(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
We report our consolidated and individual segment results of operations on a 52- or 53-week fiscal year ending on the last Thursday in December. 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 two business segments:
Fiscal 2019 was a 52-week year, beginning on December 28, 2018 and ending on December 26, 2019. Fiscal 2020 was a 53-week year, beginning on December 27, 2019 and ending on December 31, 2020. Fiscal 2021 was a 52-week year, beginning on January 1, 2021 and ending on December 30, 2021.
Fiscal 2020 and fiscal 2021 results by quarter were significantly impacted by the COVID-19 pandemic, which began late in our fiscal 2020 first quarter and impacted our results for the remainder of fiscal 2020 and throughout fiscal 2021. Under normal conditions, our first fiscal quarter typically produces the weakest operating results in our hotels and resorts division due primarily to the effects of reduced travel during the winter months. The quality of film product in any given quarter typically impacts the operating results in our theatre division. Our second and third fiscal quarters generally produce our strongest operating results because these periods coincide with the typical summer seasonality of the movie theatre industry and the summer strength of the lodging business. Due to the fact that the week between Christmas and New Year's Eve is historically one of the strongest weeks of the year for our theatre division, the specific timing of the last Thursday in December impacts the results of our fiscal first and fourth quarters in that division, particularly when we have a 53-week year.
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") generally discusses fiscal 2021 and fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020. Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and fiscal 2019 that are not included in this MD&A can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Within this MD&A amounts for totals, subtotals, and variances may not recalculate exactly within tables due to rounding as they are calculated using the unrounded numbers.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has had an unprecedented impact on the world and both of our business segments. The situation continues to be volatile and the social and economic effects are widespread. As an operator of movie theatres, hotels and resorts, restaurants and bars, each of which consists of spaces where customers and guests gather in close proximity, our businesses are significantly impacted by protective actions that federal, state and local governments have taken to control the spread of the pandemic, and our customers' reactions or responses to such actions. These actions have included, among other things, declaring national and state emergencies, encouraging social distancing, restricting freedom of movement and congregation, mandating non-essential business closures, issuing curfews, limiting business capacity, mandating mask-wearing and/or proof of vaccination, and issuing shelter-in-place, quarantine and stay-at-home orders.
We began fiscal 2021 with approximately 52% of our theatres open. As state and local governments eased restrictions in several of our markets and movie studios released several new films, we gradually reopened theatres during the first half of fiscal 2021. We ended fiscal 2021 with all of our theatres open (excluding three theatres which were permanently closed during fiscal 2021). The majority of our reopened theatres operated with reduced operating days (Fridays, Saturdays, Sundays and Tuesdays) and reduced operating hours during the fiscal 2021 first quarter. By the end of May 2021, we had returned the vast majority of our theatres to normal operating days (seven days per week) and operating hours. During fiscal 2021, all of our reopened theatres operated at significantly reduced attendance levels compared to prior pre-COVID-19 pandemic years due to customer concerns related to the COVID-19 pandemic and a reduction in the number of new films released. While still below pre-COVID-19 levels, attendance has gradually improved beginning in June 2021 as the number of vaccinated individuals increased, more films were released, and customer willingness to return to movie theatres increased.
We began fiscal 2021 with all eight of our company-owned hotels and all but one of our managed hotels open. The majority of our restaurants and bars in our hotels and resorts were open during fiscal 2021, operating under applicable Table of Contents
state and local restrictions and guidelines, and in some cases, reduced operating hours. The majority of our hotels and restaurants are generating reduced revenues as compared to prior pre-COVID-19 pandemic years, although hotel occupancy increased throughout the fiscal 2021 year. We reopened one of our two SafeHouse(R) restaurants and bars in June 2021.
Maintaining and protecting a strong balance sheet has always been a core philosophy of The Marcus Corporation during our 86-year history, and, despite the COVID-19 pandemic, our financial position remains strong. As of December 30, 2021, we had a cash balance of $17.7 million, $221.4 million of availability under our $225.0 million revolving credit facility, and our debt-to-capitalization ratio (including short-term borrowings) was 0.37. With our strong liquidity position, combined with the expected receipt of additional state grants, income tax refunds and proceeds from the sale of surplus real estate (discussed below), we believe we are positioned to meet our obligations as they come due and continue to sustain our operations throughout fiscal 2022 and beyond, even if our properties continue to generate reduced revenues during these periods. We will continue to work to preserve cash and maintain strong liquidity to endure the impacts of the global pandemic, even if it continues for a prolonged period of time.
Early in the third quarter of fiscal 2021, in conjunction with an amendment to our revolving credit agreement (described in detail in the Liquidity section below), we paid down a portion of our term loan facility using borrowings from our revolving credit facility, reducing the balance of our short-term borrowings from approximately $83.5 million to $50.0 million. In conjunction with the amendment, we extended the maturity date of the term loan facility to September 22, 2022.
Early in our first quarter of fiscal 2021, we received the remaining $5.9 million of requested tax refunds from our fiscal 2019 tax return. During the first quarter of fiscal 2021, we filed income tax refund claims of $24.2 million related to our fiscal 2020 tax return, with the primary benefit derived from net operating loss carrybacks to prior years. We received approximately $1.8 million of this refund in July 2021. Due to significant delays in processing refunds by the Internal Revenue Service, the remaining $22.3 million refund, plus interest, was not received until February 2022. We also generated additional income tax loss carryforwards during fiscal 2021 that will benefit future years.
During the fourth quarter of fiscal 2020 and continuing into fiscal 2021, a number of states elected to provide grants to certain businesses most impacted by the COVID-19 pandemic, utilizing funds received by the applicable state under provisions of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act") or subsequent federal relief programs. We received $4.9 million of these prior year grants in January 2021. We were awarded and received an additional $1.3 million in theatre grants during the first quarter of fiscal 2021 and an additional $1.9 million in hotel grants during the third quarter of fiscal 2021. We were also awarded an additional $4.5 million in theatre grants during the fourth quarter of fiscal 2021, the majority of which was not received until January 2022. All of these grants further contributed to our current strong liquidity position.
We also continue to pursue sales of surplus real estate and other non-core real estate to further enhance our liquidity. During the first quarter of fiscal 2021, we sold an equity interest in a joint venture, generating net proceeds of approximately $4.2 million. During the third quarter of fiscal 2021, we sold several land parcels, generating additional net proceeds of approximately $4.8 million. During the fourth quarter of fiscal 2021, we sold a retail center in St. Louis, Missouri and a former budget theatre, generating additional net proceeds of approximately $12.6 million. As of December 30, 2021, we had letters of intent or contracts to sell several pieces of real estate with a total carrying value of $4.9 million. We believe we may receive total sales proceeds from real estate sales during the next 12 months totaling approximately $10 - $20 million, depending upon demand for the real estate in question.
We remain optimistic that the theatre industry is in the process of rebounding and will continue to benefit from pent-up social demand now that a greater percentage of the population is vaccinated, the majority of state and local restrictions have been lifted, and people seek togetherness with a return to normalcy. We believe the approval of vaccines for children ages 5-11 has contributed to parents feeling more comfortable to visit a movie theatre, which should bolster the market for films aimed at children and families, a genre in which we have historically performed very well. We were very encouraged by the performance of multiple films released during the second half of fiscal 2021. Following up on the success of Shang-Chi and the Legend of the Ten Rings, which was released exclusively in theatres, Disney announced that all of its remaining films for 2021 would receive an exclusive theatrical window. Sony's Spider-Man:
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We still expect a return to "normalcy" to span multiple months driven by a continued increase in vaccinations and a gradual ramp-up of consumer comfort with public gatherings. The increase of first the Delta variant and subsequently the Omicron variant of the disease has resulted in changing government guidance on indoor activities in some communities, which impacted consumer comfort early in fiscal 2022. With the number of COVID-19 cases now beginning to decline, industry customer surveys indicate that consumer comfort is once again increasing. As described further below in the Theatres section, a significant number of films originally scheduled to be released during fiscal 2020 and 2021 were delayed until fiscal 2022, further increasing the quality and quantity of films that we expect to be available during future time periods.
As we expected, the primary customer for hotels during fiscal 2021 continued to come from the "drive-to leisure" market. Demand from this customer segment has exceeded our expectations. Most organizations implemented travel bans at the onset of the pandemic, only allowing essential travel. It is likely that business travel will continue to be limited in the near term, although we are beginning to experience some increases in travel from this customer segment. Total hotel division revenues, expressed as a percentage of fiscal 2019 revenues, have also increased throughout fiscal 2021, including an increase from 51% in the first quarter to 57% in second quarter, 88% in the third quarter and 82% in the fourth quarter, with the largest improvement in the third quarter coinciding with busy summer leisure travel and several demand-generating events in certain key markets. As of the date of this report, our group room revenue bookings for fiscal 2022 - commonly referred to in the hotels and resorts industry as "group pace" - is running behind where we would typically be at this same time in prior years (pre-pandemic), but group pace has improved from earlier in the fiscal year and we have experienced increased booking activity in recent months for fiscal 2022 and beyond. Banquet and catering revenue pace for fiscal 2022 is also running behind where we would typically be at this same time in prior pre-pandemic years. Increased wedding bookings have contributed to banquet and catering revenue in fiscal 2021. The future economic environment will also have a significant impact on the pace of our return to "normal" hotel operations.
Both of our operating divisions are experiencing challenges related to a labor shortage that has arisen as the country emerges from the pandemic. Difficulties in hiring new associates after significantly reducing staffing during the height of the COVID-19 pandemic has impacted our ability to service our increasing customer counts in both theatres and hotels and may also increase labor costs in future periods.
We cannot assure that the impact of the COVID-19 pandemic will cease to have a material adverse effect on both our theatre and hotels and resorts businesses, results of operations, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness.
Due to the impact of the COVID-19 pandemic, our aggregate cash capital expenditures, acquisitions and purchases of interests in, and contributions to, joint ventures were $19.5 million during fiscal 2021, compared to $21.4 million during fiscal 2020 and $94.2 million during fiscal 2019 (including approximately $30 million in cash consideration paid in conjunction with the Movie Tavern acquisition described below). Although we anticipate that we will continue to carefully monitor our capital expenditures during fiscal 2022, we currently estimate that cash capital expenditures will increase during fiscal 2022 to the $35 - $45 million range. We will, however, continue to monitor our operating results and economic and industry conditions so that we may adjust our plans accordingly.
Our current strategic plans include the following goals and strategies:
Maximize and leverage our current assets in a post-pandemic world. We have invested approximately $379 million to further enhance the movie-going experience and amenities in new and existing theatres over the last eight-plus years. These investments have included:
DreamLoungerSM recliner seating additions. As of December 30, 2021, we offered all DreamLounger recliner seating in 66 theatres, representing approximately 78% of our theatres. Including our premium, large format (PLF) auditoriums with recliner seating, as of December 30, 2021, we offered our Table of Contents
DreamLounger recliner seating in approximately 81% of our screens, a percentage we believe to be the highest among the largest theatre chains in the nation.
UltraScreen DLX(R) and SuperScreen DLX(R) (DreamLounger eXperience) conversions. As of December 30, 2021, we had a total of 120 premium large format ("PLF") screens at 66 of our theatre locations (31 UltraScreen DLX auditoriums, one traditional UltraScreen auditorium, 85 SuperScreen DLX auditoriums - a slightly smaller screen than an UltraScreen but with the same DreamLounger seating and Dolby Atmos sound - and three IMAX(R) PLF screens). As of December 30, 2021, we offered at least one PLF screen in approximately 78% of our theatres - once again a percentage we believe to be the highest percentage among the largest theatre chains in the nation. Our PLF screens generally have higher per-screen revenues and draw customers from a larger geographic region compared to our standard screens, and we charge a premium price to our guests for this experience.
Signature cocktail and dining concepts. We have continued to further enhance our food and beverage offerings within our existing theatres. We believe our 50-plus years of food and beverage experience in the hotel and restaurant businesses provides us with a unique advantage and expertise that we can leverage to further grow revenues in our theatres. As of December 30, 2021, we offered bars/full liquor service under the concepts Take FiveSM Lounge, Take Five Express and The Tavern at 49 theatres, representing approximately 58% of our theatres. As of December 30, 2021, we also offered one or more in-lobby dining concepts, including the pizza concept Zaffiro's(R) Express and hamburger and other Americana fare concept Reel Sizzle(R), in 39 theatres, representing approximately 60% of our theatres (excluding our in-theatre dining theatres). In select locations without a Take Five Lounge outlet, we offer beer and wine at the Zaffiro's Express outlet. We also operate three Zaffiro's(R) Pizzeria and Bar full-service restaurants.
In-theatre dining concepts. As of December 30, 2021, we offered in-theatre dining with a complete menu of drinks and chef-prepared salads, sandwiches, entrees and desserts at 29 theatres and a total of 229 auditoriums, operating under the names Big Screen BistroSM, Big Screen Bistro ExpressSM, BistroPlexSM and Movie Tavern by Marcus, representing approximately 34% of our theatres.
During fiscal 2022 and beyond, we expect to execute on a number of strategies to further maximize and leverage our existing assets in a post-pandemic world. These strategies are expected to include:
Opportunistically expanding the number of our PLF formats described above to meet consumer demand. Our guests have shown a strong preference for viewing blockbuster films on the largest screen available. Our goal is to have multiple PLF auditoriums in as many theatres as physically and financially viable in order to provide PLF formats to our guests for more than one blockbuster film at a time.
Expanding and evolving our food and beverage operations described above. We will continue to test new concepts and enhance our existing concepts in order to provide further options to our guests and increase our average concession/food and beverage revenues per person. Strategies may also include expanded sports programming and other entertainment options in our signature bars.
Evolving and reenergizing what we believe to be our best-in-class customer loyalty program called Magical Movie RewardsSM ("MMR"). We currently have approximately 4.4 million members enrolled in the program. Approximately 41% of all box office transactions and 40% of total transactions in our theatres during fiscal 2021 were completed by registered members of the loyalty program. We believe that this program contributes to increased movie-going frequency, more frequent visits to the concession stand, increased loyalty to Marcus Theatres and, ultimately, improved operating results.
Modernizing pricing strategies based upon consumer demand. We currently offer a number of very successful pricing promotions, including "$5 Tuesday," "$6 Student Thursday" and a $6 "Young-at-Heart" program for seniors on Friday afternoons. We believe these promotions have increased movie going frequency and reached a customer who may have stopped going to the movies because of price, without adversely impacting the movie-going habits of our regular weekend customers. During fiscal 2021, we introduced Marcus Private Cinema ("MPC"), a program that allows guests the opportunity to purchase an entire auditorium for up to 20 of his or her friends and family for a fixed charge. Conversely, we charge a higher ticket price for PLF screens and have recently tested higher pricing on Friday and Table of Contents
Saturday evenings at select locations. We expect to continue to test and implement additional pricing strategies based upon consumer demand.
Expanding the use of technology in all facets of our business. We have recently enhanced our mobile ticketing capabilities, our downloadable Marcus Theatres mobile application and our marcustheatres.com website. We added food and beverage ordering capabilities to our mobile application at select theatres in fiscal 2019 and expanded this feature to all of our theatres in fiscal 2020. We have continued to install additional theatre-level technology, such as new ticketing kiosks, digital menu boards and concession advertising monitors. Each of these enhancements is designed to improve customer interactions, both at the theatre and through mobile platforms and other electronic devices. We also believe that maximizing the use of these technology enhancements will reduce the impact of labor shortages that we and others are currently facing.
Exploring new lobby monetization initiatives. Lobby innovations may include, but not be limited to, unique experiential displays, video and redemption games and other interactive options for our guests.
Executing multiple strategies designed to further increase revenues and improve the profitability of our existing theatres. These strategies include various cost control efforts, as well as plans to expand ancillary theatre revenues, such as pre-show advertising, lobby advertising, post transaction click-through advertising, additional corporate and group sales, sponsorships and special film series.
Continually evaluating the financial viability of our existing assets. During fiscal 2021, we made the decision to not reopen three theatres that had previously closed due to the COVID-19 pandemic, consisting of one former budget-oriented theatre and two Movie Tavern theatres with leases that were expiring within the next year.
Regularly upgrading and remodeling our theatres to keep them fresh. To maintain our existing theatres and accomplish the strategies noted above and below, we currently anticipate that our fiscal 2022 capital expenditures in this division will total approximately $15 - $20 million.
Re-invent and modernize the out-of-home entertainment experience. Our goal continues to be to introduce and create entertainment destinations that further define and enhance the customer value proposition for movie-going and the overall out-of-home entertainment experience. Strategies to achieve this goal are expected to include:
Testing and subsequently launching a subscription program that would encourage more frequent movie-going, particularly for non-blockbuster films. In January 2022, we introduced two such programs, branded MovieFlexSM and MovieFlexSM+, in three separate markets as part of our initial test of this strategy.
Testing and subsequently implementing additional entertainment options within theatre auditoriums. Examples of initiatives may include sports bars for viewing live sports (possibly with online gambling where available), sports gaming, and interactive auditoriums. In March 2022, we expect to introduce a sports viewing auditorium in one of our theatres as part of our initial test of this strategy.
Further socializing the overall experience for our guests. This strategy will include targeting future movie-goers with relevant and desired experiences through new and creative marketing approaches, including the use of technology to tailor communications to individual guest preferences. For example, we have partnered with Movio, a global leader in data analysis for the cinema industry, to allow more targeted communication with our loyalty members. The software provides us with insight into customer preferences, attendance habits and general demographics, which we believe will help us deliver customized communication to our members. In turn, members of this program can enjoy and plan for a more personalized movie-going experience.
Exploring new viewing experiences for our guests. For example, we currently offer a 4DX auditorium at one of our theatres. 4DX delivers an immersive multi-sensory cinematic experience, including Table of Contents
synchronized motion seats and environmental effects such as water, wind, fog, scent and more, to enhance the action on screen. We will consider additional experiential offerings in the future.
Exploring new content sources and deliveries to supplement existing mainstream movie content. The addition of digital technology throughout our circuit (we offer digital cinema projection on 100% of our screens) has provided us with additional opportunities to obtain non-motion picture programming from other new and existing content providers, including live and pre-recorded performances of the Metropolitan Opera, as well as sports, music and other events, at many of our locations. We offer weekday and weekend alternate programming at many of our theatres across our circuit. The special programming includes classic movies, faith-based content, live performances, comedy shows and children's performances. We believe this type of programming is more impactful when presented on the big screen and provides an opportunity to continue to expand our audience base beyond traditional moviegoers. Our MMR program also gives us the ability to cost effectively promote non-traditional programming and special events, particularly during non-peak time periods.
Strategic growth. Our long-term plans for growth in our theatre division may include evaluating opportunities for new theatres and screens. Growth opportunities that we may explore in the future include:
New builds. In October 2019, we opened our new eight-screen Movie Tavern(R) by Marcus theatre in Brookfield, Wisconsin. This new theatre became the first Movie Tavern by Marcus in Wisconsin. It includes eight auditoriums, each with laser projection and comfortable DreamLounger recliner seating, a full-service bar and food and drink center, and a new delivery-to-seat service model that also allows guests to order food and beverage via our mobile phone application or in-theatre kiosk. We will consider additional sites for potential new theatre locations in both new and existing markets in the future.
Management contracts and/or taking over existing theatre leases. The COVID-19 pandemic has been challenging for all theatre operators. In some cases, existing theatres have been returned to landlords. We will consider either managing theatres for existing owners/landlords or entering into new, financially viable lease arrangements if such opportunities arise.
Acquisitions. Acquisitions of existing theatres or theatre circuits has also been a viable growth strategy for us. On February 1, 2019, we acquired the assets of Movie Tavern(R), a New Orleans-based industry leading circuit known for its in-theatre dining concept featuring chef-driven menus, premium quality food and drink and luxury seating. The acquired circuit consisted of 208 screens at 22 locations in nine states. The purchase price consisted primarily of shares of our common stock. The acquisition of the Movie Tavern circuit increased our total number of screens by an additional 23%.
Now branded Movie Tavern by Marcus, we subsequently introduced new amenities to select Movie Tavern theatres, including our proprietary PLF screens and DreamLounger recliner seating, signature programming, such as $5 movies on Tuesdays with a free complimentary-size popcorn for loyalty members, and proven marketing, loyalty and pricing programs that will continue to benefit Movie Tavern guests in the future.
As noted above, the COVID-19 pandemic has been challenging for all theatre operators. A number of theatre operators have filed for bankruptcy relief and . . .
Mar 03, 2022
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