1. General

Accounting Policies - Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended May 29, 2014, 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 39 weeks ended February 26, 2015 and February 27, 2014 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 February 26, 2015, 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 29, 2014.

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 $9,699,000 and $28,707,000 for the 13 and 39 weeks ended February 26, 2015, respectively, and $8,160,000 and $24,699,000 for the 13 and 39 weeks ended February 27, 2014, 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 purposes 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 February 26, 2015 and determined that there was no significant impact on the Company’s results of operations, other than impairment losses recorded during the 13 weeks ended February 26, 2015 related to several closed theatres. The Company determined that the fair value of these theatres, measured using Level 3 pricing inputs, was less than their carrying values, and recorded pre-tax impairment losses of $316,000 during the 13 weeks ended February 26, 2015.

The Company also determined that an indicator of impairment was evident at one hotel location. As such, the Company evaluated the sum of the estimated undiscounted future cash flows attributable to this asset and determined that such cash flows were greater than the asset’s carrying value and therefore, no impairment charge was indicated.

Accumulated Other Comprehensive Loss - Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets consists of the following, all presented net of tax:

							Accumulated
			Available for				Other
	Swap		Sale		Pension		Comprehensive
	Agreements		Investments		Obligation		Loss
	(in thousands)
Balance at May 29, 2014	$	34	$	(11)	$	(4,581)	$	(4,558)
Other comprehensive loss before reclassifications		(75)		-		-		(75)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾		89		-		-		89
Net other comprehensive income		14		-		-		14
Balance at February 26, 2015	$	48	$	(11)	$	(4,581)	$	(4,544)

	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		(50)		(1)		-		(51)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾		87		-		-		87
Net other comprehensive income (loss)		37		(1)		-		36
Balance at February 27, 2014	$	55	$	(11)	$	(3,836)	$	(3,792)

⁽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:

	13 Weeks Ended February 26, 2015		13 Weeks Ended February 27, 2014		39 Weeks Ended February 26, 2015		39 Weeks Ended February 27, 2014
	(in thousands, except per share data)
Numerator:
Net earnings attributable to The Marcus Corporation	$	3,091	$	4,071	$	20,746	$	20,747
Denominator:
Denominator for basic EPS		27,422		26,986		27,390		27,039
Effect of dilutive employee stock options		268		50		233		44
Denominator for diluted EPS		27,690		27,036		27,623		27,083
Net earnings per share – basic:
Common Stock	$	0.12	$	0.16	$	0.78	$	0.79
Class B Common Stock	$	0.11	$	0.14	$	0.71	$	0.72
Net earnings per share – diluted:
Common Stock	$	0.11	$	0.15	$	0.75	$	0.77
Class B Common Stock	$	0.11	$	0.14	$	0.70	$	0.72

Equity – Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interests for the 39 weeks ended February 26, 2015 and February 27, 2014 was as follows:

	Total
	Shareholders’
	Equity
	Attributable to
	The Marcus		Noncontrolling
	Corporation		Interests
	(in thousands)
Balance at May 29, 2014	$	326,211	$	3,768
Net earnings attributable to The Marcus Corporation		20,746		–
Net loss attributable to noncontrolling interests		–		(245)
Distributions to noncontrolling interests		–		(959)
Cash dividends		(7,582)		–
Exercise of stock options		1,922		–
Treasury stock transactions, except for stock options		(306)		–
Share-based compensation		1,048		–
Other		68		–
Other comprehensive income, net of tax		14		–
Balance at February 26, 2015	$	342,121	$	2,564

	Total
	Shareholders’
	Equity
	Attributable to
	The Marcus		Noncontrolling
	Corporation		Interests
	(in thousands)
Balance at May 30, 2013	$	306,702	$	9,994
Net earnings attributable to The Marcus Corporation		20,747		–
Net loss attributable to noncontrolling interests		–		(4,146)
Distributions to noncontrolling interests		–		(1,060)
Cash dividends		(6,690)		–
Exercise of stock options		1,323		–
Treasury stock transactions, except for stock options		(3,497)		–
Share-based compensation		1,380		–
Other		86		–
Other comprehensive income, net of tax		36		–
Balance at February 27, 2014	$	320,087	$	4,788

Fair Value Measurements - Certain financial assets and liabilities are recorded at fair value in the consolidated financial statements. Some are measured on a recurring basis while others are measured on a non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. A fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

The Company’s assets and liabilities measured at fair value are classified in one of the following categories:

Level 1 - Assets or liabilities for which fair value is based on quoted prices in active markets for identical instruments as of the reporting date. At February 26, 2015 and May 29, 2014, the Company’s $70,000 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 February 26, 2015 and May 29, 2014, respectively, the $79,000 and $56,000 asset related to the Company’s interest rate swap contract was valued using Level 2 pricing inputs.

Level 3 - Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates. At February 26, 2015 and May 29, 2014, none of the Company’s recurring 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		13 Weeks		39 Weeks		39 Weeks
	Ended		Ended		Ended		Ended
	February 26,		February 27,		February 26,		February 27,
	2015		2014		2015		2014
	(in thousands)
Service cost	$	174	$	176	$	523	$	527
Interest cost		311		293		933		880
Net amortization of prior service cost and actuarial loss		82		67		244		201
Net periodic pension cost	$	567	$	536	$	1,700	$	1,608

New Accounting Pronouncement - In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The guidance will replace most existing revenue recognition guidance in Generally Accepted Accounting Principles when it becomes effective. The new standard is effective for the Company in fiscal 2018 and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is evaluating the effect that the guidance will have on its consolidated financial statements and related disclosures.

Reclassifications - Certain reclassifications have been made to the prior year’s consolidated balance sheet to conform to the current year’s presentation to include the condominium units recorded in property and equipment.