
 
58,264
 
Rooms
 
 
10,160
 
 
20,852
 
 
9,290
 
 
19,147
 
Theatre concessions
 
 
4,768
 
 
10,906
 
 
4,403
 
 
9,960
 
Food and beverage
 
 
11,491
 
 
23,037
 
 
10,556
 
 
21,285
 
Advertising and marketing
 
 
6,529
 
 
13,413
 
 
6,102
 
 
12,507
 
Administrative
 
 
11,126
 
 
23,370
 
 
12,301
 
 
23,063
 
Depreciation and amortization
 
 
8,457
 
 
16,784
 
 
8,586
 
 
16,899
 
Rent
 
 
2,115
 
 
4,240
 
 
2,118
 
 
4,231
 
Property taxes
 
 
3,752
 
 
7,174
 
 
3,520
 
 
7,155
 
Other operating expenses
 
 
7,919
 
 
16,603
 
 
7,925
 
 
15,472
 
Impairment charge
 
 
 
 
 
 
417
 
 
417
 
Total costs and expenses
 
 
91,778
 
 
196,463
 
 
90,916
 
 
188,400
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
8,810
 
 
33,157
 
 
9,717
 
 
30,172
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment income
 
 
17
 
 
20
 
 
19
 
 
43
 
Interest expense
 
 
(2,584)
 
 
(4,978)
 
 
(2,317)
 
 
(4,391)
 
Gain (loss) on disposition of property, equipment and other
    assets
 
 
(789)
 
 
(772)
 
 
4
 
 
26
 
Equity earnings (losses) from unconsolidated joint ventures,
    net
 
 
54
 
 
(29)
 
 
17
 
 
(23)
 
 
 
 
(3,302)
 
 
(5,759)
 
 
(2,277)
 
 
(4,345)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings before income taxes
 
 
5,508
 
 
27,398
 
 
7,440
 
 
25,827
 
Income taxes
 
 
2,026
 
 
11,070
 
 
2,653
 
 
10,361
 
Net earnings
 
 
3,482
 
 
16,328
 
 
4,787
 
 
15,466
 
Net earnings (loss) attributable to noncontrolling interests
 
 
237
 
 
(348)
 
 
63
 
 
63
 
Net earnings attributable to The Marcus Corporation
 
$
3,245
 
$
16,676
 
$
4,724
 
$
15,403
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings per share – basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
$
0.12
 
$
0.64
 
$
0.17
 
$
0.56
 
Class B Common Stock
 
$
0.11
 
$
0.58
 
$
0.16
 
$
0.52
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings per share – diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
$
0.12
 
$
0.62
 
$
0.17
 
$
0.54
 
Class B Common Stock
 
$
0.11
 
$
0.58
 
$
0.16
 
$
0.52
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
$
0.085
 
$
0.170
 
$
0.085
 
$
0.170
 
Class B Common Stock
 
$
0.077
 
$
0.155
 
$
0.077
 
$
0.155
 
 
See accompanying condensed notes to consolidated financial statements.
 
 
5

 
THE MARCUS CORPORATION
Consolidated Statements of Comprehensive Income
 
(in thousands)
 
November 28, 2013
 
November 29, 2012
 
 
 
13 Weeks
 
26 Weeks
 
13 Weeks
 
26 Weeks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings
 
$
3,482
 
$
16,328
 
$
4,787
 
$
15,466
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized loss on available for sale investments,
    net of tax benefit of $0, $1, $0 and $0, respectively
 
 
 
 
(1)
 
 
 
 
 
Amortization of loss on swap agreement, net of tax effect of
    $0, $0, $11, and $23, respectively
 
 
 
 
 
 
17
 
 
34
 
Change in fair value of interest rate swap, net of tax (benefit)
    effect of $(174), $1, $0 and $0, respectively
 
 
(264)
 
 
4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
(264)
 
 
3
 
 
17
 
 
34
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
 
3,218
 
 
16,331
 
 
4,804
 
 
15,500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to noncontrolling
    interests
 
 
237
 
 
(348)
 
 
63
 
 
63
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to The Marcus
    Corporation
 
$
2,981
 
$
16,679
 
$
4,741
 
$
15,437
 
 
See accompanying condensed notes to consolidated financial statements.
 
 
6

 
THE MARCUS CORPORATION
Consolidated Statements of Cash Flows
 
 
26 Weeks Ended
 
(in thousands)
 
November 28, 2013
 
November 29, 2012
 
 
 
 
 
 
 
 
 
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net earnings
 
$
16,328
 
$
15,466
 
Adjustments to reconcile net earnings to net cash provided by operating
    activities:
 
 
 
 
 
 
 
Losses on investments in joint ventures
 
 
29
 
 
23
 
Distribution from joint venture
 
 
 
 
120
 
(Gain) loss on disposition of property, equipment and other assets
 
 
772
 
 
(26)
 
Impairment charge
 
 
 
 
417
 
Amortization of loss on swap agreement
 
 
 
 
57
 
Amortization of favorable lease right
 
 
167
 
 
167
 
Depreciation and amortization
 
 
16,784
 
 
16,899
 
Stock compensation expense
 
 
1,036
 
 
947
 
Deferred income taxes
 
 
(949)
 
 
(2,022)
 
Deferred compensation and other
 
 
469
 
 
(1,190)
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts and notes receivable
 
 
(1,734)
 
 
(1,314)
 
Other current assets
 
 
136
 
 
(292)
 
Accounts payable
 
 
(2,064)
 
 
3,159
 
Income taxes
 
 
3,020
 
 
4,764
 
Taxes other than income taxes
 
 
1,679
 
 
1,641
 
Accrued compensation
 
 
135
 
 
(2,426)
 
Other accrued liabilities
 
 
2,036
 
 
(1)
 
Total adjustments
 
 
21,516
 
 
20,923
 
Net cash provided by operating activities
 
 
37,844
 
 
36,389
 
 
 
 
 
 
 
 
 
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Capital expenditures
 
 
(20,954)
 
 
(10,538)
 
Proceeds from disposals of property, equipment and other assets
 
 
876
 
 
57
 
Decrease (increase) in restricted cash
 
 
432
 
 
(1,607)
 
Increase in other assets
 
 
(640)
 
 
(667)
 
Purchase of interest in joint venture
 
 
 
 
(444)
 
Contribution to joint venture
 
 
(706)
 
 
 
Cash advanced to joint venture
 
 
(231)
 
 
(30)
 
Net cash used in investing activities
 
 
(21,223)
 
 
(13,229)
 
 
 
 
 
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Debt transactions:
 
 
 
 
 
 
 
Proceeds from issuance of long-term debt
 
 
71,000
 
 
74,000
 
Principal payments on long-term debt
 
 
(79,157)
 
 
(70,407)
 
Debt issuance costs
 
 
(276)
 
 
 
Equity transactions:
 
 
 
 
 
 
 
Treasury stock transactions, except for stock options
 
 
(1,035)
 
 
(19,248)
 
Exercise of stock options
 
 
744
 
 
892
 
Dividends paid
 
 
(4,466)
 
 
(4,688)
 
Distributions to noncontrolling interest
 
 
(1,059)
 
 
 
Net cash used in financing activities
 
 
(14,249)
 
 
(19,451)
 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
 
 
2,372
 
 
3,709
 
Cash and cash equivalents at beginning of period
 
 
10,158
 
 
6,020
 
Cash and cash equivalents at end of period
 
$
12,530
 
$
9,729
 
 
 
 
 
 
 
 
 
Supplemental Information:
 
 
 
 
 
 
 
Interest paid, net of amounts capitalized
 
$
4,055
 
$
4,172
 
Income taxes paid
 
$
8,832
 
$
8,123
 
 
See accompanying condensed notes to consolidated financial statements.
 
 
7

 
THE MARCUS CORPORATION
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 AND 26 WEEKS ENDED NOVEMBER 28, 2013

1.             General
 
Accounting Policies – Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended May 30, 2013, contained in the Company’s Annual Report on Form 10-K for such year, for a description of the Company’s accounting policies.
 
Basis of Presentation – The unaudited consolidated financial statements for the 13 and 26 weeks ended November 28, 2013 and November 29, 2012 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 November 28, 2013, 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 May 30, 2013.
 
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 $8,332,000 and $16,539,000 for the 13 and 26 weeks ended November 28, 2013, respectively, and $8,533,000 and $16,792,000 for the 13 and 26 weeks ended November 29, 2012, respectively.
 
Long-Lived Assets – The Company periodically considers whether indicators of impairment of long-lived assets held for use are present. If such indicators are present, the Company determines whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amounts. The Company recognizes any impairment losses based on the excess of the carrying amount of the assets over their fair value. For the purpose of determining fair value, defined as the amount at which an asset or group of assets could be bought or sold in a current transaction between willing parties, the Company utilizes currently available market valuations of similar assets in its respective industries, often expressed as a given multiple of operating cash flow. The Company evaluated the ongoing value of its property and equipment and other long-lived assets as of November 28, 2013 and November 29, 2012 and determined that there was no significant impact on the Company’s results of operations, other than an impairment charge recorded in the fiscal 2013 second quarter related to a theatre that closed in the fiscal 2013 second quarter. The Company determined that the fair value of this theatre, measured using Level 3 pricing inputs, was less than its carrying value, and recorded a $417,000 pre-tax impairment loss.
 
 
8

 
Accumulated Other Comprehensive Loss – Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets consists of the following, all presented net of tax:
 
 
 
Swap 
Agreements
 
Available for 
Sale 
Investments
 
Pension 
Obligation
 
Accumulated 
Other 
Comprehensive 
Loss
 
 
 
(in thousands)
 
Balance at May 30, 2013
 
$
18
 
$
(10)
 
$
(3,836)
 
$
(3,828)
 
Other comprehensive loss before reclassifications
 
 
(53)
 
 
(1)
 
 
-
 
 
(54)
 
Amounts reclassified from accumulated other comprehensive
    loss (1)
 
 
57
 
 
-
 
 
-
 
 
57
 
Net other comprehensive income (loss)
 
 
4
 
 
(1)
 
 
-
 
 
3
 
Balance at November 28, 2013
 
$
22
 
$
(11)
 
$
(3,836)
 
$
(3,825)
 
 
 
 
Swap 
Agreements
 
Available for 
Sale 
Investments
 
Pension 
Obligation
 
Accumulated 
Other 
Comprehensive 
Loss
 
 
 
(in thousands)
 
Balance at May 31, 2012
 
$
(58)
 
$
(8)
 
$
(4,073)
 
$
(4,139)
 
Other comprehensive income (loss) before reclassifications
 
 
-
 
 
-
 
 
-
 
 
-
 
Amounts reclassified from accumulated other comprehensive
    loss (1)
 
 
34
 
 
-
 
 
-
 
 
34
 
Net other comprehensive income
 
 
34
 
 
-
 
 
-
 
 
34
 
Balance at November 29, 2012
 
$
(24)
 
$
(8)
 
$
(4,073)
 
$
(4,105)
 
 
(1) Amounts are included in interest expense in the consolidated statements of earnings.
 
Earnings Per Share – Net earnings per share (EPS) of Common Stock and Class B Common Stock is computed using the two class method. Basic net earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding. Diluted net earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options using the treasury method. Convertible Class B Common Stock is reflected on an if-converted basis. The computation of the diluted net earnings per share of Common Stock assumes the conversion of Class B Common Stock, while the diluted net earnings 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 for each period are allocated based on the proportionate share of entitled cash dividends. The computation of diluted net earnings per share of Common Stock assumes the conversion of Class B Common Stock and, as such, the undistributed earnings are equal to net earnings for that computation.
 
The following table illustrates the computation of Common Stock and Class B Common Stock basic and diluted net earnings per share for net earnings and provides a reconciliation of the number of weighted-average basic and diluted shares outstanding:
 
 
9

 
 
 
13 Weeks 
Ended 
November 28, 
2013
 
13 Weeks 
Ended 
November 29, 
2012
 
26 Weeks 
Ended 
November 28, 
2013
 
26 Weeks 
Ended 
November 29, 
2012
 
 
 
(in thousands, except per share data)
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings attributable to The Marcus
    Corporation
 
$
3,245
 
$
4,724
 
$
16,676
 
$
15,403
 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Denominator for basic EPS
 
 
27,059
 
 
28,139
 
 
27,065
 
 
28,530
 
Effect of dilutive employee stock options
 
 
71
 
 
9
 
 
43
 
 
19
 
Denominator for diluted EPS
 
 
27,130
 
 
28,148
 
 
27,108
 
 
28,549
 
Net earnings per share – basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
$
0.12
 
$
0.17
 
$
0.64
 
$
0.56
 
Class B Common Stock
 
$
0.11
 
$
0.16
 
$
0.58
 
$
0.52
 
Net earnings per share – diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
$
0.12
 
$
0.17
 
$
0.62
 
$
0.54
 
Class B Common Stock
 
$
0.11
 
$
0.16
 
$
0.58
 
$
0.52
 
 
Equity – Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interests for the 26 weeks ended November 28, 2013 and November 29, 2012 was as follows:
 
 
 
Total 
Shareholders’ 
Equity 
Attributable to 
The Marcus 
Corporation
 
Noncontrolling 
Interests
 
 
 
(in thousands)
 
Balance at May 30, 2013
 
$
306,702
 
$
9,994
 
Net earnings attributable to The Marcus Corporation
 
 
16,676
 
 
 
Net loss attributable to noncontrolling interests
 
 
 
 
(348)
 
Distributions to noncontrolling interests
 
 
 
 
(1,059)
 
Cash dividends
 
 
(4,466)
 
 
 
Exercise of stock options
 
 
744
 
 
 
Treasury stock transactions, except for stock options
 
 
(1,035)
 
 
 
Share-based compensation
 
 
1,036
 
 
 
Other
 
 
85
 
 
 
Other comprehensive income, net of tax
 
 
3
 
 
 
Balance at November 28, 2013
 
$
319,745
 
$
8,587
 
 
 
 
Total Shareholders Equity
 
 
 
 
 
 
Attributable to
 
Noncontrolling
 
 
 
The Marcus Corporation
 
Interests
 
 
 
(in thousands)
 
Balance at June 1, 2012
 
$
343,789
 
$
-
 
Net earnings attributable to The Marcus Corporation
 
 
15,403
 
 
-
 
Net earnings attributable to noncontrolling interests
 
 
-
 
 
63
 
Cash dividends
 
 
(4,688)
 
 
-
 
Exercise of stock options
 
 
892
 
 
-
 
Purchase of treasury stock
 
 
(19,397)
 
 
-
 
Reissuance of treasury stock
 
 
149
 
 
 
 
Share-based compensation
 
 
947
 
 
-
 
Other
 
 
-
 
 
213
 
Equity contribution
 
 
-
 
 
4,000
 
Other comprehensive income, net of tax
 
 
34
 
 
-
 
Balance at November 29, 2012
 
$
337,129
 
$
4,276
 
 
Fair Value Measurements – Certain financial assets and liabilities are recorded at fair value in the consolidated financial statements. 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.
 
 
10

 
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 November 28, 2013 and May 30, 2013, the Company’s $70,000 and $71,000, respectively, of available for sale securities were valued using Level 1 pricing inputs and were included in other current assets.
 
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 November 28, 2013 and May 30, 2013, respectively, the $35,000 and $30,000 asset related to the Company’s interest rate swap contract was valued using Level 2 pricing inputs. At November 28, 2013, the Company’s investment in a hotel joint venture was valued using Level 2 pricing inputs, resulting in a loss on disposition of property, equipment and other assets of $750,000.
 
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 November 28, 2013 and May 30, 2013, none of the Company’s fair value measurements were valued using Level 3 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 
November 28, 
2013
 
13 Weeks 
Ended 
November 29, 
2012
 
26 Weeks 
Ended 
November 28, 
2013
 
26 Weeks 
Ended 
November 29, 
2012
 
 
 
(in thousands)
 
Service cost
 
$
175
 
$
178
 
$
351
 
$
356
 
Interest cost
 
 
294
 
 
275
 
 
587
 
 
550
 
Net amortization of prior service
    cost and actuarial loss
 
 
67
 
 
72
 
 
134
 
 
143
 
Net periodic pension cost
 
$
536
 
$
525
 
$
1,072
 
$
1,049
 
 
Reclassifications – Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.

2.             Long-Term Debt
 
During the first quarter of fiscal 2014, the Company entered into a note purchase agreement with several purchasers pursuant to which the Company issued and sold $50,000,000 in aggregate principal amount of its 4.02% senior notes due August 14, 2025 in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. Interest on the notes is payable semi-annually in February and August of each year and at maturity, commencing on February 14, 2014. Beginning in August 2021 and each August thereafter, to and including August 2024, the Company will be required to prepay $10,000,000 of the principal amount of the notes. The entire unpaid principal balance of the notes will be due and payable in August 2025.
 
The Company utilizes derivatives principally to manage market risks and reduce its exposure resulting from fluctuations in interest rates. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions.
 
 
11

 
The Company entered into an interest rate swap agreement on February 28, 2013 covering $25,000,000 of floating rate debt, which expires January 22, 2018, and requires the Company to pay interest at a defined rate of 0.96% while receiving interest at a defined variable rate of one-month LIBOR (0.19% at November 28, 2013). The Company recognizes derivatives as either assets or liabilities on the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. Derivatives that do not qualify for hedge accounting must be adjusted to fair value through earnings. The Company’s interest rate swap agreement is considered effective and qualifies as a cash flow hedge. For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of November 28, 2013, the interest rate swap was considered effective. The increase (decrease) in fair value of the interest rate swap of $(438,000) ($(264,000) net of tax) and $5,000 ($4,000 net of tax) was included in other comprehensive loss for the 13 and 26 weeks ended November 28, 2013, respectively. The notional amount of the swap is $25,000,000 and the fair value of the swap was $35,000 and $30,000 as of November 28, 2013 and May 30, 2013, respectively, and is included in other (long-term assets). The Company does not expect the interest rate swap to have any material effect on earnings within the next 12 months.
 
On February 29, 2008, the Company entered into an interest rate swap agreement covering $25,000,000 of floating rate debt, which required the Company to pay interest at a defined rate of 3.49% while receiving interest at a defined variable rate of three-month LIBOR. The interest rate swap agreement was considered effective and qualified as a cash flow hedge. On March 19, 2008, the Company terminated the swap, at which time cash flow hedge accounting ceased. The fair value of the swap on the date of termination was a liability of $567,000 ($338,000 net of tax). For the 13 and 26 weeks ended November 29, 2012, the Company reclassified $28,000 ($17,000 net of tax) and $57,000 ($34,000 net of tax), respectively, from accumulated other comprehensive loss to interest expense. The liability was fully amortized as of May 30, 2013.

3.     Capital Lease Obligation
 
During fiscal 2012, the Company entered into a master licensing agreement with CDF2 Holdings, LLC, a subsidiary of Cinedigm Digital Cinema Corp (CDF2), whereby CDF2 purchased on the Company’s behalf, and then deployed and licensed back to the Company, digital cinema projection systems (the “systems”) for use by the Company in its theatres. As of November 28, 2013, 642 of the Company’s screens were utilizing the systems under a 10-year master licensing agreement with CDF2. Included in furniture, fixtures and equipment is $45,510,000 related to the digital systems as of November 28, 2013 and May 30, 2013. Accumulated amortization of the digital systems was $9,718,000 and $7,441,000 as of November 28, 2013 and May 30, 2013, respectively.
 
Under the terms of the master licensing agreement, the Company made an initial one-time payment to CDF2. The Company expects that the balance of CDF2’s costs to deploy the systems will be covered primarily through the payment of virtual print fees (VPF’s) from film distributors to CDF2 each time a digital movie is booked on one of the systems deployed on a Company screen. The Company agreed to make an average number of bookings of eligible digital movies on each screen on which a licensed system has been deployed to provide for a minimum level of VPF’s paid by distributors (standard booking commitment) to CDF2. To the extent the VPF’s paid by distributors are less than the standard booking commitment, the Company must make a shortfall payment to CDF2. Based upon the Company’s historical booking patterns, the Company does not expect to make any shortfall payments during the life of the agreement. Accounting Standards Codification No. 840, Leases, requires that the Company consider the entire amount of the standard booking commitment minimum lease payments for purposes of determining the capital lease obligation. The maximum amount per year that the Company could be required to pay is approximately $6,163,000 until the obligation is fully satisfied.
 
 
12

 
The Company’s capital lease obligation is being reduced as VPF’s are paid by the film distributors to CDF2. The Company has recorded the reduction of the obligation associated with the payment of VPF’s as a reduction of the interest related to the obligation and the amortization incurred related to the systems, as the payments represent a specific reimbursement of the cost of the systems by the studios. Based on the Company’s expected minimum number of eligible movies to be booked, the Company expects the obligation to be reduced by at least $4,712,000 within the next 12 months. This reduction will be recognized as an offset to amortization and is expected to offset the majority of the amortization of the systems.

4.     Income Taxes
 
The Company’s effective income tax rate, adjusted for earnings from noncontrolling interests, for the 13 and 26 weeks ended November 28, 2013 was 38.4% and 39.9%, respectively, and was 36.0% and 40.2% for the 13 and 26 weeks ended November 29, 2012, respectively. The Company does not include the income tax expense or benefit related to the net earnings or loss attributable to noncontrolling interest in its income tax expense as the entities are considered pass-through entities and, as such, the income tax expense or benefit is attributable to its owners.

5.     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.
 
 
13

 
Following is a summary of business segment information for the 13 and 26 weeks ended November 28, 2013 and November 29, 2012 (in thousands):
 
13 Weeks Ended
November 28, 2013
 
Theatres
 
Hotels/
Resorts
 
Corporate
Items
 
Total
 
Revenues
 
$
46,772
 
$
53,704
 
$
112
 
$
100,588
 
Operating income (loss)
 
 
5,307
 
 
7,045
 
 
(3,542)
 
 
8,810
 
Depreciation and amortization
 
 
4,147
 
 
4,169
 
 
141
 
 
8,457
 
 
13 Weeks Ended
November 29, 2012
 
Theatres
 
Hotels/
Resorts
 
Corporate
Items
 
Total
 
Revenues
 
$
50,013
 
$
50,447
 
$
173
 
$
100,633
 
Operating income (loss)
 
 
8,720
 
 
4,819
 
 
(3,822)
 
 
9,717
 
Depreciation and amortization
 
 
4,278
 
 
4,180
 
 
128
 
 
8,586
 
 
26 Weeks Ended
November 28, 2013
 
Theatres
 
Hotels/
Resorts
 
Corporate
Items
 
Total
 
Revenues
 
$
115,884
 
$
113,514
 
$
222
 
$
229,620
 
Operating income (loss)
 
 
22,220
 
 
17,943
 
 
(7,006)
 
 
33,157
 
Depreciation and amortization
 
 
8,133
 
 
8,350
 
 
301
 
 
16,784
 
 
26 Weeks Ended
November 29, 2012
 
Theatres
 
Hotels/
Resorts
 
Corporate
Items
 
Total
 
Revenues
 
$
112,365
 
$
105,886
 
$
321
 
$
218,572
 
Operating income (loss)
 
 
21,998
 
 
15,052
 
 
(6,878)
 
 
30,172
 
Depreciation and amortization
 
 
8,488
 
 
8,156
 
 
255
 
 
16,899
 
 
 
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 Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q 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 availability, in terms of both quantity and audience appeal, of motion pictures for our theatre division, as well as other 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; (2) the effects of increasing depreciation expenses, reduced operating profits during major property renovations, and preopening and start-up costs due to the capital intensive nature of our businesses; (3) the effects of adverse economic conditions in our markets, particularly with respect to our hotels and resorts division; (4) the effects of adverse weather conditions, particularly during the winter in the Midwest and in our other markets; (5) the effects on our occupancy and room rates of the relative industry supply of available rooms at comparable lodging facilities in our markets; (6) the effects of competitive conditions in our markets; (7) our ability to identify properties to acquire, develop and/or manage and the continuing availability of funds for such development; and (8) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in the United States or incidents such as the tragedy in a movie theatre in Colorado in July 2012. 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 May. Fiscal 2014 is a 52-week year, as was fiscal 2013. We divide our fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. Our primary operations are reported in the following two business segments: movie theatres and hotels and resorts.
 
 
15

 
The following table sets forth revenues, operating income, other income (expense), net earnings and net earnings per common share for the comparable second quarter and first half of fiscal 2014 and 2013 (in millions, except for per share and variance percentage data):
 
 
 
Second Quarter
 
 
First Half
 
 
 
 
 
 
 
 
 
Variance
 
 
 
 
 
 
 
 
Variance
 
 
 
F2014
 
F2013
 
Amt.
 
Pct.
 
 
F2014
 
F2013
 
Amt.
 
Pct.
 
Revenues
 
$
100.6
 
$
100.6
 
$
 
 
%
 
$
229.6
 
$
218.6
 
$
11.0
 
 
5.1
%
Operating Income
 
 
8.8
 
 
9.7
 
 
(0.9)
 
 
9.3
%
 
 
33.2
 
 
30.2
 
 
3.0
 
 
9.9
%
Other income (expense)
 
 
(3.3)
 
 
(2.3)
 
 
(1.0)
 
 
-45.0
%
 
 
(5.8)
 
 
(4.3)
 
 
(1.5)
 
 
-32.5
%
Net earnings (loss) attributable
    to noncontrolling interests
 
 
0.2
 
 
0.1
 
 
0.1
 
 
276.2
%
 
 
(0.3)
 
 
0.1
 
 
(0.4)
 
 
-652.4
%
Net earnings attributable to The
    Marcus Corp.
 
$
3.2
 
$
4.7
 
$
(1.5)
 
 
-31.3
%
 
$
16.7
 
$
15.4
 
$
1.3
 
 
8.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings per common share
    – diluted:
 
$
0.12
 
$
0.17
 
$
(0.05)
 
 
-29.4
%
 
$
0.62
 
$
0.54
 
$
0.08
 
 
14.8
%
 
Revenues, operating income (earnings before other income/expense and income taxes) and net earnings attributable to The Marcus Corporation decreased during the second quarter of fiscal 2014 compared to the same period last year due to decreased operating results from our theatre division, partially offset by record second quarter operating results from our hotels and resorts division. Improved operating results from both our theatre division and our hotels and resorts division contributed to our improved performance during the first half of fiscal 2014 compared to the first half of fiscal 2013. Operating results from our theatre division were negatively impacted by decreased attendance due to a weaker slate of movies during the fiscal 2014 second quarter compared to the same period last year, partially offsetting significantly increased operating results in the first quarter of fiscal 2014. Operating results from our hotels and resorts division were favorably impacted by higher average daily room rates during the fiscal 2014 periods compared to the same periods last year. An increase in our interest expense during the fiscal 2014 periods and a loss on disposition of property, equipment and other assets during our fiscal 2014 second quarter negatively impacted our operating results during the fiscal 2014 periods.
 
Our interest expense totaled $2.6 million and $5.0 million for the second quarter and first half of fiscal 2014, respectively, compared to $2.3 million and $4.4 million, respectively, during the same periods last year, an increase of approximately $300,000, or 11.5%, and $600,000, or 13.4%, respectively. The increase in interest expense during the fiscal 2014 periods was due in part to increased borrowings during the periods compared to the same periods during fiscal 2013. Our borrowings increased due to an assumption of a mortgage related to our acquisition of The Cornhusker, A Marriott Hotel, in Lincoln, Nebraska during the second quarter last year, as well as new borrowings incurred during our third quarter last year in order to fund the payment of a special dividend. Our borrowing levels typically increase later in our fiscal year as our operating cash flows decline and our capital expenditures increase during our slower operating months.
 
Our interest expense also increased during our fiscal 2014 second quarter compared to the prior year quarter due to the fact that, late in our fiscal 2014 first quarter, we closed on our previously-disclosed issuance of $50 million of unsecured senior notes privately placed with several purchasers. We used the proceeds from the notes, which bear interest at 4.02% and mature in 2025, to reduce borrowings under our revolving credit facility and for general corporate purposes. Assuming no other change in our borrowing levels, we expect that the increase in our interest expense resulting from the new senior notes, which replace short-term borrowings with a lower interest rate, will be approximately $300,000 in each of our remaining fiscal 2014 quarters compared to the prior year quarters. Changes in our borrowing levels due to variations in our operating results, capital expenditures, share repurchases and asset sale proceeds, among other items, may impact our actual reported interest expense in future periods.
 
 
16

 
We reported a loss on disposition of property, equipment and other assets of $789,000 during the second quarter of fiscal 2014. Approximately $750,000 of this loss was related to our recent sale of our 15% joint venture ownership interest in the Columbus Westin hotel in Columbus, Ohio to the majority partner in that venture. Pursuant to the sale arrangement, we also ceased providing management services for this hotel in December 2013. The timing of periodic sales or disposals of our property, equipment and other assets varies from quarter to quarter, resulting in variations in our reported gains or losses on disposition of such assets.
 
We did not have any significant variations in investment income or net equity earnings or losses from unconsolidated joint ventures during the second quarter and first half of fiscal 2014 compared to the same periods last year.
 
We reported income tax expense for the second quarter and first half of fiscal 2014 of $2.0 million and $11.1 million, respectively, compared to $2.7 million and $10.4 million, respectively, during the same periods of fiscal 2013. Our fiscal 2014 first half effective income tax rate, after adjusting for a loss from noncontrolling interests that is not tax-effected because the entities involved are tax pass-through entities, was 39.9%, compared to our fiscal 2013 first half effective income tax rate of 40.2%. We currently anticipate that our effective income tax rate for the remaining quarters of fiscal 2014 will remain close to our historical 40% average, excluding any changes in our liability for unrecognized tax benefits or potential changes in federal and state income tax rates. Our actual fiscal 2014 effective income tax rate may be different from our estimated quarterly rates depending upon actual facts and circumstances.
 
We include the operating results of two majority-owned hotels, The Skirvin Hilton and The Cornhusker, A Marriott Hotel, in the hotels and resorts division revenue and operating income, and we add or deduct the after-tax net earnings or loss attributable to noncontrolling interests to or from net earnings on the consolidated statement of earnings. We reported net earnings attributable to noncontrolling interests of $237,000 and $63,000, respectively, during the second quarter of fiscal 2014 and 2013. We reported a net loss attributable to noncontrolling interests of $348,000 during the first half of fiscal 2014 due primarily to an approximately $500,000 true-up of a prior year allocation of earnings attributable to noncontrolling interests.
 
 
17

 
Theatres
 
The following table sets forth revenues, operating income and operating margin for our theatre division for the second quarter and first half of fiscal 2014 and 2013 (in millions, except for variance percentage and operating margin):
 
 
 
Second Quarter
 
 
First Half
 
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
F2014
 
 
F2013
 
 
Amt.
 
Pct.
 
 
F2014
 
 
F2013
 
 
Amt.
 
Pct.
 
Revenues
 
$
46.8
 
 
$
50.0
 
 
$
(3.2)
 
 
-6.5
%
 
$
115.9
 
 
$
112.4
 
 
$
3.5
 
 
3.1
%
Operating income
 
 
5.3
 
 
 
8.7
 
 
 
(3.4)
 
 
-39.1
%
 
 
22.2
 
 
 
22.0
 
 
 
0.2
 
 
1.0
%
Operating margin (% of revenues)
 
 
11.3
%
 
 
17.4
%
 
 
 
 
 
 
 
 
 
19.2
%
 
 
19.6
%
 
 
 
 
 
 
 
 
Consistent with the seasonal nature of the motion picture exhibition industry, the second quarter of our fiscal year is typically the slowest period for our theatre division. Our theatre division revenues and operating income decreased during the fiscal 2014 second quarter compared to prior year’s same period due primarily to a decrease in attendance. Our theatre division revenues and operating income increased during the fiscal 2014 first half compared to prior year’s same period due primarily to an overall increase in attendance, due to very strong fiscal 2014 first quarter operating results. Both fiscal 2014 periods benefitted from an increase in our average concession sales per person. Our fiscal 2014 second quarter operating income and operating margin were negatively impacted by the fact that several theatres had auditoriums closed during the period as they were being renovated. We also incurred unusually high advertising and marketing costs during the fiscal 2014 second quarter related to a new “$5 Tuesday” pricing promotion that we introduced during the quarter. Our fiscal 2013 second quarter and first half operating income and operating margin were negatively impacted by the fact that we recognized an approximately $400,000 impairment charge related to our closing of an eight-screen theatre in Milwaukee, Wisconsin.
 
The following table sets forth a breakdown of the components of revenues for the theatre division for the second quarter and first half of fiscal 2014 and 2013 (in millions, except for variance percentage):
 
 
 
Second Quarter
 
 
First Half
 
 
 
 
 
 
 
 
 
Variance
 
 
 
 
 
 
 
 
Variance
 
 
 
F2014
 
F2013
 
Amt.
 
Pct.
 
 
F2014
 
F2013
 
Amt.
 
Pct.
 
Box office receipts
 
$
28.0
 
$
30.6
 
$
(2.6)
 
 
-8.7
%
 
$
70.1
 
$
69.1
 
$
1.0
 
 
1.4
%
Concession revenues
 
 
15.9
 
 
16.5
 
 
(0.6)
 
 
-4.0
%
 
 
39.6
 
 
37.5
 
 
2.1
 
 
5.4
%
Other revenues
 
 
2.9
 
 
2.9
 
 
-
 
 
-
%
 
 
6.2
 
 
5.8
 
 
0.4
 
 
9.3
%
Total revenues
 
$
46.8
 
$
50.0
 
$
(3.2)
 
 
-6.5
%
 
$
115.9
 
$
112.4
 
$
3.5
 
 
3.1
%
 
The decrease in our box office receipts for the second quarter of fiscal 2014 compared to the same period last year was due primarily to a decrease in comparable theatre attendance. Our average ticket price also decreased 1.2% during the fiscal 2014 second quarter compared to the same period last year. The decrease in our average ticket price contributed approximately $340,000, or approximately 14%, of the decrease in our box office receipts during our fiscal 2014 second quarter compared to the second quarter of fiscal 2013 and was attributable primarily to the introduction of a new “$5 Tuesday” pricing promotion for all movies. We rolled out the new promotion, which we coupled with a free 44-oz popcorn for a temporary time period, to our entire circuit in mid-November after a successful test in several markets this fall. The goal of the pricing strategy is to increase overall attendance by reaching mid-week value customers who may have reduced their movie-going frequency or stopped going to the movies because of price. Coupled with an aggressive local marketing campaign, we have seen our Tuesday attendance increase dramatically since the introduction of the new promotion. We believe this promotion has created another “weekend” day for us, without adversely impacting the movie-going habits of our regular weekend customers.
 
 
18

 
The increase in our box office receipts for the first half of fiscal 2014 compared to the same period last year was due primarily to an increase in comparable theatre attendance. Our average ticket price also increased 0.8% during the first half of fiscal 2014 compared to the same period last year. The increase in our average ticket price contributed approximately $565,000, or approximately 39%, of the increase in our box office receipts during the first half of fiscal 2014 compared to the first half of fiscal 2013.
 
Our fiscal 2014 second quarter concession revenues decreased compared to the same period last year as a result of decreased attendance at comparable theatres, partially offset by a 3.9% increase in our average concession revenues per person compared to our fiscal 2013 second quarter. The increase in our average concession revenues per person at comparable theatres contributed approximately $604,000 to our concession revenues during our fiscal 2014 second quarter compared to the same period last year. Our fiscal 2014 first half concession revenues increased compared to the same period last year due to an increase in theatre attendance and a 4.8% increase in our average concession revenues per person compared to the prior year same period. The increase in our average concession revenues per person contributed approximately $1.8 million, or approximately 78%, of the increase in our concession revenues during the first half of fiscal 2014 compared to the same period last year. Selected price increases and a change in concession product mix, including increased sales of higher priced non-traditional food and beverage items, were the primary reasons for our increased average concession sales per person during the fiscal 2014 periods. Other revenues remained the same during our fiscal 2014 second quarter compared to the same period last year and increased during the first half of fiscal 2014 compared to the same period last year due primarily to an increase in marketing and advertising income.
 
Comparable theatre attendance decreased 7.1% during the second quarter of fiscal 2014 compared to the same period last year. September movies outperformed the prior year, but a weaker slate of movies resulted in seven straight weeks of decreased box office results in October and November until the last week of the quarter when the latest installment of The Hunger Games films was released. In addition, our fiscal 2013 second quarter included the week after Thanksgiving, which includes a traditionally strong holiday weekend, favorably impacting last year’s reported results. This year, the week after Thanksgiving will be included in our third quarter. Our highest grossing films during the second quarter of fiscal 2014 included The Hunger Games: Catching Fire, Gravity (3D), Thor: The Dark World (3D), Cloudy with a Chance of Meatballs 2 (3D) and Captain Phillips. The film slate during the second quarter of last year included the outstanding performance of the final installment of the Twilight film franchise, and the overall depth of the film product was very strong, contributing to our record second quarter results last year. The quantity of top performing films also decreased during the second quarter of fiscal 2014, as only seven movies produced box office receipts of over $1.0 million for our circuit during our fiscal 2014 second quarter, compared to nine films that reached that milestone during the same period last year. Notwithstanding the decrease in the number of top performing films in the second quarter of fiscal 2014, comparable theatre attendance increased 1.3% during the first half of fiscal 2014 compared to the same period last year and was primarily attributable to a very strong slate of films during our fiscal 2014 first quarter.
 
 
19

 
Box office performance during the early weeks of our fiscal 2014 third quarter, including the important holiday period, have thus far exceeded the box office performance from the comparable weeks last year due to the inclusion of the Thanksgiving weekend and a good slate of movies. Top performing holiday films this year include November holdovers Frozen (3D) and the Hunger Games film, as well as December releases such as The Hobbit: The Desolation of Smaug (3D), Anchorman 2: The Legend Continues, American Hustle, Saving Mr. Banks, The Wolf of Wall Street and The Secret Life of Walter Mitty. Films scheduled to be released during the remainder of our fiscal 2014 third quarter that may also generate box office interest include Jack Ryan: Shadow Recruit, The Lego Movie (3D), The Monuments Men, RoboCop, Winter’s Tale and Pompeii (3D). Revenues for the theatre business and the motion picture industry in general are heavily dependent on the general audience appeal of available films, together with studio marketing, advertising and support campaigns and the maintenance of the current “windows” between the date a film is released in theatres and the date a motion picture is released to other channels, including video on-demand and DVD. These are factors over which we have no control.
 
We ended the second quarter of fiscal 2014 with a total of 674 company-owned screens in 53 theatres and 11 managed screens in two theatres compared to 676 company-owned screens in 53 theatres and 11 managed screens in two theatres at the end of the same period last year. We closed an eight-screen theatre in Milwaukee, Wisconsin during our fiscal 2013 second quarter. We also closed two individual screens at separate theatres during the second half of fiscal 2013 in conjunction with the construction of a new Take Five Lounge and UltraScreen® at each such theatre. We opened our fifth Take Five Lounge, which also serves Zaffiro’s pizza, at our remodeled Point Cinema in Madison, Wisconsin during our fiscal 2014 first quarter. In addition, we renamed the former 20 Grand Cinema the Majestic Cinema of Omaha following an extensive renovation that included the addition of our sixth Take Five Lounge, a Zaffiro’s Express and our spacious DreamLoungerSM electric all-recliner seating in all auditoriums. We opened our 16th premium large-screen UltraScreen auditorium in Gurnee, Illinois late in our fiscal 2014 second quarter. The new auditorium features a 70-foot wide screen and the latest in immersive sound technology.
 
The initial guest response to these new features has been outstanding, and as a result, we recently added our DreamLounger premium seating concept to three additional theatres in time for the busy holiday season. These three theatres are also the first to debut our UltraScreen DLX™ concept that combines an UltraScreen with all-reserved DreamLounger recliner seating. At two of the new UltraScreen DLX auditoriums, we have taken the concept even further with the installation of the Dolby® Atmos® immersive sound platform. This next-generation technology enables filmmakers to create lifelike virtual reality sound by placing or moving sounds anywhere in the theatre auditorium. We plan to install additional Dolby Atmos systems at select screens over the next two years. We are also currently reviewing plans to install our DreamLounger seating at up to five additional theatres by the end of fiscal 2014. In addition, we have plans for four or five new Take Five Lounges and three additional Zaffiro’s Expresses at select theatres during the remainder of fiscal 2014.
 
 
20

 
Hotels and Resorts
 
The following table sets forth revenues, operating income and operating margin for our hotels and resorts division for the second quarter and first half of fiscal 2014 and 2013 (in millions, except for variance percentage and operating margin):
 
 
 
Second Quarter
 
 
First Half
 
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
F2014
 
 
F2013
 
 
Amt.
 
Pct.
 
 
F2014
 
 
F2013
 
 
Amt.
 
Pct.
 
Revenues
 
$
53.7
 
 
$
50.4
 
 
$
3.3
 
6.5
%
 
$
113.5
 
 
$
105.9
 
 
$
7.6
 
7.2
%
Operating income
 
 
7.0
 
 
 
4.8
 
 
 
2.2
 
46.2
%
 
 
17.9
 
 
 
15.1
 
 
 
2.8
 
19.2
%
Operating margin (% of revenues)
 
 
13.1
%
 
 
9.6
%
 
 
 
 
 
 
 
 
15.8
%
 
 
14.2
%
 
 
 
 
 
 
 
Our second quarter is historically the second strongest quarter of our fiscal year for our hotels and resorts division due to generally strong business and group travel during the fall months. Division revenues and operating income increased during our fiscal 2014 periods compared to the same periods last year due primarily to an increased average daily room rate. Division revenues were also favorably impacted in the current year periods by the addition of a new hotel, The Cornhusker, A Marriott Hotel, during last year’s second quarter. Conversely, division operating income for the first half of fiscal 2014 was negatively impacted by a small operating loss at The Cornhusker, which we believe was attributable to the significant disruption caused by a major renovation currently underway at this hotel. Our fiscal 2013 second quarter and first half operating income was negatively impacted by costs incurred with then-ongoing litigation related to the Platinum Hotel & Spa in Las Vegas, Nevada, including a settlement of a significant number of claims totaling approximately $750,000 during the fiscal 2013 second quarter. We will benefit from another favorable comparison during our fiscal 2014 third quarter due to the fact that we reported another $1.4 million of legal and settlement costs related to this litigation during the third quarter of fiscal 2013.
 
The following table sets forth certain operating statistics for the second quarter and first half of fiscal 2014 and 2013, 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 company-owned properties:
 
 
 
Second Quarter
 
 
First Half
 
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
F2014
 
 
F2013
 
 
Amt.
 
 
Pct.
 
 
F2014
 
 
F2013
 
 
Amt.
 
 
Pct.
 
Occupancy pct.
 
 
76.8
%
 
 
76.8
%
 
 
0.0
pts
 
-
%
 
 
81.4
%
 
 
80.8
%
 
 
0.6
pts
 
0.7
%
ADR
 
$
148.21
 
 
$
142.72
 
 
$
5.49
 
 
3.8
%
 
$
152.01
 
 
$
146.92
 
 
$
5.09
 
 
3.5
%
RevPAR
 
$
113.73
 
 
$
109.56
 
 
$
4.17
 
 
3.8
%
 
$
123.71
 
 
$
118.75
 
 
$
4.96
 
 
4.2
%
 
(1)         These operating statistics represent averages of our eight 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 six of our eight comparable company-owned properties during the second quarter of fiscal 2014 and seven of our eight comparable company-owned properties during the first half of fiscal 2014 compared to the same periods last year. The RevPAR increases in our important Milwaukee market exceeded our overall average, despite a recent increase in room supply during the past year. Fiscal year-to-date, however, we believe the new supply may have had a small impact on our results in that market as our RevPAR increases in this market were less than our overall average for the first half of fiscal 2014. According to data received from Smith Travel Research and compiled by us in order to evaluate our fiscal 2014 second quarter and first half results, comparable “upper upscale” hotels throughout the United States experienced an increase in RevPAR of 5.2% and 5.4% during our fiscal 2014 second quarter and first half, respectfully.
 
21

 
The lodging industry continued to recover at a steady pace during the second quarter and first half of our fiscal 2014 after several very difficult years. In order to better understand our fiscal 2014 results compared to pre-recession levels, the following table compares our fiscal 2014 second quarter and first half operating statistics to our fiscal 2008 operating statistics for the same eight comparable company-owned properties:
 
 
 
Second Quarter
 
 
First Half
 
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
 
 
 
 
 
 
 
Variance
 
 
 
F2014
 
 
F2008
 
 
Amt.
 
Pct.
 
 
F2014
 
 
F2008
 
 
Amt.
 
Pct.
 
Occupancy pct.
 
 
76.8
%
 
 
71.7
%
 
 
5.1
pts
7.1
%
 
 
81.4
%
 
 
75.1
%
 
 
6.3
pts
8.4
%
ADR
 
$
148.21
 
 
$
152.77
 
 
$
(4.56)
 
-3.0
%
 
$
152.01
 
 
$