MARCUS CORP - Quarter Report: 2022 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-12604


THE MARCUS CORPORATION
(Exact name of registrant as specified in its charter)


Wisconsin						39-1139844
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

100 East Wisconsin Avenue, Suite 1900 Milwaukee ,Wisconsin						53202-4125
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (414) 905-1000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	MCS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check One).


Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

COMMON STOCK OUTSTANDING AT NOVEMBER 1, 2022 – 24,397,417

CLASS B COMMON STOCK OUTSTANDING AT NOVEMBER 1, 2022 –7,110,875

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THE MARCUS CORPORATION

INDEX


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:

	Consolidated Balance Sheets	3

	Consolidated Statements of Earnings (Loss)	5

	Consolidated Statements of Comprehensive Income (Loss)	6

	Consolidated Statements of Cash Flows	7

	Condensed Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II – OTHER INFORMATION

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 4.	Mine Safety Disclosures	30

Item 6.	Exhibits	30

	Signatures	S-1

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

THE MARCUS CORPORATION

Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 29, 2022		December 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	10,529	$	17,658
Restricted cash	6,266		6,396
Accounts receivable, net of reserves of $137 and $1,001, respectively	26,127		28,902
Government grants receivable	—		4,335
Refundable income taxes	—		22,435
Assets held for sale	517		4,856
Other current assets	17,992		15,364
Total current assets	61,431		99,946

Property and equipment:
Land and improvements	130,057		129,642
Buildings and improvements	766,138		756,974
Leasehold improvements	167,579		166,060
Furniture, fixtures and equipment	385,715		375,650
Finance lease right-of-use assets	75,282		75,124
Construction in progress	9,476		6,000
Total property and equipment	1,534,247		1,509,450
Less accumulated depreciation and amortization	785,451		738,258
Net property and equipment	748,796		771,192

Operating lease right-of-use assets	205,414		217,072

Other assets:
Investments in joint ventures	2,231		2,335
Goodwill	75,034		75,095
Deferred incomes taxes	9,903		10,032
Other	13,415		12,689
Total other assets	100,583		100,151
TOTAL ASSETS	$	1,116,224	$	1,188,361

See accompanying condensed notes to consolidated financial statements.

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THE MARCUS CORPORATION

Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 29, 2022		December 30, 2021
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,609	$	35,781
Income taxes	218		—
Taxes other than income taxes	18,344		19,566
Accrued compensation	15,755		20,474
Other accrued liabilities	55,154		59,678
Short-term borrowings	—		47,346
Current portion of finance lease obligations	2,485		2,561
Current portion of operating lease obligations	15,930		16,795
Current maturities of long-term debt	11,095		10,967
Total current liabilities	143,590		213,168

Finance lease obligations	15,528		17,192

Operating lease obligations	203,675		216,064

Long-term debt	212,530		204,177

Deferred income taxes	26,406		26,183

Other long-term obligations	57,267		57,963

Equity:
Shareholders’ equity attributable to The Marcus Corporation
Preferred Stock, $1 par; authorized 1,000,000 shares; none issued	—		—
Common Stock, $1 par; authorized 50,000,000 shares; issued 24,498,243 shares at September 29, 2022 and 24,345,356 shares at December 30, 2021	24,498		24,345
Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 7,110,875 shares at September 29, 2022 and 7,130,125 shares at December 30, 2021	7,111		7,130
Capital in excess of par	152,721		145,656
Retained earnings	285,113		289,306
Accumulated other comprehensive loss	(10,269)		(11,444)
	459,174		454,993
Less cost of Common Stock in treasury (101,019 shares at September 29, 2022 and 48,111 shares at December 30, 2021)	(1,946)		(1,379)
Total shareholders’ equity attributable to The Marcus Corporation	457,228		453,614
Noncontrolling interest	—		—
Total equity	457,228		453,614

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,116,224	$	1,188,361

See accompanying condensed notes to consolidated financial statements.

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THE MARCUS CORPORATION

Consolidated Statements of Earnings (Loss)

(in thousands, except per share data)


	13 Weeks Ended				39 Weeks Ended
	September 29, 2022		September 30, 2021		September 29, 2022		September 30, 2021
Revenues:
Theatre admissions	$	49,424	$	38,250	$	150,928	$	73,850
Rooms	36,924		30,917		83,219		57,293
Theatre concessions	44,715		35,952		138,326		68,932
Food and beverage	21,444		16,731		54,969		32,234
Other revenues	22,174		19,128		62,173		45,253
	174,681		140,978		489,615		277,562
Cost reimbursements	8,969		4,884		24,832		11,634
Total revenues	183,650		145,862		514,447		289,196

Costs and expenses:
Theatre operations	54,756		40,513		160,921		87,660
Rooms	11,856		9,682		30,530		22,019
Theatre concessions	17,868		15,094		56,054		29,627
Food and beverage	16,150		12,344		43,325		25,520
Advertising and marketing	6,544		4,827		17,003		11,195
Administrative	19,995		16,536		56,703		45,815
Depreciation and amortization	16,452		17,730		50,435		54,203
Rent	6,672		6,544		19,500		19,229
Property taxes	4,911		4,935		14,636		14,142
Other operating expenses	10,528		6,500		29,463		19,918
Impairment charges	—		—		—		3,732
Reimbursed costs	8,969		4,884		24,832		11,634
Total costs and expenses	174,701		139,589		503,402		344,694

Operating income (loss)	8,949		6,273		11,045		(55,498)

Other income (expense):
Investment income (loss)	(35)		(7)		(762)		153
Interest expense	(3,688)		(4,600)		(11,843)		(14,350)
Other expense	(384)		(625)		(1,545)		(1,881)
Gain (loss) on disposition of property, equipment and other assets	(88)		868		267		2,908
Equity earnings ( losses) from unconsolidated joint ventures	30		—		(104)		—
	(4,165)		(4,364)		(13,987)		(13,170)

Earnings (loss) before income taxes	4,784		1,909		(2,942)		(68,668)
Income tax expense ( benefit)	1,495		150		(289)		(18,931)
Net earnings (loss)	3,289		1,759		(2,653)		(49,737)
Net earnings (loss) attributable to noncontrolling interests	—		—		—		—
Net earnings (loss) attributable to The Marcus Corporation	$	3,289	1,759		$	(2,653)	$	(49,737)

Net earnings (loss) per share - basic:
Common Stock	$	0.11	$	0.06	$	(0.09)	$	(1.66)
Class B Common Stock	$	0.10	$	0.05	$	(0.08)	$	(1.39)

Net earnings (loss) per share - diluted:
Common Stock	$	0.10	$	0.06	$	(0.09)	$	(1.66)
Class B Common Stock	$	0.10	$	0.05	$	(0.08)	$	(1.39)

See accompanying condensed notes to consolidated financial statements.

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THE MARCUS CORPORATION

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)


	13 Weeks Ended				39 Weeks Ended
	September 29, 2022		September 30, 2021		September 29, 2022		September 30, 2021

Net earnings (loss)	$	3,289	$	1,759	$	(2,653)	$	(49,737)
Other comprehensive income (loss), net of tax:
Amortization of the net actuarial loss and prior service credit related to the pension, net of tax effect of $68, $84, $202 and $256, respectively	190		243		570		727
Fair market value adjustment of interest rate swap, net of tax effect (benefit) of $17, $(4), $133 and $0, respectively	48		(10)		377		—
Reclassification adjustment on interest rate swap included in interest expense, net of tax effect of $9, $42, $81 and $153, respectively	22		118		228		432
Other comprehensive income	260		351		1,175		1,159
Comprehensive income (loss)	3,549		2,110		(1,478)		(48,578)
Comprehensive earnings (loss) attributable to noncontrolling interests	—		—		—		—
Comprehensive income (loss) attributable to The Marcus Corporation	$	3,549	$	2,110	$	(1,478)	$	(48,578)

See accompanying condensed notes to consolidated financial statements.

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THE MARCUS CORPORATION

Consolidated Statements of Cash Flows

(in thousands)


	39 Weeks Ended
	September 29, 2022		September 30, 2021

OPERATING ACTIVITIES:
Net loss	$	(2,653)	$	(49,737)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Losses on investments in joint ventures	104		—
Gain on disposition of property, equipment and other assets	(267)		(2,908)
Impairment charges	—		3,732
Depreciation and amortization	50,435		54,203
Amortization of debt issuance costs	1,242		1,784
Share-based compensation	7,036		6,673
Deferred income taxes	(2)		(18,817)
Other long-term obligations	791		2,236
Contribution of the Company’s stock to savings and profit-sharing plan	956		1,012
Changes in operating assets and liabilities:
Accounts receivable	2,775		(12,052)
Government grants receivable	4,335		4,913
Other assets	(3,341)		(1,552)
Operating leases	(1,596)		(4,078)
Accounts payable	(11,641)		7,155
Income taxes	22,653		7,613
Taxes other than income taxes	(1,222)		(1,031)
Accrued compensation	(4,719)		5,703
Other accrued liabilities	(4,524)		(2,792)
Total adjustments	63,015		51,794
Net cash provided by operating activities	60,362		2,057

INVESTING ACTIVITIES:
Capital expenditures	(27,483)		(9,121)
Proceeds from disposals of property, equipment and other assets	4,850		9,160


Purchase of trading securities	—		(2,402)
Life insurance premium reimbursement	—		11,411
Other investing activities	(230)		200
Net cash provided by (used in) investing activities	(22,863)		9,248

FINANCING ACTIVITIES:
Debt transactions:
Proceeds from borrowings on revolving credit facility	62,000		128,500
Repayment of borrowings on revolving credit facility	(43,000)		(95,500)

Repayments on short-term borrowings	(47,499)		(37,845)
Principal payments on long-term debt	(11,275)		(10,285)
Proceeds received from borrowing on insurance policy	—		6,700
Debt issuance costs	(37)		(208)
Principal payments on finance lease obligations	(2,047)		(2,065)
Equity transactions:
Treasury stock transactions, except for stock options	(1,486)		(1,170)
Exercise of stock options	126		1,455
Dividends paid	(1,540)		—
Net cash used in financing activities	(44,758)		(10,418)
Net increase (decrease) in cash, cash equivalents and restricted cash	(7,259)		887
Cash, cash equivalents and restricted cash at beginning of period	24,054		14,088
Cash, cash equivalents and restricted cash at end of period	$	16,795	$	14,975

Supplemental Information:
Interest paid, net of amounts capitalized	$	12,391	$	12,932
Income taxes refunded (paid), including interest earned	22,940		(7,733)
Change in accounts payable for additions to property, equipment and other assets	469		828

See accompanying condensed notes to consolidated financial statements.

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

1. General

Basis of Presentation - The unaudited consolidated financial statements for the 13 and 39 weeks ended September 29, 2022 and September 30, 2021 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, 2022, 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 30, 2021.

Accounting Policies - Refer to the Company’s audited consolidated financial statements (including footnotes) for the fiscal year ended December 30, 2021, contained in the Company’s Annual Report on Form 10-K for such year, for a description of the Company’s accounting policies.

Noncontrolling Interests - The Company has an ownership interest greater than 50% in one joint venture that is considered a Variable Interest Entity (VIE) that is included in the accounts of the Company. The Company is the primary beneficiary of the VIE and the Company’s interest is considered a majority voting interest. The equity interest of outside owners in consolidated entities is recorded as noncontrolling interests in the consolidated balance sheets, and their share of earnings is recorded as net earnings (loss) attributable to noncontrolling interests in the consolidated statements of earnings (loss) in accordance with the partnership agreement. Due to the cumulative losses of the entity, the noncontrolling interest balance is $0 as of September 29, 2022 and December 30, 2021. The Company will not record earnings or losses from noncontrolling interest until the entity returns to profitability.

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 $16,444 and $50,411 for the 13 and 39 weeks ended September 29, 2022, respectively, and $17,714 and $54,147 for the 13 and 39 weeks ended September 30, 2021, respectively.

Assets Held for Sale – Long-lived assets that are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria are classified as assets held for sale and included within current assets on the consolidated balance sheet. Assets held for sale are measured at the lower of their carrying value or their fair value less costs to sell the asset. As of September 29, 2022, assets held for sale consists of excess land.

Insurance Policies - During the 13 weeks ended September 30, 2021, the Company received $6,700 of loan proceeds, recorded against the cash surrender value of a key-man life insurance policy. The loan bears interest at 8.0% which is payable annually. The loan is netted against the value of the life insurance policy and is included in other long-term assets in the consolidated balance sheet. Also during the 13 weeks ended September 30, 2021, the Company received $11,400 as reimbursement on a split dollar life insurance policy.

Long-Lived Assets – The Company periodically considers whether indicators of impairment of long-lived assets held for use are present. This includes quantitative and qualitative factors, including evaluating the historical actual operating performance of the long-lived assets and assessing the potential impact of recent events and transactions impacting the long-lived assets. If such indicators are present, the Company determines if the long-lived assets are recoverable by assessing whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amounts. If the long-lived assets are not recoverable, the Company recognizes any impairment losses based on the excess of the carrying amount of the assets over their fair value. During the 39 weeks ended September 30, 2021, the Company determined that indicators of impairment were present for certain assets. As such, the Company evaluated the value of its property and equipment and the value of its operating lease right-of-use-assets and recorded an impairment charge as discussed in Note 3. There were no indicators of impairment identified during the 39 weeks ended September 29, 2022.

Goodwill – The Company reviews goodwill for impairment annually or more frequently if certain indicators arise. The Company performs its annual impairment test on the first day of the fiscal fourth quarter. There were no indicators of impairment identified during the 39 weeks ended September 29, 2022 or September 30, 2021.

Earnings (Loss) Per Share - Net earnings (loss) per share (EPS) of Common Stock and Class B Common Stock is computed using the two class method. Basic net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding. Diluted net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options and convertible debt instruments using the if-converted method. Convertible Class B Common Stock and convertible debt instruments are reflected on an if-converted basis when dilutive to Common Stock. The computation of the diluted net earnings (loss) per share of Common Stock assumes the conversion of Class B Common Stock in periods that have net earnings since it would be dilutive to Common Stock earnings per share, while the diluted net earnings (loss) 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 (losses) for each period are allocated based on the proportionate share of entitled cash dividends.

The following table illustrates the computation of Common Stock basic and diluted net earnings (loss) per share and provides a reconciliation of the number of weighted-average basic and diluted shares outstanding:


	13 Weeks Ended				39 Weeks Ended
	September 29, 2022		September 30, 2021		September 29, 2022		September 30, 2021

Numerator:
Net earnings (loss) attributable to The Marcus Corporation	$	3,289	$	1,759	$	(2,653)	$	(49,737)
Denominator:
Denominator for basic EPS	31,506		31,421		31,481		31,340
Effect of dilutive employee stock options	84		48		—		—
Effect of convertible notes	9,112		—		—		—
Denominator for diluted EPS	40,702		31,469		31,481		31,340
Net earnings (loss) per share - basic:
Common Stock	$	0.11	$	0.06	$	(0.09)	$	(1.66)
Class B Common Stock	$	0.10	$	0.05	$	(0.08)	$	(1.39)
Net earnings (loss) per share - diluted:
Common Stock	$	0.10	$	0.06	$	(0.09)	$	(1.66)
Class B Common Stock	$	0.10	$	0.05	$	(0.08)	$	(1.39)

For the periods when the Company reports a net loss, common stock equivalents are excluded from the computation of diluted loss per share as their inclusion would have an antidilutive effect. During the 39 weeks ended September 29, 2022 and September 30, 2021, approximately 76,714 and 104,146 common stock equivalents, respectively, were excluded from the computation of diluted loss per share due to the Company’s net loss. During the 39 weeks ended September 29, 2022, 9,111,846 shares related to the convertible notes were excluded from the computation of diluted loss per share as the effect would have been anti-dilutive. During the 13 and 39 weeks ended September 30, 2021, 9,084,924 shares related to the convertible notes were excluded from the computation of diluted income (loss) per share as the effect would have been anti-dilutive.

Shareholders’ Equity - Activity impacting total shareholders’ equity attributable to The Marcus Corporation and noncontrolling interest for the 13 and 39 weeks ended September 29, 2022 and September 30, 2021 was as follows:


	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 Interest		Total Equity
BALANCES AT DECEMBER 30, 2021	$	24,345	$	7,130	$	145,656	$	289,306	$	(11,444)	$	(1,379)	$	453,614	$	—	$	453,614
Exercise of stock options	—		—		(5)		—		—		31		26		—		26
Purchase of treasury stock	—		—		—		—		—		(1,373)		(1,373)		—		(1,373)
Savings and profit-sharing contribution	56		—		900		—		—		—		956		—		956
Reissuance of treasury stock	—		—		1		—		—		8		9		—		9
Issuance of non-vested stock	78		—		(236)		—		—		158		—		—		—
Shared-based compensation	—		—		2,917		—		—		—		2,917		—		2,917
Other	—		—		1		(1)		—		—		—		—		—
Conversions of Class B Common Stock	19		(19)		—		—		—		—		—		—		—
Comprehensive income (loss)	—		—		—		(14,902)		531		—		(14,371)		—		(14,371)
BALANCES AT MARCH 31, 2022	$	24,498	$	7,111	$	149,234	$	274,403	$	(10,913)	$	(2,555)	$	441,778	$	—	$	441,778
Exercise of stock options	—		—		(16)		—		—		69		53		—		53
Purchase of treasury stock	—		—		—		—		—		(104)		(104)		—		(104)
Reissuance of treasury stock	—		—		(2)		—		—		9		7		—		7
Issuance of non-vested stock	—		—		(305)		—		—		305		—		—		—
Shared-based compensation	—		—		1,655		—		—		—		1,655		—		1,655
Other	—		—		(1)		1		—		—		—		—		—
Comprehensive income	—		—		—		8,960		384		—		9,344		—		9,344
BALANCES AT JUNE 30, 2022	$	24,498	$	7,111	$	150,565	$	283,364	$	(10,529)	$	(2,276)	$	452,733	$	—	$	452,733
Cash dividends:
$0.045 per share Class B Common Stock	—		—		—		(320)		—		—		(320)		—		(320)
$0.05 per share Common Stock	—		—		—		(1,220)		—		—		(1,220)		—		(1,220)
Exercise of stock options	—		—		(175)		—		—		988		813		—		813
Purchase of treasury stock	—		—		—		—		—		(809)		(809)		—		(809)
Reissuance of treasury stock	—		—		(2)		—		—		20		18		—		18
Issuance of non-vested stock	—		—		(131)		—		—		131		—		—		—
Shared-based compensation	—		—		2,464		—		—		—		2,464		—		2,464
Comprehensive income	—		—		—		3,289		260		—		3,549		—		3,549
BALANCES AT SEPTEMBER 29, 2022	$	24,498	$	7,111	$	152,721	$	285,113	$	(10,269)	$	(1,946)	$	457,228	$	—	$	457,228


	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 Interest		Total Equity
BALANCES AT DECEMBER 31, 2020	$	23,264	$	7,926	$	153,529	$	331,897	$	(14,933)	$	(2,960)	$	498,723	$	—	$	498,723
Adoption of ASU No. 2020-06	—		—		(16,511)		702		—		—		(15,809)		—		(15,809)
Exercise of stock options	—		—		(659)		—		—		1,951		1,292		—		1,292
Purchase of treasury stock	—		—		—		—		—		(1,181)		(1,181)		—		(1,181)
Savings and profit-sharing contribution	44		—		968		—		—		—		1,012		—		1,012
Reissuance of treasury stock	—		—		2		—		—		10		12		—		12
Issuance of non-vested stock	221		—		(367)		—		—		146		—		—		—
Shared-based compensation	—		—		1,484		—		—		—		1,484		—		1,484
Other	—		—		—		(1)		—		1		—		—		—
Conversions of Class B Common Stock	520		(520)		—		—		—		—		—		—		—
Comprehensive income (loss)	—		—		—		(28,130)		452		—		(27,678)		—		(27,678)
BALANCES AT APRIL 1, 2021	$	24,049	$	7,406	$	138,446	$	304,468	$	(14,481)	$	(2,033)	$	457,855	$	—	$	457,855
Exercise of stock options	—		—		(40)		—		—		122		82		—		82
Purchase of treasury stock	—		—		—		—		—		(73)		(73)		—		(73)
Reissuance of treasury stock	—		—		(1)		—		—		7		6		—		6
Issuance of non-vested stock	18		—		(157)		—		—		139		—		—		—
Shared-based compensation	—		—		2,668		—		—		—		2,668		—		2,668
Conversions of Class B Common Stock	275		(275)		—		—		—		—		—		—		—
Comprehensive income (loss)	—		—		—		(23,366)		356		—		(23,010)		—		(23,010)
BALANCES AT JULY 1, 2021	$	24,342	$	7,131	$	140,916	$	281,102	$	(14,125)	$	(1,838)	$	437,528	$	—	$	437,528
Exercise of stock options	—		—		(44)		—		—		125		81		—		81
Purchase of treasury stock	—		—		—		—		—		(60)		(60)		—		(60)
Reissuance of treasury stock	—		—		20		—		—		106		126		—		126
Forfeitures of non-vested stock	(2)		—		(137)		—		—		139		—		—		—
Shared-based compensation	—		—		2,521		—		—		—		2,521		—		2,521
Comprehensive income	—		—		—		1,759		351		—		2,110		—		2,110
BALANCES AT SEPTEMBER 30, 2021	$	24,340	$	7,131	$	143,276	$	282,861	$	(13,774)	$	(1,528)	$	442,306	$	—	$	442,306

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


	September 29, 2022		December 30, 2021

Unrecognized gain (loss) on interest rate swap agreements	$	96	$	(509)
Net unrecognized actuarial loss for pension obligation	(10,365)		$	(10,935)
	$	(10,269)	$	(11,444)

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, 2022 and December 30, 2021, respectively, the Company’s $3,647 and $4,617 of debt and equity securities classified as trading were valued using Level 1 pricing inputs and were included in other current assets. At December 30, 2021, the Company’s $5,000 of investments in money market accounts were valued using Level 1 pricing inputs and were included in cash and cash equivalents. The Company had no investments in money market accounts at September 29, 2022.

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, 2022 and December 30, 2021, respectively, the Company’s $130 asset and $689 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 September 29, 2022 and December 30, 2021, none of the Company’s recorded assets or liabilities that are measured on a recurring basis at fair market value were valued using Level 3 pricing inputs. Assets and liabilities that were measured on a non-recurring basis are discussed in Note 3.

The carrying value of the Company’s financial instruments (including cash and cash equivalents, restricted cash, accounts receivable and accounts payable) approximates fair value. The fair value of the Company’s $80,000 of senior notes, valued using Level 2 pricing inputs, is approximately $69,192 at September 29, 2022, determined based upon discounted cash flows using current market interest rates for financial instruments with a similar average remaining life. The fair value of the Company's $100,050 of convertible senior notes, valued using Level 2 pricing inputs, is approximately $152,963 at September 29, 2022, determined based on market rates and the closing trading price of the convertible senior notes as of September 29, 2022. The carrying amounts of the Company’s remaining long-term debt approximate their fair values, determined using current rates for similar instruments, or Level 2 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 Ended				39 Weeks Ended
	September 29, 2022		September 30, 2021		September 29, 2022		September 30, 2021

Service cost	$	263	$	278	$	791	$	839
Interest cost	335		300		1,005		901
Net amortization of prior service cost and actuarial loss	258		331		772		986
Net periodic pension cost	$	856	$	909	$	2,568	$	2,726

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 and 39 weeks ended September 29, 2022 is as follows:


	13 Weeks Ended September 29, 2022
	Theatres		Hotels/Resorts		Corporate		Total
Theatre admissions	$	49,424	$	—	$	—	$	49,424
Rooms	—		36,924		—		36,924
Theatre concessions	44,715		—		—		44,715
Food and beverage	—		21,444		—		21,444
Other revenues(1)	7,119		14,963		92		22,174
Cost reimbursements	—		8,969		—		8,969
Total revenues	$	101,258	$	82,300	$	92	$	183,650


	39 Weeks Ended September 29, 2022
	Theatres		Hotels/Resorts		Corporate		Total
Theatre admissions	$	150,928	$	—	$	—	$	150,928
Rooms	—		83,219		—		83,219
Theatre concessions	138,326		—		—		138,326
Food and beverage	—		54,969		—		54,969
Other revenues(1)	20,932		40,938		303		62,173
Cost reimbursements	—		24,832		—		24,832
Total revenues	$	310,186	$	203,958	$	303	$	514,447

(1)Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers.

The disaggregation of revenues by business segment for the 13 and 39 weeks ended September 30, 2021 is as follows:


	13 Weeks Ended September 30, 2021
	Theatres		Hotels/Resorts		Corporate		Total
Theatre admissions	$	38,250	$	—	$	—	$	38,250
Rooms	—		30,917		—		30,917
Theatre concessions	35,952		—		—		35,952
Food and beverage	—		16,731		—		16,731
Other revenues(1)	5,793		13,272		63		19,128
Cost reimbursements	1		4,883		—		4,884
Total revenues	$	79,996	$	65,803	$	63	$	145,862


	39 Weeks Ended September 30, 2021
	Theatres		Hotels/Resorts		Corporate		Total
Theatre admissions	$	73,850	$	—	$	—	$	73,850
Rooms	—		57,293		—		57,293
Theatre concessions	68,932		—		—		68,932
Food and beverage	—		32,234		—		32,234
Other revenues(1)	11,989		33,006		258		45,253
Cost reimbursements	88		11,546		—		11,634
Total revenues	$	154,859	$	134,079	$	258	$	289,196

(1)Included in other revenues is an immaterial amount related to rental income that is not considered revenue from contracts with customers.

The Company had deferred revenue from contracts with customers of $35,413 and $39,144 as of September 29, 2022 and December 30, 2021, respectively. The Company had no contract assets as of September 29, 2022 and December 30, 2021. During the 39 weeks ended September 29, 2022, the Company recognized revenue of $12,273 that was included in deferred revenues as of December 30, 2021. During the 39 weeks ended September 30, 2021, the Company recognized revenue of $8,394 that was included in deferred revenues as of December 31, 2020. The majority of the Company’s deferred revenue relates to non-redeemed gift cards, advanced ticket sales and the Company’s loyalty program.

As of September 29, 2022, the amount of transaction price allocated to the remaining performance obligations under the Company’s advanced ticket sales was $3,123 and is reflected in the Company’s 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 within the next two years.

As of September 29, 2022, the amount of transaction price allocated to the remaining performance obligations related to the amount of Hotels and Resorts non-redeemed gift cards was $3,464 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.

The majority of the Company’s revenue is recognized in less than one year from the original contract.

New Accounting Pronouncements – During the first quarter of fiscal 2022, the Company adopted Accounting Standards Update (ASU) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in this update provide increased transparency of government assistance including the requirement of certain disclosures in a company’s notes to the consolidated financial statements about transactions with a

government. The adoption of the new standard did not have a material effect on the Company’s consolidated financial statements.

In March 2020, the Financial Accounting Standards Board issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (LIBOR), or other interbank offered rates, to alternative reference rates such as the Secured Overnight Financing Rate (SOFR). ASU No. 2020-14 is optional, effective immediately, and may be elected over time as reference rate reform activities occur, generally through December 31, 2022. The Company will evaluate the effect the new standard will have on its consolidated financial statements when a replacement rate is chosen.

2. Impact of COVID-19 Pandemic

The COVID-19 pandemic has had an unprecedented impact on the world and both of the Company’s business segments. 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, the Company’s businesses were significantly impacted by protective actions that federal, state and local governments have taken to control the spread of the pandemic, and the customers’ reactions or responses to such actions. The extent of these protective actions and their impact on the Company’s businesses has continued to dissipate during the first three quarters of fiscal 2022.

The Company began fiscal 2022 with all of its theatres open with normal operating days and hours. While still below pre-COVID-19 levels, attendance has continued to gradually improve as the number of vaccinated individuals increased, more films are released, and customers indicate increasing willingness to return to movie theatres.

The Company began fiscal 2022 with all eight of its company-owned and managed hotels open. All of the Company’s restaurants and bars in its hotels and resorts were open during the third quarter of fiscal 2022, operating in some cases with reduced operating hours. The majority of the Company’s hotels and restaurants are now generating revenues at or above pre-pandemic levels.

Since the COVID-19 pandemic began, the Company has been working proactively to preserve cash and enhance liquidity. As of September 29, 2022, the Company had cash and cash equivalents of approximately $10,529 and $202,809 of availability under its $225,000 revolving credit facility. With this strong liquidity position, combined with cash generated from operations and proceeds from the sale of surplus real estate, the Company believes it is positioned to meet its obligations as they come due and continue to sustain its operations throughout fiscal 2022 and 2023, even if the properties continue to generate reduced revenues during these periods.

During the first three quarters of fiscal 2022, the Company received a $22,959 federal income tax refund (including $636 of interest) related to its fiscal 2020 tax return, with the primary benefit derived from net operating loss carrybacks to prior years. The Company also received $4,335 in state theatre grants during the first three quarters of fiscal 2022 that were awarded and accrued during the fourth quarter of fiscal 2021.

The Company believes that the actions that have been taken will allow it to have sufficient liquidity to meet its obligations as they come due and to comply with its debt covenants for at least 12 months from the issuance date of these unaudited consolidated financial statements. However, future compliance with the Company’s debt covenants are dependent upon the timing of new movie releases and the protective actions that federal, state and local governments have taken which impact consumer confidence and the speed of recovery of the Company’s theatres and hotels and resorts businesses. The Company’s estimates and assumptions related to future forecasted results of the Company are subject to inherent risk and uncertainty due to the ongoing impact of the COVID-19 pandemic, and actual results could differ materially from estimated amounts and impact the Company’s ability to comply with its debt covenants.

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

3. Impairment Charges

During the 39 weeks ended September 30, 2021, the Company determined that indicators of impairment were evident at certain theatre asset groups. For certain of the theatre asset groups evaluated for impairment, the sum of the estimated undiscounted future cash flows attributable to these assets was less than their carrying amount. The Company evaluated the fair value of these assets, consisting primarily of leasehold improvements, furniture, fixtures and equipment, and operating lease right-of-use-assets less lease obligations, and determined that the fair value, measured using Level 3 pricing inputs (using estimated discounted cash flows over the life of the primary asset, including estimated sales proceeds) was less than their carrying values and recorded a $3,732 impairment loss, reducing certain property and equipment and certain operating lease right-of-use assets. The remaining net book value of the impaired assets as of the date of the asset write-down (July 1, 2021) was $10,200, excluding any applicable remaining lease obligations. There were no indicators of impairment identified during the 39 weeks ended September 29, 2022.

4. Long-Term Debt and Short-Term Borrowings

Long-term debt and short-term borrowings are summarized as follows:


	September 29, 2022		December 30, 2021

Mortgage notes	$	24,112	$	24,388
Senior notes	80,000		90,000
Unsecured term note due February 2025, with monthly principal and interest payments of $39, bearing interest at 5.75%	1,056		1,356
Convertible senior notes	100,050		100,050
Payroll Protection Program loans	2,481		3,181
Revolving credit agreement	19,000		—
Debt issuance costs	(3,074)		(3,831)
Total debt, net of debt issuance costs	223,625		215,144
Less current maturities, net of issuance costs	11,095		10,967
Long-term debt	$	212,530	204,177

Short-term borrowings	—		47,346
Total debt and short-term borrowings, net of issuance costs	$	223,625	$	262,490

Credit Agreement and Short-Term Borrowings

On January 9, 2020, the Company replaced its then-existing credit agreement with several banks. On April 29, 2020, the Company entered into the First Amendment, on September 15, 2020, the Company entered into the Second Amendment, on July 13, 2021, the Company entered into the Third Amendment, and on July 29, 2022, the Company entered into the Fourth Amendment (the Credit Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment, hereinafter referred to as the “Credit Agreement”).

The Credit Agreement provides for a revolving credit facility that matures on January 9, 2025 with an initial maximum aggregate amount of availability of $225,000. At September 29, 2022, there were borrowings of $19,000 outstanding on the revolving credit facility, which when borrowed, bear interest at LIBOR plus a margin, effectively 6.70% at September 29, 2022. Availability under the line at September 29, 2022, was $202,809, after taking into consideration outstanding letters of credit that reduce revolver availability.

In conjunction with the First Amendment, the Company added an initial $90,800 term loan facility that was scheduled to mature on September 22, 2021. In conjunction with the Third Amendment, the term loan facility was reduced to $50,000

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

and the maturity date was extended to September 22, 2022. On July 29, 2022, in conjunction with the Fourth Amendment, the Company repaid $46,679 of short-term borrowings, repaying in full and retiring the term loan facility maturing on September 22, 2022. Additionally, the Fourth Amendment modified the consolidated fixed charge coverage covenant, reducing the requirement to maintain a consolidated fixed charge coverage ratio of at least 3.0 to 1.0 to at least 2.5 to 1.0 starting as of the end of the fiscal quarter ending March 30, 2023, and continuing for each fiscal quarter thereafter.

Borrowings under the Credit Agreement generally bear interest at a variable rate equal to: (i) LIBOR, subject to a 1% floor, plus a specified margin based upon the Company’s consolidated debt to capitalization ratio as of the most recent determination date; or (ii) the base rate (which is the highest of (a) the prime rate, (b) the greater of the federal funds rate and the overnight bank funding rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR), subject to a 1% floor, plus a specified margin based upon the Company’s consolidated debt to capitalization ratio as of the most recent determination date. In addition, the Credit Agreement generally requires the Company to pay a facility fee equal to 0.125% to 0.25% of the total revolving commitment, depending on its consolidated debt to capitalization ratio, as defined in the Credit Agreement. However, pursuant to the First Amendment and the Second Amendment: (A) in respect of revolving loans, (1) the Company is charged a facility fee equal to 0.40% of the total revolving credit facility commitment and (2) the specified margin is 2.35% for LIBOR borrowings and 1.35% for ABR borrowings, which facility fee rate and specified margins will remain in effect until the end of the first fiscal quarter ending after the end of any period in which any portion of the term loan facility remains outstanding or the testing of any financial covenant in the Credit Agreement is suspended (the “specified period”); and (B) in respect of term loans, the specified margin is 2.75% for LIBOR borrowings and 1.75% for ABR borrowings, in each case, at all times.

The Credit Agreement contains various restrictions and covenants. Among other requirements, the Credit Agreement (a) limits the amount of priority debt (as defined in the Credit Agreement) held by the Company’s restricted subsidiaries to no more than 20% of the Company’s consolidated total capitalization (as defined in the Credit Agreement), (b) limits the Company’s permissible consolidated debt to capitalization ratio to a maximum of 0.55 to 1.0, (c) requires the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 as of the end of the fiscal quarter ending March 30, 2023 and each fiscal quarter thereafter, (d) restricts the Company’s ability to incur additional indebtedness, pay dividends and other distributions (the restriction on dividends and other distributions does not apply to subsidiaries), and make voluntary prepayments on or defeasance of the Company’s 4.02% Senior Notes due August 2025, 4.32% Senior Notes due February 2027, the notes or certain other convertible securities, (e) requires the Company’s consolidated EBITDA not to be less than or equal to (i) $10,000 as of December 30, 2021 for the two consecutive fiscal quarters then ending, (ii) $25,000 as of March 31, 2022 for the three consecutive fiscal quarters then ending, (iii) $50,000 as of June 30, 2022 for the four consecutive fiscal quarters then ending, (iv) $65,000 as of September 29, 2022 for the four consecutive fiscal quarters then ending, or (v) $70,000 as of December 29, 2022 for the four consecutive fiscal quarters then ending, (f) requires the Company’s consolidated liquidity not to be less than or equal to (i) $100,000 as of September 30, 2021, (ii) $100,000 as of December 30, 2021, (iii) $100,000 as of March 31, 2022, (iv) $100,000 as of June 30, 2022, or (v) $50,000 as of the end of any fiscal quarter thereafter until and including the fiscal quarter ending December 29, 2022; however, each such required minimum amount of consolidated liquidity would be reduced to $50,000 for each such testing date if the initial term loans are paid in full as of such date, and (g) prohibits the Company from incurring or making capital expenditures, (i) during fiscal 2021 in excess of the sum of $40,000 plus certain adjustments, or (ii) during the Company’s 2022 fiscal year in excess of $50,000 plus certain adjustments.

Pursuant to the Credit Agreement, the Company is required to apply net cash proceeds received from certain events, including certain asset disposition, casualty losses, condemnations, equity issuances, capital contributions, and the incurrence of certain debt, to prepay outstanding term loans. During the 39 weeks ended September 29, 2022, approximately $820 in asset sale proceeds were applied to the term loan balance. In addition, if, at any time during the specified period, the Company’s unrestricted cash on hand exceeds $75,000, the Company is required to prepay revolving loans under the Credit Agreement by the amount of such excess, without a corresponding reduction in the revolving commitments under the Credit Agreement.

In connection with the Credit Agreement: (i) the Company has pledged, subject to certain exceptions, security interests and liens in and on (a) substantially all of its respective personal property assets and (b) certain of its respective real property assets, in each case, to secure the Credit Agreement and related obligations; and (ii) certain of the Company’s subsidiaries

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

have guaranteed the Company’s obligations under the Credit Agreement. The foregoing security interests, liens and guaranties will remain in effect until the Collateral Release Date (as defined in the Credit Agreement).

The Credit Agreement contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then, among other things, the lenders may declare any outstanding obligations under the Credit Agreement to be immediately due and payable and exercise rights and remedies against the pledged collateral.

Note Purchase Agreements

At September 29, 2022 and December 30, 2021, the Company’s $80,000 and $90,000, respectively, of senior notes consist of two Purchase Agreements maturing in 2025 through 2027, require annual principal payments in varying installments and bear interest payable semi-annually at fixed rates ranging from 4.02% to 4.32%.

Convertible Senior Notes

On September 17, 2020, the Company entered into a purchase agreement to issue and sell $100,050 aggregate principal amount of its 5.00% Convertible Senior Notes due 2025 (the “Convertible Notes.”) The Convertible Notes were issued pursuant to an indenture (the “Indenture”), dated September 22, 2020, between the Company and U.S. Bank National Association, as trustee.

The Convertible Notes bear interest from September 22, 2020 at a rate of 5.00% per year. Interest will be payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Convertible Notes may bear additional interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the Indenture or if the Convertible Notes are not freely tradeable as required by the Indenture. The Convertible Notes will mature on September 15, 2025, unless earlier repurchased or converted. Prior to March 15, 2025, the Convertible Notes will be convertible at the option of the holders only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending on December 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period immediately after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after March 15, 2025, the Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

Upon conversion, the Convertible Notes may be settled, at the Company’s election, in cash, shares of Common Stock or a combination thereof. The initial conversion rate was 90.8038 shares of Common Stock per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $11.01 per share of Common Stock), representing an initial conversion premium of approximately 22.5% to the $8.99 last reported sale price of the Common Stock on The New York Stock Exchange on September 17, 2020. The conversion rate is subject to adjustment for certain events, including distributions and dividends paid to holders of Common Stock. At September 29, 2022, the applicable conversion rate is 91.0729 shares of Common Stock per $1,000 principal amount of the Convertible Notes. If the Company undergoes certain fundamental changes, holders of Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes for a purchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a make-whole fundamental change occurs prior to the maturity date, the Company will, under certain circumstances, increase the conversion rate for holders who convert Convertible Notes in connection with such make-whole fundamental change. The Company may not redeem the Convertible Notes before maturity and no “sinking fund” is provided for the Convertible Notes. The Indenture includes covenants customary for securities similar to the Convertible Notes, sets forth certain events of default after which the Convertible Notes may be declared immediately due and payable and sets forth

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

certain types of bankruptcy or insolvency events of default involving the Company and certain of its subsidiaries after which the Convertible Notes become automatically due and payable.

During the Company’s fiscal 2021 second, third and fourth quarters, and the Company’s fiscal 2022 first, second, third and fourth quarters, the Company’s Convertible Notes were (are) eligible for conversion at the option of the holders as the last reported sale price of the Common Stock was greater than or equal to 130% of the applicable conversion price for at least 20 trading days during the last 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter. The Company has the ability to settle the conversion in Company stock. As such, the Convertible Notes will continue to be classified as long-term. Future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Company’s Common Stock during the prescribed measurement period. No Convertible Notes have been converted to date and the Company does not expect any to be converted within the next 12 months.

Derivatives

The Company utilizes derivatives principally to manage market risks and reduce its exposure resulting from fluctuations in interest rates. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions.

The Company entered into two interest rate swap agreements on March 1, 2018 covering $50,000 of floating rate debt. The first agreement had a notional amount of $25,000, expired March 1, 2021 and required the Company to pay interest at a defined rate of 2.559% while receiving interest at a defined variable rate of one-month LIBOR. The second agreement has a notional amount of $25,000, expires March 1, 2023 and requires the Company to pay interest at a defined rate of 2.687% while receiving interest at a defined variable rate of one-month LIBOR (2.563% at September 29, 2022). The Company’s interest rate swap agreement is considered effective and qualifies as a cash flow hedge. The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. As of September 29, 2022, the remaining interest rate swap was considered highly effective. The fair value of the interest rate swap on September 29, 2022 was an asset of $130, which is included in other current assets in the consolidated balance sheet. The fair value of the interest rate swap on December 30, 2021, was a liability of $689, which was included in other long-term obligations in the consolidated balance sheet. The Company does not expect the interest rate swap to have a material effect on earnings over its remaining term.

5. Leases

The Company determines if an arrangement is a lease at inception. The Company evaluates each lease for classification as either a finance lease or an operating lease according to accounting guidance ASU No. 2016-02, Leases (Topic 842). The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. The Company leases real estate and equipment with lease terms of one year to 45 years, some of which include options to extend and/or terminate the lease.

The majority of the Company’s lease agreements include fixed rental payments. For those leases with variable payments based on increases in an index subsequent to lease commencement, such payments are recognized as variable lease expense as they occur. Variable lease payments that do not depend on an index or rate, including those that depend on the Company’s performance or use of the underlying asset, are also expensed as incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

Total lease cost consists of the following:


		13 Weeks Ended				39 Weeks Ended
Lease Cost	Classification	September 29, 2022		September 30, 2021		September 29, 2022		September 30, 2021

Finance lease costs:
Amortization of finance lease assets	Depreciation and amortization	$	692	$	677	$	2,093	$	2,057
Interest on lease liabilities	Interest expense	210		234		647		724
		$	902	$	911	$	2,740	$	2,781
Operating lease costs:
Operating lease costs	Rent expense	$	6,364	$	6,365	$	19,105	$	19,151
Variable lease cost	Rent expense	273		144		288		(29)
Short-term lease cost	Rent expense	35		35		107		107
		$	6,672	$	6,544	$	19,500	$	19,229

Additional information related to leases is as follows:


	13 Weeks Ended				39 Weeks Ended
Other Information	September 29, 2022		September 30, 2021		September 29, 2022		September 30, 2021

Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	711	$	736	$	2,047	$	2,065
Operating cash flows from finance leases	210		234		647		724
Operating cash flows from operating leases	6,917		8,253		21,053		$	23,545

Right of use assets obtained in exchange for new lease obligations:
Finance lease liabilities	119		—		307		—
Operating lease liabilities	92		287		275		1,862


	September 29, 2022		December 30, 2021

Finance leases:
Property and equipment – gross	$	75,282	$	75,124
Accumulated depreciation and amortization	(60,147)		(58,197)
Property and equipment - net	$	15,135	$	16,927

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

Remaining lease terms and discount rates are as follows:

Lease Term and Discount Rate

September 29, 2022

December 30, 2021

Weighted-average remaining lease terms:

Finance leases

8 years

Operating leases

13 years

Weighted-average discount rates:

Finance leases

4.59

4.58

Operating leases

4.51

4.48

Deferred rent payments of approximately $1,076 for the Company’s operating leases have been included in the total operating lease obligations as of September 29, 2022, of which approximately $661 is included in long-term operating lease obligations.

6. Income Taxes

The Company’s effective income tax rate for the 13 and 39 weeks ended September 29, 2022 was 31.3% and 9.8%, respectively, and was 7.9% and 27.6% for the 13 and 39 weeks ended September 30, 2021, respectively. The effective tax rate for the 39 weeks ended September 29, 2022 includes discrete tax expense related to various matters including an increase in valuation allowances on certain state income tax net operating loss carryforwards. During the 39 weeks ended September 30, 2021, the Company filed income tax refund claims of $24,151 related to its fiscal 2020 tax return, of which $1,828 was received in fiscal 2021, and $22,323 was received during the 39 weeks ended September 29, 2022. An additional $636 of interest was received during the 39 weeks ended September 29, 2022 and is included within income tax benefit in the consolidated statement of earnings (loss). During the 39 weeks ended September 30, 2021, the Company received the remaining $5,900 of requested tax refunds from its fiscal 2019 tax return.

7. Joint Venture Transactions

During the 39 weeks ended September 30, 2021, the Company sold its interest in an equity investment without a readily determinable fair value for $4,150 and recorded a gain of $2,079, which is included in gain (loss) on disposition of property, equipment and other assets in the consolidated statement of earnings (loss).

8. Business Segment Information

The Company’s primary operations are reported in the following business segments: Theatres and Hotels/Resorts. Corporate items include amounts not allocable to the business segments. Corporate revenues consist principally of rent and the corporate operating loss includes general corporate expenses. Corporate information technology costs and accounting shared services costs are allocated to the business segments based upon several factors, including actual usage and segment revenues.

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THE MARCUS CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 13 AND 39 WEEKS ENDED SEPTEMBER 29, 2022

(in thousands, except share and per share data)

Following is a summary of business segment information for the 13 and 39 weeks ended September 29, 2022 and September 30, 2021:


13 Weeks Ended	Theatres		Hotels/ Resorts		Corporate Items		Total
September 29, 2022
Revenues	$	101,258	$	82,300	$	92	$	183,650
Operating income (loss)	(723)		14,120		(4,448)		8,949
Depreciation and amortization	11,632		4,733		87		16,452

13 Weeks Ended	Theatres		Hotels/ Resorts		Corporate Items		Total
September 30, 2021
Revenues	$	79,996	$	65,803	$	63	$	145,862
Operating income (loss)	(2,604)		13,458		(4,581)		6,273
Depreciation and amortization	12,636		5,018		76		17,730

39 Weeks Ended	Theatres		Hotels/ Resorts		Corporate Items		Total
September 29, 2022
Revenues	$	310,186	$	203,958	$	303	$	514,447
Operating income (loss)	7,687		17,963		(14,605)		11,045
Depreciation and amortization	35,686		14,484		265		50,435

39 Weeks Ended	Theatres		Hotels/ Resorts		Corporate Items		Total
September 30, 2021
Revenues	$	154,859	$	134,079	$	258	$	289,196
Operating income (loss)	(46,458)		5,511		(14,551)		(55,498)
Depreciation and amortization	38,807		15,192		204		54,203

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THE MARCUS CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and elsewhere in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements include words such as we “believe,” “anticipate,” “expect” or words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which may cause results to differ materially from those expected, including, but not limited to, the following: (1) the adverse effects of the COVID-19 pandemic on our theatre and hotels and resorts businesses, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness; (2) the duration of the COVID-19 pandemic and related government restrictions and the level of customer demand following the relaxation of such requirements; (3) the availability, in terms of both quantity and audience appeal, of motion pictures for our theatre division (particularly following the COVID-19 pandemic, during which the release dates for certain motion pictures have been postponed), as well as other industry dynamics such as the maintenance of a suitable window between the date such motion pictures are released in theatres and the date they are released to other distribution channels; (4) the effects of adverse economic conditions in our markets, including but not limited to, those caused by the COVID-19 pandemic; (5) the effects of adverse economic conditions, including but not limited to, those caused by the COVID-19 pandemic, on our ability to obtain financing on reasonable and acceptable terms, if at all; (6) the effects on our occupancy and room rates caused by the COVID-19 pandemic and the effects on our occupancy and room rates caused by the relative industry supply of available rooms at comparable lodging facilities in our markets; (7) the effects of competitive conditions in our markets; (8) our ability to achieve expected benefits and performance from our strategic initiatives and acquisitions; (9) the effects of increasing depreciation expenses, reduced operating profits during major property renovations, impairment losses, and preopening and start-up costs due to the capital intensive nature of our business; (10) the effects of changes in the availability of and cost of labor and other supplies essential to the operation of our business; (11) the effects of weather conditions, particularly during the winter in the Midwest and in our other markets; (12) our ability to identify properties to acquire, develop and/or manage and the continuing availability of funds for such development; (13) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in the United States, other incidents of violence in public venues such as hotels and movie theatres or epidemics (such as the COVID-19 pandemic); and (14) a disruption in our business and reputational and economic risks associated with civil securities claims brought by shareholders. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, including developments related to the COVID-19 pandemic, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our forward-looking statements are based upon our assumptions, which are based upon currently available information, including assumptions about our ability to manage difficulties associated with or related to the COVID-19 pandemic; the assumption that our theatre closures, hotel closures and restaurant closures are not expected to be permanent or to re-occur; the continued availability of our workforce; and the temporary and long-term effects of the COVID-19 pandemic on our business. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this Form 10-Q and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

RESULTS OF OPERATIONS

General

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. Fiscal 2022 is a 52-week year beginning on December 31, 2021 and ending on December 29, 2022. Fiscal 2021 was a 52-week year that began on January 1, 2021 and ended on December 30, 2021.

We divide our fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. The third quarter of fiscal 2022 consisted of the 13-week period beginning on July 1, 2022 and ended on September 29, 2022. The third quarter of fiscal 2021 consisted of the 13-week period beginning July 2, 2021 and ended on September 30, 2021. The first three

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quarters of fiscal 2022 consisted of the 39-week period beginning on December 31, 2021 and ended on September 29, 2022. The first three quarters of fiscal 2021 consisted of the 39-week period beginning January 1, 2021 and ended on September 30, 2021. Our primary operations are reported in the following two business segments: movie theatres and hotels and resorts. 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.

For discussion regarding the impact of COVID-19 and related economic conditions on our results for the year ended December 30, 2021, see “Part II-Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report. For further discussion regarding the impacts of COVID-19 and related economic conditions on our results for the first three quarters of fiscal 2022 and potential future impacts, see immediately below, and also refer to the discussion of our operational risks and financial risks found in “Part I-Item 1A-Risk Factors” in our 2021 Annual Report.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has had an unprecedented impact on the world and both of our business segments. 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 were 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. The extent of these protective actions and their impact on our businesses has continued to dissipate during the first three quarters of fiscal 2022.

We began fiscal 2022 with all of our theatres open with normal operating days and hours. While still below pre-COVID-19 levels, attendance has continued to gradually improve as the number of vaccinated individuals increased, more films are released, and customers indicate increasing willingness to return to movie theatres. 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 still expect a return to “normalcy” to be driven by an increase in the quality and quantity of new films released in theatres and the return of consumer comfort with public gatherings. The appearance of first, the Delta variant, and subsequently the Omicron variant, of the virus has resulted in changing government guidance on indoor activities in some communities, which impacted consumer comfort early in fiscal 2022. Industry customer surveys indicate that consumer comfort continues to increase, reaching a post-pandemic high comfort level in September 2022.

Total theatre division revenues, expressed as a percentage of fiscal 2019 pre-pandemic revenues, increased every quarter of fiscal 2021, increasing from 20% in the first quarter to 32% in the second quarter, 59% in the third quarter and 82% in the fourth quarter. We were very encouraged by the performance of multiple films released during the first three quarters of fiscal 2022, including Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Jurassic World: Dominion, Minions: The Rise of Gru and The Batman. Total theatre division revenues in the first, second and third quarters of fiscal 2022, expressed as a percentage of fiscal 2019 revenues, were 69%, 80% and 74%, respectively. We believe the continued revenue shortfall compared to 2019 is driven primarily by a reduced quantity of films available for theatrical release during the fiscal 2022 periods.

We began fiscal 2022 with all eight of our company-owned and managed hotels open. All of our restaurants and bars in our hotels and resorts were open during the third quarter of fiscal 2022, operating in some cases with reduced operating hours. The majority of our hotels and restaurants are now generating revenues at or above pre-pandemic levels, while at certain hotels that primarily serve group business, revenues remain below pre-pandemic levels with improving occupancy and business travel activity increasing. The primary customer for hotels during the third quarter of fiscal 2022 continued to come from the leisure travel market. While business travel remained below pre-pandemic levels during the third quarter of fiscal 2022, we continued to see an increase in travel from this customer segment, particularly from small and mid-size group activity. 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 pre-pandemic years, but group pace has improved throughout the fiscal year and we have experienced increased booking activity in recent months for fiscal 2022 and 2023 and beyond. With companies implementing return to office plans, we remain optimistic that business travel will continue to increase during fiscal 2022 and beyond. Total hotel division revenues before cost reimbursements, expressed as a percentage of fiscal 2019 revenues before cost reimbursements, increased throughout fiscal 2021, including increases during fiscal 2021 from 53% in the first quarter to 63% in second quarter, 90%

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in the third quarter and 83% in the fourth quarter. Total hotel division revenues before cost reimbursements, expressed as a percentage of fiscal 2019 revenues before cost reimbursements, continued to increase during fiscal 2022 from 96% in the first quarter to 105% in the second quarter and 109% in the third quarter. The future economic environment will also have a significant impact on the pace of our return to “normal” hotel operations.

Maintaining and protecting a strong balance sheet has always been a core philosophy of The Marcus Corporation during our 87-year history, and, despite the COVID-19 pandemic, our financial position remains strong. As of September 29, 2022, we had a cash balance of approximately $10.5 million, $202.8 million of availability under our $225 million revolving credit facility and our debt-to-capitalization ratio was 0.33. With our strong liquidity position, combined with cash generated from operations 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 2023, even if our properties continue to generate reduced revenues during these periods. In recognition of our significantly improved financial condition and improving operating results, during the third quarter of fiscal 2022 we elected to pay off our remaining short-term borrowings of $46.6 million early (initially borrowed at the onset of the pandemic) and reinstate our quarterly dividend.

During the first three quarters of fiscal 2022 we received a $23.0 million federal income tax refund (including $0.7 million of interest) related to our fiscal 2020 tax return, with the primary benefit derived from net operating loss carrybacks to prior years. We also received $4.3 million in state theatre grants during the first three quarters of fiscal 2022 that were awarded and accrued during the fourth quarter of fiscal 2021. Both the receipt of the income tax refund and grant funds contributed to our current strong liquidity position.

We continue to pursue sales of surplus real estate and other non-core real estate to further enhance our liquidity. During the first three quarters of fiscal 2022, we sold three land parcels, generating net proceeds of approximately $4.9 million. We do not expect to receive additional sales proceeds from real estate sales during the remainder of fiscal 2022, and we may receive additional sales proceeds of $5 - $10 million during the first half of fiscal 2023, depending upon demand for the real estate in question.

We cannot assure that the impact of the COVID-19 pandemic will not continue 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.

Overall Results

The following table sets forth revenues, operating income (loss), other income (expense), net earnings (loss) and net earnings (loss) per diluted common share for the third quarter and first three quarters of fiscal 2022 and fiscal 2021 (in millions, except for per share and variance percentage data):


	Third Quarter								First Three Quarters
					Variance								Variance
	F2022		F2021		Amt.		Pct.		F2022		F2021		Amt.		Pct.
Revenues	$	183.7	$	145.9	$	37.8	25.9	%	$	514.4	$	289.2	$	225.3	77.9	%
Operating income (loss)	8.9		6.3		2.7		42.7	%	11.0		(55.5)		66.5		119.8	%
Other income (expense)	(4.2)		(4.4)		0.2		4.6	%	(14.0)		(13.2)		(0.8)		(6.1)	%
Net earnings (loss) attributable to The Marcus Corp.	$	3.3	$	1.8	$	1.5	87.0	%	$	(2.7)	$	(49.7)	$	47.1	94.8	%
Net earnings (loss) per common share - diluted:	$	0.10	$	0.06	$	0.04	66.7	%	$	(0.09)	$	(1.66)	$	1.57	94.6	%

Revenues increased and operating income (loss), net earnings (loss) attributable to The Marcus Corporation and net earnings (loss) per diluted common share improved significantly during the third quarter and first three quarters of fiscal 2022 compared to the fiscal 2021 periods. Increased revenues and operating income from both our theatre division and hotels and resorts division contributed to the improvement during the third quarter and first three quarters of fiscal 2022 compared to the third quarter and first three quarters of fiscal 2021. During portions of fiscal 2021, some of our theatres were closed, releases of new films were limited and travel was significantly reduced due to the impact of the COVID-19 pandemic.

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Our operating income (loss) during the third quarter and first three quarters of fiscal 2021 was favorably impacted by state government grants of approximately $2.0 million and $3.3 million, respectively, or approximately $0.05 and $0.08 per diluted common share, respectively. Our operating loss during the first three quarters of fiscal 2021 was negatively impacted by impairment charges of $3.7 million, or approximately $0.09 per diluted common share, primarily related to surplus real estate that was held for sale.

Net earnings (loss) attributable to The Marcus Corporation during the third quarter and first three quarters of fiscal 2022 was favorably impacted by decreased interest expense compared to the fiscal 2021 periods, partially offset by investment losses during the fiscal 2022 periods compared to investment gains in the fiscal 2021 periods, and lower gains on disposition of property, equipment and other assets during the first three quarters of fiscal 2022 as compared to the first three quarters of fiscal 2021.

Investment losses during the third quarter of fiscal 2022 and fiscal 2021 were insignificant. We recognized investment losses of $0.8 million during the first three quarters of fiscal 2022 compared to investment income of $0.2 million for the respective fiscal 2021 period. Variations in investment income were due to changes in the value of marketable securities.

Our interest expense totaled $3.7 million and $11.8 million for the third quarter and first three quarters of fiscal 2022, respectively, compared to $4.6 million and $14.4 million for the respective fiscal 2021 periods. The decrease in interest expense for both periods in fiscal 2022 was primarily due to decreased borrowings and a decrease in non-cash amortization of deferred financing costs. Changes in our borrowing levels due to variations in our operating results, capital expenditures, acquisition opportunities (or the lack thereof) and asset sale proceeds, among other items, may impact, either favorably or unfavorably, our actual reported interest expense in future periods, as may changes in short-term interest rates.

We reported net losses on disposition of property, equipment and other assets of $0.1 million during the third quarter of fiscal 2022, compared to net gains on disposition of property, equipment and other assets of $0.9 million during the third quarter of fiscal 2021. We reported net gains on disposition of property, equipment and other assets of $0.3 million during the first three quarters of fiscal 2022, compared to net gains on disposition of property, equipment and other assets of $2.9 million during the first three quarters of fiscal 2021. The net gain on disposition of property, equipment and other assets during the first three quarters of fiscal 2022 was due primarily to the sale of surplus land. The net gain on disposition of property, equipment and other assets during the first three quarters of fiscal 2021 included the sale of an equity investment in a joint venture. The timing of periodic sales and disposals of our property, equipment and other assets varies from quarter to quarter, resulting in variations in our reported gains or losses on disposition of property, equipment and other assets. We anticipate additional disposition gains or losses from periodic sales of property, equipment and other assets during fiscal 2022 and beyond.

We reported income tax expense for the third quarter of fiscal 2022 of $1.5 million compared to an income tax expense of $0.2 million during the third quarter of fiscal 2021. We reported an income tax benefit for the first three quarters of fiscal 2022 of $0.3 million compared to an income tax benefit of $18.9 million during the first three quarters of fiscal 2021. The income tax benefit during the fiscal 2021 periods was primarily the result of the significant losses before income taxes incurred as a result of the reduction in our operating performance due to the impact of the COVID-19 pandemic as described above. Our fiscal 2022 first three quarters effective income tax rate was 9.8%, and was impacted by an increase in valuation allowances on certain state income tax net operating loss carryforwards. Our fiscal 2021 first three quarters effective income tax rate was 27.6%. We anticipate that our effective income tax rate for the fourth quarter of fiscal 2022 may be in the 24-28% range, excluding any potential changes in federal or state income tax rates or other one-time tax benefits. Our actual fiscal 2022 effective income tax rate may be different from our estimated quarterly rates depending upon actual facts and circumstances.

As of September 29, 2022, we had approximately $11.4 million of deferred tax assets, net of valuation allowances, related to state net operating loss (NOL) carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. Many of these state NOL carryforwards will expire if they are not used within certain periods. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these deferred tax assets. However, it is possible that some or all of these state NOL carryforwards could ultimately expire unused. Therefore, unless we are able to generate sufficient taxable income in certain states, an additional valuation allowance to reduce our state deferred tax assets may be required, which would increase income tax expense in the period the allowance is recorded. In future periods, sufficient positive evidence of current and anticipated future taxable earnings in these states may become available to allow us to reach a conclusion that all or a portion of the valuation allowance is no longer needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and decrease income tax expense for the period the release is recorded.

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Theatres

The following table sets forth revenues, operating income (loss) and operating margin for our theatre division for the third quarter and first three quarters of fiscal 2022 and fiscal 2021 (in millions, except for variance percentage and operating margin):


	Third Quarter										First Three Quarters
							Variance										Variance
	F2022			F2021			Amt.		Pct.		F2022			F2021			Amt.		Pct.
Revenues	$	101.3		$	80.0		$	21.3	26.6	%	$	310.2		$	154.9		$	155.3	100.3	%
Operating income (loss)	(0.7)			(2.6)			1.9		73.1	%	7.7			(46.5)			54.1		116.3	%
Operating margin (% of revenues)	(0.7)		%	(3.3)		%					2.5		%	(30.0)		%

Our theatre division revenues and operating income increased significantly during the third quarter and first three quarters of fiscal 2022 with all of our theatres open and an increase in new films released by movie studios, compared to the fiscal 2021 periods during portions of which a significant number of our theatres were temporarily closed and releases of new films were limited. We began the first quarter of fiscal 2021 with approximately 52% of our theatres open. As state and local restrictions were eased in several of our markets and several new films were released by movie studios, we gradually reopened theatres, ending the fiscal 2021 first, second and third quarters with approximately 74%, 95% and 97% of our theatres open, respectively. 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, and 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. Our theatres were open with normal operating days and hours at all of our theatres throughout the first three quarters of fiscal 2022.

Although significantly improved compared to the prior year, our operating loss during the third quarter and operating income during the first three quarters of fiscal 2022 were negatively impacted by increased film costs (discussed below) and increased labor and supply costs as a result of the current labor shortage and inflationary environment. Our operating loss during the third quarter and operating income during the first three quarters of fiscal 2022 were favorably impacted by inflationary price increases taken later in the second quarter of fiscal 2022 in response to the increased labor and supply costs. Our operating loss during the first three quarters of fiscal 2021 was negatively impacted by impairment charges of $3.7 million primarily related to surplus real estate that was held for sale, and would have been even larger if not for a nonrecurring state government grant of approximately $1.3 million that favorably impacted our theatre division operating loss.

The following table provides a further breakdown of the components of revenues for the theatre division for the third quarter and first three quarters of fiscal 2022 and fiscal 2021 (in millions, except for variance percentage):


	Third Quarter								First Three Quarters
					Variance								Variance
	F2022		F2021		Amt.		Pct.		F2022		F2021		Amt.		Pct.
Admission revenues	$	49.4	$	38.3	$	11.1	29.0	%	$	150.9	$	73.9	$	77.0	104.3	%
Concession revenues	44.7		36.0		8.7		24.2	%	138.3		68.9		69.4		100.7	%
Other revenues	7.1		5.8		1.3		22.4	%	20.9		12.0		8.9		74.2	%
	101.3		80.0		21.3		26.6	%	310.2		154.8		155.4		100.4	%
Cost reimbursements	—		—		—		—	%	—		0.1		(0.1)		(100.0)	%
Total revenues	$	101.3	$	80.0	$	21.3	26.6	%	$	310.2	$	154.9	$	155.3	100.3	%

As described above, revenues were significantly reduced during the third quarter and first three quarters of fiscal 2021 due to a limited number of films and the temporary closures and reduced operating days and hours at our theatres in response to the COVID-19 pandemic. As a result, we believe it is also beneficial to compare our revenues to pre-pandemic levels. The

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following table compares the components of revenues for the theatre division for the third quarter and first three quarters of fiscal 2022 to the third quarter and first three quarters of fiscal 2019 (in millions, except for variance percentage):


	Third Quarter								First Three Quarters
					Variance								Variance
	F2022		F2019		Amt.		Pct.		F2022		F2019		Amt.		Pct.
Admission revenues(1)	$	49.4	$	69.8	$	(20.3)	(29.1)	%	$	150.9	$	211.8	$	(60.8)	(28.7)	%
Concession revenues	44.7		57.1		(12.3)		(21.6)	%	138.3		172.1		(33.8)		(19.6)	%
Other revenues	7.1		9.8		(2.7)		(27.2)	%	20.9		29.5		(8.6)		(29.1)	%
	101.3		136.6		(35.3)		(25.9)	%	310.2		413.4		(103.2)		(25.0)	%
Cost reimbursements	—		0.2		(0.2)		(100.0)	%	—		0.6		(0.6)		(100.0)	%
Total revenues	$	101.3	$	136.8	$	(35.5)	(26.0)	%	$	310.2	$	414.1	$	(103.9)	(25.1)	%

(1)We acquired Movie Tavern theatres on February 1, 2019. Admission revenues for the first three quarters of fiscal 2022 decreased 30.2% on a pro forma basis for the acquisition as of the first day of fiscal 2019.

According to data received from Comscore (a national box office reporting service for the theatre industry) and compiled by us to evaluate our fiscal 2022 third quarter and first three quarters results, U.S. box office receipts decreased 32.1% during our fiscal 2022 third quarter and 33.5% during our fiscal 2022 first three quarters compared to the same comparable weeks in fiscal 2019, indicating that our decrease in admission revenues during the third quarter of fiscal 2022 of 29.1% outperformed the industry by 3.0 percentage points. Our pro forma decrease in admission revenues during the first three quarters of fiscal 2022 of 30.2% outperformed the industry by 3.3 percentage points. Based upon this metric, we believe we were once again one of the top performing theatre circuits during fiscal 2022 compared to the top 10 circuits in the U.S. Additional data received and compiled by us from Comscore indicates our admission revenues during the third quarter and first three quarters of fiscal 2022 represented approximately 3.2% of the total admission revenues in the U.S. during the periods (commonly referred to as market share in our industry). This represents an increase over our reported market share of approximately 3.0% and 3.1% during the third quarter and first three quarters of fiscal 2019, respectively, prior to the pandemic. Our goal is to continue our past pattern of outperforming the industry, but with the majority of our renovations now completed, our ability to do so in any given quarter will likely be partially dependent upon film mix, weather and the competitive landscape in our markets.

Total theatre attendance increased significantly during the third quarter and first three quarters of fiscal 2022 compared to the third quarter and first three quarters of fiscal 2021, when a significant portion of our theatres were temporarily closed and the number of new films was more limited. Total theatre attendance increased 28.0% and 97.8% during the third quarter and first three quarters of fiscal 2022, respectively, compared to the third quarter and first three quarters of fiscal 2021, resulting in increases in both admission revenues and concession revenues. Conversely, a decrease in the number of new films and lingering customer concerns regarding visiting indoor businesses negatively impacted attendance during the third quarter and first three quarters of fiscal 2022 as compared to the same periods in fiscal 2019.

Our highest grossing films during the fiscal 2022 third quarter included Minions: The Rise of Gru, Thor: Love and Thunder, Top Gun: Maverick, Where the Crawdads Sing and Nope. All of these five films debuted with an exclusive theatrical run prior to release on streaming services. This compares with three of the top five films in the third quarter of fiscal 2021 that were released “day-and-date” on streaming services. We believe such “day-and-date” releases negatively impact theatrical revenues, particularly in week two and beyond of a films’ release. We also believe “day-and-date” releases increase piracy, further impacting potential revenues. We believe our theatre circuit outperformed its competition on three of our top five revenue producing films during the third quarter of fiscal 2022. In addition, we believe our overall admission revenue outperformed the industry due in part to the fact that we believe our theatre circuit outperformed its competition on the next tier of films. Due to the impact of three particularly strong blockbusters released or playing during the third quarter of fiscal 2022 (Minions: The Rise of Gru, Thor: Love and Thunder and Top Gun: Maverick), the film slate during the third quarter of fiscal 2022 was weighted more towards our top movies compared to the third quarter of fiscal 2021 and fiscal 2019, as evidenced by the fact that our top five films during our fiscal 2022 third quarter accounted for 62% of our total box office results, compared to 49% and 58% for the top five films during the third quarter of fiscal 2021 and fiscal 2019 (prior to the pandemic), respectively, both expressed as a percentage of the total admission revenues for the period. An increased reliance on just a few blockbuster films during a given quarter often has the effect of increasing our film rental costs during the period, as generally the better a particular film performs, the greater the film rental cost tends to be as a percentage of box office receipts. As a result of a more concentrated film slate our overall film rental cost increased significantly during the third quarter of fiscal 2022 compared to the same period in the prior year.

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Our average ticket price increased 0.8% during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021 and increased by 9.3% compared to the third quarter of fiscal 2019. The increase in our average ticket price during the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021 was favorably impacted by inflationary price increases taken during the second quarter of fiscal 2022 in response to increases in labor and supply costs, which was partially offset by $3.00 promotional ticket pricing on National Cinema Day and a lower proportion of admission revenues from evening showings and premium large format screens due to the mix of films. Our average ticket price increased 3.2% during the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021 and increased by 11.7% compared to the first three quarters of fiscal 2019. In addition to inflationary price increases taken during the second quarter of fiscal 2022, a larger proportion of admission revenues from our premium large format screens (with a higher ticket price) contributed to the increase in our average ticket price during the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021. During portions of the first three quarters of fiscal 2021, we also offered older “library” film product for only $5.00 per ticket when there was limited availability of new films resulting in a lower average ticket price in the same period in the prior year.

Our average concession revenues per person decreased by 2.6% during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021 and increased by 21.2% compared to the third quarter of fiscal 2019. The decrease in our average concession revenues per person during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021 was due in part to a mix of films that played more to family and child audiences, which we believe results in lower average concession purchases and lower purchase rates, and by promotional concession pricing on National Cinema Day. These impacts were partially offset by inflationary increases in concessions prices in response to increases in food and labor costs. Our average concession revenues per person increased by 1.6% during the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021 and increased by 26.0% compared to the first three quarters of fiscal 2019. As customers have returned to “normal” activities such as going to the movie theatre, they have demonstrated a propensity to spend at a higher rate than before the pandemic closures. We also believe a portion of the increase in our average concession revenues per person during the first three quarters of fiscal 2022 may be attributed to shorter lines at our concession stands due to reduced attendance (during periods of high attendance, some customers do not purchase concessions because the line is too long). A portion of the increase in our average concession revenues per person is attributable to inflationary increases in concessions prices in response to increases in food and labor costs. Finally, we believe that an increased percentage of customers buying their concessions in advance using our website, kiosk or our mobile app likely contributed to higher average concession revenues per person, as our experience has shown that customers are more likely to purchase more items when they order and pay electronically. We expect to continue to report increased average concession revenues per person in future periods compared to pre-pandemic periods, but whether our customers will continue to spend at these current significantly higher levels in future periods is currently unknown.

Other revenues increased by approximately $1.3 million during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. Other revenues increased by approximately $8.9 million during the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021. The increases were primarily due to the impact of increased attendance on internet surcharge ticketing fees and preshow and in-app advertising income.

Several films have performed well in the early weeks of our fiscal 2022 fourth quarter, including Smile, Halloween Ends, Black Adam and Ticket to Paradise. Several films that were previously scheduled for release in the remainder of fiscal 2022 have shifted release dates into fiscal 2023 due to production delays resulting from supply chain disruptions and a post-production backlog. We expect the lack of a significant number of blockbuster films, particularly during the first quarter of fiscal 2023, to negatively impact our operating results in the near-term, before the pace of new film releases is expected to increase once again. The current film product release schedule for the remainder of fiscal 2022 includes several new films that have potential to perform well, including Black Panther: Wakanda Forever, Strange World, Devotion, The Fabelmans, Avatar: The Way of Water, Puss in Boots: The Last Wish and Babylon. We believe that with consumer comfort now at post-pandemic highs, and assuming that concerns over any new variants of COVID-19 do not result in significant new restrictions, demand for out-of-home entertainment will continue to remain strong.

Revenues for the theatre business and the motion picture industry in general are heavily dependent on the number of films produced by studios and the general audience appeal of available films, together with studio marketing, advertising and support campaigns and the maintenance of appropriate “windows” between the date a film is released in theatres and the date a motion picture is released to other channels, including premium video-on-demand (“PVOD”), video on-demand (“VOD”), streaming services and DVD. These are factors over which we have no control. We currently believe that “day-and-date” film release experiments such as those tested by Warner Brothers and Disney during 2021 will not become the normal plan of distribution. Warner Brothers has indicated that it is returning to an exclusive 45-day theatrical window with a significant number of its films during fiscal 2022 and an increasing number of wide theatrical releases in 2023 and

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2024. Disney announced in early 2022 that they will retain flexibility for future film distribution, particularly for family films, but has released several films exclusively to theatrical in fiscal 2022 including Doctor Strange in the Multiverse of Madness, Lightyear, and Thor: Love and Thunder, and has committed to exclusive theatrical releases for several upcoming films including Black Panther: Wakanda Forever and Avatar: The Way of Water. The quantity of films available for theatrical exhibition remains below pre-pandemic levels, and has been impacted during fiscal 2022 by COVID-19 related disruptions, production delays resulting from supply chain disruptions and a post-production backlog. While lead times for movie production to theatrical release are lengthy, we expect to see increases in the quantity of available films in late 2023 and 2024.

We ended the third quarter of fiscal 2022 with a total of 1,064 company-owned screens in 85 theatres, compared to 1,091 company-owned screens in 88 theatres at the end of the third quarter of fiscal 2021. As of the end of the third quarter of fiscal 2022 and the date of this report, all of our company-owned theatres are operating. As of the end of the third quarter of fiscal 2021 approximately 97% of our theatres were open and operating.

Hotels and Resorts

The following table sets forth revenues, operating income and operating margin for our hotels and resorts division for the third quarter and first three quarters of fiscal 2022 and fiscal 2021 (in millions, except for variance percentage and operating margin):


	Third Quarter										First Three Quarters
							Variance										Variance
	F2022			F2021			Amt.		Pct.		F2022			F2021			Amt.		Pct.
Revenues	$	82.3		$	65.8		$	16.5	25.1	%	$	204.0		$	134.1		$	69.9	52.1	%
Operating income	14.1			13.5			0.7		4.9	%	18.0			5.5			12.5		227.3	%
Operating margin (% of revenues)	17.2		%	20.5		%					8.8		%	4.1		%

Our hotels and resorts division operating income during the third quarter and first three quarters of fiscal 2022 increased compared to the third quarter and first three quarters of fiscal 2021, due to significantly increased revenues during the fiscal 2022 periods. All but one of our company-owned hotels and resorts contributed to the improved operating results during the third quarter of fiscal 2022, and all of our company-owned hotels and resorts contributed to the improved operating results during the first three quarters of fiscal 2022 compared to the fiscal 2021 periods. Our fiscal 2021 third quarter and first three quarters operating income benefited from a state government grant totaling approximately $1.9 million.

The following table provides a further breakdown of the components of revenues for the hotels and resorts division for the third quarter and first three quarters of fiscal 2022 and fiscal 2021 (in millions, except for variance percentage):


	Third Quarter								First Three Quarters
					Variance								Variance
	F2022		F2021		Amt.		Pct.		F2022		F2021		Amt.		Pct.
Room revenues	$	36.9	$	30.9	$	6.0	19.4	%	$	83.2	$	57.3	$	25.9	45.3	%
Food/beverage revenues	21.4		16.7		4.7		28.2	%	55.0		32.2		22.7		70.5	%
Other revenues	15.0		13.3		1.7		12.7	%	40.9		33.0		7.9		24.0	%
Total revenues before cost reimbursements	73.3		60.9		12.4		20.4	%	179.1		122.5		56.6		46.2	%
Cost reimbursements	9.0		4.9		4.1		83.7	%	24.8		11.5		13.3		115.1	%
Total revenues	$	82.3	$	65.8	$	16.5	25.1	%	$	204.0	$	134.1	$	69.9	52.1	%

Division revenues increased significantly during the third quarter and first three quarters of fiscal 2022 compared to the third quarter and first three quarters of fiscal 2021. While all eight of our company-owned hotels and all but one of our managed hotels were open during the third quarter and first three quarters of fiscal 2021, the majority of these properties were generating significantly reduced revenues and operating under applicable state and local restrictions and guidelines, and, in some cases, reduced operating hours. In addition, we reopened our Milwaukee SafeHouse restaurant and bar in June 2021 and reopened the Chicago SafeHouse in May 2022.

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We believe it is also beneficial to compare our revenues to pre-pandemic levels. The following table compares the components of revenues for the hotels and resorts division for the third quarter and first three quarters of fiscal 2022 to the third quarter and first three quarters of fiscal 2019 (in millions, except for variance percentage):


	Third Quarter								First Three Quarters
					Variance								Variance
	F2022		F2019		Amt.		Pct.		F2022		F2019		Amt.		Pct.
Room revenues	$	36.9	$	34.2	$	2.7	8.0	%	$	83.2	$	81.3	$	1.9	2.3	%
Food/beverage revenues	21.4		20.2		1.3		6.3	%	55.0		54.6		0.4		0.7	%
Other revenues	15.0		13.0		2.0		15.1	%	40.9		36.4		4.6		12.5	%
Total revenues before cost reimbursements	73.3		67.4		6.0		8.9	%	179.1		172.3		6.9		4.0	%
Cost reimbursements	9.0		7.2		1.8		24.3	%	24.8		27.3		(2.5)		(9.2)	%
Total revenues	$	82.3	$	74.6	$	7.7	10.4	%	$	204.0	$	199.6	$	4.4	2.2	%

Leisure travel continued to drive demand during the third quarter and first three quarters of fiscal 2022, representing an increased percentage of total rooms revenues compared to the fiscal 2019 periods. The leisure travel increase offset lower transient and group business revenues during the third quarter and first three quarters of fiscal 2022 compared to the same quarter and first three quarters of fiscal 2019. While business transient and group revenues as a percentage of total rooms revenues during the first three quarters of fiscal 2022 remains below fiscal 2019 levels, we have continued to see improvement in group revenues throughout fiscal 2022. The increase in group revenues during fiscal 2022 has consequently led to an increase in banquet and catering revenues, positively impacting our food and beverage revenues as compared to both fiscal 2021 and fiscal 2019 periods.

Other revenues increased during the third quarter and first three quarters of fiscal 2022 compared to the third quarter and first three quarters of fiscal 2019, primarily due to increased revenues from one of our condominium hotels and increased golf, ski and spa revenues at the Grand Geneva® Resort & Spa (“Grand Geneva”), partially offset by decreased management fees. Cost reimbursements decreased during the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2019 due to a lower number of managed hotels and reduced revenues and subsequent operating costs at our managed hotels.

The following table sets forth certain operating statistics for the third quarter and first three quarters of fiscal 2022 and fiscal 2021, including our average occupancy percentage (number of occupied rooms as a percentage of available rooms), our average daily room rate, or ADR, and our total revenue per available room, or RevPAR, for company-owned properties:


	Third Quarter										First Three Quarters
							Variance										Variance
	F2022			F2021			Amt.		Pct.		F2022			F2021			Amt.		Pct.
Occupancy pct.	74.7		%	64.9		%	9.8 pts		15.2	%	63.0		%	46.9		%	16.1 pts		34.4	%
ADR	$	202.78		$	195.08		$	7.70	3.9	%	$	179.90		$	165.26		$	14.64	8.9	%
RevPAR	$	151.55		$	126.54		$	25.01	19.8	%	$	113.38		$	77.46		$	35.92	46.4	%

Note: These operating statistics represent averages of our eight distinct comparable company-owned hotels and resorts, branded and unbranded, in different geographic markets with a wide range of individual hotel performance. The statistics are not necessarily representative of any particular hotel or resort. The statistics exclude days during fiscal 2021 where individual hotels may have been closed.

RevPAR increased at all but one of our eight company-owned properties during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021, and increased at all eight of our company-owned properties during the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021. Leisure travel customers provided the most demand during the fiscal 2022 third quarter, with weekend business relatively strong at the majority of our properties. During the third quarter of fiscal 2022, our non-group business represented approximately 63% of our total rooms revenue, compared to approximately 59% during the third quarter of fiscal 2019 prior to the pandemic. Although group business continues to lag prior years, it has increased throughout fiscal 2022. Non-group retail pricing remained very strong in the majority of our markets during the third quarter of fiscal 2022, with significant leisure demand contributing to increased occupancy

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percentages and ADR. During the third quarter of fiscal 2021, our Milwaukee market hotels benefited from large demand drivers (Ryder Cup and Milwaukee Bucks playoffs) that did not recur in the third quarter of fiscal 2022.

We believe it is also beneficial to compare our operating statistics to pre-pandemic levels. The following table sets forth certain operating statistics for the third quarter and first three quarters of fiscal 2022 and fiscal 2019, including our average occupancy percentage, our ADR, and our RevPAR, for company-owned properties:


	Third Quarter										First Three Quarters
							Variance										Variance
	F2022			F2019			Amt.		Pct.		F2022			F2019			Amt.		Pct.
Occupancy pct.	75.0		%	83.0		%	(8.0) pts		(9.6)	%	63.6		%	75.2		%	(11.6) pts		(15.5)	%
ADR	$	200.61		$	172.12		$	28.49	16.6	%	$	177.36		$	155.91		$	21.45	13.8	%
RevPAR	$	150.48		$	142.84		$	7.64	5.3	%	$	112.75		$	117.19		$	(4.44)	(3.8)	%

Note: These operating statistics represent averages of our seven distinct comparable company-owned hotels and resorts, branded and unbranded, in different geographic markets with a wide range of individual hotel performance. The statistics are not necessarily representative of any particular hotel or resort. The statistics for both the 2022 and 2019 periods exclude the Saint Kate, which was closed during a significant portion of fiscal 2019.

According to data received from Smith Travel Research and compiled by us in order to evaluate our fiscal 2022 third quarter and first three quarters results, comparable “upper upscale” hotels—hotels identified as our industry— throughout the United States experienced an increase in RevPAR of 3.5% during our fiscal 2022 third quarter and a decrease in RevPAR of 3.9% during our fiscal 2022 first three quarters compared to the same periods during fiscal 2019, leading us to believe we outperformed the industry during the fiscal 2022 third quarter and first three quarters by approximately 1.8 and 0.1 percentage points, respectively. Data received from Smith Travel Research for our various “competitive sets”—hotels identified in our specific markets that we deem to be competitors to our hotels—indicates that these hotels experienced an increase in RevPAR of 3.9% during our third quarter and a decrease of 9.0% during our first three quarters of fiscal 2022, again compared to the same periods in fiscal 2019. Therefore, we believe we outperformed our competitive sets during the third quarter and first three quarters of fiscal 2022 by approximately 1.4 and 5.2 percentage points, respectively. Higher class segments of the hotel industry, such as luxury and upper upscale (with an increased reliance on business travel), continue to experience lower occupancies compared to lower class hotel segments such as economy and midscale.

Looking to future periods, overall occupancy in the U.S. continues to slowly increase, in recent months reaching its highest level since the start of the pandemic. In the near term, we expect most demand will continue to come from the leisure travel segment. Leisure travel in our markets has a seasonal component, peaking in the summer months and slowing down as children return to school and the weather turns colder. We are experiencing increases in business travel as corporate training events, meetings, and conferences return and downtown offices reopen. Our company-owned hotels have experienced a decrease in group bookings compared to pre-pandemic periods. As of the date of this report, our group room revenue bookings for the remainder of fiscal 2022 - commonly referred to in the hotels and resorts industry as “group pace” - is running approximately 5% behind where we were at the same time in fiscal 2019, but despite our reduced group pace as compared to the third quarter of fiscal 2019, our current group pace is an improvement from recent quarters. Group room revenue bookings for fiscal 2023 is running approximately 18% behind where we were at the same time in fiscal 2019, which we believe is partially due to a shortening of the advance period for group bookings. Banquet and catering revenue pace for fiscal 2022 and fiscal 2023 is similarly running behind where we would typically be at this same time of the year pre-pandemic. Overall, we generally expect our revenue trends to track or exceed the overall industry trends for our segment of the industry, particularly in our respective markets.

Adjusted EBITDA

Adjusted EBITDA is a measure used by management and our board of directors to assess our financial performance and enterprise value. We believe that Adjusted EBITDA is a useful measure for us and investors, as it eliminates certain expenses that are not indicative of our core operating performance and facilitates a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine certain annual cash bonuses and long-term incentive awards, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also used by analysts, investors and other interested parties as a performance measure to evaluate industry competitors.

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Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net earnings (loss) as a measure of financial performance, or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of liquidity or free cash flow for management’s discretionary use. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

We define Adjusted EBITDA as net earnings (loss) attributable to The Marcus Corporation before investment income or loss, interest expense, other expense, gain or loss on disposition of property, equipment and other assets, equity earnings or losses from unconsolidated joint ventures, net earnings or losses attributable to noncontrolling interests, income taxes and depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine Adjusted EBITDA, such as acquisition expenses, preopening expenses, accelerated depreciation, impairment charges and other adjustments. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of Adjusted EBITDA differ among companies in our industries, and therefore Adjusted EBITDA disclosed by us may not be comparable to the measures disclosed by other companies.

The following table sets forth Adjusted EBITDA by reportable operating segment for the third quarter and first three quarters of fiscal 2022 and fiscal 2021 (in millions, except for variance percentage):


	Third Quarter								First Three Quarters
					Variance								Variance
	F2022		F2021		Amt.		Pct.		F2022		F2021		Amt.		Pct.
Theatres	$	12.5	$	10.6	$	1.8	17.4	%	$	46.0	$	(3.6)	$	49.6	1389.6	%
Hotels and resorts	19.1		17.0		2.1		12.2	%	33.3		20.0		13.3		66.2	%
Corporate items	(3.7)		(3.1)		(0.6)		(18.7)	%	(10.8)		(10.6)		(0.1)		(1.1)	%
Total Adjusted EBITDA	$	27.9	$	24.5	$	3.4	13.7	%	$	68.5	$	5.8	$	62.7	1075.2	%

The following table sets forth our reconciliation of Adjusted EBITDA (in millions):


	Third Quarter				First Three Quarters
	F2022		F2021		F2022		F2021
Net earnings (loss) attributable to The Marcus Corporation	$	3.3	$	1.8	$	(2.7)	$	(49.7)
Add (deduct):
Investment (income) loss	—		—		0.8		(0.2)
Interest expense	3.7		4.6		11.8		14.4
Other expense	0.4		0.6		1.5		1.9
Loss (gain) on disposition of property, equipment and other assets	0.1		(0.9)		(0.3)		(2.9)
Equity (earnings) losses from unconsolidated joint ventures	—		—		0.1		—

Income tax expense (benefit)	1.5		0.2		(0.3)		(18.9)
Depreciation and amortization	16.5		17.7		50.4		54.2
Share-based compensation expenses (1)	2.5		2.5		7.0		6.7
Impairment charges (2)	—		—		—		3.7
Government grants (3)	—		(2.0)		—		(3.3)
Total Adjusted EBITDA	$	27.9	$	24.5	$	68.5	$	5.8

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The following tables sets forth our reconciliation of Adjusted EBITDA by reportable operating segment (in millions):


	Third Quarter, F2022								First Three Quarters, F2022
	Theatres		Hotels & Resorts		Corp. Items		Total		Theatres		Hotels & Resorts		Corp. Items		Total
Operating income (loss)	$	(0.7)	$	14.1	$	(4.4)	$	8.9	$	7.7	$	18.0	$	(14.6)	11.0
Depreciation and amortization	11.6		4.7		0.1		16.5		35.7		14.5		0.3		50.4
Share-based compensation (1)	1.5		0.2		0.7		2.5		2.6		0.8		3.6		7.0


Total Adjusted EBITDA	$	12.5	$	19.1	$	(3.7)	$	27.9	$	46.0	$	33.3	(10.8)		68.5


	Third Quarter, F2021								First Three Quarters, F2021
	Theatres		Hotels & Resorts		Corp. Items		Total		Theatres		Hotels & Resorts		Corp. Items		Total
Operating loss	$	(2.6)	$	13.5	$	(4.6)	$	6.3	$	(46.5)	$	5.5	$	(14.6)	(55.5)
Depreciation and amortization	12.6		5.0		0.1		17.7		38.8		15.2		0.2		54.2
Share-based compensation (1)	0.6		0.5		1.4		2.5		1.7		1.3		3.7		6.7
Impairment charges (2)	—		—		—		—		3.7		—		—		3.7
Government grants (3)	(0.1)		(1.9)		—		(2.0)		(1.3)		(1.9)		—		(3.3)
Total Adjusted EBITDA	$	10.6	$	17.0	$	(3.1)	$	24.5	$	(3.6)	$	20.0	(10.6)		5.8

(1)Non-cash expense related to share-based compensation programs.

(2)Non-cash impairment charges related to surplus theatre real estate.

(3)Reflects a nonrecurring state government grant awarded for COVID-19 pandemic relief.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our movie theatre and hotels and resorts businesses, when open and operating normally, each generate significant and consistent daily amounts of cash, subject to previously-noted seasonality, because each segment’s revenue is derived predominantly from consumer cash purchases. Under normal circumstances, we believe that these relatively consistent and predictable cash sources, as well as the availability of unused credit lines, would be adequate to support the ongoing operational liquidity needs of our businesses.

Maintaining and protecting a strong balance sheet has always been a core value of The Marcus Corporation during our 87-year history, and, despite the COVID-19 pandemic, our financial position remains strong. As of September 29, 2022, we had a cash balance of approximately $10.5 million, $202.8 million of availability under our $225 million revolving credit facility, and our debt-to-capitalization ratio was 0.33. With our strong liquidity position, combined with cash generated from operations and proceeds from the sale of surplus real estate (discussed above), we believe we are positioned to meet our obligations as they come due and continue to sustain our operations throughout fiscal 2022 and fiscal 2023, 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.

We believe that the actions we have taken during the past two years will allow us to have sufficient liquidity to meet our obligations as they come due and to comply with our debt covenants for at least 12 months from the issuance date of the consolidated financial statements. However, future compliance with our debt covenants could be impacted if we are unable to continue operations as currently expected, which could be impacted by matters that are not entirely in our control, such as the reinstatement of protective actions that federal, state and local governments have taken and the timing of new movie releases (as described in the Impact of the COVID-19 Pandemic section of this MD&A and in our Annual Report for the year ended December 30, 2021). Future compliance with our debt covenants could also be impacted if the speed of recovery of our theatres and hotels and resorts businesses is slower than currently expected. For example, our current expectations are that our theatre division will continue to improve during fiscal 2023, but still report results below comparable periods in fiscal 2019. Our current expectations for our hotels and resorts division are that we will continue to show improvement during the remainder of fiscal 2022 and in fiscal 2023 compared to the prior year. We do not expect to

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return to pre-COVID-19 occupancy levels during fiscal 2022 due to an expected lag in business travel. It is possible that the impact of COVID-19 may be greater than currently expected across one or both of our divisions such that we may be unable to comply with our debt covenants in future periods. In such an event, we would either seek covenant waivers or attempt to amend our covenants, though there is no certainty that we would be successful in such efforts.

Financial Condition

Net cash provided by operating activities totaled $60.4 million during the first three quarters of fiscal 2022, compared to net cash provided by operating activities of $2.1 million during the first three quarters of fiscal 2021. The $58.3 million increase in net cash provided by operating activities was due primarily to a reduced net loss and the favorable timing in the collection of accounts receivable and receipt of refundable income taxes of $22.7 million, partially offset by unfavorable timing in the payment of accounts payable, accrued compensation and other accrued liabilities during the first three quarters of fiscal 2022.

Net cash used in investing activities during the first three quarters of fiscal 2022 totaled $22.9 million, compared to net cash provided by investing activities of $9.2 million during the first three quarters of fiscal 2021. The increase in net cash used in investing activities of $32.1 million was the result of an increase of $18.4 million in capital expenditures and the collection of an $11.4 million life insurance premium reimbursement during the first three quarters of fiscal 2021 that did not recur in fiscal 2022. Total cash capital expenditures (including normal continuing capital maintenance and renovation projects) totaled $27.5 million during the first three quarters of fiscal 2022 compared to $9.1 million during the first three quarters of fiscal 2021.

Fiscal 2022 first three quarters cash capital expenditures included approximately $8.2 million incurred in our theatre division, primarily related to normal maintenance capital projects. We also incurred capital expenditures in our hotels and resorts division during the first three quarters of fiscal 2022 of approximately $19.3 million, including costs related to rooms renovations at the Grand Geneva and normal maintenance capital projects.

Net cash used in financing activities during the first three quarters of fiscal 2022 totaled $44.8 million compared to net cash used in financing activities of $10.4 million during the first three quarters of fiscal 2021. During the first three quarters of fiscal 2022, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As short-term revolving credit facility borrowings became due, we replaced them as necessary with new short-term revolving credit facility borrowings. As a result, we added $62.0 million of new short-term revolving credit facility borrowings, and we made $43.0 million of repayments on short-term revolving credit facility borrowings during the first three quarters of fiscal 2022 (net increase in borrowings on our credit facility of $19.0 million). We ended the third quarter of fiscal 2022 with $19.0 million of outstanding borrowings under our revolving credit facility. During the first three quarters of fiscal 2021, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As a result, we added $128.5 million of new short-term revolving credit facility borrowings, and we made $95.5 million of repayments on short-term revolving credit facility borrowings during the first three quarters of fiscal 2021 (net increase in borrowings on our credit facility of $33.0 million).

During the first three quarters of fiscal 2022 we repaid $47.5 million of short-term term loan borrowings, compared to $37.8 million of such repayments during the first three quarters of fiscal 2021. Principal payments on long-term debt were approximately $11.3 million during the first three quarters of fiscal 2022 compared to payments of $10.3 million during the first three quarters of fiscal 2021. During the first three quarters of fiscal 2021, we also received $6.7 million in proceeds from borrowings against the cash surrender value of a life insurance policy. Our debt-to-capitalization ratio (including short-term borrowings but excluding our finance and operating lease obligations) was 0.33 at September 29, 2022, compared to 0.37 at December 30, 2021.

During the third quarter of fiscal 2022, on July 29, 2022 we repaid $46.6 million of short-term borrowings, repaying in full and retiring the term loan facility maturing on September 22, 2022. In connection with the repayment of the term loan, the Company amended the Credit Agreement by entering into the Fourth Amendment which modified the consolidated fixed charge coverage covenant, reducing the requirement to maintain a consolidated fixed charge coverage ratio of at least 3.0 to 1.0 to at least 2.5 to 1.0 starting as of the end of the fiscal quarter ending March 30, 2023 and continuing for each fiscal quarter thereafter.

During the first three quarters of fiscal 2022 and the first three quarters of fiscal 2021 we did not repurchase any shares of our common stock in the open market. As of September 29, 2022, approximately 2.5 million shares remained available for

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repurchase under prior Board of Directors repurchase authorizations. Under these authorizations, we may repurchase shares of our common stock from time to time in the open market, pursuant to privately-negotiated transactions or otherwise, depending upon a number of factors, including prevailing market conditions.

During the third quarter of fiscal 2022, on July 29, 2022 the Board of Directors elected to reinstate our quarterly dividend that had been suspended as a result of the COVID-19 pandemic, declaring a regular quarterly cash dividend of $0.05 per share of common stock. The dividend was paid on September 15, 2022 to shareholders of record on August 25, 2022. The Board of Directors also declared a dividend of $0.045 per share on the Class B common stock. The dividend on the Class B common stock, which is not publicly traded, was paid on September 15, 2022 to shareholders of record on August 25, 2022. We did not make any dividend payments during the first three quarters of fiscal 2021.

Our Credit Agreement, as amended, required us to temporarily suspend our quarterly dividend payments and prohibited us from repurchasing shares of our common stock in the open market during fiscal 2021. The Credit Agreement also limits the total amount of quarterly dividend payments or share repurchases during the four subsequent quarters beginning with the first quarter of fiscal 2022 to no more than $1.55 million per quarter, unless we are in compliance with prior financial covenants under the Credit Agreement (specifically, the consolidated fixed charge coverage ratio), at which point we have the ability to declare quarterly dividend payments and/or repurchase shares of our common stock in the open market as we deem appropriate.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have not experienced any material changes in our market risk exposures since December 30, 2021.

Item 4. Controls and Procedures

a.Evaluation of disclosure controls and procedures

Based on their evaluations and the evaluation of management, as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

b.Changes in internal control over financial reporting

There were no significant changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 30, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to purchases made by us or on our behalf of our Common Stock during the periods indicated.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (1)	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (1)
July 1 - July 28	46,659	$	15.51	46,659	2,527,808
July 29 - September 1	5,162	16.43		5,162	2,522,646
September 2 - September 29	—	—		—	2,522,646
Total	51,821	$	15.60	51,821	2,522,646

(1)Through September 29, 2022, our Board of Directors had authorized the repurchase of up to approximately 11.7 million shares of our outstanding Common Stock. Under these authorizations, we may repurchase shares of our Common Stock from time to time in the open market, pursuant to privately negotiated transactions or otherwise. As of September 29, 2022, we had repurchased approximately 9.2 million shares of our Common Stock under these authorizations. The repurchased shares are held in our treasury pending potential future issuance in connection with employee benefit, option or stock ownership plans or other general corporate purposes. These authorizations do not have an expiration date. The shares purchased during the third quarter of 2022 were purchased in conjunction with the exercise of stock options pursuant to the publicly announced repurchase authorization.

Item 4. Mine Safety Disclosures

Not applicable.

Item 6. Exhibits



4.1			Fourth Amendment to Credit Agreement, dated July 29, 2022, among the Marcus Corporation, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. [Schedules and exhibits have been omitted and the Marcus Corporation agrees to furnish supplementally to the Securities and Exchange Commission a Copy of any ommitted schedules and exhibits upon request.]
31.1			Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


THE MARCUS CORPORATION

DATE: November 3, 2022	By:	/s/ Gregory S. Marcus
		Gregory S. Marcus
		President and Chief Executive Officer


DATE: November 3, 2022	By:	/s/ Chad M. Paris
		Chad M. Paris
		Chief Financial Officer and Treasurer

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