General (Policies)

9 Months Ended

Sep. 29, 2016

Basis of Presentation - The unaudited consolidated financial statements for the 39 weeks ended September 29, 2016 and September 24, 2015 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 September 29, 2016, 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 Transition Report on Form 10-K for the transition period ended December 31, 2015.

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 $10,537,000 and $31,214,000 for the 13 and 39 weeks ended September 29, 2016, respectively, and $10,353,000 and $29,955,000 for the 13 and 39 weeks ended September 24, 2015, respectively.

Long-Lived Assets

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 September 29, 2016 and December 31, 2015 and determined that there was no impact on the Company’s results of operations. During the 39 weeks ended September 24, 2015, the Company determined that indicators of impairment were evident at a specific hotel location and that the sum of the estimated undiscounted future cash flows attributable to this asset was less than its carrying amount. As such, the Company evaluated the ongoing value of this asset and determined that the fair value, measured using Level 3 pricing inputs (estimated cash flows including estimated sales proceeds), was less than its carrying value and recorded a $2,600,000 impairment loss. Additionally, during the 39 weeks ended September 24, 2015, there was an impairment triggering event related to several assets at closed theatres. The Company determined that the fair value of these theatres, measured using Level 3 pricing inputs (estimated sales proceeds based on comparable sales), was less than their carrying values, and recorded pre-tax impairment losses of $319,000 during the 39 weeks ended September 24, 2015.

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:

							Accumulated
			Available				Other
	Swap		for Sale		Pension		Comprehensive
	Agreements		Investments		Obligation		Loss
	(in thousands)
Balance at December 31, 2015	$	9	$	(11)	$	(5,219)	$	(5,221)
Amortization of the net actuarial loss and prior service credit		-		-		163		163
Other comprehensive loss before reclassifications		(143)		-		-		(143)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾		134		-		-		134
Net other comprehensive income (loss)		(9)		-		163		154
Balance at September 29, 2016	$	-	$	(11)	$	(5,056)	$	(5,067)

							Accumulated
			Available				Other
	Swap		for Sale		Pension		Comprehensive
	Agreements		Investments		Obligation		Loss
	(in thousands)
Balance at December 25, 2014	$	116	$	(11)	$	(4,580)	$	(4,475)
Amortization of the net actuarial loss and prior service credit		-		-		199		199
Other comprehensive loss before reclassifications		(282)		-		(902)		(1,184)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾		87		-		-		87
Net other comprehensive loss		(195)		-		(703)		(898)
Balance at September 24, 2015	$	(79)	$	(11)	$	(5,283)	$	(5,373)

⁽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		13 Weeks		39 Weeks		39 Weeks
	Ended		Ended		Ended		Ended
	September 29,		September 24,		September 29,		September 24,
	2016		2015		2016		2015
	(in thousands, except per share data)
Numerator:
Net earnings attributable to
The Marcus Corporation	$	14,372	$	10,871	$	29,160	$	23,125
Denominator:
Denominator for basic EPS		27,574		27,588		27,522		27,523
Effect of dilutive employee stock options		427		310		343		318
Denominator for diluted EPS		28,001		27,898		27,865		27,841
Net earnings per share - basic:
Common Stock	$	0.54	$	0.41	$	1.09	$	0.87
Class B Common Stock	$	0.49	$	0.37	$	0.99	$	0.78
Net earnings per share - diluted:
Common Stock	$	0.51	$	0.39	$	1.05	$	0.83
Class B Common Stock	$	0.48	$	0.37	$	0.98	$	0.78

Equity

Equity – Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interests for the 39 weeks ended September 29, 2016 and September 24, 2015 was as follows:

	Total
	Shareholders’
	Equity
	Attributable to
	The Marcus		Noncontrolling
	Corporation		Interests
	(in thousands)
Balance at December 31, 2015	$	363,352	$	2,346
Net earnings attributable to The Marcus Corporation		29,160		–
Net loss attributable to noncontrolling interests		–		(282)
Distributions to noncontrolling interests		–		(448)
Cash dividends		(9,016)		–
Exercise of stock options		3,553		–
Treasury stock transactions, except for stock options		(5,148)		–
Share-based compensation		1,358		–
Other		39		–
Other comprehensive income, net of tax		154		–
Balance at September 29, 2016	$	383,452	$	1,616

	Total
	Shareholders’
	Equity
	Attributable to
	The Marcus		Noncontrolling
	Corporation		Interests
	(in thousands)
Balance at December 25, 2014	$	340,170	$	2,727
Net earnings attributable to The Marcus Corporation		23,125		–
Net loss attributable to noncontrolling interests		–		(453)
Distributions to noncontrolling interests		–		(505)
Cash dividends		(8,152)		–
Exercise of stock options		2,158		–
Treasury stock transactions, except for stock options		17		–
Share-based compensation		1,171		–
Other		196		–
Other comprehensive loss, net of tax		(898)		–
Balance at September 24, 2015	$	357,787	$	1,769

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 September 29, 2016 and December 31, 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. As of September 29, 2016, the Company’s $1,659,000 of trading 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 September 29, 2016 and December 31, 2015, respectively, the $88,000 liability (included in deferred compensation and other) and the $16,000 asset (included in other long-term assets) 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 September 29, 2016 and December 31, 2015, none of the Company’s fair value measurements were 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		13 Weeks		39 Weeks		39 Weeks
	Ended		Ended		Ended		Ended
	September 29,		September 24,		September 29,		September 24,
	2016		2015		2016		2015
	(in thousands)
Service cost	$	216	$	197	$	648	$	553
Interest cost		351		328		1,055		955
Net amortization of prior service cost and actuarial loss		91		90		273		256
Net periodic pension cost	$	658	$	615	$	1,976	$	1,764

New Accounting Pronouncement

New Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 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. 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.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The new standard is effective for the Company beginning in fiscal 2017 and may be applied either prospectively or retrospectively. 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.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements of financial instruments. The new standard is effective for the Company in fiscal 2018, with early adoption permitted for certain provisions of the statement. Entities must apply the standard, with certain exceptions, using a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact the adoption of the standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), intended to improve financial reporting related to leasing transactions. ASU No. 2016-02 requires a lessee to recognize on the balance sheet assets and liabilities for rights and obligations created by leased assets with lease terms of more than 12 months. The new guidance will also require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from the leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The new standard is effective for the Company in fiscal 2019 and early application is permitted. The Company is evaluating the effect that the guidance will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new standard is effective for the Company beginning in fiscal 2018, with early adoption permitted. The standard must be applied using a retrospective transition method for each period presented. The Company is evaluating the effect that the guidance will have on its consolidated financial statements and related disclosures.

The Company elected to early adopt ASU No. 2016-09, Compensation – Sock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, during the 13 weeks ended September 29, 2016, which required reflection of any adjustments as of January 1, 2016. The primary impact of the adoption was the recognition of excess tax benefits as a reduction to the provision for income taxes for all periods reported in fiscal 2016. Additional amendments to ASU No. 2016-09 which related to income taxes and minimum statutory withholding tax requirements, had no impact to retained earnings, where the cumulative effect of these changes are required to be recorded. Additionally, the Company also elected to continue estimating forfeitures when determining the amount of compensation costs to be recognized each period. The presentation requirements for cash flows related to excess tax benefits were applied on a prospective basis, and therefore prior years have not been restated. The presentation requirement for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented in the consolidated statements of cash flows. The adoption of ASU No. 2016-09 did not have a material effect on the Company’s consolidated financial statements or related disclosures.

On January 1, 2016, the Company adopted ASU 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 guidance was applied on a retrospective basis to all prior periods. Accordingly, $404,000 of debt issuance costs, previously included within other long-term assets, have been reclassified as a reduction of long-term debt on the December 31, 2015 consolidated balance sheet, and $110,000 and $329,000, respectively, of amortization of debt issuance costs, previously included in depreciation and amortization expense, have been reclassified to interest expense in the consolidated statements of earnings for the 13 and 39 weeks ended September 24, 2015.

On January 1, 2016, the Company adopted ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU No. 2015-02 clarifies how to determine whether equity holders as a group have power to direct the activities that most significantly affect the legal entity’s economic performance and could affect whether it is a variable interest entity (VIE). Two of the Company’s consolidated entities are considered VIEs. The Company is the primary beneficiary of the VIEs and the Company’s interest is considered a majority voting interest. As such, the adoption of the new standard did not have a material effect on the Company’s consolidated financial statements or related disclosures.