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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended November 27, 2003

For the transition period from __________ to __________

Commission File Number  1-12604

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 12, 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  X    No ____

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  X    No ____

APPLICABLE ONLY TO CORPORATE ISSUERS:

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 JANUARY 6, 2004 – 20,381,251
CLASS B COMMON STOCK OUTSTANDING AT JANUARY 6, 2004 – 9,324,560

THE MARCUS CORPORATION

INDEX

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PART I – FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

THE MARCUS CORPORATION
Consolidated Balance Sheets

See accompanying notes to financial statements.

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THE MARCUS CORPORATION
Consolidated Balance Sheets

See accompanying notes to financial statements.

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THE MARCUS CORPORATION
Consolidated Statements of Earnings (Unaudited)

See accompanying notes to financial statements.

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THE MARCUS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)

See accompanying notes to financial statements.

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THE MARCUS CORPORATION

CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE
THIRTEEN AND TWENTY-SIX WEEKS ENDED
NOVEMBER 27, 2003
(Unaudited)

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Special Note Regarding Forward-Looking Statements

        Certain matters discussed in this Management’s Discussion and Analysis of Results of Operations and Financial Condition 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 will 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 could cause results to differ materially from those expected, including, but not limited to, the following: (i) our ability to successfully define and build the Baymont brand within the “limited-service, mid-price without food and beverage” segment of the lodging industry; (ii) the availability, in terms of both quantity and audience appeal, of motion pictures for our theatre division; (iii) the effects of increasing depreciation expenses and preopening and start-up costs due to the capital intensive nature of our businesses; (iv) the effects of adverse economic conditions in our markets, particularly with respect to our limited-service lodging and hotels and resorts divisions; (v) the effects of adverse weather conditions, particularly during the winter in the Midwest and in our other markets; (vi) the effects on our occupancy and room rates from the relative industry supply of available rooms at comparable lodging facilities in our markets; (vii) the effects of competitive conditions in the markets served by us; (viii) our ability to identify properties to acquire, develop and/or manage and continuing availability of funds for such development; and (ix) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in the United States, the United States’ responses thereto and subsequent hostilities. 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 May. Fiscal 2004 and 2003 are both 52-week years. We divide our fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. Our primary operations are reported in the following three business segments: movie theatres, limited-service lodging and hotels and resorts. As a result of the sale of our KFC restaurants during fiscal 2001, a payment received by us in fiscal 2003 related to the sale of the restaurant business has been presented as a gain on sale of discontinued operations in the accompanying financial statements and in this discussion.

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        The following table sets forth revenues, operating income, earnings from continuing operations, discontinued operations, net earnings and earnings per share for the comparable second quarter and first half of fiscal 2004 and 2003 (in millions, except for per share and variance percentage data):

        Revenues and operating income (earnings before other income/expense and income taxes) increased in each of our three operating divisions during the second quarter of fiscal 2004 compared to the same quarter last year. Increases in our theatre and hotels/resorts division revenues and increases in the operating income of all three of our operating divisions contributed to the improved performance for the first half of fiscal 2004 compared to the same period last year. The overall increases in operating income were achieved despite continued pressure on operating margins from increased insurance costs, particularly increased health insurance costs.

        Decreased interest expense, partially offset by reduced investment income and gains on the disposition of property, equipment and investments in joint ventures, favorably impacted earnings from continuing operations during our fiscal 2004 second quarter and first half compared to the comparable periods of fiscal 2003. Our interest expense, net of investment income, totaled $3.5 million and $7.6 million for the second quarter and first half of fiscal 2004, respectively, compared to $4.4 million and $9.1 million during the same periods last year. The decrease was primarily the result of a $27.3 million, or 9.9%, reduction in our long-term debt at the end of the first half of fiscal 2004 compared to the end of the first half of fiscal 2003.

        We recognized a net gain on disposition of property, equipment and investments in joint ventures totaling $800,000 during the second quarter of fiscal 2004 compared to a gain of $900,000 during the prior year same period. Our fiscal 2004 second quarter gain was the result of the sale of excess land, partially offset by a loss on the disposition of a former Baymont joint venture property. Gains on disposition of property and equipment for the first half of fiscal 2004 were $800,000 compared to gains of $1.3 million during the first half of fiscal 2003. The timing of periodic sales of our property and equipment may vary from quarter to quarter, resulting in variations in our gains or losses on disposition of property and equipment. We anticipate periodic additional sales of non-revenue generating property and equipment with the potential for additional gains on disposition during the remainder of fiscal 2004.

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        During the first quarter of fiscal 2003, the buyer of our former KFC restaurants elected to terminate a provision of the asset purchase agreement that provided for potential additional future purchase price payments by paying us an additional $2.1 million. As a result, an additional gain on sale of discontinued operations, net of tax, of $1.2 million or $.04 per share was included in the reported results for the fiscal 2003 first half.

Theatres

        The following table sets forth revenues, operating income and operating margin for our theatre division for the second quarter and first half of fiscal 2004 and 2003 (in millions, except for variance percentage and operating margin):

        Consistent with the seasonal nature of the motion picture exhibition industry, our second quarter is typically the slowest period for our theatre division. Despite this fact, our theatre division again reported record operating results for our fiscal 2004 second quarter, representing the ninth quarter out of the last ten with record results. Contributing to the improved operating margins during both the second quarter and first half of fiscal 2004 were increased box office and concession revenues and reduced concession cost of sales and film rental costs. Increases in other ancillary revenues, including management fees and pre-show advertising income, also contributed to the improved operating performance during both periods. In addition, our fiscal 2004 first half operating income and margin were favorably impacted by an insurance settlement of approximately $490,000 (the majority of which was reported during our fiscal 2004 first quarter) related to a fire that occurred several years ago at one of our Milwaukee-area theatres.

        The following table breaks out revenues for the theatre division for the second quarter and first half of fiscal 2004 and 2003 (in millions, except for variance percentage):

        The increase in our box office receipts for the second quarter and first half of fiscal 2004 compared to the same periods last year was due primarily to an increase in our average ticket price, as attendance increased slightly during our fiscal 2004 second quarter and is down slightly during the first half of fiscal 2004 compared to the same period last year. Our average ticket price increased 1.7% and 3.9%, respectively, during the second quarter and first half of fiscal 2004 compared to the same periods last year. The increases are attributable primarily to modest price increases, with the larger first half increase due to the fact that this year’s first quarter film product included an unusually high number of R-rated movies, which typically appeal to a smaller audience but result in a higher average ticket price due to fewer child admissions. Our average concession sales per person during our fiscal 2004 second quarter and first half increased 1.9% and 3.1%, respectively, compared to the same periods last year, although our overall concession revenues have only increased 1.8% year-to-date, due to the slightly reduced attendance during our fiscal 2004 first half.

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        Total theatre attendance increased 0.9% during our fiscal 2004 second quarter compared to total attendance during the same period last year. For the first half of fiscal 2004, total attendance is down 1.3% compared to the first half of fiscal 2003. The majority of the increase in attendance during the second quarter occurred during the month of September, which is historically the slowest month of the film year. Although our fiscal 2004 second quarter did not have the benefit of a Harry Potter movie or My Big Fat Greek Wedding, both of which performed better last year than our top second quarter movies this year, the depth of the film product was very good. We continue to benefit from a consistent and slightly increasing supply of film releases from Hollywood. Top grossing movies during our fiscal 2004 second quarter included Elf, The Matrix Revolutions, Scary Movie 3, The School of Rock and Brother Bear.

        Our fiscal 2004 third quarter has started off well for the division, with holiday film product such as Something’s Gotta Give, Cheaper by the Dozen and Lord of the Rings: The Return of the King performing strong and contributing to a record box office week for our theatres at the end of December. The extended outlook for film product beyond the holiday season appears strong, with product supply looking solid with May in particular looking very promising. Although film release schedules are subject to change, the upcoming summer, which will include the next installments of Harry Potter and Spiderman, appears strong as well. Revenues for the theatre business and the motion picture industry in general are heavily dependent upon the general audience appeal of available films, together with studio marketing, advertising and support campaigns, all factors over which we have no control.

        We ended the first half of fiscal 2004 with a total of 459 company-owned screens in 43 theatres and 34 managed screens in 3 theatres compared to 459 company-owned screens in 44 theatres and 34 managed screens in 3 theatres at the end of the same period last year. Five new screens were opened during the second quarter of fiscal 2004, including four additional screens at a theatre in Menomonee Falls, Wisconsin and one screen at a Madison, Wisconsin theatre. The screens were opened late during the quarter and did not have a significant impact on second quarter results. A new six-screen theatre in Tomah, Wisconsin, owned by the Ho-Chunk Indian Nation and managed by our theatre division under a long-term contract, opened early in our fiscal 2004 third quarter. We also anticipate opening our fourth UltraScreen™ at a theatre in Elgin, Illinois, in our fiscal 2004 third quarter. We continue to review additional opportunities to add new screens to existing locations and to develop new locations in and around our existing markets. We recently announced plans to build a new 10-12 screen theatre in Saukville, Wisconsin. Construction on the new theatre, which will be expandable to up to 20 screens, is expected to begin this spring.

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Limited-Service Lodging

        The following table sets forth revenues, operating income and operating margin for our limited-service lodging division for the second quarter and first half of fiscal 2004 and 2003 (in millions, except for variance percentage and operating margin):

        Comparable Baymont Inns & Suites experienced a 0.3% and 0.4% increase in revenue per available room, or RevPAR, during our fiscal 2004 second quarter and first half, respectively, compared to the same periods last year. The increase in RevPAR during the second quarter was the result of a 1.1% increase in our average daily rate (“ADR”), partially offset by a 0.5 percentage point decrease in occupancy percentage (number of occupied rooms as a percentage of available rooms). Comparable Baymont Inns & Suites experienced a 0.4 percentage point increase in occupancy percentage and a 0.2% decrease in ADR during the first half of fiscal 2004, compared to the same period last year. Reduced business travel, as companies continue to respond cautiously to the current economic environment, continues to dampen room demand and create significant pricing pressure on existing hotels. The overall decline in division revenues during the first half of fiscal 2004 is primarily the result of a decrease in Woodfield Suites revenues and the fact that we had one fewer company-owned Baymont Inn & Suites open during our fiscal 2004 first half compared to the same period last year, partially offset by an increase in franchise revenues.

        We owned and operated seven Woodfield Suites all-suite hotels during the first half of both fiscal 2004 and 2003. Revenues from Woodfield Suites decreased during the second quarter and first half of fiscal 2004 compared to the same periods of fiscal 2003 due primarily to reduced occupancy and ADR, with resulting RevPAR decreases of 2.7% and 5.3%, respectively, compared to the same periods last year. Woodfield Suites’ dependence on the business traveler is generally greater than that of Baymont Inns & Suites, contributing to the greater revenue decline.

        Data received from outside industry resources, such as Smith Travel Research, indicates that our company-owned or operated Baymont Inns & Suites have gained market share during our fiscal 2004 first half relative to our specific competitive set in our markets. We believe that our continued sales and marketing efforts to increase brand awareness, including more effectively utilizing all channels of distribution, continuing to introduce our brand and facilities to many new customers and differentiating it from our competitors, has contributed to the improved revenue performance relative to our competitors. Revenues generated from our reservation center and the various internet reservation portals available to the hotel industry continue to increase and we expect continued growth from these revenue sources in the future. Membership in our frequent stay program, Guest Ovations™, now exceeds 310,000 and has contributed approximately 23% of our revenues during the first half of fiscal 2004 compared to 21% during the same period last year.

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        A significant improvement in the limited-service lodging division’s operating margin during the second quarter of fiscal 2004 compared to the same period last year resulted in a 74.2% increase in operating income during the quarter. Strong expense management at both our Baymont Inns & Suites and Woodfield Suites properties and increased income from our franchising operations contributed to the improved performance during our fiscal 2004 second quarter. Contributing to the increase in franchising income was improved performance by our franchisees as well as the inclusion of a termination fee from a former franchisee. As a result of the significant increase in operating income during the second quarter, the limited-service lodging division’s operating income for the first half of fiscal 2004 now exceeds operating income for the comparable period last year.

        Our overall improvement in revenues in this division remains primarily driven by the leisure customer, as evidenced by improvements in our occupancy percentage on weekends and holiday periods. Our fiscal 2004 second quarter performance benefited from the increased occupancy generated by the 100 year anniversary celebration for Harley Davidson, held in Milwaukee, Wisconsin over the Labor Day weekend. We remain cautiously optimistic that an improved business climate as a response to the strengthening economy should increase business travel during calendar 2004. Our ability to overcome anticipated increases in utility costs and property, liability and health insurance costs during fiscal 2004 and continue to increase our operating margin will likely be dependent upon a continued improvement in the economy in general and business travel in particular, resulting in increased room demand and reduced pricing pressure.

        At the end of the fiscal 2004 first half, we owned or operated 94 Baymont Inns & Suites and franchised an additional 87 Inns, bringing the total number of Baymont Inns & Suites in operation to 181. Two franchised locations have opened during the first half of fiscal 2004 and two franchised locations left the system. In addition, there are currently six approved franchised locations and one company-owned property under construction or in development. During the second quarter of fiscal 2004, we opened our first Baymont Inn & Suites in the important California market, a joint venture property that has performed extremely well thus far. A company-owned property under construction, our first urban Baymont Inn & Suites, is being built in downtown Chicago, Illinois and is currently expected to open during the second quarter of fiscal 2005.

        As a result of the reduced demand for lodging and a constrained financing market for new hotel development, industry supply growth has slowed considerably. Accordingly, we currently have significantly fewer new franchised inns in development than previously planned. As industry conditions improve, we hope to increase the pace of our franchise growth. Conversely, we also continue to believe that the significantly reduced supply growth throughout the industry should favorably impact operating results of existing hotels as an economic recovery takes hold.

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Hotels and Resorts

        The following table sets forth revenues, operating income and operating margin for our hotels and resorts division for the second quarter and first half of fiscal 2004 and 2003 (in millions, except for variance percentage and operating margin):

        Continued improvement at our newest properties, as well as improved performance at our group-oriented hotels and resorts, contributed to the significantly improved operating results during our fiscal 2004 second quarter. Like our limited-service hotels, our Milwaukee-area hotel properties also benefited from the September Harley Davidson celebration. Also contributing to the improvement in fiscal 2004 revenues was increased food and beverage revenues, which are at least partially attributable to the successful introduction of our “chop house” restaurant concept at our Madison, Wisconsin and Kansas City, Missouri hotels. Conversely, comparisons to last year’s first half were negatively impacted by the fact that the division’s fiscal 2004 first half operating results included approximately $150,000 of preopening expenses related to the introduction of these new restaurant concepts.

        Operating results at our vacation ownership development at the Grand Geneva Resort & Spa have been negatively impacted during fiscal 2004 by transition challenges associated with the new Wisconsin telemarketing no-call rules. Conversely, last year’s second quarter timeshare revenues were negatively impacted because we were required to report timeshare sales on the percentage of completion method while we sold units in a building that was under construction. That new building opened at the end of fiscal 2003 and all revenues are currently being recognized as incurred.

        Although it continues to be a very challenging environment for hotels, particularly those operating in the upscale segments of the industry, the improvement in group business during the second quarter of fiscal 2004 was encouraging. The hotels and resorts division operating income for our fiscal 2004 second quarter, although not a record, was the best reported since fiscal 2001, the year before the September 11 tragedy. The division’s total RevPAR for comparable Company-owned properties increased 15.9% and 7.2%, respectively, during our fiscal 2004 second quarter and first half compared to the same periods last year. According to data received from outside industry resources, such as Smith Travel Research, our second quarter RevPAR improvement of 15.9% compares to industry averages of 2-3% for the upper-upscale segment of the lodging industry for the same time period. Our overall occupancy percentage increased 6.2 and 3.5 percentage points, respectively, during our fiscal 2004 second quarter and first half compared to the same periods last year. Our overall ADR has also increased during these same time periods, increasing 4.4% and 1.5%, respectively, compared to the second quarter and first half of fiscal 2003.

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        The near-term outlook for the future performance of this division remains uncertain, but we are encouraged by recent trends. The leisure customer segment has continued to perform well for us and our second quarter results seem to indicate that the corporate group business segment is improving. Overall, business and group travel has still not fully recovered and group bookings continue to be made within a relatively short lead-time, indicating to us that companies are remaining cautious in their travel plans. Based upon current advanced bookings, our third quarter, which is historically our slowest quarter of the year for this division, may potentially be better than last year, although we are not likely to report as large a percentage or dollar amount increase as this past quarter. The current booking pace for our fiscal 2004 fourth quarter is very promising. As a result, subject to economic conditions and a continued improvement in business and group travel, we currently expect our division operating results to continue to improve during the remainder of fiscal 2004, with cost controls remaining a high priority.

        Construction continues on a new spa at our Miramonte Resort, with a grand opening of this new amenity currently scheduled for the beginning of March. We continue to pursue several new growth opportunities, with a focus on expanding our management business and the possibility of making small equity investments in some projects as necessary. The number of projects that we are actively exploring appears to be increasing slightly, which we find encouraging.

FINANCIAL CONDITION

        Our lodging and movie theatre businesses each generate significant and consistent daily amounts of cash because each segment’s revenues are derived predominantly from consumer cash purchases. We believe that these relatively consistent and predictable cash sources, together with the availability of $105 million of unused credit lines as of the end of the second quarter, should be adequate to support the near-term anticipated ongoing operational liquidity needs of our businesses.

        Our existing five-year, $125 million credit facility with several banks and our $15.0 million term note with one of the banks are both scheduled to expire later in fiscal 2004. It is our intention to execute new agreements that will effectively extend the maturity dates of the current credit agreements during fiscal 2004. We currently do not believe that we will have difficulty in extending these agreements at continued favorable terms. As of November 27, 2003, we classified $39.8 million of outstanding borrowings under the term note and under commercial paper agreements backed by unused credit lines as current, pending new credit agreements. We expect these borrowings to be reclassified to long-term debt upon execution of the new agreements.

        Net cash provided by operating activities increased by $5.9 million during the first half of fiscal 2004 to $49.5 million, compared to $43.6 million during the prior year’s first half. The increase was due primarily to improved operating results and a favorable timing difference in collections of accounts and notes receivable.

        Net cash used in investing activities during our fiscal 2004 first half totaled $18.7 million, compared to $9.3 million during our fiscal 2003 first half. The increase in net cash used in investing activities was primarily the result of increased capital expenditures and slightly reduced cash proceeds from disposals of property and equipment. Capital expenditures totaled $20.3 million during the first half of fiscal 2004 compared to $11.5 million during the prior year’s first half. Fiscal 2004 first half capital expenditures included $12.5 million incurred in our limited-service lodging division, $4.3 million incurred in our theatre division and $2.5 million incurred in our hotels and resorts division to fund ongoing capital projects. The decrease in cash proceeds was primarily due to the additional payment on the sale of our KFC restaurants received during last year’s first quarter.

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        Net cash used in financing activities during the first half of fiscal 2004 totaled $29.7 million compared to $37.3 million during the first half of fiscal 2003. Our principal payments on notes payable and long-term debt totaled $27.7 million during the first half of fiscal 2004 compared to $34.9 million during the same period last year, with minimal new debt added in either year. Excess cash available from operations, after investing activities, was used to reduce our outstanding commercial paper borrowings during the first half. Our debt capitalization ratio was 0.39 at November 27, 2003, compared to 0.43 at the prior fiscal year end. Based upon our current expectations for fiscal 2004 capital expenditure levels and potential asset sales proceeds, we currently anticipate that our long-term debt total and debt-capitalization ratio will remain at or below fiscal 2003 levels during the remainder of fiscal 2004.

        The actual timing and extent of the implementation of our current expansion plans will depend in large part on industry and general economic conditions, our financial performance and available capital, the competitive environment, evolving customer needs and trends and the availability of attractive opportunities. It is likely that our plans will continue to evolve and change in response to these and other factors.

        We have not experienced any material changes in our market risk exposures since May 29, 2003.

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PART II – OTHER INFORMATION

        Our 2003 annual meeting of shareholders was held on Wednesday, October 8, 2003 (the “Annual Meeting”). At the Annual Meeting, the following matters were voted on in person or by proxy and approved by our shareholders:

        As of the August 8, 2003 record date for the Annual Meeting, 20,073,325 shares of Common Stock and 9,480,185 shares of Class B Common Stock were outstanding and eligible to vote, with the Common Stock entitled to one vote per share and the Class B Common Stock entitled to ten votes per share. Following are the final votes on the matters presented for shareholder approval of the Annual Meeting:

No other matters were brought before the Annual Meeting for a shareholder vote.

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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

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