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General

3 Months Ended

Mar. 28, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

1. General

Basis of Presentation

- The unaudited consolidated financial statements for the 13 weeks ended March 28, 2019 and March 29, 2018 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 March 28, 2019, 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 December 27, 2018.

Accounting Policies

- Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended December

27, 2018,

contained in the Company’s Annual Report on Form 10-K for such year, for a description of the Company’s accounting policies.

During the 13 weeks ended March 28, 2019, there were no significant changes made to the Company’s significant accounting policies other than the changes attributable to the adoption of the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02,

Leases (Topic 842)

, which was adopted on December 28, 2018. The lease policy updates are applied prospectively in the Company’s financial statements from December 28, 2018 forward. Reported financial information for the historical comparable period was not revised and continues to be reported under the accounting standards in effect during the historical periods. See Note 3 for further discussion.

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 $15,955,000 and $14,036,000 for the 13 weeks ended March 28, 2019 and March 29, 2018, respectively.

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
	March 28, 2019		March 29, 2018
	(in thousands, except per share data)
Numerator:
Net earnings attributable to The Marcus Corporation	$	1,860	$	9,821
Denominator:
Denominator for basic EPS		29,883		27,895
Effect of dilutive employee stock options		616		539
Denominator for diluted EPS		30,499		28,434
Net earnings per share - basic:
Common Stock	$	0.06	$	0.36
Class B Common Stock	$	0.06	$	0.33
Net earnings per share - diluted:
Common Stock	$	0.06	$	0.35
Class B Common Stock	$	0.06	$	0.32

Shareholders’ Equity

- Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interests for the 13 weeks ended March 28, 2019 and March 29, 2018 was as follows (in thousands, except per share data):

	Common Stock		Class B Common Stock			Capital in Excess of Par			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Shareholder s' Equity Attributable to The Marcus Corporation			Non- controlling Interests			Total Equity
BALANCES AT DECEMBER 27, 2018	$	22,843	$	8,347		$	63,830		$	439,178		$	(6,758	)	$	(37,431	)	$	490,009		$	110		$	490,119
Cash Dividends:
$ .15 Class B Common Stock		-		-			-			(1,183	)		-			-			(1,183	)		-			(1,183	)
$ .16 Common Stock		-		-			-			(3,633	)		-			-			(3,633	)		-			(3,633	)
Exercise of stock options		-		-			(78	)		-			-			532			454			-			454
Purchase of treasury stock		-		-			-			-			-			(428	)		(428	)		-			(428	)
Savings and profit-sharing contribution		-		-			810			-			-			371			1,181			-			1,181
Reissuance of treasury stock		-		-			31			-			-			16			47			-			47
Issuance of non-vested stock		-		-			(127	)		-			-			127			-			-			-
Shared-based compensation		-		-			777			-			-			-			777			-			777
Reissuance of treasury stock-acquisition		-		-			77,960			-			-			31,237			109,197			-			109,197
Other		-		-			(109	)		-			-			-			(109	)		-			(109	)
Conversions of Class B Common Stock		411		(411	)		-			-			-			-			-			-			-
Distributions to noncontrolling interest		-		-			-			-			-			-			-			(60	)		(60	)
Comprehensive income (loss)		-		-			-			1,860			(297	)		-			1,563			(66	)		1,497
BALANCES AT MARCH 28, 2019	$	23,254	$	7,936		$	143,094		$	436,222		$	(7,055	)	$	(5,576	)	$	597,875		$	(16	)	$	597,859

	Common Stock		Class B Common Stock			Capital in Excess of Par			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Shareholders' Equity Attributable to The Marcus Corporation			Non- controlling Interests			Total Equity
BALANCES AT DECEMBER 28, 2017	$	22,656	$	8,534		$	61,452		$	403,206		$	(7,425	)	$	(43,399	)	$	445,024		$	100		$	445,124
Amount reclassified to retained earnings on December 29, 2017 in connection with the adoption of ASU No. 2016-01		-		-			-			(11	)		11			-			-			-			-
Amount reclassified to retained earnings on December 29, 2017 in connection with the adoption of ASU No. 2018-02		-		-			-			1,574			(1,574	)		-			-			-			-
Amount reclassified to retained earnings on December 29, 2017 in connection with the adoption of ASU No. 2014-09		-		-			-			(2,568	)		-			-			(2,568	)		-			(2,568	)
Cash Dividends:
$ .14 Class B Common Stock		-		-			-			(1,163	)		-			-			(1,163	)		-			(1,163	)
$ .15 Common Stock		-		-			-			(2,907	)		-			-			(2,907	)		-			(2,907	)
Exercise of stock options		-		-			(62	)		-			-			991			929			-			929
Purchase of treasury stock		-		-			-			-			-			(453	)		(453	)		-			(453	)
Savings and profit-sharing contribution		-		-			651			-			-			479			1,130			-			1,130
Reissuance of treasury stock		-		-			26			-			-			23			49			-			49
Issuance of non-vested stock		-		-			(108	)		-			-			108			-			-			-
Shared-based compensation		-		-			596			-			-						596			-			596
Conversions of Class B Common Stock		8		(8	)		-			-			-			-			-			-			-
Distributions to noncontrolling interest		-		-			-			-			-			-			-			(19	)		(19	)
Comprehensive income (loss)		-		-			-			9,821			(30	)		-			9,791			(15	)		9,776
BALANCES AT MARCH 29, 2018	$	22,664	$	8,526		$	62,555		$	407,952		$	(9,018	)	$	(42,251	)	$	450,428		$	66		$	450,494

Accumulated Other Comprehensive Loss

– Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets consists of the following, all presented net of tax:

	March 28, 2019			December 27, 2018
	(in thousands)
Unrecognized loss on interest rate swap agreements	$	(525	)	$	(149	)
Net unrecognized actuarial loss for pension obligation		(6,530	)		(6,609	)
	$	(7,055	)	$	(6,758	)

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 March 28, 2019 and December 27, 2018, respectively, the Company’s $5,697,000 and $5,302,000 of debt and equity 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 March 28, 2019 and December 27, 2018, respectively, the Company’s $719,000 and $

205,000

liability related to the Company’s interest rate swap contracts 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 March 28, 2019 and December 27, 2018,

none of the Company’s fair value measurements were valued using

Level 3 pricing

inputs, other than those discussed in Note 2

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
	March 28, 2019		March 29, 2018
	(in thousands)
Service cost	$	209	$	232
Interest cost		371		341
Net amortization of prior service cost and actuarial loss		109		155
Net periodic pension cost	$	689	$	728

Service cost is included in Administrative expense while all other components are recorded within Other expense outside of operating income in the consolidated statements of earnings.

Revenue Recognition

– The disaggregation of revenues by business segment for the 13 weeks ended March 28, 2019 is as follows (in thousands):

	Reportable Segment
	Theatres		Hotels/Resorts		Corporate		Total
Theatre admissions	$	58,969	$	-	$	-	$	58,969
Rooms		-		18,938		-		18,938
Theatre concessions		47,155		-		-		47,155
Food and beverage		-		15,783		-		15,783
Other revenues (1)		8,569		12,167		93		20,829
Cost reimbursements		192		8,173		-		8,365
Total revenues	$	114,885	$	55,061	$	93	$	170,039

(1)

Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers under ASC

Topic 606

The disaggregation of revenues by business segment for the 13 weeks ended March 29, 2018 is as follows (in thousands):

	Reportable Segment
	Theatres		Hotels/Resorts		Corporate		Total
Theatre admissions	$	63,006	$	-	$	-	$	63,006
Rooms		-		20,671		-		20,671
Theatre concessions		41,413		-		-		41,413
Food and beverage		-		15,803		-		15,803
Other revenues (1)		8,037		11,401		88		19,526
Cost reimbursements		479		7,293		-		7,772
Total revenues	$	112,935	$	55,168	$	88	$	168,191

(1)

Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers under ASC

Topic 606

The Company had deferred revenue from contracts with customers of $36,562,000 and $37,048,000 as of March 28, 2019 and December 27, 2018, respectively. The Company had no contract assets as of March 28, 2019 and December 27, 2018. During the 13 weeks ended March 28, 2019, the Company recognized revenue of $10,183,000 that was included in deferred revenues as of December 27, 2018.

A significant majority of the Company’s revenue is recorded in less than one year from the original contract. As of March 28, 2019, the amount of transaction price allocated to the remaining performance obligations under the Company’s advanced ticket sales was $

4,823,000

and is reflected in the Company consolidated balance sheet as part of deferred revenues, which is included in other accrued liabilities. The Company recognizes revenue as the tickets are redeemed, which is expected to occur with the next two years. As of March 28, 2019, the amount of transaction price allocated to the remaining performance obligations under the Hotels and Resorts loyalty program was $

192,000

, of which, $

71,000

is reflected in the Company’s consolidated balance sheet in deferred compensation and other. The Company recognizes revenue upon reward redemption, which is expected to occur within the next two years. As of March 28, 2019, the amount of transaction price allocated to the remaining performance obligations related to the amount of Hotels and Resorts non-redeemed gift cards was $

2,342,000

and is reflected in the Company’s consolidated balance sheet as part of deferred revenues. The Company recognizes revenue as the gift cards are redeemed, which is expected to occur within the next two years.

New Accounting Pronouncements –

On December 28, 2018, the Company adopted ASU No. 2016-02,

Leases (Topic 842)

, which is intended to improve financial reporting related to leasing transactions.

ASC 842

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 also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from the leases. See Note 3 for further discussion.

In January 2017, the FASB issued ASU No. 2017-04,

Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment

, which eliminates Step 2 of the goodwill impairment test that had required a hypothetical purchase price allocation. Rather, entities should apply the same impairment assessment to all reporting units and recognize an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for the Company in fiscal 2020 and must be applied prospectively. The Company does not believe the new standard will have a material effect on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14,

Compensation—Retirement Benefits—Defined Benefit Plans—General

, designed to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. ASU No. 2018-14 is effective for the Company in fiscal 2021 and early application is permitted. The Company is evaluating the effect that the guidance will have on its financial statement disclosures.

In August 2018, the FASB issued ASU No. 2018-13,

Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, (ASU No. 2018-13)

. The purpose of ASU No. 2018-13 is to improve the disclosures related to fair value measurements in the financial statements. The improvements include the removal, modification and addition of certain disclosure requirements primarily related to Level 3 fair value measurements. ASU No. 2018-13 is effective for

the Company in fiscal 2020.

The amendments in ASU No. 2018-13 should be applied prospectively. The Company does not expect ASU No. 2018-13 to have a significant impact on its consolidated financial statements.