Doug Neis – CFO and Treasurer Greg Marcus – President and CEO

Andrew Whitman – Baird Marla Backer – Hudson Square Mitchell Leeds [ph] – Morgan Stanley Herb Buchbinder – Wells Fargo Will Nasgovitz – Heartland Funds

Good day, everyone, and welcome to the Marcus Corporation's third quarter earnings conference call. My name is Eric, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer; and Doug Neis, Chief Financial Officer of Marcus Corporation. At this time, I would like to turn the program over to Mr. Neis for opening remarks. Please go ahead, sir.

Well thank you very much. I'm joining you here from Milwaukee. And Greg Marcus will be joining us today from Las Vegas, where he's been attending the ShoWest Conference, movie theatre conference. Welcome to our fiscal 2010 third quarter conference call. As usual, I need to begin by stating that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include, but not be limited to statements about our future revenues and earnings expectations; our future RevPAR, occupancy rates, and room rate expectations for our hotels and resorts division; expectations about the quality, quantity, and audience appeal of film products expected to be made available to us in the future; expectations about the future trends in the business group and leisure travel industry and in our markets; expectations and plans regarding growth in the number and type of our properties and facilities; expectations regarding various non-operating line items on our earnings statement; and, expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks, and uncertainties, which could impact our ability to achieve our expectations are included in the risk factors section of our 10-K and 10-Q filings, which could be obtained from the SEC or the company. We'll also post all Regulation G disclosures, when applicable, on our Web site at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2010 third quarter results. Even if you exclude a favorable one-time adjustment that I'll address in a moment, our theatre division reported its fourth straight quarter of record revenues and record third quarter operating income. In our hotels and resorts division, the continued challenging economic environment and our traditionally weakest quarter of our fiscal year again produced an operating loss worse than the year. But RevPAR trends continue to improve from previous quarters. And we reported our first increase in our overall occupancy rates since our fiscal 2008 fourth quarter. But before I get into the operating results, let me first briefly address any variations in the line items below operating income versus last year as well as the one unusual item we had this quarter. We did not have any major variations in investment income during the quarter. But I will remind you that on a year-to-date basis, we have a significant variation because of a one-time investment losses recorded last year that we've described in detail before. This year's investment income is running at our expected levels, and we don't anticipate any significant variations during the remainder of the year. Meanwhile, our interest expense was down another $687,000 during our fiscal 2010 third quarter, compared to the prior year. It's now down nearly $2.5 million year-to-date due to reduced borrowings and lower short term interest rates. Depending on the timing of our capital spending for the remainder of the year, assuming short term rates remain low for the quarter, our interest expense may again run lower than the prior year and the next quarter. Having said that, interest rates were declining last year at this time. So I don't expect a variation in the upcoming quarter to be quite as large as we reported for the past three quarters. As we noted in our release, our overall debt capitalization ratio at the end of the quarter decreased to a very strong 41%, down from 44% at our last May year-end. Continuing down the earnings page, we've had relatively little activities, particularly in the quarter or first three quarters for that matter, related to gains from disposition and equity earnings and loss line. Again as a reminder, our year-to-date gains and losses in disposition show a sizeable variation due to the fact that last year, again, during our second quarter, we reported a $1.1 million loss related to our investment in condominium units at our Las Vegas property. Our effective income tax rate for the first three quarters of fiscal 2010 was 37.1%, with our quarterly rate only slightly higher due to the small adjustment to our estimated full year rate. This year-to-date rate is slightly lower than normal due to a decrease in the amount of unrecognized tax benefits as a result of a lapse of the applicable statute of limitations. And finally, I do want to comment on the favorable change and estimate reported this quarter related to deferred gift card revenue. We introduced the gift card program in our theatre division several years ago and further expanded it to our hotels and resorts division in recent years. With very little history as to redemption patterns and a fair amount of uncertainty related to what to do with unredeemed gift cards, we've been taking a very conservative approach to our deferred gift card liability. Now after completing another holiday season of ever-increasing gift card sales, we concluded that we had enough historical data now available to us to reach a conclusion that a change in estimate was justified. Accordingly, gift card breakage income will now be recognized based upon our historical redemption patterns and will represent the balance of gift cards for which the company believes the likelihood of redemption by the customer is remote. Thus, during our fiscal 2010 third quarter, we recognized $3 million of gift card income, including approximately $2.7 million related to prior periods. As we noted in the press release, that $2.7 million pre-tax change and estimate related to prior periods translates to approximately $0.05 per share. This amount is included in other revenues in our financial statement. The theatre division benefited the most by this estimate change. They represented approximately $2.2 million of that $2.7 million prior period adjustment. Our future quarters will continue to recognize gift card income based upon actual redemption patterns. Based upon recent redemption levels, I will currently estimate our annual gift card breakage income to be – in the future to be in the $600,000 to $700,000 range. Shifting gears, our total capital expenditures during the first three quarters of fiscal 2010 totaled just under $15 million, compared to approximately $21 million last year. Approximately $12 million of this year's amount occurred in our hotel division and relates primarily to the ongoing renovations at our Grand Geneva and Hilton Milwaukee properties. With only a quarter to go in our fiscal year, following the unforeseen growth opportunity that could arise in the remaining two-plus months on our fiscal year, I'm currently estimating our fiscal 2010 capital expenditures may end up in the $25 million to $30 million range, which would be fairly consistent with the last two fiscal years. Now before I turn the call over to Greg, let me provide a few additional financial comments on our operations for the third quarter and the first three quarters beginning with theatres. Our Box Office revenues were up 8.5% during the third quarter, with concession revenues up 4.3%. Year-to-date, Box Office revenues are now up 5.1%, while our concession revenues are up 1.2%. The comparison to the prior year is fairly clean from a number of screen perspectives. We did close release theatres with 16 screens last year, one of which was a budget theatre. The closing of these theatres had minimal impact on our comparable operating results. Total attendance at our comparable theatres increased 0.4% for the third quarter thanks to Avatar and other strong holiday films noted in our release. Year-to-date, our comparable total attendance is down 2.2%, compared to the prior year. The majority of which could be attributed to the summer weeks where we were going up against The Dark Knight last year. The much larger percentage increase in our Box Office results can be attributed to another increase in our average admission price. We were up 8.6% for the quarter. And we're now up 8.2% year-to-date. Premium pricing for our digital 3D attractions and Ultra Screens contributed to the higher average admission prices once again. Our average concessions and food and beverage revenues per person increased 4.5% during the third quarter, and are now up 4.1% year-to-date. Our expanded food and beverage offerings at several of our theatres again contributed to our increased average concession per capita. Excluding the prior period gift card income that we reported during the third quarter and the $1.4 million pension withdrawal liability that we discussed last quarter, our operating margins for this division during the third quarter were 20.3%, compared to 21.9% last year, and are now running 20.3% year-to-date, compared to 21.3% last year. The decrease can be attributed in large parts to the impact of higher film costs, which Greg will discuss further during his remarks. Shifting to our hotels and resorts division, our overall hotel revenues were down 4.5%, and total RevPAR was down 5.8% during the third quarter, compared to the same period last year. Year-to-date, our RevPAR is now running 15.7% lower than it was last year at this time. Consistent with prior quarters, our third quarter RevPAR performance did vary by market and type of property. One of our properties was even up for the quarter. Based upon data available to us, our results continue to be fairly consistent with those of other comparable upper scale hotels throughout the United States. Our fiscal 2010 third quarter overall RevPAR decrease was a result of the overall occupancy increase of 1.6% points and an – and average daily rate decrease of 8.9%. For the first three quarters of fiscal 2010, our occupancy is now running approximately 3.1% points behind last year, and our average daily rate has decreased 11.5%. And while this division did benefit by gift card breakage by – of approximately $500,000 during the third quarter, I want to remind you that our year-to-date results in this division were negatively impacted by a $2.6 million pre-tax impairment charge last quarter related to our remaining 16 owned condominium units at the Platinum Hotel and Spa in Las Vegas. With that, I'll now turn the call over to Greg.

Thanks, Doug. Since I'm joining this call from the movie theatre industry's biggest conference, ShoWest in Las Vegas, I'll begin my remarks with our theatre division. As we reported earlier, this was another record quarter for this division, notwithstanding the fact that their results benefited greatly from the change in estimate related to deferred gift card revenue. Obviously, having the number one Box Office film of all-time during the quarter helped. But it is important to note that our Box Office was up over the prior year during 10 of the 13 weeks during the quarter. As the press release notes, the majority of our overall Box Office increase occurred during the five-week period between Thanksgiving and New Year's. We had a very strong January and February last year with films such as Gran Torino, Paul Blart, Mall Cop, and Slumdog Millionaire performing very well. So the fact that our Box Office results for those two months were even slightly higher than last year was a pleasant surprise. So having said that, while we certainly are pleased to be reporting these results, the quarter was not without its challenges. Doug shared our operating margin numbers with you. And after adjusting for the unusual items, our third quarter margins were down over 1% and 1.5% points. During the quarter when we were playing the number one movie of all time reporting an increase in our average ticket price of over 8%, you would think that we would have had an opportunity to increase our margins. The fact that margins went down this quarter could be attributed primarily to what has been one of our primary challenges in this business, our film costs. We've seen our film costs creep up in the past year or so. And we've expressed our concern regarding this development to our studio partners. We have made and continue to make a significant investment in our movie theatres for the purpose of exhibiting their product. And they must allow us to make a fair return on that investment. Now, the mix of films this quarter also contributed significantly to this rising cost as the large blockbuster films historically have a higher percentage film cost to those that don't perform as well. During our fiscal 2010 third quarter, our top four films noted in the press release accounted for an astounding 46% of our total Box Office, double the 23% that our top four films from last year's third quarter represented of our total. In fact, all four of the fiscal 2010 top films generated greater Box Office results for us than our best film from last year's third quarter, Marley and Me. This dramatically top heavy film lineup is not conducive to lower film costs. Further, we're now faced, in many cases, with a 3D cost structure developed in a 2D environment. What do I mean by this? As we've discussed quite often, our film terms are based on the performance on the film. Generally, the better the film performs, the greater the split is to the studio. As many of you know, today's 3D films command a three-hour premium per ticket. This premium inflates the Box Office, thus raising the cost of film. But it does so with fewer people, which then impacts our vending income. This dynamic is one the studios are also aware of, and we are working together to address it in today's very dynamic market. Shifting gears, there's no question or talk of the (inaudible) movie theatre conference we attended last week, and ShoWest this week is digital 3D. It is probably not overstating the case to say that Avatar and now Alice in Wonderland may have been game changers, at least in the short term. The customers voted with their feet and their dollars, and said they think the digital 3D experience is worth leaving their homes for and worth paying a premium for. It is my understanding that approximately 70% of the opening weekend's Box Office of Alice and Wonderland came from 3D screens. Film companies are quickly adding 3D films to their lineup, resulting in at least 20 titles now scheduled for the rest of calendar 2010, and the prospect of even more in 2011. Shortly after the overwhelming success of Avatar became evident, it was announced that big budget films such Clash of the Titans as well as the seventh installment in the Harry Potter series were now going to be released in digital 3D. As a result, we recently announced plans to further expand our digital 3D footprint adding another 19 digital 3D screens to our circuit, with the possibility of adding another 8 to 10 screens in the coming months. As our release notes, we will now have digital 3D capability in nearly 80% of our theatres. And we are rapidly approaching having nearly 10% of our screens with this premium amenity. Our fiscal 2010 fourth quarter has obviously gotten off to a very good start with the tremendous success of Alice in Wonderland. I hear a lot of people talking about Avatar and Alice being a "proof of concept" as it relates to 3D. I also would like to suggest that the success of Alice in Wonderland this March is also "proof of concept" as it relates to another topic, and that is releasing tent-pole pictures throughout the year, not just during the summer or holiday time periods. This is something theatre operators have been requesting for a long time. And we were always been convinced that a more even distribution of films would benefit everyone, studios, the exhibiters, and customers alike. The studios have taken note of how well this film has performed. It is our hope that we see more of this in the future. Looking ahead, our press release notes some of the major films scheduled to be released during the remainder of our fiscal 2010 fourth quarter, including three 3D films. And I will tell you that the film lineup for the early summer months certainly has summer potential hits as well as – as well including films such as Prince of Persia, The Standard of Time, Sex in the City 2, Karate Kid, Toy Story 3 in 3D, Grown Ups, Despicable Me in 3D, and the next film in the Twilight series, just to name a few. And in fact, I was fortunate enough this week, while here at ShoWest, to see Toy Story 3. We didn't see it in 3D as it's not finished, but I can tell you that it is a great movie. We are very excited. It was very emotional. I can't give you any spoilers. They asked us not to reveal the plot, which we won't do. But they were confident enough to show it to us. And if you are involved Social Media, check out Twitter, you'll see that I'm not alone in my assessment of the film. It is really exciting and is a great movie. With that, let's move on to our second division, hotels and resorts. You have seen the segment numbers. And Doug gave you some additional detail, certainly nothing to be excited about. But it certainly appears that conditions have at least stabilized. And I also attended a hotel industry conference in January. And the message was pretty consistent from the other hotel operators. It is hard to hang your head on the fact that conditions are less bad. But that is probably still where everyone is. Having said that, as we continue to lap the time period when revenues were declining last year, it is not surprising to see that our RevPAR trends continue to improve. Last quarter, our RevPAR was down 15% after being down nearly 7% the year before. This quarter, RevPAR was down just under 6% after being down 13% last year during the third quarter. In both cases, that means our RevPAR remains approximately 20% lower than two years ago. And while a lot of the focus typically is on RevPAR, please don't underestimate the importance of the other revenues that are generated in our hotel properties. You'll notice that our food and beverage revenues were down over 9% this quarter, compared to room revenues being down around 6%. This situation is directly related to the current difficult environment for group business travel. The largest portion of the F&B decline is not in our restaurants, but rather in our banquet business. Without a solid group base of business, banquet business suffers. And I will tell you that even the group business that we are getting is typically spending less on F&B, either by reducing the scope of their events and/or by driving lower prices on the meals that they buy. That is not to say that we aren't seeing some signs for cautious optimism. The hotel business is a cyclical business. And these cycles have played out very consistently over the years. When we enter the cycle, occupancy declines first, followed by ADR. Hotel development slows, and then comes to a near stop, and the cycle bottom is hit. As recovery begins to ensue, budging historically lagging into their sectors. The first signs of improvement are typically a slow recovery of occupancy rates. And as you saw in our results and has been reported by others, we may be seeing the first phase of the recovery cycle now. The cycle completes itself when ADR and margins return to prior levels. The question that no one has the answer to is how long will that take. Our challenge as operators is to try to control costs while we are in this upward portion of the cycle. As occupancy recovers first, it becomes increasingly difficult to add – to not add some level of costs to take care of the increased number of guests. That is typically why operating margins don't recover until rates begin to recover. The good news is that we are starting to see some positive trends in our booking pace. Properties that were consistently booking advanced business at a slower pace than the year before are now starting to report consistent weekly improvements in their booking commitments. Last year, during our fiscal 2009 fourth quarter and fiscal 2010 first quarter, we shipped what appears to be our low point, with RevPAR down 23% and 21%, respectively, for successive quarters. So if the recent trends continue, it would not be out of the question to suggest that we at least have the possibility of beginning to report flat to small increases in RevPAR in the periods ahead. Obviously, a lot will depend upon whether the economy continues to show signs of gradual improvement. In the very short term, I'm happy to tell you that while you are filling out your NCAA brackets, and you better hurry up if you have it, take note of the fact that regional games we played in both Milwaukee and Oklahoma City as our hotels will be certainly – our hotels will certainly have plenty of activity this weekend, which is always nice to see. As you've heard us say before, we will also continue to maintain and enhance our assets during the time when others are finding it difficult to do so. We are halfway through our project that will upgrade a major portion of – that will provide a major upgrade to the bathrooms in our suites at the Grand Geneva. And our major renovations at the Milwaukee Hilton should be completed before summer. And while transaction activity remains very limited at this point, with the balance sheet and credit availability that is the envy of others in our space, remains poised to explore and follow through on potential growth opportunities that may arise during these difficult times. With that, at this time, Doug, I would be happy to open up the call for any questions you may have.

(Operator Instructions) Your first question comes from the line of Andrew Whitman with Baird. Please proceed. Andrew Whitman – Baird: Good morning, guys.

Good morning, Andy. Andrew Whitman – Baird: Hi. I guess I wanted to start with the theatre side and talk a little bit about the capital. The guidance, Doug, what was the split, can you just – the split between theatres and hotels on that? And then I guess I wanted to get a sense of does that include the potential 8 to 10 extra screens that you're considering. Or would that be an addition to the $30-ish million that you talked about.

The split of what, of the remaining capital that we have? Andrew Whitman – Baird: Yes. You mentioned that CapEx for this year was $25 million to $30 million. I just wanted to get the split between hotels and theatres first.

Right. Well yes, as I told you of the $15 million or so that we spent already, it's roughly $12 million and $3 million, give or take, $12 million for the hotels. Of that remaining $10 million to $15 million that we would spend, in this case here, theatres could end up being – could be as high as $7 million or $8 million of that, depending on – that the biggest – well the biggest piece of this being if we would close on the property that we've got – we're looking on in Sun Prairie. So we've got a location in that area, the Madison area that we've talked about previously is then well publicized out there. And so, we haven't closed on that property yet. And so, that's – hesitantly planning on that happening this quarter. I can't guarantee that that's going to happen this quarter. So that's the biggest piece of that, although there is some additional 3D screens that's going – currently in there. There aren't any additional screen additions per se in that number. The rest of the dollars, hotels again, we're finishing up. As we've said, we're finishing up the projects at Grand Geneva, the Hilton. And that's the rest of the dollars. Andrew Whitman – Baird: But some allocations, the Sun Prairie potential, is in that guidance that you got.

That's correct. Andrew Whitman – Baird: Okay. And the 8 to 10 other 3D screens, is that in addition –would that be more than – is that in addition to what you guided or is that included as well.

That's not going to – regardless, it's not going to move the needle very much if that happens during these next two-and-a-half months because the upfront capital with – under the RealD transaction, the way that works, the upfront capital is not overly significant. That 8 to 10 screens is not going to make a bid difference in the number. Andrew Whitman – Baird: I see. Okay. And then I guess I wanted to get a sense in terms of returns on some of that capital in the theatre business. Clearly, if you're building a new theatre that's going to make your underwriting hurdles. Do you feel like with 3D becoming more prevalent and with maybe more customers expecting digital products displayed, is that a cost venture where you're not getting your target returns in the high – mid to high teen IRRs or is that something that you are still able to get those kinds of returns on?

Andy, we expect to get returns on 3D. It's complicated because there're two parts of 3D. One, in order to have 3D, you have to have a digital projector. But even with that digital projector given where we are, which is really the most – by the way, which is the most expensive component of the process. And that is not generally capital we're going to put out right now because we are involved in financing programs to help with the base issue of the projector. But even including that, we're seeing a – we're projecting a return on the investment, so we really do hope the theatres to the standards of seeing an investment in 3D. Now, it's hard to project going forward what 3D is going to mean to us as an industry because we're still very fresh. A year ago, it was a fad. Now, it feels like there is more to it than fad, but we don't know. Avatar was groundbreaking. It appears to be a game changer. Alice is further proof of that. I think that that's still people checking out and hearing how great the experience is. So it's probably having a catalytic effect on it, and maybe both plotting to be a little more than we might even typically see with a 3D movie when it settles in. And it will depend on how much product they release. So what I'm – along with it, we are saying, we don't know ultimately where it's going, but we do expect returns on it. Andrew Whitman – Baird: Okay. Thank you for that. Just a little bit more follow-up on the 3D, it definitely looks like it's been impactful so far. It's hard to deny that just looking at your numbers, looking at other people's numbers. I guess I think it was last week the first – the 3D television hit the market. And Greg was here, just at the conference, I'd like a little perspective. What are you hearing about the threat from this digital television and the 3D TV? What's the industry saying on that so far?

You know what? I haven't heard a lot of discussion about it specifically. I think that on the one hand, we are enjoying having this very exclusive opportunity to be the only ones to provide 3D content. So having it provided at home doesn't – it's not something that if I have to make my pick. On the other hand, we have a history in this business of having ancillary markets boost the availability of products for the premium market, that's the theatre market, which is – which could be true in this case. Because in order to – the more – because right now, when they make a 3D movie, there's nowhere to see it but the theatres in the follow-on markets. So to the extent that these – that they're able to develop a follow-on market that could be beneficial, what becomes important is that we maintain our window so that we have the exclusive period to show it first in the presentation as it's meant to be done. I've seen the 3D TVs. They're good experience. But it certainly doesn't match up to seeing it on 50 feet of screen in front of you in a room with a bunch of people having some delicious popcorns and soda. Andrew Whitman – Baird: Okay. Great. I just–

Bruce would have been proud of you there, Greg.

Thank you. Andrew Whitman – Baird: The other question I guess I had on theatres, and then I'll jump over to hotels with one or two, if you don't mind, is just understanding your premium tickets. I understand that the 3D premiums are split with the studios. Is your seat premium for your pre-reserved seats or for your Ultra Screen? Is that also revenues that could split with the studio or is that 100% to our market core?

A piece of it is, and a piece of it isn't. A piece of the premium is in a concession voucher, which is used for the purchase of concessions. And that's the predominantly larger piece of the premium, the balance is. Andrew Whitman – Baird: Got you. It makes sense. All right, and then on hotels, just your outlook. What's your sense of the market for additional management contracts today given the stress maybe thinking that hotels that we're trading, special services, that sort of thing? If you can just compare the deal activity that you're seeing today and maybe versus six months ago. Are we better or worse?

It still seems to be above. We're seeing a little bit of pick up in the transaction market. I think at the end, if you're seeing the same stuff we're seeing, then it was the (inaudible) deal that they announced from Westbrook in Millennium yesterday or the last couple of days for some – four seasons. It doesn't work for us because we can't run four seasons. They don't allow outside management. But we've heard some – we're still predominantly in the extend and pretend mode I think with the special servicers. We're being with an investment bank and they said, "We're open for business and making hotel loans." But unfortunately, our biggest competitor is – it's the special servicers. So they are still extending. And I guess that makes a fair amount of sense. If they have the opportunity to at this point that's what they're going to do. But there appears – slowly but surely, things seem to be happening. We're prepared to be patient and wait for the opportunities to – that make sense. Andrew Whitman – Baird: Okay. Last one, maybe I'll turn back if you keep going. I just wanted to get a view on, obviously, is very cautious outlook, hard to make a lot of sense about what's going on. Trends are improving a little bit or certainly less bad. I just wanted to get your sense on your group booking pace or you may be compared to last year at this time, where our room nights, where our rates, compared to, like I said, this time last year?

Andy, the pace is ahead of where we were last year. I actually was – I've looked at charts week by week in some of our hotels. And (inaudible) that in the script where we were looking at committed rooms in each of these weeks. And for the first time in a while, I'm showing weeks where it's ahead of last year's pace. We're not doing cartwheels down the halls here because it's not – take what it is, it's still behind where it was two years ago. But it's in general, there is some cautious optimism because in recent weeks, the pace has been at least be a little better. Andrew Whitman – Baird: We've seen some of your competitors talk about room nights, at least demand for rooms is bottom maybe 10% range over last year. Obviously last year, very depressed levels. Is that ballpark you think or totally out of bed with what you're thinking?

It's not out of bed with what – I mean, as you heard our overall, occupancy was up 1.5% points from whatever it was or whatever percentage that is, and that was in the third quarter. Things are a little better now. And so, yes. Certainly, occupancy is there now, but rates' not yet, Andy. Andrew Whitman – Baird: Okay. Great. I'll leave it there. Thank you.

Your next question comes from the line of Marla Backer with Hudson Square. Please proceed. Marla Backer – Hudson Square: Thank you. I want to follow-up on Andy's last question about the hotel division. Is it a cautious optimism, obviously – I put then emphasis I guess on cautious right now. Is it too early for you to start pulling back a little bit on some of the discount venues that you've had to use over the past year or so for – to boost reservations, Expedia, a little bit, some of those other – is it a little too early to pull back on those?

Marla, we're – I would say it's too early to abandon them. That's for sure. But that being said, we watch them very carefully. And we watch it. We open into those channels very carefully. And frankly, we'd wait until the last possible minute to put product into those channels to see if we could get a better piece for it. So selectively, when the opportunity arises and we feel we have the opportunity, we are limiting what we put there. But if we have rooms, they say there's nothing more perishable in a hotel room on overnight, we look to put people on heads and beds, as they say. Marla Backer – Hudson Square: Butts on seats and heads on bed.

Yes. Marla Backer – Hudson Square: Okay. Switching to the theatre side, so this firm commitment is for the 19 systems. You're not firmly committed for the 8 additional ones for a total of 27?

That's correct. Marla Backer – Hudson Square: Okay. And did you acquire those systems through – you said a funding source. Was that for digital links?

Yes. Marla Backer – Hudson Square: So my understanding of digital link is that once – correct me if I'm wrong on this, but once the theatre is 50% digital, the ownership passes or the re-obligation, the financial obligation passes to the exhibitor. Is that correct?

Doug, you want to take this?

I think that that's correct. Obviously, we're not in a situation where we're close to the 50% right now. Marla Backer – Hudson Square: Right. And then, Greg, did you have an opportunity or maybe not even – maybe you didn't have an interest. But did you have any chance to see the technical re-demo?

I have seen the technical re-demo. Marla Backer – Hudson Square: Any thoughts on film-based 3D whether it's worthwhile?

All I'll really say is that it's very good. I think I was impressed. And I think there are a lot of people curious about it. I was talking – we certainly know the technical, our people, and the people specifically involved in the project. And I saw, a number of months ago, I actually saw (inaudible). Marla Backer – Hudson Square: Yes. I saw it there. I liked it too.

Yes. I think more important, it could have been they run it twice here because they filled the room with 1,100 seats full of people interested in what it meant. So people are curious about it. I think even their point is it will only be a bridge to the future anyway because what people – ultimately the business is going to be a digital-based business. And when that happens, the add-on for 3D really isn't that expensive. Marla Backer – Hudson Square: Right. That makes sense. Okay. And my last question, could you give us a little bit more granularity on the gift cards? And maybe you said it. I hopped on the call a couple of minutes late. So was that a one-time recognition basically catching you up now that you've changed the way you recognize the gift card revenue? And also, did it impact your revenue line or it only impacted operating income through net income and EPS?

Sure. Well the answer is, yes. The largest piece of it was a one-time – as a one-time catch up. And that's the $2.7 million that we referred to. That is related to periods prior to this third quarter. Having said that, now on an ongoing basis, now that we're – we have enough history and we're comfortable with the redemption patterns, we would expect to continue to take this gift card breakage income on an ongoing basis. And you may or may not have heard, I indicated that if redemptions were the same as they were the last year or so, it would be in the $600,000 or $700,000 annual range. Marla Backer – Hudson Square: Redemptions?

No. The actual gift cards. But the income that we would record based on existing redemptions. And I'll tell you that our – the gift cards were no different from any other retailers that are out there who have been seeing rapidly growing gift card sales. And so, we've certainly have seen an increase in our gift card sales, which – so with that continues then that number, that $600,000 to $700,000 I mentioned, I supposed could also grow. But based on our past year's history or so that's what I would project as an annualized number. Marla Backer – Hudson Square: Okay. Thank you.

Welcome.

Your next question comes from the line of Mitchell Leeds [ph] with Morgan Stanley. Please proceed. Mitchell Leeds – Morgan Stanley: Good morning, gentlemen.

Good morning. Mitchell Leeds – Morgan Stanley: I don't want to go back to the ratio. I may have written it down. It's very long. So the split of the motion pictures in your hotels, did I write down $12 million to $3 million correctly, hotels (inaudible) for the motion picture?

For our capital spending? Mitchell Leeds – Morgan Stanley: Yes.

Yes. For these first three quarters, that's correct, roughly $12 million and $3 million. Mitchell Leeds – Morgan Stanley: Okay. Let's go to theatres. I have another question here that I just didn't understand. You have 13 in 3D, I mean in digital and 3D? And you have – you intend to put up how many more?

Now we have – at the moment, we have 34 3D screens in 33 locations. But we are – as we speak adding another 19 locations – 19 screens, including an additional 10 new locations. And then the rest of them are doubling up at places and giving it at least a second screen at locations that we already have one 3D screen. So when we're done with this – we've this 19 that we're talking about, we will have 53 screens at 43 locations. Mitchell Leeds – Morgan Stanley: Okay. Let me ask you this. You said you're getting hit over the head by the studios because the extra expense for 3D. If it's digital, they don't have any costs in shipping, does that not reduce their cost somewhat? Because for a minute they show this on studio.

Right. That's why the primary vehicle for actually putting a digital equipment in, once a full-blown roll out does occur in the industry, will be – it'll be paid in large part by the studios for the very reason that you noted. So this virtual print fee mechanism, they will pay the lion's share as the plan of the capital expenditure because they're ones that stay on the game. Mitchell Leeds – Morgan Stanley: Okay. Let me just check my list here. Oh, yes, the gift card. How does that work? How much does it cost? Is it up to the individual? And are they good at any venue or just one (inaudible)?

Yes. We sell them at all locations. We've been in the program a lot longer in our theatres than we have with our hotels. But we are not selling our hotels. However they're good at all markets' theatre locations. And in fact, they can be entertainments as well. So a gift card purchased at a Marcus theatre can in fact be used at one of our hotels and vice versa. Mitchell Leeds – Morgan Stanley: On the candy sales, which are apparently being reduced to sessions, when you have 3D because you have less people in the theatre, I don't understand why you have less people in the theatre. Can you explain that?

Sure. Mitchell Leeds – Morgan Stanley: Now if you had the IMAX system and then special theatre chairs that – or stadium-type chairs, I could understand why it'll be less people. But I don't understand if you just switch to 3D and digital. Why would there be less people seeing the film?

It's not a question of less people seeing the film. It's less people seeing the film on a – as it relates to the total Box Office. We split the Box Office with the studios. It's a percentage. So that the more – the greater the dollar amount, the more money goes to the studios. But based implicit in that calculation, when we figure out what we can afford to pay in what's known as rent, the studio's film rent, we also figure out how much money we expect to make out from the sale of concessions. We know that – historically, we said if a film grossed X that a certain number of people will show up and our concessions will produce Y. Well now if a film – because of this significant disparity in pricing, the – and that it's much higher, the film could gross X, the same amount that it grossed in the 2D environment, yet less people are there, less people. I mean it'll make more than less people on a proportionate basis. So less people means less concession sales, plus less other profits from the other part of our business meaning that we – at the end of the day, it all washes together and we are then challenged as to how much we can pay in film rent. Mitchell Leeds – Morgan Stanley: Okay. Last question, do you have three theatres you've closed?

Last year, three theatres. Mitchell Leeds – Morgan Stanley: Last year?

Yes, none this year. Mitchell Leeds – Morgan Stanley: Were they leased theatres or did you own them?

As I recall, at least one or two of those were leases. Again, these were mid-year. So we're looking at a good year-plus ago. And just to look at the list again, a couple of more leased. One of them may not have been. Mitchell Leeds – Morgan Stanley: Okay. I guess I have another last question. Do you have any intention of putting in the IMAX system in the theatre?

No. Mitchell Leeds – Morgan Stanley: No? Okay. That's it. Thank you very much.

Thank you.

(Operator Instructions) Your next question comes from the line of Herb Buchbinder with Wells Fargo. Please proceed. Herb Buchbinder – Wells Fargo: I want to go back to the 3D just for a second. Can you discuss the 3D pricing going forward? Is there anything that you can do to get a larger share of that revenue, and if you think there's any room to raise that premium some more? And what you ultimately will do when you get 3D and your Ultra Screens, how you might price that compared to how you price it currently versus IMAX?

Well, Herb, it's a great question as to what's the premium going to be going forward. I don't think anybody knows. You've asked a number of questions there. But let's start right now with – 3D right now reveals a treat. There isn't a lot – there hasn't been proportionately a lot of it. But as you've heard in our prepared remarks, the quality of 3D films coming out is going to significantly increase. The old Hollywood ad, "If 1 is better, 10 is the best." But I don't know what that means. I don't think anybody knows. What does that mean? How is that going to impact the premium going forward? Will we always be able to command the same premium that we're getting now when the product becomes more common place? If you're asking me how to write your pro forma, I don't – I couldn't tell you how to do that. It clearly it a – it is a premium product. And we will continue to strive to maintain a premium pricing for it. But I don't know – I can't tell you what it's going to be a year from now or two years from now. The Ultra Screen, we will take – when we get 3D for it, and eventually we will have it, we are in a testing stage right now as we've discussed –disclosed previously. I can't guarantee we'll have it. I am confident that there ultimately will be solution one day. I don't know if it's tomorrow or in 2 years or 10 years. But when we do find that solution, we will charge our premium on top of the premium because that Ultra Screen is hands down the best way to see a movie. Herb Buchbinder – Wells Fargo: If you are currently charged a $3 premium, is that throughout all your theatres for 3D?

I'm sorry? Herb Buchbinder – Wells Fargo: You currently charge a $3 premium for all your digital 3Ds?

Yes. Herb Buchbinder – Wells Fargo: And so theoretically, you might charge $4 is you can get it in into the Ultra Screen, but IMAX charges a premium of $4 typically.

I think IMAX gives you $5. But I don't – I'm not certain of IMAX' pricing schedule. And we haven't finally – we haven't determined what ours will be yet. So I wouldn't want to say anything. Herb Buchbinder – Wells Fargo: Going back to this situation with Avatar, do you get a larger share of the revenue now that you're in – I don't know how many weeks it's been, seven or eight weeks, or you're not set up that way?

We haven't historically disclosed individual terms on different films. Doug if you want it to–

No. I think that's my answer. Herb Buchbinder – Wells Fargo: Okay because a lot of these deals do – are done where you get more towards the last – you're saying that you're not. If you can't say if you get more of your higher percentage as you go further into the run of Avatar or Alice in Wonderland?

Well, Herb, what we have talked about in the past is that every deal, every film company, every movie can be different. But we have pointed out that the historical way of paying film where it was a higher percentage in the first week and low percentage in the later weeks, there is less of that is going on now. There's a lot of deals now are done in what's – when you pay some percentage on the whole run. And that percentage might be determined based on how well the film performed. Again, we're not going to disclose what our particular deal was on any given picture. But just as many, if not more deals that these days are based on these fixed percentages or this fighting scale percentages based on how a film performs. Herb Buchbinder – Wells Fargo: It sounds like the studios are getting even tougher to deal with now that they have 3D that puts them in a stronger bargaining position. Is that a fair statement?

Not necessarily. The problem that the studios are bumping into is that there's not – there's a limited supply of 3D screens available. And it's a balancing act for us because we're going to turn away revenues. Frankly, if Alice in Wonderland hasn't come along, Avatar would still be playing on our 3D screens. But fortunately, Alice in Wonderland came along and really produced. Herb Buchbinder – Wells Fargo: I'm just trying to think of ways that you can get a larger share of this take and whether it's as a result – I don't – I mean that's obviously what you're going to try to do is to negotiate somewhat better deals. And hopefully, you're in a position to do that. But the studios may not budge.

No. We continue to negotiate with them and work with them. As you pointed out, at the end of the day, the studios have expressly stated they want a healthy exhibition business. And for a healthy exhibition business to exist, they – we have to be able to make our return on the investment commensurate with the risks that we take when we buy and develop the facilities. And we will continue to negotiate with that in mind. Herb Buchbinder – Wells Fargo: Okay. One last thing, do you think you're more likely to buy a hotel property during – down in 2010 and so on? Or is the focus more on trying to add either some management contracts or purchase? Or is there some opportunity to sell something through this year?

I can't predict when we're – when we'll initially buy something. We are actively in the market. And we look at different structures and different participation levels. And I think the best thing to say is to simply look. We believe in cycles. Let's hope that we're clearly at the low end of the cycle because business is pretty challenging. Herb Buchbinder – Wells Fargo: Are there any properties that you're targeting to sell?

No. Not that I can – not that we've ever – not that we've disclosed. And I don't think now is the time to. Herb Buchbinder – Wells Fargo: Okay. Thank you.

Your next question comes from the line of Will Nasgovitz with Heartland Funds. Please proceed. Will Nasgovitz – Heartland Funds: Hey, good morning. Thanks for taking my question. This is Will here from Heartland. I just wanted to verify something that was – did I have the numbers right that occupancy was down 3% in the quarter and rate down 11% in your hotel business? Was that right?

No. For the quarter, I think that what you heard was – that might have been the year-to-date numbers. Will Nasgovitz – Heartland Funds: Oh okay.

For the quarter, occupancy was up 1.6% points, and the rate was down 8.9%. Will Nasgovitz – Heartland Funds: Okay. Good.

What you heard was for the first three quarters of the year, occupancy was down 3.1% points and rate was down 11.5%. Will Nasgovitz – Heartland Funds: Okay. That's perfect. Thanks for clarifying that. Just related to the hotel business, when you look at I guess the 10 markets that you're in, whether it's been here in Milwaukee or Madison, Minneapolis, Oklahoma City you mentioned earlier. Then you have some properties in other cities, whether it's Houston or I guess down in the Southwest. What type of capacity are you seeing – are projects winding down there? What about future projects on some of those markets? I'm just trying to get a – understand of the competing capacity that might be coming on line here in 2010, or 2011, or I guess in 2012.

I think industry-wide, we're seeing the pipelines are shrinking. We've had some – in Milwaukee, for example, we've had some properties that have come on line – we had a property come on line in Milwaukee. Nothing new is being built right now. But we have a property sitting there that's half completed and not going anywhere right this minute. So I don't know where that adds up. It's not a big full service property as you may know. At some level, rooms are competitive on the market at almost any level. So we watch the pipelines very carefully. As we said that there's – I think the industry dynamics are favorable from a supply standpoint. It really just depends on the market. As you know, Madison, they talked about adding supply to Madison. Each market is nice in taking a look at them individually. But I would tell you overall, it's favorable. Will Nasgovitz – Heartland Funds: Okay. Well thanks for that. And I guess congratulations on celebrating your 75th anniversary this year. It's great. Congratulations.

Thank you.

Your next question is a follow-up question from the line of Marla Backer with Hudson Square. Please proceed. Marla Backer – Hudson Square: Thank you. Just one follow-up on the 3D with the ticket prices, obviously, being higher, and as you noted, not necessarily attendance being higher. I think you said that you're having some discussions with studios. Any possibility of having conversations? Or not just you, but other exhibitors collectively having conversations with RealD to lower the revenue share there.

They haven't come and offered us a drop in their share. Marla Backer – Hudson Square: I don't think that's how it usually works.

Marla, I couldn't tell you the specifics of what they – I'm sure they have their ongoing discussions with our theatre business, but I'm not involved in that. Doug, you may have some insights.

No. I mean, again, we talk to them and deal with them all the time. And I'm sure we want it lower. And they want it higher. And it's really no different from our same relation as to the film companies. Marla Backer – Hudson Square: Good. Okay. Thank you.

At this time, it appears we have no further questions. I would like to return the call over to Mr. Neis for any additional closing remarks.

Well listen, thank you everybody for joining us today. Appreciate it, and appreciate all the questions. We look forward to talking to you once again in July when we release our fourth quarter and final fiscal 2010 results. Thank you. Hope you all have a wonderful weekend. And we'll talk to you soon. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.