General (Policies)

6 Months Ended

Nov. 26, 2015

Basis of Presentation – The unaudited consolidated financial statements for the 26 weeks ended November 26, 2015 and November 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 November 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 28, 2015.

Fiscal Year-End Change

Fiscal Year-End Change – On October 13, 2015, the Company’s Board of Directors approved a change in the Company’s fiscal year-end from the last Thursday in May to the last Thursday in December, with the change to the calendar year reporting cycle beginning January 1, 2016. The Company will file a Transition Report on Form 10-K for the 31-week transition period beginning May 29, 2015 and ending December 31, 2015 and thereafter file reports for periods based on the new fiscal year. The intent of the change was to align the reporting of the Company’s financial results more closely with the Company’s peer groups in its industries and to move the year-end closing activities outside of the busy summer season, enabling the Company’s associates to better manage their workloads.

Restricted Cash

Restricted Cash – Restricted cash consists of bank accounts related to capital expenditure reserve funds, sinking funds, operating reserves, replacement reserves and includes amounts held by a qualified intermediary agent to be used for tax-deferred, like-kind exchange transactions. As of November 26, 2015, approximately $8,736,000 of net sales proceeds were held with a qualified intermediary and were included in “Investing Activities” in our Consolidated Statements of Cash Flows. Restricted cash is not considered cash and cash equivalents for purposes of the statement of cash flows.

Depreciation and Amortization

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 $10,188,000 and $20,516,000 for the 13 and 26 weeks ended November 26, 2015, respectively, and $10,048,000 and $19,008,000 for the 13 and 26 weeks ended November 27, 2014, respectively.

Accumulated Other Comprehensive Loss

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 28, 2015	$	(17)	$	(11)	$	(5,284)	$	(5,312)
Other comprehensive loss before reclassifications		(58)		-		-		(58)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾		56		-		-		56
Net other comprehensive loss		(2)		-		-		(2)
Balance at November 26, 2015	$	(19)	$	(11)	$	(5,284)	$	(5,314)

	Swap Agreements		Available for Sale Investments		Pension Obligation		Accumulated Other Comprehensive Loss
	(in thousands)
Balance at May 29, 2014	$	34	$	(11)	$	(4,581)	$	(4,558)
Other comprehensive loss before reclassifications		(55)		-		-		(55)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾		59		-		-		59
Net other comprehensive income		4		-		-		4
Balance at November 27, 2014	$	38	$	(11)	$	(4,581)	$	(4,554)

⁽¹⁾ Amounts are included in interest expense in the consolidated statements of earnings.

Earnings Per Share

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 November 26, 2015		13 Weeks Ended November 27, 2014		26 Weeks Ended November 26, 2015		26 Weeks Ended November 27, 2014
	(in thousands, except per share data)
Numerator:
Net earnings attributable to
The Marcus Corporation	$	4,945	$	5,223	$	19,596	$	17,655
Denominator:
Denominator for basic EPS		27,626		27,400		27,600		27,374
Effect of dilutive employee stock options		319		168		313		215
Denominator for diluted EPS		27,945		27,568		27,913		27,589
Net earnings per share - basic:
Common Stock	$	0.18	$	0.20	$	0.73	$	0.67
Class B Common Stock	$	0.17	$	0.18	$	0.66	$	0.60
Net earnings per share - diluted:
Common Stock	$	0.18	$	0.19	$	0.70	$	0.64
Class B Common Stock	$	0.17	$	0.18	$	0.66	$	0.60

Equity

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

	Total Shareholders’ Equity Attributable to The Marcus Corporation		Noncontrolling Interests

	(in thousands)
Balance at May 28, 2015	$	343,779	$	2,456
Net earnings attributable to The Marcus Corporation		19,596		–
Net loss attributable to noncontrolling interests		–		(35)
Distributions to noncontrolling interests		–		(505)
Cash dividends		(5,633)		–
Exercise of stock options		848		–
Treasury stock transactions, except for stock options		170		–
Share-based compensation		794		–
Other		57		–
Other comprehensive loss, net of tax		(2)		–
Balance at November 26, 2015	$	359,609	$	1,916

	Total Shareholders’ Equity Attributable to The Marcus Corporation		Noncontrolling Interests
	(in thousands)
Balance at May 29, 2014	$	326,211	$	3,768
Net earnings attributable to The Marcus Corporation		17,655		–
Net earnings attributable to noncontrolling interests		–		12
Distributions to noncontrolling interests		–		(958)
Cash dividends		(5,052)		–
Exercise of stock options		1,095		–
Treasury stock transactions, except for stock options		173		–
Share-based compensation		683		–
Other		47		–
Other comprehensive income, net of tax		4		–
Balance at November 27, 2014	$	340,816	$	2,822

Fair Value Measurements

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 November 26, 2015 and May 28, 2015, 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 November 26, 2015 and May 28, 2015, respectively, the $33,000 and $28,000 liability 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 November 26, 2015, none of the Company’s fair value measurements were valued using Level 3 pricing inputs. At May 28, 2015, $7,737,000 related to impaired assets was valued using Level 3 pricing inputs.

Defined Benefit Plan

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 26, 2015		13 Weeks Ended November 27, 2014		26 Weeks Ended November 26, 2015		26 Weeks Ended November 27, 2014
	(in thousands)
Service cost	$	197	$	174	$	394	$	349
Interest cost		328		311		656		622
Net amortization of prior service cost and actuarial loss		90		81		180		162
Net periodic pension cost	$	615	$	566	$	1,230	$	1,133

New Accounting Pronouncement

New Accounting Pronouncements – In April 2015, Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30), which requires an entity to present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset, and requires the amortization of the costs be reported as interest expense. The new standard is effective for the Company in fiscal 2016 and the Company does not expect the adoption of this statement to have an impact on its overall financial position.

In May 2014, the FASB 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 2017 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.