# MARCUS CORP (MCS) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MARCUS CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/62234/000006223424000011/mcs-20231228.htm
Accession: 0000062234-24-000011
Filing date: 2024-03-01
Report date: 2023-12-28
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/MCS/
All MD&A years: /company/MCS/mda/
Previous year: /company/MCS/mda/fy2022/ (FY 2022)
Next year: /company/MCS/mda/fy2024/ (FY 2024)

Results of Operations

Consolidated Financial Comparisons

The following table sets forth revenues, operating income (loss), other income (expense), net earnings (loss) attributable to The Marcus Corporation and net earnings (loss) per diluted common share for the past three fiscal years (in millions, except for per share and percentage change data) :

[[GREPCENT_TABLE]]
[["","","","","","F23 v. F22","","","","F22 v. F21"],["","F2023","","F2022","","Amt.","","Pct.","","F2021","","Amt.","","Pct."],["Revenues","$","729.6","","","$","677.4","","","$","52.2","","","7.7","%","","$","458.2","","","$","219.2","","","47.8","%"],["Operating income (loss)","33.9","","","8.3","","","25.6","","","308.4","%","","(41.5)","","","49.8","","","120.0","%"],["Other income (expense), net","(12.3)","","","(10.3)","","","(2.0)","","","(19.4)","%","","(17.5)","","","7.3","","","41.4","%"],["Net earnings attributable to noncontrolling interests","\u2014","","","2.9","","","(2.9)","","","(100.0)","%","","\u2014","","","2.9","","","\u2014","%"],["Net earnings (loss) attributable to The Marcus Corporation","$","14.8","","","$","(12.0)","","","$","26.8","","","223.6","%","","$","(43.3)","","","$","31.3","","","72.3","%"],["Net earnings (loss) per common share - diluted","$","0.46","","","$","(0.39)","","","$","0.85","","","217.9","%","","$","(1.42)","","","$","1.03","","","72.5","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2023 versus Fiscal 2022

Revenues, operating income, net earnings (loss) attributable to The Marcus Corporation and net earnings (loss) per diluted common share improved significantly during fiscal 2023 compared to fiscal 2022. Increased revenues and operating income from our theatre division contributed to the improvement in our operating income, net earnings (loss) attributable to The Marcus Corporation and net earnings (loss) per diluted common share during fiscal 2023 compared to fiscal 2022, as customers continued to return to theatres following the pandemic. Increased revenues and operating income from our hotels and resorts division at comparable hotels (excluding the impact of the sale of The Skirvin Hilton) also contributed to the improvement of these measures during fiscal 2023 compared to fiscal 2022.

Net earnings attributable to The Marcus Corporation and net earnings per diluted common share during fiscal 2023 were positively impacted by a decrease in interest expense compared to fiscal 2022.

Net loss attributable to The Marcus Corporation and net loss per diluted common share during fiscal 2022 were positively impacted by a $3.4 million gain on the sale of The Skirvin Hilton (net of $2.9 million of net earnings attributable to noncontrolling interests), and was negatively impacted by a $7.4 million adjustment to valuation allowances as described below.

Our operating income during fiscal 2023 was negatively impacted by impairment charges of approximately $1.1 million, or approximately $0.02 per diluted common share, related to two permanently closed theatres and surplus real estate that we intend to sell. Our operating income during fiscal 2022 was negatively impacted by impairment charges of approximately $1.5 million, or approximately $0.04 per diluted common share, primarily related to two operating theatres.

Operating expenses from our corporate items, which include amounts not allocable to the business segments, increased during fiscal 2023 compared to fiscal 2022 due primarily to increased short-term and long-term incentive compensation expenses.

Investment income was $2.4 million during fiscal 2023 compared to an insignificant investment loss during fiscal 2022. Investment income (loss) includes interest earned on cash and cash equivalents, as well as increases/decreases in the value of marketable securities and increases in the cash surrender value of a life insurance policy. Investment income (loss) during fiscal 2024 may vary compared to fiscal 2023, primarily dependent upon changes in the value of marketable securities.

Interest expense totaled $12.7 million during fiscal 2023, a decrease of $2.6 million, or 16.9%, compared to interest expense of $15.3 million during fiscal 2022. The decrease in interest expense during fiscal 2023 was due primarily to lower borrowings, partially offset by an increase in our average interest rate, as discussed in the Liquidity section of this

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MD&A below. Interest expense during fiscal 2023 included approximately $1.1 million of nonrecurring additional interest payable on our convertible notes incurred related to the removal of the restrictive legend and assignment of an unrestricted CUSIP on the convertible notes. In addition, interest expense during fiscal 2023 included approximately $1.5 million in noncash amortization of debt issuance costs. During fiscal 2024, we estimate that noncash amortization of debt issuance costs will be approximately $1.4 million, excluding the impact of any new debt issuance costs. We currently expect our total interest expense to decrease during fiscal 2024 primarily due to decreased borrowings. 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 incurred other expense of $1.8 million during fiscal 2023, an increase of approximately $0.8 million compared to other expense of $1.1 million during fiscal 2022. Other expense consists primarily of the non-service cost components of our periodic pension costs and net gains (losses) on disposition of property, equipment and other assets. Net losses on disposition of property, equipment and other assets were insignificant during fiscal 2023. Net gains on disposition of property, equipment and other assets were $1.1 million during fiscal 2022. The net gains on disposition of property, equipment and other assets during fiscal 2022 included the sale of surplus land, partially offset by losses on items disposed of during the year by both divisions. The timing of our periodic sales and disposals of property, equipment and other assets results in variations each year in the gains or losses that we report on dispositions of property, equipment and other assets. We anticipate the potential for additional disposition gains or losses from periodic sales of property, equipment and other assets, during fiscal 2024 and beyond, as discussed in more detail in the “Current Plans” section of this MD&A. Based upon information from an actuarial report for our pension plans, we expect other expense to be approximately $2.0 million during fiscal 2024.

We reported a gain on sale of hotel of $6.3 million during fiscal 2022 resulting from the sale of The Skirvin Hilton on December 16, 2022. See Note 4 in the accompanying consolidated financial statements for further discussion of the sale transaction.

We reported equity losses from an unconsolidated joint venture of approximately $0.1 million during fiscal 2023 and fiscal 2022. The equity losses in both years consist of our pro-rata share of losses from the Kimpton Hotel Monaco Pittsburgh in Pittsburgh, Pennsylvania, acquired in mid-December 2021 and in which we have a 10% minority ownership interest.

The operating results of one majority-owned hotel, The Skirvin Hilton, are included in the hotels and resorts division revenue and operating income (loss) during fiscal 2021 and fiscal 2022 through the date of its sale, and the after-tax net earnings or loss attributable to noncontrolling interests is deducted from or added to net earnings (loss) on the consolidated statements of earnings (loss). As a result of the noncontrolling interest balance reaching zero during the second quarter of fiscal 2020, we did not report additional net losses attributable to noncontrolling interests during the remainder of fiscal 2020 and fiscal 2021. In fiscal 2022, we reported net earnings attributable to noncontrolling interests of $2.9 million, which result from the gain on the sale of The Skirvin Hilton attributable to noncontrolling interests.

We reported income tax expense during fiscal 2023 of $6.9 million compared to $7.1 million in fiscal 2022. Our fiscal 2023 income tax expense was favorably impacted by $0.8 million of reductions to valuation allowances related to deferred tax assets for state net operating loss carryforwards for which the ultimate realization is uncertain (net of federal benefit), offset by $1.2 million of negative impact primarily from excess compensation subject to deduction limitations. Our fiscal 2023 effective income tax rate was 31.7%. Excluding the impact of the valuation allowance adjustment (net of federal benefit) and the excess compensation deduction limitations, our effective income tax rate during fiscal 2023 was 30.1%.

Our fiscal 2022 income tax expense was negatively impacted by $7.4 million of valuation allowances related to deferred tax assets for state net operating loss carryforwards for which the ultimate realization is uncertain (net of federal benefit), and by $0.8 million of impact primarily from excess compensation subject to deduction limitations. Our fiscal 2022 effective income tax rate, after adjusting for earnings (losses) from noncontrolling interests that are not tax-effected because the entity involved is a tax pass-through entity, was (147.6)%. Excluding the negative impact of the valuation allowance adjustment (net of federal benefit) and the excess compensation deduction limitations, our effective income tax rate during fiscal 2022 was 20.2%. We currently anticipate that our fiscal 2024 effective income tax rate may be in the 28-32% range, excluding any potential further changes in federal or state income tax rates, valuation allowance adjustments or other one-time tax benefits.

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Weighted-average diluted shares outstanding was 41.0 million during fiscal 2023 and includes shares from the conversion of the convertible notes. Weighted-average diluted shares outstanding was 31.5 million during fiscal 2022, and excludes shares from the conversion of the convertible notes as their inclusion would have an anti-dilutive effect. All per share data in this MD&A is presented on a fully diluted basis, however, for periods when we report a net loss, common stock equivalents are excluded from the computation of diluted loss per share as their inclusion would have an anti-dilutive effect.

Theatres

Our oldest and historically most profitable division is our theatre division. The theatre division contributed 62.8% of our consolidated revenues and 67.4% of our consolidated operating income (loss), excluding corporate items, during fiscal 2023, compared to 60.2% and 30.2%, respectively, during fiscal 2022 and 59.2% and 127.0%, respectively, during fiscal 2021. As of December 28, 2023, the theatre division operated theatres in Wisconsin, Illinois, Iowa, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Arkansas, Colorado, Georgia, Kentucky, Louisiana, New York, Pennsylvania, Texas and Virginia, and a family entertainment center in Wisconsin. The following tables set forth revenues, operating income (loss), operating margin, screens and theatre locations for the last three fiscal years:

[[GREPCENT_TABLE]]
[["","","","","","F23 v. F22","","","","F22 v. F21"],["","F2023","","F2022","","Amt.","","Pct.","","F2021","","Amt.","","Pct."],["","(in millions, except percentages)"],["Revenues","$","458.4","","","$","407.7","","","$","50.7","","","12.4","%","","$","271.2","","","$","136.5","","","50.3","%"],["Operating income (loss)","36.2","","","8.1","","","28.1","","","346.9","%","","(27.6)","","","35.7","","","129.3","%"],["Operating margin","7.9","%","","2.0","%","","","","","","(10.2)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Number of screens and locations at period-end","","F2023","","F2022","","F2021"],["Theatre screens","","993","","1,064","","1,064"],["Theatre locations","","79","","85","","85"],["Average screens per location","","12.6","","12.5","","12.5"]]
[[/GREPCENT_TABLE]]

The following table provides a further breakdown of the components of revenues for the theatre division for the last three fiscal years:

[[GREPCENT_TABLE]]
[["","","","","","F23 v. F22","","","","F22 v. F21"],["","F2023","","F2022","","Amt.","","Pct.","","F2021","","Amt.","","Pct."],["","(in millions, except percentages)"],["Admission revenues","$","229.2","","","$","198.5","","","$","30.7","","","15.5","%","","$","130.7","","","$","67.7","","","51.8","%"],["Concession revenues","197.7","","","180.2","","","17.5","","","9.7","%","","118.7","","","61.5","","","51.8","%"],["Other revenues","31.6","","","29.1","","","2.5","","","8.5","%","","21.8","","","7.3","","","33.7","%"],["Total revenues before cost reimbursements","458.4","","","407.7","","","50.7","","","12.4","%","","271.2","","","136.6","","","50.4","%"],["Cost reimbursements","\u2014","","","\u2014","","","\u2014","","","\u2014","%","","0.1","","","(0.1)","","","(100.0)","%"],["Total revenues","$","458.4","","","$","407.7","","","$","50.7","","","12.4","%","","$","271.2","","","$","136.5","","","50.3","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2023 versus Fiscal 2022

Our theatre division revenues and operating income increased significantly during fiscal 2023 compared to fiscal 2022 as customers continued to return to our theatres and attendance grew as an increased number of films were released to movie theatres during fiscal 2023. Our operating income during fiscal 2023 was negatively impacted by impairment charges of $1.1 million related to two permanently closed theatres and surplus real estate that we intend to sell, compared to impairment charges of $1.5 million during fiscal 2022 related to two operating theatres.

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The following table sets forth our percentage change in comparable theatre attendance during each quarter of fiscal 2023 compared to the same periods during fiscal 2022. In addition, the table compares the percentage change in our fiscal 2023 comparable theatre admissions revenues to the corresponding percentage change in the United States box office revenues (as compiled by us from data received from Comscore, a national box office reporting service for the theatre industry) during each quarter of fiscal 2023 compared to the same quarter during fiscal 2022:

[[GREPCENT_TABLE]]
[["","F23 v. F22"],["(comparable theatres)","1st Qtr.","","2nd Qtr.","","3rd Qtr.","","4th Qtr.","","Total"],["Pct. change in Marcus theatre attendance","13.9","%","","-3.8","%","","15.6","%","","-3.5","%","","5.0","%"],["Pct. change in Marcus admission revenues","24.1","%","","9.7","%","","29.8","%","","4.1","%","","16.2","%"],["Pct. change in U.S. box office revenues","26.3","%","","13.6","%","","37.6","%","","5.6","%","","20.2","%"],["Marcus performance vs. U.S. box office","-2.2 pts","","-3.9 pts","","-7.8 pts","","-1.5 pts","","-4.0 pts"]]
[[/GREPCENT_TABLE]]

According to the data received from Comscore, our comparable theatres underperformed the industry during fiscal 2023 compared to fiscal 2022 by 4.0 percentage points. We believe our underperformance is attributable to the more significant impact of lingering variants of COVID-19 in other regions of the country than in our primarily Midwestern markets during the majority of fiscal 2022, representing a higher opportunity for growth in 2023 nationally than in our markets. We believe this is evidenced by the recovery in our admission revenues relative to pre-pandemic periods in fiscal 2019 compared with the overall recovery of the U.S. box office. During fiscal 2023, our admission revenues for comparable theatres were 81.3% of admission revenues in the respective periods in fiscal 2019. This compares with U.S. box office receipts for the fiscal 2023 that were 79.4% of U.S. box office receipts for the respective 2019 periods, indicating that our recovery in admission revenues outperformed the U.S. box office recovery during the year. Additional data received and compiled by us from Comscore indicates our admission revenues during fiscal 2023 represented approximately 3.1% of the total admission revenues in the U.S. during the period (commonly referred to as market share in our industry). We believe our overall outperformance of the industry box office recovery has been attributable to the investments we have made in new features and amenities in our theatres and our implementation of innovative operating, pricing and marketing strategies that increased attendance relative to our peers. 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.

Our highest grossing films during fiscal 2023 included Barbie, The Super Mario Bros. Movie, Guardians of the Galaxy Vol. 3, Spider-man: Across the Spider-Verse, and Avatar: The Way of Water. The film slate during fiscal 2023 was less weighted towards our top movies compared to fiscal 2022, as evidenced by the fact that our top ten films during fiscal 2023 accounted for 39% of our total box office results, compared to 52% (including event cinema) for the top ten films during fiscal 2022, expressed as a percentage of the total admission revenues for the period. A decreased reliance on just a few blockbuster films often has the effect of decreasing our film rental costs during the period, as there is a more diverse mix of films to offset the higher cost blockbuster films. Generally, the greater a film performs, the greater the film rental cost tends to be as a percentage of box office receipts. As a result of a more diverse film slate, our overall film rental cost decreased during fiscal 2023 compared to fiscal 2022.

The quantity of films available for theatrical exhibition, including wide-release films, was negatively impacted during fiscal 2023 following disruptions in movie production during the COVID-19 pandemic and by the shutdown of movie production resulting from the WGA and SAG-AFTRA labor strikes that occurred during fiscal 2023. While the labor strikes were resolved in the fourth quarter of fiscal 2023 with film production resuming thereafter, we expect the quantity of new film releases available for theatrical exhibition during fiscal 2024 to be negatively impacted by the prolonged shutdown of movie production resulting in several film release dates shifting to fiscal 2025. While lead times for movie production to theatrical release are lengthy, based upon projected film and alternate content availability, we currently estimate that we may once again show an increased number of films and alternate content events on our screens during fiscal 2025 compared to fiscal 2024, but we expect the number of wide-release films shown during fiscal 2024 to decrease compared to fiscal 2023.

Total theatre attendance at comparable theatre locations increased 5.0% during fiscal 2023 compared to fiscal 2022, primarily due to an increase in the number of wide release films, resulting in increases in both admission revenues and concession revenues. In total, we played 465 films and 283 alternate content attractions at our theatres during fiscal 2023 compared to 408 films and 336 alternate content attractions during fiscal 2022. The increase in films played in fiscal 2023 compared to fiscal 2022 is due to an increase in wide-release and limited-release films. In general, following the COVID-19 pandemic we have increased the number of limited-release films and alternative content that we play, including

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independent films, retro series, faith-based content and live events, in response to the slower recovery in the quantity of wide-release films and to promote moviegoing. The industry generally considers a film to be a “wide release” if it is shown on over approximately 1,500 theatres nationally, and these films generally have the greatest impact on box office receipts. The quantity of wide-release films shown in our theatres and number of wide-release films provided by the six major studios increased during fiscal 2023 compared to fiscal 2022, but remained below pre-pandemic levels. We played 110 wide-release films at our theatres during fiscal 2023 compared to 85 wide-release films during fiscal 2022. Prior to the pandemic, we played 117 wide-release films at our theatres during fiscal 2019. The slower recovery in the quantity of wide-release films available for theatrical exhibition following the pandemic and lower box office performances for certain genres of films are the primary drivers of the lower attendance compared to pre-pandemic periods.

Our average ticket price increased 10.9% during fiscal 2023 compared to fiscal 2022, and was favorably impacted by inflationary price increases, Value Tuesday pricing changes, an increase in the percentage of our weekly attendance on days other than Tuesday, a larger proportion of admission revenues from 3D films and event cinema, including Taylor Swift: The Eras Tour (both with higher ticket prices). During the last week of the first quarter of fiscal 2023, we implemented several pricing changes to our Value Tuesday promotion across our theatre circuit, which historically offered $5 admission and free complementary-size popcorn to our loyalty program members. Our new Value Tuesday promotion features $6 admission for members of our free Magical Movie Rewards (MMR) loyalty program and $7 admission for non-MMR customers. These favorable increases were partially offset by a lower proportion of admission revenues from our PLF screens as a result of a more diverse film slate during the year that was concentrated on blockbuster films compared to fiscal 2022. The overall increase in average ticket price favorably impacted our admission revenues of our comparable theatres by $21.9 million during the fiscal 2023 compared to fiscal 2022. We currently expect our average ticket price during fiscal 2024 to remain consistent with fiscal 2023, but film mix and the impact of pricing strategies discussed in the “Current Plans” section above will likely impact our final result.

Our average concession revenues per person increased by 5.2% during fiscal 2023 compared to fiscal 2022, which was primarily due to inflationary increases in concession prices in response to increases in food and labor costs and due to the net positive impact of changes to our Value Tuesday promotion, which replaced free complementary-size popcorn with a 20% discount on all concessions, food and non-alcoholic beverages for MMR members. We also believe average concession revenues per person was positively impacted by a new food and beverage menu introduced in the fourth quarter of fiscal 2022. The increase in average concession revenues per person favorably impacted our concession revenues of our comparable theatres by $9.4 million during the fiscal 2023 compared to fiscal 2022. We expect to continue to report increased average concession revenues per person in future periods, but whether our customers will continue to spend at these current significantly higher levels in future periods is currently unknown.

Other revenues, which include management fees, pre-show advertising income, family entertainment center revenues, surcharge revenues, mobile app revenues, rental income and gift card breakage income, increased by $2.5 million during fiscal 2023 compared to fiscal 2022. The fluctuations in other revenue were primarily due to the impact of changes in attendance on internet surcharge ticketing fees and preshow advertising income.

The film product release schedule for fiscal 2024 has solidified in recent months. Several films that have contributed to our early fiscal 2024 first quarter results include Wonka, Mean Girls, Bob Marley: One Love, Migration, Anyone But You, The Beekeeper and Aquaman and the Lost Kingdom. Although it is possible that schedule changes may occur, new films scheduled to be released during the remainder of fiscal 2024 that have potential to perform very well include Dune: Part Two, Kung Fu Panda 4, Ghostbusters: Frozen Empire, Godzilla x Kong: The New Empire, The Fall Guy, If, Kingdom of the Planet of the Apes, Furiosa: A Mad Max Saga, The Garfield Movie, Inside Out 2, Ballerina, The Watchers, Bad Boys 4, It Ends With Us, A Quiet Place: Day One, Deadpool 3, Despicable Me 4, Twisters, Speak No Evil, Borderlands, Alien: Romulus, Kraven the Hunter, Beetlejuice 2, Wolfs, Transformers: One, Joker: Folie A Deux, Saw XI, Smile 2, Venom 3, White Bird, Alto Knghts, The Amateur, Lord of the Rings: The War of the Rohirrim, Moana 2, White Bird, Karate Kid, Mufasa: The Lion King and Sonic the Hedgehog 3.

During fiscal 2023, we made decisions to close several underperforming theatres, including three owned theatres in Minnesota and two owned theatres and one leased theatre in Wisconsin. During fiscal 2023, we converted one existing screen to SuperScreen DLX and converted one existing screen to ScreenX to add additional PLF screens at two of our theatres.

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Hotels and Resorts

The hotels and resorts division contributed 37.1% of our consolidated revenues during fiscal 2023, compared to 39.8% and 40.7%, respectively, during fiscal 2022 and fiscal 2021. The hotels and resorts division contributed 32.6% and 69.8%, respectively, of consolidated operating income (loss), excluding corporate items, during fiscal 2023 and fiscal 2022. During fiscal 2021 the hotels and resorts division contributed operating income compared with a consolidated operating loss, excluding corporate items. As of December 28, 2023, the hotels and resorts division owned and operated three full-service hotels in downtown Milwaukee, Wisconsin, a full-service destination resort in Lake Geneva, Wisconsin and full-service hotels in Madison, Wisconsin, Chicago, Illinois, and Lincoln, Nebraska. In addition, the hotels and resorts division managed eight hotels, resorts and other properties for other owners. Included in the eight managed properties is one hotel owned by a joint venture in which we have a minority interest and two condominium hotels in which we own some or all of the public space. The following tables set forth revenues, operating income (loss), operating margin and rooms data for the hotels and resorts division for the past three fiscal years:

[[GREPCENT_TABLE]]
[["","","","","","F23 v. F22","","","","F22 v. F21"],["","F2023","","F2022","","Amt.","","Pct.","","F2021","","Amt.","","Pct."],["","(in millions, except percentages)"],["Revenues","$","270.8","","","$","269.3","","","$","1.5","","","0.6","%","","$","186.6","","","$","82.6","","","44.3","%"],["Operating income","17.5","","","18.7","","","(1.2)","","","(6.3)","%","","5.9","","","12.8","","","218.8","%"],["Operating margin","6.5","%","","6.9","%","","","","","","3.1","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Available rooms at period-end","","F2023","","F2022","","F2021"],["Company-owned","","2,406","","2,406","","2,628"],["Management contracts with joint ventures","","248","","248","","248"],["Management contracts with condominium hotels","","480","","480","","480"],["Management contracts with other owners","","1,269","","1,737","","2,088"],["Total available rooms","","4,403","","4,871","","5,444"]]
[[/GREPCENT_TABLE]]

The following table provides a further breakdown of the components of revenues for the hotels and resorts division for the last three fiscal years:

[[GREPCENT_TABLE]]
[["","","","","","F23 v. F22","","","","F22 v. F21"],["","F2023","","F2022","","Amt.","","Pct.","","F2021","","Amt.","","Pct."],["","(in millions, except percentages)"],["Room revenues","$","106.6","","","$","107.7","","","$","(1.1)","","","(1.0)","%","","$","77.7","","","$","30.0","","","38.7","%"],["Food/beverage revenues","73.3","","","74.8","","","(1.6)","","","(2.1)","%","","47.1","","","27.8","","","58.9","%"],["Other revenues","53.5","","","53.1","","","0.4","","","0.8","%","","43.2","","","9.9","","","22.9","%"],["Total revenues before cost reimbursements","233.4","","","235.7","","","(2.2)","","","(0.9)","%","","168.0","","","67.7","","","40.3","%"],["Cost reimbursements","37.4","","","33.6","","","3.8","","","11.3","%","","18.7","","","15.0","","","80.0","%"],["Total revenues","$","270.8","","","$","269.3","","","$","1.5","","","0.6","%","","$","186.6","","","$","82.6","","","44.3","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2023 versus Fiscal 2022

On December 16, 2022 we completed the sale of The Skirvin Hilton in Oklahoma City, Oklahoma (we held a majority-ownership position in this hotel prior to its sale). The results of The Skirvin Hilton are included in our divisional and consolidated results of operations during fiscal 2022 through the date of the sale.

Excluding The Skirvin Hilton from fiscal 2022 results, hotels and resorts revenues increased 6.9% during fiscal 2023 compared to fiscal 2022. Excluding The Skirvin Hilton from fiscal 2022 results, hotels and resorts operating income during fiscal 2023 increased slightly compared to fiscal 2022, with higher revenues partially offset by increased labor costs during fiscal 2023 as we increased our staffing levels to enhance customer experience compared to fiscal 2022 when various positions were unfilled due to staffing shortages.

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Total revenues before cost reimbursements increased 6.3% during fiscal 2023 compared to fiscal 2022, excluding the impact of the sale of The Skirvin Hilton. All of our company-owned hotels and resorts contributed to the improved revenue during fiscal 2023, with occupancy increasing at five of our seven owned hotels and average daily rate increasing at all seven of our company hotels compared to fiscal 2022. Strong growth in group business during fiscal 2023 resulted in increased revenues compared to fiscal 2022, while leisure travel softened slightly compared to fiscal 2022, normalizing near pre-pandemic demand levels. The increase in group revenues during fiscal 2023 has consequently led to an increase in banquet and catering revenues, positively impacting our food and beverage revenues as compared to fiscal 2022.

Other revenues during fiscal 2023 and fiscal 2022 included ski, spa and golf revenues at our Grand Geneva Resort & Spa, management fees, laundry revenues, parking revenues and rental revenues. Other revenues increased during fiscal 2023 compared to fiscal 2022 primarily due to increased occupancies at our owned and managed hotels and resorts, higher golf and resort fees and higher laundry revenues, partially offset by lower ski revenues. Cost reimbursements increased during fiscal 2023 compared to fiscal 2022 as occupancy and revenue at managed hotels increased.

The following table sets forth certain operating statistics, including our average occupancy percentage (number of occupied rooms as a percentage of available rooms), our average daily room rate (“ADR”), and our total revenue per available room (“RevPAR”), for company-owned properties:

[[GREPCENT_TABLE]]
[["","","","","","","F23 v. F22"],["Operating Statistics(1)","","F2023","","F2022","","Amt.","","Pct."],["Occupancy percentage","","63.7","%","","60.7","%","","3.0","pts","","4.9","%"],["ADR","","$","186.43","","","$","180.55","","","$","5.88","","","3.3","%"],["RevPAR","","$","118.72","","","$","109.55","","","$","9.17","","","8.4","%"]]
[[/GREPCENT_TABLE]]

(1)These operating statistics represent averages of our comparable seven distinct 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 Skirvin Hilton is not included in the fiscal 2022 statistics.

RevPAR increased at all seven of our company-owned properties during fiscal 2023 compared to fiscal 2022. Growth in group business primarily during weekdays resulted in occupancy increasing approximately 3 percentage points in fiscal 2023 compared to fiscal 2022. During fiscal 2023, our group business represented approximately 37.2% of our total rooms revenue, compared to approximately 35.6% during fiscal 2022, and 39.9% during fiscal 2019 prior to the pandemic – an indication that group business is recovering but remains below pre-pandemic levels. Non-group retail pricing remained strong in the majority of our markets contributing to increased ADR.

According to data received from Smith Travel Research and compiled by us in order to analyze our fiscal 2023 results, comparable “upper upscale” hotels throughout the United States experienced an increase in RevPAR of 8.5% during fiscal 2023 compared to fiscal 2022. Thus, we believe our RevPAR growth of 8.4% generally performed in-line with the industry during fiscal 2023.

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 9.1% during fiscal 2023 compared to fiscal 2022. Thus, we believe we underperformed our competitive sets during fiscal 2023 by approximately 0.7 percentage points. We believe our underperformance to our competitive sets during fiscal 2023 results primarily because occupancy at our hotels recovered earlier in fiscal 2022, particularly in the first quarter of fiscal 2022, than our competitive sets, which generally lagged our occupancy levels in fiscal 2022. This resulted in our competitive sets growing occupancy at a faster rate than our owned hotels during fiscal 2023 compared to the prior year.

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. Hotel revenues have historically tracked very closely with traditional macroeconomic statistics, such as the Gross Domestic Product. Looking to future periods, while overall occupancy in the U.S. continues to slowly increase, the rate of ADR growth has declined throughout fiscal 2023 following several years of significant growth and we expect lower ADR growth in fiscal 2024. In the near term, we expect leisure travel demand to normalize near pre-pandemic levels and group business to continue to grow. 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 gradual increases in business travel as corporate training events, meetings, and conferences return and workers continue to increase the number of days in downtown offices.

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In fiscal 2024, we expect to benefit from increases in business at our three hotels in downtown Milwaukee as the city hosts the Republican National Convention (“RNC”), which will occur during our fiscal third quarter. The RNC has favorably impacted our group room revenue and banquet and catering revenue bookings for fiscal 2024. We believe this event will not only favorably impact fiscal 2024, but has the potential to have a positive long-term impact on the overall market as the first major event showcasing the city’s expanded convention center, Baird Center. The Baird Center expansion doubles the size of the overall convention center to 1.3 million total square feet and brings the exhibition hall to 300,000 contiguous square feet, as well as expanded ballroom and meeting space. We expect the expansion will allow Baird Center to host a greater number of events each year, as well as hosting larger convention events.

As of the date of this report and excluding the impact of the RNC, our group room revenue bookings for fiscal 2024 - commonly referred to in the hotels and resorts industry as “group pace” - is running approximately 10% ahead where we were at the same time last year. Group room revenue bookings for fiscal 2025 is running approximately 43% ahead of where we were at the same time in early fiscal 2023 for fiscal 2024. Banquet and catering revenue pace for fiscal 2024 and fiscal 2025 is similarly running ahead of where we would typically be at this same time last year. We are encouraged by continuing positive trends in group bookings for fiscal 2024 and beyond.

During the fourth quarter of fiscal 2023 we ceased management of Hyatt Regency Schaumburg in Schaumburg, Illinois when the hotel was sold to new ownership. As of the date of this filing, our current portfolio of hotels and resorts includes 15 owned and managed properties across the country.

As discussed in the “Current Plans” section of this MD&A, we are considering a number of potential growth opportunities that may impact fiscal 2024 and future period operating results. In addition, if we were to sell one or more hotels during fiscal 2024, our fiscal 2024 operating results could be significantly impacted. The extent of any such impact will likely depend upon the timing and nature of the growth opportunity (pure management contract, management contract with equity, joint venture investment, or other opportunity) or divestiture (management retained, equity interest retained, etc.).

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 supplemental 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.

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, impairment charges, 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.

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The following table sets forth Adjusted EBITDA by reportable operating segment for the last three fiscal years (in millions, except for variance percentage):

[[GREPCENT_TABLE]]
[["","","","","","F23 v. F22","","","","F22 v. F21"],["","F2023","","F2022","","Amt.","","Pct.","","F2021","","Amt.","","Pct."],["","(in millions, except percentages)"],["Theatres","$","86.4","","","$","60.0","","","$","26.5","","","44.1","%","","$","24.9","","","$","35.0","","","140.6","%"],["Hotels and resorts","37.7","","","38.9","","","(1.2)","","","(3.0)","%","","24.4","","","14.5","","","59.4","%"],["Corporate items","(15.4)","","","(13.8)","","","(1.6)","","","11.9","%","","(14.3)","","","0.5","","","(3.3)","%"],["Adjusted EBITDA","$","108.7","","","$","85.1","","","23.6","","","27.8","%","","$","35.1","","","50.0","","","142.5","%"]]
[[/GREPCENT_TABLE]]

Our theatre division Adjusted EBITDA improved significantly during fiscal 2023 compared to fiscal 2022 due to an increasing number of wide-release films released to movie theatres resulting in increased attendance, increased revenues per person, and continuing cost controls, as described in the Theatres section above. Our hotels and resorts division Adjusted EBITDA decreased during fiscal 2023 due to the impact of sale of the Skirvin Hilton, partially offset by improved occupancy percentages and ADR, and continuing cost controls, as described in the Hotels and Resorts section above.

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

[[GREPCENT_TABLE]]
[["","F2023","","F2022","","F2021"],["Net income (loss) attributable to The Marcus Corporation","$","14.8","","","$","(12.0)","","","$","(43.3)"],["Add (deduct):"],["Investment income","(2.4)","","","\u2014","","","(0.6)"],["Interest expense","12.7","","","15.3","","","18.7"],["Other expense (income)","1.8","","","2.1","","","2.5"],["Gain on disposition of property, equipment and other assets","\u2014","","","(1.1)","","","(3.2)"],["Gain on sale of hotel","\u2014","","","(6.3)","","","\u2014"],["Equity losses from unconsolidated joint ventures, net","0.1","","","0.1","","","0.1"],["Net earnings attributable to noncontrolling interests","\u2014","","","2.9","","","\u2014"],["Income tax expense (benefit)","6.9","","","7.1","","","(15.7)"],["Depreciation and amortization","67.3","","","67.1","","","72.1"],["Share-based compensation expenses (1)","6.4","","","8.2","","","9.3"],["Impairment charges (2)","1.1","","","1.5","","","5.8"],["Government grants and federal tax credits (3)","\u2014","","","\u2014","","","(10.7)"],["Total Adjusted EBITDA","$","108.7","","","$","85.1","","","$","35.1"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","F2023"],["","Theatres","","Hotels & Resorts","","Corp. Items","","Total"],["Operating income","$","36.2","","","$","17.5","","","$","(19.8)","","","$","33.9"],["Depreciation and amortization","48.4","","","18.6","","","0.4","","","67.3"],["Loss (gain) on dispositions of property, equipment and other assets","(0.1)","","","0.7","","","(0.5)","","","\u2014"],["Share-based compensation (1)","0.9","","","1.0","","","4.5","","","6.4"],["Impairment charges (2)","1.1","","","\u2014","","","\u2014","","","1.1"],["Adjusted EBITDA","$","86.4","","","$","37.7","","","$","(15.4)","","","$","108.7"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","F2022","","F2021"],["","Theatres","","Hotels & Resorts","","Corp. Items","","Total","","Theatres","","Hotels & Resorts","","Corp. Items","","Total"],["Operating income (loss)","$","8.1","","","$","18.7","","","$","(18.5)","","","$","8.3","","","$","(27.6)","","","$","5.9","","","$","(19.8)","","","$","(41.5)"],["Depreciation and amortization","47.6","","","19.2","","","0.4","","","67.1","","","51.7","","","20.2","","","0.3","","","72.1"],["Share-based compensation (1)","2.8","","","1.0","","","4.4","","","8.2","","","2.3","","","1.7","","","5.3","","","9.3"],["Impairment charges (2)","1.5","","","\u2014","","","\u2014","","","1.5","","","5.8","","","\u2014","","","\u2014","","","5.8"],["Government grants and federal tax credits (3)","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(7.2)","","","(3.4)","","","(0.1)","","","(10.7)"],["Adjusted EBITDA","$","60.0","","","$","38.9","","","$","(13.8)","","","$","85.1","","","$","24.9","","","$","24.4","","","$","(14.3)","","","$","35.1"]]
[[/GREPCENT_TABLE]]

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

(2)Non-cash impairment charges related to two permanently closed theatres and surplus theatre real estate in fiscal 2023, two operating theatres in fiscal 2022 and two operating theatres, three permanently closed theatres and surplus theatre real estate in fiscal 2021.

(3)Reflects nonrecurring state government grants and federal tax credits awarded to our theatres and hotels for COVID-19 pandemic relief.

Liquidity and Capital Resources

Liquidity

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

Maintaining and protecting a strong balance sheet has always been a core philosophy of The Marcus Corporation during our 88-year history, and our financial position remains strong. As of December 28, 2023, we had a cash balance of $55.6 million, $220.6 million of availability under our $225.0 million revolving credit facility, our debt-to-capitalization ratio was 0.26, and our net leverage was 1.2 times net debt to Adjusted EBITDA. With our strong liquidity position, combined with cash generated from operations and proceeds from the sale of surplus real estate (discussed above under “Current Plans”), we believe we are positioned to meet our obligations as they come due and continue to sustain our operations throughout fiscal 2024 and beyond, as well as our longer-term capital requirements.

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The following table sets forth our reconciliations of Net Debt and Net Leverage (Net Debt to Adjusted EBITDA) (in millions, except leverage ratio):

[[GREPCENT_TABLE]]
[["","December 28, 2023","","December 29, 2022"],["Long-term debt (GAAP measure) (1)","$","169.9","","","$","180.4"],["Finance lease obligations (GAAP measure) (2)","15.3","","","17.5"],["Less: Cash and cash equivalents","(55.6)","","","(21.7)"],["Net Debt","$","129.6","","","$","176.2"],["Net Debt","$","129.6","","","$","176.2"],["Adjusted EBITDA","108.7","","","85.1"],["Net Leverage (Net Debt to Adjusted EBITDA)","1.19x","","2.07x"]]
[[/GREPCENT_TABLE]]

(1)Represents total long-term debt, including the current portion of long-term debt.

(2)Represents total finance lease obligations, including the current portion of finance lease obligations.

We believe Net Leverage is a useful measure, as it provides management and investors an indication of our indebtedness less unrestricted cash relative to our earnings performance.

Credit Agreement

On January 9, 2020, we entered into a Credit Agreement with several banks, including JPMorgan Chase Bank, N.A., as Administrative Agent, and U.S. Bank National Association, as Syndication Agent. On April 29, 2020, we entered into the First Amendment, on September 15, 2020, we entered into the Second Amendment, on July 13, 2021, we entered into the Third Amendment, on July 29, 2022, we entered into the Fourth Amendment, on February 10, 2023, we entered into the Fifth Amendment, and on October 16, 2023, we entered into the Sixth Amendment (the Credit Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment, hereinafter referred to as the “Credit Agreement”).

The Credit Agreement provides for a new five-year revolving credit facility that matures on October 16, 2028 with an initial maximum aggregate amount of availability of $225 million. We may request an increase in the aggregate amount of availability under the Credit Agreement by an aggregate amount of up to $125 million by increasing the revolving credit facility or adding one or more tranches of term loans. Our ability to increase availability under the Credit Agreement is subject to certain conditions, including, among other things, the absence of any default or event of default or material adverse effect under the Credit Agreement.

The Sixth Amendment amended the Credit Agreement to, among other things: (i) revise the applicable interest rates for benchmark and ABR (defined below) loans to be determined by a net leverage ratio, rather than the previously used debt to capitalization ratio; (ii) revise the definition of consolidated EBITDA to exclude certain non-recurring costs and one-time expenses and exclude certain non-recurring recognized gains; (iii) exclude our hotel properties and certain theatre properties from the collateral under the Credit Agreement; (iv) revise the financial covenants to eliminate covenants regarding the consolidated fixed charge coverage ratio and consolidated debt to capitalization ratio and replace these covenants with a requirement that our consolidated net leverage ratio not exceed 3.50:1.00, provided that, with some limitations, such ratio may be increased to 4.00:1:00 for the full fiscal quarter in which a material acquisition (in which aggregate consideration equals or exceeds $30,000,000) is consummated and the three fiscal quarters immediately thereafter; (v) replace the required consolidated fixed charge coverage ratio with a covenant that our interest coverage ratio at the end of any fiscal quarter not be less than 3.00:1.00; (vi) revise permitted indebtedness under the agreement to include, among other items, (a) borrowings or finance lease obligations to finance capital expenditures up to $40 million at any time outstanding, (b) indebtedness under our senior notes up to $100 million at any time outstanding; (c) indebtedness of up to $25 million in any new restricted subsidiaries at the time such entity becomes a restricted subsidiary, (d) other indebtedness not exceeding $50 million at any time outstanding and (e) other indebtedness as long as the consolidated net leverage ratio is at least 0.25 less than otherwise required under the Credit Agreement; and (vii) revise the covenants to allow us to make investments as long as no default has occurred under the Credit Agreement, or would occur as a result of

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the investment, as long as the consolidated net leverage ratio is at least 0.25 less than otherwise required under the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) the term SOFR, plus a credit spread adjustment of 0.10%, subject to a 0% floor, plus a specified margin based upon our net leverage ratio as of the most recent determination date, or (ii) the alternate base rate (“ABR”) (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 SOFR plus a credit spread adjustment of 0.10%), subject to a 1% floor, plus a specified margin based upon our net leverage ratio as of the most recent determination date; provided, however, as of the effective date of the Sixth Amendment, in respect of revolving loans, the applicable margin is 1.75% for SOFR borrowings and 0.75% for ABR borrowings, and will be adjusted for the first time thereafter based upon our net leverage ratio as determined for the fiscal year ending December 28, 2023. We are required to pay a variable rate facility fee depending on our consolidated net leverage ratio; provided, however that such fee will be 0.25% and will be adjusted for the first time thereafter based upon our consolidated net leverage ratio as determined for the fiscal year ending December 28, 2023.

In connection with the Credit Agreement: (i) we and certain of our subsidiaries have pledged, subject to certain exceptions, security interests and liens in and on (a) substantially all of their respective personal property assets and (b) certain of their respective real property assets, in each case, to secure the Credit Agreement and related obligations; and (ii) certain of our subsidiaries have guaranteed our obligations under 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.

4.02% Senior Notes and 4.32% Senior Notes

On June 27, 2013, we entered into a Note Purchase Agreement (the “4.02% Senior Notes Agreement”) with the several purchasers party to the 4.02% Senior Notes Agreement, pursuant to which we issued and sold $50 million in aggregate principal amount of our 4.02% Senior Notes due August 14, 2025 (the “4.02% Notes”) in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). We used the net proceeds from the issuance and sale of the 4.02% Notes to reduce existing borrowings under our revolving credit facility and for general corporate purposes. On December 21, 2016, we entered into a Note Purchase Agreement (the “4.32% Senior Notes Agreement”) with the several purchasers party to the 4.32% Senior Notes Agreement, pursuant to which we issued and sold $50 million in aggregate principal amount of our 4.32% Senior Notes due February 22, 2027 (the “4.32% Notes” and the 4.02% Notes, are together referred to hereafter as the “Notes”) in a private placement exempt from the registration requirements of the Securities Act. We used the net proceeds of the sale of the 4.32% Notes to repay outstanding indebtedness and for general corporate purposes.

Interest on the 4.02% Notes is payable semi-annually in arrears on the 14th day of February and August in each year and at maturity. Interest on the 4.32% Notes is payable semi-annually in arrears on the 22nd day of February and August in each year and at maturity. Beginning on August 14, 2021 and on the 14th day of August each year thereafter to and including August 14, 2024, we will be required to prepay $10 million of the principal amount of the 4.02% Notes. The entire outstanding principal balance of the 4.32% Notes will be due and payable on February 22, 2027. The entire unpaid principal balance of the 4.02% Notes will be due and payable on August 14, 2025. The Notes rank pari passu in right of payment with all of our other senior unsecured debt.

In connection with entering into the Sixth Amendment to the Credit Agreement, on October 16, 2023, we and certain purchasers entered into the Sixth Amendment to: (i) the Note Purchase Agreement, dated December 21, 2016, for our 4.32% Senior Notes due February 22, 2027, and (ii) the Note Purchase Agreement, dated June 27, 2013, for our 4.02% Senior Notes due August 14, 2025 (collectively, the “Note Amendments” and such Note Purchase Agreements, as previously amended and as amended by the Note Amendments, the “Amended Senior Note Agreements”). The Note Amendments revise the Note Purchase Agreements so that the Amended Senior Note Agreements’ covenants and collateral provisions are consistent with those set forth in the Credit Agreement.

In connection with the Amended Senior Notes Agreements: (i) we and certain of our subsidiaries have pledged, subject to certain exceptions, security interests and liens in and on (a) substantially all of their respective personal property assets and (b) certain of their respective real property assets, in each case, to secure the Notes and related obligations; and

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(ii) certain subsidiaries of ours have guaranteed our obligations under the Amended Senior Notes Agreements and the Notes.

The Amended Senior Notes Agreements also contain customary events of default. If an event of default under the Amended Senior Notes Agreements occurs and is continuing, then, among other things, the purchasers may declare any outstanding obligations under the Amended Senior Notes Agreements and the Notes to be immediately due and payable and the Note holders may exercise their rights and remedies against the pledged collateral.

Convertible Notes

On September 17, 2020, we entered into a purchase agreement (the “Purchase Agreement”) with J.P. Morgan Securities LLC, as representative of the several initial purchasers (the “Initial Purchasers”), to issue and sell $100.05 million aggregate principal amount of our 5.00% Convertible Senior Notes due 2025 (the “Convertible Notes”) of which an aggregate principal amount of $13.05 million of Notes was issued pursuant to the exercise by the Initial Purchasers of their option to purchase additional Convertible Notes. We offered and sold the Convertible Notes to the Initial Purchasers in reliance on the exemption from registration provided by Section 4(a) (2) of the Securities Act, and for resale by the Initial Purchasers to persons reasonably believed to be qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act. We relied on these exemptions from registration based in part on representations made by the Initial Purchasers in the Purchase Agreement. The shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”), issuable upon conversion of the Convertible Notes, if any, have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. To the extent that any shares of the Common Stock are issued upon conversion of the Convertible Notes, they will be issued in transactions anticipated to be exempt from registration under the Securities Act by virtue of Section 3(a)(9) thereof because no commission or other remuneration is expected to be paid in connection with conversion of the Convertible Notes and any resulting issuance of shares of the Common Stock. The Purchase Agreement includes customary representations, warranties and covenants by us and customary closing conditions. Under the terms of the Purchase Agreement, we agreed to indemnify the Initial Purchasers against certain liabilities.

The Convertible Notes were issued pursuant to an indenture (the “Indenture”), dated September 22, 2020, between our company and U.S. Bank National Association, as trustee. The net proceeds from the sale of the Convertible Notes were approximately $78.6 million (after deducting the Initial Purchasers’ fees and our estimated fees and expenses related to the offering and the cost of the capped call transactions). We used approximately $16.9 million of net proceeds from the offering to pay the cost of the Capped Call Transactions (as defined below). We used the remainder of the net proceeds from the offering to repay borrowings under our revolving credit facility and for general corporate purposes. The Convertible Notes are senior unsecured obligations and rank (i) senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Convertible Notes; (ii) equal in right of payment to any of our unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

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 our failure to comply with our reporting obligations under the Indenture or if the Convertible Notes are not freely tradable 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.

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Upon conversion, the Convertible Notes may be settled, at our 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 December 28, 2023, the adjusted conversion rate is 92.82 shares of Common Stock per $1,000 principal amount of the Convertible Notes (equivalent to an adjusted conversion price of approximately $10.77 per share of Common Stock). If we undergo certain fundamental changes, holders of Convertible Notes may require us 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, we will, under certain circumstances, increase the conversion rate for holders who convert Convertible Notes in connection with such make-whole fundamental change. We 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 certain types of bankruptcy or insolvency events of default involving our company and certain of our subsidiaries after which the Convertible Notes become automatically due and payable.

During our fiscal 2021 second, third and fourth quarters, all quarters during fiscal 2022 and fiscal 2023, and our fiscal 2024 first quarter, the 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. We have the ability to settle the conversion in Common Stock.

Capped Call Transactions

In connection with the pricing of the Convertible Notes on September 17, 2020, and in connection with the exercise by the Initial Purchasers of their option to purchase additional Convertible Notes on September 18, 2020, we entered into privately negotiated Capped Call Transactions (the “Capped Call Transactions”) with certain of the Initial Purchasers and/or their respective affiliates and/or other financial institutions (the “Capped Call Counterparties”). The Capped Call Transactions are expected generally to reduce potential dilution of our common stock upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of such converted Convertible Notes, as the case may be, in the event that the market price per share or our common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions, which initially corresponds to the conversion price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes. If, however, the market price per share of our common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution to the extent that such market price exceeds the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions was initially $17.98 per share (in no event shall the cap price be less than the strike price of $11.0128), which represents a premium of 100% over the last reported sale price of the Common Stock of $8.99 per share on The New York Stock Exchange on September 17, 2020. Under the terms of the Capped Call Transactions, the cap price is subject to adjustment for certain events, including distributions and dividends paid to holders of Common Stock. At December 28, 2023, the adjusted cap price is approximately $17.59 per share. The Capped Call Transactions are separate transactions entered into by us with the Capped Call Counterparties, are not part of the terms of the Convertible Notes and will not change the rights of holders of the Convertible Notes under the Convertible Notes and the Indenture.

Summary

The Credit Agreement and the senior notes impose various financial covenants applicable to The Marcus Corporation and certain of our subsidiaries. As of the date of this filing, we are in compliance with all of the financial covenants imposed by the Credit Agreement and the senior notes. Our long-term debt has scheduled annual principal payments, net of amortization of debt issuance costs, of $10.3 million in fiscal 2024 and $109.6 million in fiscal 2025. We believe that we will 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 and beyond.

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Financial Condition

Fiscal 2023 versus Fiscal 2022

Net cash provided by operating activities totaled $102.6 million during fiscal 2023, compared to net cash provided by operating activities of $93.2 million during fiscal 2022, an increase of $9.4 million. The increase in net cash provided by operating activities in fiscal 2023 was due primarily to an increase in net income and favorable timing of payment of accounts payable and other accrued liabilities, partially offset by unfavorable timing in the collection of accounts receivable as compared to fiscal 2022 and collection of government grant receivables and receipt of refundable income taxes of $22.7 million in fiscal 2022 that did not recur.

Net cash used in investing activities during fiscal 2023 totaled $36.7 million, compared to net cash used in investing activities during fiscal 2022 of $0.3 million, an increase of $36.4 million. The increase in net cash used by investing activities was primarily the result of an increase in capital expenditures, a decrease in cash proceeds from disposals of property, equipment and other assets during fiscal 2023, and the receipt of $31.1 million in net proceeds from the sale of The Skirvin Hilton during fiscal 2022 with no hotel sales in fiscal 2023.

Total cash capital expenditures (including normal continuing capital maintenance and renovation projects) totaled $38.8 million during fiscal 2023 compared to $36.8 million during fiscal 2022, an increase of $1.9 million, or 5.2%. We incurred approximately $15.1 million of capital expenditures in our theatre division during fiscal 2023, including costs associated with the conversion of two existing auditoriums to a SuperScreen DLX® and a ScreenX auditorium and normal maintenance capital projects. We incurred approximately $12.1 million of capital expenditures during fiscal 2022 in our theatre division, including costs associated with the conversion of four existing auditoriums to SuperScreen DLX auditoriums and normal maintenance capital projects. We incurred approximately $22.9 million of capital expenditures in our hotels and resorts division during fiscal 2023, including costs related to the second phase of a guest rooms renovation at the Grand Geneva Resort & Spa, ballroom and meeting space renovations at The Pfister Hotel and normal maintenance capital projects at our other company-owned hotels and resorts. We incurred capital expenditures in our hotels and resorts division during fiscal 2022 of approximately $24.5 million, including costs related to the first phase of a guest rooms renovation at the Grand Geneva Resort & Spa and normal maintenance capital projects. Our current estimated fiscal 2024 cash capital expenditures, which we anticipate may be in the $60 - $75 million range, are described in greater detail in the “Current Plans” section of this MD&A.

Net cash used in financing activities during fiscal 2023 totaled $30.5 million, compared to net cash used in financing activities during fiscal 2022 of $92.4 million. During fiscal 2023, 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 $38.0 million of new short-term revolving credit facility borrowings, and we made $38.0 million of repayments on short-term revolving credit facility borrowings during fiscal 2023. We ended fiscal 2023 with no outstanding borrowings under our revolving credit facility. We did not issue any new long-term debt during fiscal 2023.

During 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 a result, we added $100.0 million of new short-term revolving credit facility borrowings, and we made $100.0 million of repayments on short-term revolving credit facility borrowings during fiscal 2022. We ended fiscal 2022 with no outstanding borrowings under our revolving credit facility. Net cash provided by operating activities during fiscal 2022 was used to repay $47.5 million of short-term borrowings, including the early repayment and retirement of our term loan facility. We did not issue any new long-term debt during fiscal 2022.

Principal payments on long-term debt were approximately $11.4 million during fiscal 2023, including a $10.0 million installment payment on senior notes, compared to payments of $35.7 million during fiscal 2022, which included a $10.0 million installment payment on senior notes and a $24.1 million payment to retire mortgage notes in connection with the sale of The Skirvin Hilton. Distributions to noncontrolling interests resulting from the sale of The Skirvin Hilton were $0.8 million in fiscal 2023 and $2.0 million in fiscal 2022.

Our debt-to-capitalization ratio (excluding our finance and operating lease obligations) was 0.26 at December 28, 2023, compared to 0.28 at December 29, 2022. Based upon our current expectations for our fiscal 2024 operating results and capital expenditures, we anticipate that our total long-term debt and debt-to-capitalization ratio will remain at our

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current relatively low levels during fiscal 2024. Our actual total long-term debt and debt-to-capitalization ratio at the end of fiscal 2024 are dependent upon, among other things, our actual operating results, capital expenditures, asset sales proceeds and potential equity transactions during the year.

During fiscal 2023 and fiscal 2022 we did not repurchase any shares of our common stock in the open market. As of December 28, 2023, approximately 2.4 million shares of our common stock remained available for 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.

We paid regular quarterly dividends totaling $7.4 million during fiscal 2023. During the third quarter of fiscal 2023, we increased our regular quarterly common stock cash dividend by 40% to $0.07 per common share. During fiscal 2022, our Board of Directors elected to reinstate our quarterly dividend that had been suspended as a result of the COVID-19 pandemic, declaring a quarterly cash dividend of $0.05 per share of common stock. Quarterly dividends were paid in September and December 2022, totaling $3.1 million in fiscal 2022.

Contractual Obligations, Commercial Commitments and Future Uses of Cash

The following schedule details our contractual obligations at December 28, 2023 (in thousands):

[[GREPCENT_TABLE]]
[["","Payments Due by Period"],["","Total","","Less Than 1 Year","","1-3 Years","","4-5 Years","","After 5 Years"],["Long-term debt","$","169,851","","","$","10,303","","","$","109,631","","","$","49,917","","","$","\u2014"],["Interest on fixed-rate long term debt(1)","17,735","","","7,842","","","9,575","","","318","","","\u2014"],["Pension obligations","36,349","","","2,111","","","4,514","","","4,876","","","24,848"],["Operating lease obligations","262,035","","","23,718","","","51,736","","","47,268","","","139,313"],["Finance lease obligations","17,898","","","3,236","","","6,045","","","3,883","","","4,734"],["Construction commitments","23,233","","","23,233","","","\u2014","","","\u2014","","","\u2014"],["Total contractual obligations","$","527,101","","","$","70,443","","","$","181,501","","","$","106,262","","","$","168,895"]]
[[/GREPCENT_TABLE]]

________________

(1)Interest on variable-rate debt obligations is excluded due to significant variations that may occur in each year related to the amount of variable-rate debt and the accompanying interest rate. As of December 28, 2023 we had zero variable interest rate debt outstanding.

Additional detail describing our long-term debt is included in Note 6 to our consolidated financial statements.

As of December 28, 2023, we had no additional material purchase obligations other than those created in the ordinary course of business related to property and equipment, which generally have terms of less than 90 days. We had long-term obligations related to our employee benefit plans, which are discussed in detail in Note 9 to our consolidated financial statements. We have not included uncertain tax obligations in the table of contractual obligations set forth above due to uncertainty as to the timing of any potential payments.

As of December 28, 2023, we had entered into a new office lease that had not yet commenced. The new office lease is for an eleven year term beginning in fiscal 2024 and ending in fiscal 2035, excluding extension options. The contractual obligations related to the new office lease are included in operating lease obligations above, but are not included in operating lease liabilities in the consolidated balance sheet as of December 28, 2023 as the lease has not yet commenced.

As of December 28, 2023, we had no debt or lease guarantee obligations.

In connection with the mortgage loan obtained by the Kimpton Hotel Monaco Pittsburgh (“Monaco”) joint venture, we provided an environmental indemnity and a “bad boy” guaranty that provides that the lender can recover losses from us for certain bad acts of the Monaco joint venture, such as but not limited to fraud, intentional misrepresentation, voluntary incurrence of prohibited debt, prohibited transfers of the collateral, and voluntary bankruptcy of the Monaco joint venture. Under the terms of the Monaco joint venture operating agreement, Searchlight has agreed to fully indemnify us

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under the “bad boy” guarantees for any losses other than those attributable to our own bad acts and has agreed to indemnify us to its proportionate liability under the environmental liability. Additional detail describing the Monaco joint venture is included in Note 12 to our consolidated financial statements.