Marcus Corporation (The) (MCS)

MCS 
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The Marcus Corp. (MCS)

F2Q10 Earnings Call

December 17, 2009 11:00 am ET

Executives

Greg Marcus - President & Chief Executive Officer

Doug Neis - Chief Financial Officer

Analysts

David Loeb - Baird

Marla Backer - Hudson Square Research

Presentation

Operator

Good morning everyone and welcome to The Marcus Corp. second quarter earnings conference call. My name is Omida and I will be your operator for today. (Operator Instructions) Joining us today are Greg Marcus, President and Chief Executive Officer; and Doug Neis, Chief Financial Officer of Marcus Corporation.

At this time, I'd like to turn the program over to Mr. Neis for the opening remarks.

Doug Neis

Thank you and welcome everybody to our fiscal 2010 second conference call. As usual, I need to begin by stating we plan on making a number of forward-looking statements on our call today. Our forward-looking statements that could include but not be limited to statements about our future revenues and earnings expectations, our future RevPAR, occupancy rates and room rate expectations for our Hotels and Resorts division.

Our expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future, expectations about the future trends in the Business Group and Leisure Travel Industry and in our markets, expectations and plans regarding growth in the number and type of our properties and facilities, expectations regarding various non-operating line items on our earnings statement and expectations regarding future capital expenditures.

Of course our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties which could impact our ability to achieve our expectations are included in the risk factor section of our 10-K and 10-Q filings which can be obtained from the SEC or the company. We'll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So, with that behind us, let's talk about our fiscal 2010 second quarter results. Excluding onetime adjustment that I’ll address in a moment, our theatre division reported another good quarter with record revenues and increased operating income. In our Hotel and Resorts division, while RevPAR trends improved slightly, division continued to be impacted by a very challenging lodging demand environments, and our results further impacted by impairment charge.

Before I get into the operating results let me first briefly address any variations in the line items below operating income versus last year, especially do effect that we had a couple of unusual items last year that impacts the comparisons. As you can see, we show a significant variation and investment income this quarter, but that’s entirely due to unusual adjustment last year.

You may recall the last year we reported $2.2 million, of pre-tax investment losses during the second quarter related to two items, securities held by the company and investment in and loans to a former Baymont joint venture. This year’s investment income for the second quarter and first half are running at our expected levels, and we don't anticipate any significant variations during the remainder of the year.

Meanwhile our interest expense was down another $950,000 during our fiscal 2010 second quarter compared to the prior year. As now down nearly $1.8 million year-to-date due to reduced borrowings and lower short term interest rates depending upon the actual timing of future capital spending and assuming that short term rates remain low for the foreseeable future.

We could continue to see our interest expense run lower than the prior year in future quarters having said that, interest rates began declining last year about this time. So, I don't necessarily expect variations in the upcoming quarters to be quite it large as reported over the past two quarters. In addition, we’ll likely see our debt level rise slightly in future periods now that we are heading in to the slower cash flow month.

As we noted in our release overall debt to capitalization ratio at the end of the quarter remains are very strong 43%, that’s down from 44% at our last May year end. Continuing down the earnings page, we had relatively little activity this particular quarter or first half for that matter related to gains from disposition and equity earnings and losses lines. I think it's still possible that we will report some level of gains in sales during the remainder of fiscal 2010.

We do have a couple of asset sales that we’re working on but small scale. For as always the timing of such gains is always difficult to pinpoint. Of course as you can see in our reported results we do show significant variation on this line compared to last year, and as a reminder last year during our second quarter we reported a $1.1 million loss related to invest in the condominium units and our Las Vegas propriety. More about those units in a moment and discuss this years impairment charge.

Finally our affective income tax rate for the first half of fiscal 2010 was 37%. With our quarterly rates slightly higher due to a small adjustment to our estimated full year rate. This year-to-date rate is slightly lower than normal due to decrease in the amount of unrecognized tax benefits as a result of a lapse of applicable statute of limitations.

I currently expect our tax rate for the final two quarters of the year to be closer to historical 39% to 40% range pending any further lapses in status limitations or completion of taxes examination, by taxing authorities. Shifting gears, our total capital expenditures during the first half of fiscal 2010 totaled just under $11 million compared to approximately $15 million last year. Approximately $9 million of this year’s amount occurred in our hotel division and relates primarily to the ongoing renovation at Grand Geneva and Hilton, Milwaukee properties.

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