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The Marcus Corporation (NYSE:MCS)

2012 Annual Shareholders’ Meeting Conference Transcript

October 17, 2012 10:00 AM ET

Executives

Steve Marcus - Chairman

Greg Marcus - President and CEO

Tom Kissinger - Vice President, General Counsel and Secretary

Bruce Olson - SVP, The Marcus Corporation and President, Marcus Theatres

Doug Neis - Chief Financial Officer and Treasurer

Karen Spindler - Director, Corporate Human Resources

Jane Durment - Former Chief Information Officer

Jack McKeithan Jr. - Chairman and CEO, Tamarack Petroleum Company

Tim Hoeksema - Retired Chairman, President and CEO, Midwest Air Group Incorporated.

Bud Selig - Commissioner, Major League Baseball

Phil Milstein - Principal, Ogden CAP Properties, LLC.

Bronson Haase - Retired President, Pabst Farms Equity Ventures

Jim Ericson - Retired Chairman, President and CEO, Northwestern Mutual Life Insurance Company.

Brian Stark - Founding Principal, CEO and CIO, Stark Investments, Milwaukee

Analysts

Steve Marcus

Good morning. I’m Steve Marcus, Chairman of The Marcus Corporation and I want to welcome all of you to our 2012 Annual Shareholders Meeting. Welcome also to our shareholders who are listening to the live webcast of today’s meeting on the Internet.

Before we begin, I’d like to ask you to turnoff your cell phones, if you haven't already done so, so that everyone can enjoy the meeting. Thank you very much.

Now, let's begin the meeting with the introduction of our executive management team. They are Greg Marcus, President and Chief Executive Officer; Tom Kissinger, Vice President, General Counsel and Secretary; Bruce Olson, Senior Vice President of The Marcus Corporation and President of Marcus Theatres; Doug Neis, Chief Financial Officer and Treasurer; Karen Spindler, our Director of Corporate Human Resources. Karen, where is Karen, there she is.

Bill Reynolds, Senior Managing Director of MCS Capital, our new hotel investment business. He is out of town on business. So he is not here with us today. He is looking [covering] around for more deals.

We are pleased that Jane Durment, our Former Chief Information Officer, who retired this summer is attending today's meeting. Jane? Jane had a tremendous impact over her 60 years with the company and also exemplifies the tradition of community involvement. Thank you very much, Jane, for many contributions not only to our growth and to our success, but also the contributions that you make to the community everyday.

Our executive management team is instrumental in running our businesses and positioning our company for the future. Their skills and experiences are truly an asset to our company.

That brings me now to the business portion of the meeting. All shareholders present should have submitted their proxies prior to entering the meeting. If there any shareholders present who have not yet voted or who have previously submitted a proxy and now want to revoke their proxy, please go to the registration desk where you may vote and/or revoke your proxy.

I’m now calling Tom Kissinger to report on the mailing of meeting notices, the presence of quorum and other necessary legalities.

Tom Kissinger

Doug, did you hear that kind of introductions.

Steve Marcus

You are on the big screen, Tom.

Tom Kissinger

Okay. Have do they look? Thank you, Steve. Notice of this annual meeting together with a proxy statement, proxy card and an annual report were mailed on September 7, 2012 to all holders of record of our common and Class B common shares as of August 6, 2012.

Based on proxies received prior to the meeting and quorum is present for all purposes at this meeting is represented by 92% of the common shares and 97% of the Class B common shares for combine total of 96% of all eligible votes.

Before I move ahead, Steve, I’d like to also remind our shareholders and guests that as we share information with you today. We’ll be talking about our plans and expectations for the future.

Securities and Exchange Commission defines these plans as forward-looking statements that means I'm obligated to inform you that our actual results may differ materially from those projected and that additional information about our plans, as well as factors, risks and uncertainties, which may impact our expectations, future results of operations or financial condition are included in the Risk Factor section of our 10-K and 10-Q filings.

So, with that, Steve back to you.

Steve Marcus

Thank you very much, Tom. We have three items on the agenda today. The first is the election of our Board of Directors. I’d like to introduce the Board nominees to you now and I'll ask the Board members to stand during their introduction and most of the Board members are right over in the middle of the auditorium.

First is Greg Marcus, our President and Chief Executive Officer; Jack McKeithan Jr., Chairman and Chief Executive Officer of Tamarack Petroleum Company. Jack chairs the audit committee and also serves on the compensation committee.

Diane Marcus Gershowitz, she looks an Investor and Real Estate Manager who is in Chicago. As many of you know Diane is my sister. She also serves on the finance committee.

Tim Hoeksema, Retired Chairman, President and CEO of Midwest Air Group Incorporated. Tim chairs the compensation committee and also serves on the Corporate Governance and Nominating Committee.

Bud Selig, Commissioner of Major League Baseball. Bud serves on the corporate governance and nominating committee, as well as on the finance committee. As a result of hanging out with us, Bud now has movies in his blood, for those of you who don't know, he recently costarred with Clint Eastwood in Trouble With the Curve, which is one of the complementary movies that you can see after the meeting. We’ll be -- I want you to know Bud, they are going to be looking for you at the Oscars.

Bruce Olson, Senior Vice President of The Marcus Corporation and President of Marcus Theatres. Phil Milstein, Principal of Ogden CAP Properties, LLC. in New York City. Phil serves on three committees, audit, compensation and finance.

Bronson Haase, Retired President of Pabst Farms Equity Ventures. Bronson chairs our corporate governance and nominating committee and also serves on the compensation committee.

Jim Ericson, Retired Chairman, President and CEO of Northwestern Mutual Life Insurance Company. Jim serves on two committees, audit and finance.

Brian Stark, Founding Principal, Chief Executive Officer and Chief Investment Officer of Stark Investments in Milwaukee. Brian joined our Board in January and we are pleased to welcome him to his first Marcus Corporation annual meeting. Brian serves on the audit committee and I’m the final Board nominee.

Our Board also accurately fits the phrase strength in numbers, we are very, very fortunate to have our entire Board that is very experienced and engaged in helping us develop business strategies and monitoring performance. In everything we do, our Board is committed to representing you, our shareholders through high standards and good corporate governance.

As a part of those high standards are audit, compensation, and corporate governance and nominating committees are comprised entirely of outside Directors. On behalf of all of our shareholders I extend a very sincere thank you to all of our Directors for their commitment and for their support.

The second item on the agenda is to approve by advisory vote, the compensation of our named executive officers as disclosed in the proxy statement for this meeting. Our executive compensation program is designed to foster an ownership mentality and entrepreneurial spirit in our management.

This is an advisory vote that will not be binding on our Board. However, the compensation committee will consider the outcome of the vote when evaluating the effectiveness of our compensation program and we are making future compensation decisions for our named executive officers.

The final item we are considering today is to ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2013.

I’ll now ask the Secretary to announce the results of the voting on these three items.

Tom Kissinger

No music. No music.

Steve Marcus

No music. Yeah. That’s right.

Tom Kissinger

Mr. Chairman regarding the election of the Board of Directors based on the proxies delivered by the company’s shareholders prior to the meeting each Director on the nominated slate received no less than 98,579,271 votes.

Steve Marcus

Sounds like the federal budget.

Tom Kissinger

This means at least 95% of the votes cast were voted in favor of the reelection of each of the Directors and that the entire slate of Directors has been elected to serve until the next annual meeting.

On the advisory vote to approve the compensation of our named executive officers 98.6% of the vote casts were vote in favor of executive compensation program.

And on the ratification of the selection of Deloitte & Touche as our independent registered public accounting firm for fiscal 2013, 99.9% of the votes cast were voted in favor of the ratification.

Steve Marcus

Thank you very much, Tom. Let now complete the business portion of the meeting and I’ll now adjourn the official business meeting so that we can continue with an update on our operations.

The theme of today's presentation is strength in numbers, when you think about it, the statement really says a lot. It speaks to virtually every aspect of our company, from our diversity and our growth to our fiscal 2012 financial performance and a strong balance sheet. Most of all it’s a statement about our future.

My father founded the company back in 1935. The only number we had to work with was the Number 1, one movie theatre and one employee, himself. But over the years, those ones became two, three, 10, 20, and on and on until today we have a total of nearly 80 theatre and hotel locations and close to 6,500 associates in 13 states.

Most people think of numbers and financial terms, but there are many more numbers that define our business and describe our progress. To give you more insight into our numbers and what they mean for our shareholders, our customers and our associates, I’ll turn the program over now to our CEO, Greg Marcus.

Greg Marcus

Thanks Dad -- Steve. He is dad. You happen. I really like the strength in numbers, Steve, because virtually everything we do involves digits in one form or another. One number that I especially like last year is the number two, revenues and operating income increased in both of our divisions, marking fiscal 2012 a very good year across the Board.

We have a lot of numbers to talk about, as the interim President of Marcus Hotels and Resorts. I’ll begin with the report on our Lodging division. Then Bruce Olson, Senior Vice President of The Marcus Corporation and President of Marcus Theatres will update you on our Theatre Division. Let’s get started.

The Marcus Hotels and Resorts portfolio is comprised of 20 properties. Nine are majority owned by us. We manage another 11 properties for other owners. In total, we manage 5,400 rooms in 11 states.

Just this past month, our portfolio increased from 18 to 20 with two exciting announcements. We purchased the Cornhusker Hotel and Office Plaza in downtown Lincoln, Nebraska as the 73% owner of a joint venture. We also added a management contract and an 11% minority ownership position in a joint venture that purchased the Westin Atlanta Perimeter Hotel.

The number two is important here, these are the first two transactions sourced by MCS Capital, our new hotel investment arm. Another significant fact is that we’re partnering in these two joint ventures with several of the leading lodging investment hotel -- lodging hotel investment firms in United States.

The Cornhusker Hotel joint venture is with LEM Capital of Philadelphia, a well known private equity fund manager that specializes in commercial real estate. The members of the joint venture for the Westin Atlanta include Carey Watermark Investors, a highly respected real estate investment trust, and The Arden Group, which purchases and develops full service hotels and office buildings across the country.

We've been working with Carey Watermark for a number of years at the Hilton Minneapolis in Bloomington, Minnesota, which Carey owns and Marcus Hotels manages. So we view it as a vote of confidence that they're investing with us again.

The Cornhusker Hotel is a 297-room, full-service hotel with 45,000 square feet of meeting space. We are planning a multi-million dollar renovation, and we’ll re-affiliate the property with Marriott International. The renovation will include Miller Time Pub and Grill, our successful restaurant and bar concept developed in association with the world-class brewer, MillerCoors. We developed this concept internally and first introduced it at the Hilton Milwaukee several years ago.

The new location of the Cornhusker Hotel will feature authentic Miller artifacts, a retail shop, specially crafted beers and beer inspired menu options. The property is an excellent fit for our portfolio. A bonus is that we've been a part of the Lincoln community since 2008, when we acquired four area movie theatres as part of the Douglas Theatres acquisition. So we know the community very well.

The Wall Street Journal once called us to rescue Landmark Hotels. That statement remains true today. The Cornhusker Hotel renovation project leverages our extensive experience in restoring landmark properties, including the Pfister and the Hilton Milwaukee, the Skirvin Hilton in Oklahoma City, the Hotel Phillips in Kansas City and the Westin Columbus in Columbus, Ohio. And once we add the Marriott franchise, we will manage properties for all four major hotel brands.

The second addition to our hotel portfolio, the Westin Atlanta Perimeter North is a 372-room hotel with 20,000 square feet of meeting space and many other high-quality amenities. It’s located about 15 miles north of downtown Atlanta in the Concourse Corporate Center, a 63-acre mixed-use complex with 2.1 million square feet of office space, one of the largest athletic clubs in the country and numerous retail shops and services.

We will manage up $14 million renovation of the hotel. We’ll also utilize our core strengths in upscale hotel operations and marketing to improve the hotel's performance. On a larger scale, the lodging industry as a whole is continuing to rebound. As the chart indicates, this is a cyclical business. We are coming out of a few tough years and are heading in the right direction. These ups and downs are the reason we maintain a conservative balance sheet.

The numbers for Marcus Hotels continue to improve. Revenue per available room or RevPAR for Marcus Hotels was up 9.5% in fiscal 2012. The increase was driven by a record occupancy and a 5.2% increase in the average daily rate. We’ve mentioned in the past that the lodging industry recovery cycle is typically occupancy first, followed by increased rates, that’s exactly what we are experiencing. And while the average daily rate is moving up, it's still not back to where it was prior to the recession.

Operating income for the division increased a very healthy 88% for fiscal 2012. All of our company-owned properties contribute to the improvement in both revenues and operating income. We also outperformed our lodging industry peer group for the second consecutive year. This group includes such well-known brands as Westin, Hyatt and Marriott.

Growing our hotel business is a top priority and we have four keys to help us get there. First is to acquire additional properties. As indicated by the two recent announcements, our development efforts are beginning to bear fruit. We formed MCS Capital, a little over a year ago to serve as an investment fund sponsor, joint venture partner or sole investor in hotel properties. Our intent is to manage the hotels we acquire, which is the case in both the Cornhusker and the Westin Atlanta transactions.

The second strategy is to add new management contracts. We have a comprehensive portfolio of services that hotel owners and developers need, such as revenue management, accounting, legal, IT and human resources. We also have 50 years of experience in hotel sales and marketing to help drive revenues and improve profitability.

Our third growth strategy is to enhance our existing assets. This isn't anything new. We’ve done this continually through good times and bad to maintain our competitive edge in our markets. In fact, we've invested more than $50 million in our existing hotels over the past four fiscal years.

Last year, we completed two multi-million dollar renovations. Our property-wide renovation of the historic Hotel Phillips in downtown Kansas City focused on maintaining the hotel’s elegant art deco design elements, or adding the amenities that appeal to today's travelers.

At the Hilton Madison Monona Terrace in Madison, Wisconsin, we renovated all 240 guest rooms and public spaces to create an upscale urban feel. Our latest renovation was at the Hilton Milwaukee where we created the Monarch Lounge. This new lounge is reminiscent of the classic, old-school lobby cocktail lounge, with added features such as spacious seating, workstations and a media center. It is truly spectacular.

The Monarch Lounge has completely changed the dynamic of the lobby and the guest experience at the hotel. This project is one of the final phases of an extensive renovation, of just about every aspect of that hotel.

As a result of these investments, the Hilton Milwaukee has received the coveted AAA Four Diamond ranking for the past two years. Our plans for the current fiscal year include adding new concierge and club lounges at the Pfister Hotel in Milwaukee and the Grand Geneva Resort & Spa in Lake Geneva, Wisconsin. There was a segment of our guests that loves these special lounges and is willing to pay extra for them.

Our concierge lounge, the concept features a stunning design and extensive amenities that appeal to today's travelers. We are also building on the success of our Marcus Rewards dining frequency program by expanding it to include room stays at our independent hotels, beginning with the Pfister later this month. Our guests will have even more reason to stay in our properties and choose Marcus Hotels over the competition.

Our final growth strategy is to maximize our competitive advantages. A great example is the ‘only at Marcus program’ that will be launched later this year, beginning with our Milwaukee Hotels. Only at Marcus will offer programming and experiences that are unique, exclusive or limited in availability and that only our guests can enjoy. For example, one of the features is special access to events like IndyFest and the Milwaukee Air Show. There's much more to the program, but we aren’t quite ready to announce it. So stay tuned.

We have many other things going for us as we work to grow the business. We have decades of industry experience, proven expertise in management, development, historic renovations and financing. We have a hotel investment unit in MCS capital. And last but certainly not least, we have a strong balance sheet that enables us to pursue potential opportunities where others can't.

In summary, Marcus Hotels is positioned for growth. The lodging industry is continuing to rebound and near-term supply growth is expected to be limited, which is good for existing hotel operators like us. One caveat to the statement is here in Milwaukee, where several new subsidized hotel projects are underway along the drawing boards. My concern with these projects is that they are financed in part by government subsidies that aren’t needed. I want to be clear here. We're not against new hotels. I love them but we are not against it.

We are against government-subsidized hotels. If someone wants to come in here and invest their shareholder’s money like we do, that's fine. That's the free market system. But when the government subsidizes a hotel, not only is it a misallocation of scarce public resources, it’s creating an unfair competitor for our hotels. And when I say our hotels, I mean yours and mine because as shareholders we are all in this together.

I believe the subsidy should be used for things that increased demand for our hotels such as expanding our convention center, the Bradley Center and other amenities that drop people to Milwaukee. For all 20 of our properties, we need a good economic environment to keep the industry rebound going.

Long term, we’re looking forward to continuing to expand the visibility of Marcus Hotels as a leading national hotel management company. One of the ways we're working to achieve our goals is by communicating the four core values of Marcus Hotels to all of our associates. We recently completed the video that shows how our associates live these core values each and every day, and how they apply to our mantra of making what isn’t ordinary day for us, an extraordinary day for our guests.

I’d like to show you one of the video segments because it shows how our associates are working for you, our shareholders.

[Video]

As you can see from the video clip, we have a great team of associates dedicated to our guests and to our company. I talked about a lot of numbers in this update, but I’d like to end The Marcus Hotels’ report with one more, the number 50. This year, the Pfister Hotel is celebrating 50 years of Marcus Corporation ownership.

Many of you know the story. The hotel was purchased out of bankruptcy by my grandfather in 1962. The Pfister is the foundation of our hotel business and remains our flagship property today. So congratulations to the Pfister into our entire hotel division on a successful year and a bright future.

On that note, I'll turn the program over to Bruce Olson, Senior Vice President of The Marcus Corporation and President of Marcus Theatres for his report on our theatre division. Bruce.

Bruce Olson

Thanks Greg. And behalf of our General Manager, Scott Burns, and our Food & Beverage manager who created that wonderful breakfast buffet and the entire staff, you're welcome back to the Majestic Cinema. It’s been about five years since we last held our annual meeting here.

I too have lots of great numbers to talk about today from a record fiscal 2012 financial performance of our division to new screens and expanded amenities. Let's start with the basics.

We currently own or operate 695 screens at 56 locations in seven Midwestern states that works out to an average of 12.4 screens per theatre location. We’re the sixth largest circuit in United States and a leader in our industry.

Our concession sales per capita and our revenues as a percent of box office are among the highest of U.S. exhibitors. The biggest news in our division this past year was a rollout of our digital cinema systems.

We branded it MDX and that stands for The Marcus Digital Experience. We now offer digital cinema in 95% of our first-run screens. MDX enables our guests to see movies like never before. It provides a pristine visual presentation with greater resolution, definition, color depth along with state-of-the-art digital audio engineered to provide absolutely perfect sound.

The digital quality is consistent from the first showing on Friday to weeks later unlike film which was apt to get scratches during the course of the run. If you haven’t experienced digital cinema yet, you have the opportunity after today’s meeting to see one of the featured films in this new format. And I know you’ll enjoy the experience if you haven’t seen it already.

In addition to the major initiative of deploying digital cinema, we also made excellent progress on our growth strategies this past year. The key focus for us was expanding our food and beverage concepts. The goal here is to create unique in-theatre experiences for customers that capture additional revenues for us.

One of these successful concepts is our Zaffiro’s Pizzeria, easy for you to say and Bar restaurants. We opened our second full service Zaffiro’s at Parkwood Cinema in suburban St. Cloud, Minnesota, last January. And our third Zaffiro’s just opened in August, not far from here at the Ridge Cinema in New Berlin. Our first Zaffiro's was first located in the Milwaukee area at the North Shore Cinema in Mequon.

Our Zaffiro’s restaurants offer fantastic, incredible pizza along with sandwiches to salads to desserts full bar but many patrons, most of the patrons come to the restaurant without even seeing the movie because it’s that good. We also serve Zaffiro’s pizza here at the Majestic and also at the Oakdale Theatre in Minnesota.

Another concept that is building momentum here is the big screen bistro, that’s in-theatre dining, if you haven’t experienced that yet. It is very appealing, restaurant menu, all your favorite items from the concession stand but more importantly a full menu of great food and cocktails as well, delivered right to your seat by our Waite staff.

The customer response was so good here and so positive as a result about a year ago, we converted a second and third auditorium to big screen bistros. That’s a total of three BSBs at this location. This innovative full service in-theatre dinning is also available at the theatre we operate Midtown in Omaha, Nebraska.

As selected theatres are remodeled, we’re also adding hot food quick service counters like Zaffiro’s Express where guests can pick up pizza, burgers, sandwiches and our Take Five cocktail Lounges as well are also great place to socialize before or after a movie.

Our second growth strategy is to add new UltraScreens to enhance our existing assets. Like in Duluth, as you can see that like we did just recently this past June. We had a unique opportunity to convert a former OMNIMAX Theatre adjacent to a 10-screen Cinema into 14th nearly 70-foot wide UltraScreens and that’s what we’ve driven today. As part of the renovation, we also added a Take Five Lounge and lobby and remodeled their entrance and the box office completely.

Our Parkwood Cinema in St. Cloud also underwent a major renovation this past year, the auditorium's concession stand and box office will remodel into our newest design concept. And as I mentioned earlier, we also added a full-service Zaffiro restaurant here.

Our third strategy is to grow revenues and expand the audience base. With the deployment of digital cinema, we now have 3D capability of 24% of our first-run screens and nearly all of our UltraScreens new brand net experiences the UltraScreen XL 3D.

We’re the one of the first in the industry to offer digital 3D on a large-screen format like this, not as easy as it may sound. Both digital 3D and our UltraScreens are excellent revenue generators for us because they are not only extremely popular but they are premium priced as well, simply no better way to see a movie.

Another good revenue source for us is gift cards. Gift cards become hugely popular over the past few years. We sell hundreds of thousands of gift cards, millions of dollars for Christmas gifts, holidays, fathers, mothers days and very, very popular. We also generate additional revenues through lobby and preshow advertising, business meetings in events like today, especially here at the Majestic with our big screen bistro auditoriums are perfect for ideal settings for meetings. And we also provide film booking and buying services for other theatre operators across the Midwest as well.

Another program that is helping us expand our audience base is alternative programming. Digital networks at 38 of our locations enable us to show concerts, sporting events and other live and prerecorded entertainment, most popular of which is the Metropolitan Opera live, that series is especially developed into a very popular following all across our circuit.

Our fourth growth strategy is to increase our geographic footprint. We expanded our presence in Milwaukee area with the purchase of the Showtime Cinema in Franklin last December and we continued to look for additional acquisition opportunities.

As you can see, we’re executing in all four of our growth strategies. When it comes right down to it, our overall performance is still driven by the movies that Hollywood delivers and that’s the main reason, most of our customers come to our theatres of course. It’s the reason that we need to study stream of films that appeal to wide variety of audience playing throughout the year.

The studio did a great job of meeting that goal in fiscal 2012. Our top performing films for the year were The Avengers, Hunger Games, Harry Potter and Transformer's second Transformer, Dark of the Moon and the Twilight Saga: Breaking Dawn Part I. I know you’re all anxious for part two, it will be opening in just a few weeks.

Three of these five movies were presented in 3D. The strong movie slight increase concession revenues and an additional week of operations for fiscal 2012, all contributed to a record year for Marcus Theatres. Revenues increased 10% for the year and operating income was up a phenomenal 26%.

Box office admissions increased over 7%. Concession revenues were up nearly 16%, driven impart by our expanded food and beverage concepts. And finally, concession sales per person were up almost 10%.

Looking at the industry as a whole, the numbers were very good this past year. Box office in North America has grown from $7.3 billion in 1999 to over $10 million in each of the last three years. And for the period January 1st through October 8, 2012, box office revenues for this calendar year were up 3.8% over the same period in 2011. This is in spite of the disappointing films during this past summer.

The product for the remainder of the calendar 2012 looks very promising for the number of potential hits in the pipeline. Here is a peak at what we have in store for you in a few months ahead.

[Advertisement]

As you can see an exciting line of performance on tap for all ages. Summarize Marcus Theatres is a market leader and industry leader, a strong operational and financial performer. We have nearly 77 years of experience and most importantly, we’re a fantastic team of associates that on behalf of the Board of Directors, I’d like to thank for their dedication in providing magical movie memory for each and every guest.

Thank you and now I’ll throw the program back to Greg.

Greg Marcus

Thanks Bruce. You’ve heard about important initiatives in both our hotel and movie theatre divisions. There is one more project we’re working on, The Corners of Brookfield. This is a 500,000 square foot mixed-used retail development that will be anchored by the first Von Maur department store in Wisconsin.

There are many elements involved in this type of project. And if they all come together, we’re looking at an opening in late 2014. If the corners and the formation of MCS capital demonstrate even know The Marcus Corporation is nearly 77 years old, we still take an entrepreneurial approach to our growth.

We are continually looking at new ideas that can strengthen our position in our markets and in our industries as well as build value for our shareholders. That brings us to the financial report, which will be presented by Doug Neis, our Chief Financial Officer. Doug?

Doug Neis

All right. Ahead of our political fact checking, I must tell you I lost yesterday on Sunday. So I’m 16 years through now in fantasy football. So I know that everyone in this political world will tell the truth all the times and I felt I could do that today. So.

Thank you, Greg. And welcome, good morning everybody. Before I actually begin my report, I’d like to introduce some special guests who are here with us today. First, Richard Marcus from University of Wisconsin, Milwaukee is joining us again this year along with students from his Business Scholars’ finance class. They are studying The Marcus Corporation and I’ll be busy with them in class tomorrow.

Dick is now the member of the Marcus family but has become a good friend over the years. So I’d like to welcome that group. I think they are up and prepared there. So welcome guys. Appreciate coming again today.

So, let me begin with the financial highlights for fiscal 2012 and then review our results for the first quarter of fiscal 2013. Our results for fiscal 2012 certainly do fit the theme of strength the numbers.

Total revenues for the year were $413.9 million and nearly 10% increase from the prior year. And overall the results from both divisions benefit from a 53rd week of operations in fiscal 2012, which included the busy Memorial Day weekend. Operating income was $46.5 million which is up almost 39% and net earnings were $22.7 million or $0.78 per diluted share of 67.7% increase over the prior year.

Now, this slides shows revenues and operating income by division. The fiscal 2012 Marcus Theatres contributed about 55% of our revenues and nearly 79% of our operating income. The more typical year, revenues have been about 50-50 between the two divisions with Marcus Theatres contributing about 60% to 65% of our operating income.

The next chart shows our capital expenditures including acquisitions over the past five years. Our capital expenditures of $38 million last year included projects in both divisions. Right now we’re anticipating that capital expenditures may be in the $65 million to $95 million range this year including the two recently announced hotel transactions as well as other potential growth opportunities in the pipeline.

However, as always the amount to always subject to change based on timing, projects and other factors. Our debt-to-total capitalization ratio has continued to decline, reaching 37% at the end of fiscal 2012 and 36% at the end of our most recently completed first quarter. In addition to our loan debt, our credit facilities are also very well-positioned along with cash in our balance sheet, we had a $109 million in available credit lines at the end of the first quarter.

The strong capital position gives us financial capacity to act on potential growth and value creation opportunities in both of our divisions. We maintain our dividend at the current annual rate of $0.34 per common share and despite -- in spite of the ups and down in the economy over the past couple of years. And these provide a current yield of over 3%.

We also return capital to our shareholders through share repurchases. During fiscal 2012, we repurchased more than 1 million shares of our common stock and first quarter just completed we repurchased an additional 97,000 shares.

In July, the Board of Directors expanded our share repurchase program by authorizing additional 2 million shares for repurchase. For the strong cash flow and balance sheet, we believe that when timing and market conditions are appropriate, we are able to repurchase shares to enhance shareholder value, while at the same time we can carry cash dividend payments and continuing to invest in our businesses to facilitate our long-term growth. This is the great position to be in.

So, I will take a look at the first quarter of fiscal 2013, which ended on August 30th. Before I begin with the specific numbers, the Board pointed out that this year's first quarter did not include the busy Memorial Day weekend, which we have last year. This timing affected both divisions, but have most -- much greater impact on Marcus Theatres.

As the bar charts indicate, our total revenues, operating income and net earnings were all above last year's -- all below last year's first quarter. Marcus Hotels continue to build momentum with the nearly 4% increase in revenue per available room and a 10% increase in operating income. However these positive results were not enough to offset the reduced revenues and operating income of Marcus Theatres. The theatre division was not only affected by the lack of the typically strong Memorial Day weekend, but also by a weaker slate of films and strong television viewership of the Olympics.

We’re also up against the final installment of the tremendously successful Harry Potter series in last years record first quarter. Positive aspects of the theatre business is that the new films open every Friday and box office landscape can change pretty quickly. As you saw, there are number of promising films and they importantly fall on holiday line-up that can potentially be very successful for us.

In conclusion, The Marcus Corporation have been in very good shape. We’re financially strong and are well-positioned for continued growth. It conclude the financial report. I’ll now turn the program back to Greg.

Greg Marcus

Thanks, Doug. To wrap things up, I would like to circle back to the team of today’s meeting, strength the numbers. You heard about what we are doing in each of our divisions to grow the business and enhance the guest experience. You also heard about our strong fiscal 2012 financial performance and we have return capital to our shareholders through cash dividend and share repurchases.

But we couldn't do any of this without our strong Board and management team and our outstanding associates who truly are the face of The Marcus Corporation to our guests. Speaking of the face of the company, I want to close with one more number. Again, number 50, 50 years ago, it was 1962, a period of many historic events, the opening of the first Wal-Mart. John Glenn became the first American to orbit Earth. Johnny Carson took over as host of The Tonight Show. West Side Story won the Oscar for best picture.

For The Marcus Corporation historic event that year was our chairman's first day with the company, Dad, please join me up here and please rise.

Earlier I mentioned that The Marcus Corporation has owned the Pfister Hotel for 50 years. Well, I didn’t mention was the managing the Pfister and its restoration was one of my dad's first jobs with the company. He didn’t know anything about the hotel business at that point, but he got the best training involved on the job experience and as the same goes, the rest is history. Dad -- while we are first and foremost the public company, we believe the family culture, we have developed is one of the keys to our success.

So, is not only the CEO but as your son, I take great pride in helping you celebrate 50 years of The Marcus Corporation. In honor of your 50th anniversary, I would like to present you with this original charger plate from the English room at the Pfister. Hold that up for you.

I fell off last year. I don’t want to do it again.

It seem to be an appropriate gift, because many of us here today have fond memories of the English room and the fabulous food and good times we had there. I know you had some great memories from there too, some but half of the shareholders, associates and customers congratulations on 50 years with The Marcus Corporation.

Steve Marcus

Well, Greg, thank you. Thank you very much. I certainly appreciate a very beautiful momento brings back lots of fond memories not only about the English room but about how it represents the dedication of our associates to our core philosophy of people, pleasing people. But I actually want to turn this around is really I who has to say thank you. Thank you to our shareholders, so many of whom are here today and many who have been shareholders ever since we were public back in 1972.

And thank you to our loyal and hard working associates, who have been the key to our success by providing our customers and our guests with the best service and experience that they can get anywhere and to take such good care of all of our assets. Last but not least to our loyal customers, who keep coming back year-after-year in response to that great service.

I’ve received many accolades over the years, all as a result of the support that you've given me all through the years. I've been very lucky. I had a great father, who picked this whole thing off over 77 years ago and who was very dedicated to the creation of the company that would be build to last and who taught me all his core philosophies of leadership. And it’s been very gratifying to see a new generation of leaders take The Marcus Corporation forward as it faces the challenges of the new century.

I’m full confident that The Marcus Corporation best years are still ahead of us. As this year’s financial results demonstrate, this team led by our President and CEO, Greg Marcus is more than up to the task of delivering value for our shareholders, quality jobs for our associates and great experiences for our guests. While I’m still the Chairman of the Board, I want you all to know that my new job description is staying out of the way and thank you very much.

Greg Marcus

Thanks, Dad. And thank you for 50 years and for all that you given us. I hope you all join me in helping my dad celebrates his 50th anniversary with a piece of anniversary cake right after the meeting. But first, let’s move on to the final item on our agenda, the question-and-answer session. If you are shareholder and have a question please raise your hand and we’ll get you a microphone, so that you can -- and everyone can hear your question. Are there any questions? Put your hands up. There is one over there. Okay.

Question-and-Answer Session

Unidentified Analyst

Good morning, all. My name is Jean Albert. I am shareholder in Marcus Corporation for 37 years. And it's obvious that the numbers are very impressive here that we've been seeing this morning. However, the one number that is troubling to a lot of us I’m sure is share price. It is obvious that the corporation considers the share price to be a bargain, because of their repurchase program. You have any idea why the rest of the world does not perceive this?

Greg Marcus

Thanks, Jean. I recognize you, I become very well enough to. I don’t why they don't necessarily perceive what we may see. I would tell you that I feel -- we understand as you do as shareholders because of my standard today and my family we represent the significant, it is the bulk of our network and our huge holding for us and so we understand the desire to have the stock price via the value that is appropriate.

I think it's important to remember just as quickly as the stock price is the transitory thing. If we would be standing here, 12 weeks ago, we’d be at $13, $14 and that might be different story. So, the stock price does overtime I do believe reflect its value just depend on when you are looking at and what the nature of the market is and what’s going on. But we continue -- our game plan is just to continue to do the right things to operate our business the right way and I think the numbers show that’s the right thing to do.

We will buyback stock and we think it's appropriate. We think the value is there, that's good for those of us who remain the shareholders. And if we do those things and we continue to look at the structure of the company, if we do all those things than eventually the stock prices will -- and it has in the past and it will again in the future reflect the accurate value for business. Anyone else?

All right. Going once, going twice, sold. Okay. Few more items first, we have our traditional annual meeting thank you gift that you can pick up at the registration desk as you leave. Today, you will be receiving a $10 gift card that you can use at any Marcus Theatres or Marcus Hotels property. Then after you pick up your gift and enjoy peace of anniversary cake. I hope you'll stay for a movie.

You should have received the schedule of the complimentary movies playing this morning, additional copies of the list are available as you pick up your gift. There are several very good films to choose from, so this is a great opportunity to sit back, relax and enjoy the rest of the morning. The movies will begin at 10:45 and watch the movie with our popcorn and soda. We have this great movie snack combo available for you as well.

On behalf of our Board, management team and associates, thank you for attending today's annual meeting. We hope to see you again next year. Have a great day. Thank you.

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