Gabelli & Company, Inc.

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1 One Corporate Center Rye, NY Tel (914) Fax (914) The Marcus Corporation (MCS $16.90 NYSE) February 9, 2004 Gabelli & Company, Inc. Sum Of The Parts FYE, May EPS* P/E PMV Dividend: $0.22 Current Return: 1.3% 2005P $ $25 Common shares: 20.4m (1 vote) 2004E $ $21 Class B Common shares: 9.3m (10 votes) 2003A $ $19 52-Week Range: $ $11.91 *Excludes items deemed non-recurring <<First P The Marcus Corporation, headquartered in Milwaukee, Wisconsin, operates three business segments. Marcus Theatres owns or operates nearly 500 movie screens at over 45 locations in Wisconsin, Ohio, Illinois, and Minnesota, and one family entertainment center in Wisconsin. The Limited-Service Lodging segment operates or franchises over 180 Baymont Inns & Suites in more than 30 states, seven Woodfield Suites in Wisconsin, Illinois, Colorado, Ohio and Texas and one Budgetel Inn in Wisconsin. Hotels and Resorts owns or manages 11 hotels and resorts in Wisconsin, California, Minnesota, Missouri, and Texas, and one vacation club in Wisconsin. Revenue and EBITDA generated by each segment in fiscal 2003 was as follows: Table 1 THE MARCUS CORPORATION Revenue and EBITDA Year Ended May 31, REVENUE EBITDA CAGR CAGR ($ in millions) Revenue % of total '98-'03 '03-'08P EBITDA % of total '98-'03 '03-'08P Marcus Theatres $ % 10.4% 2.5% $ % 13.3% 2.6% Limited-Service Lodging (2.6) (10.7) 5.2 Hotels & Resorts Total* $ $ * excluding corporate items INVESTMENT CASE We believe MCS is an attractive investment for the following reasons: - Hiding in plain sight We think MCS s unusual business mix has caused the company to be overlooked by many investors because it does not neatly fit into one industry segment. We think this has given investors the opportunity to acquire a solid portfolio of theatre and hotel assets at a discount to their private market value. MCS s total enterprise value is less than $750 million. We think the two lodging businesses, which we estimate will combine to generate more than $55 million in EBITDA this fiscal year, and over $60 million in EBITDA in FY 2005, have a combined private market value of at least $550 - $600 million. So, at current prices, investors are implicitly paying less than 4 times EBITDA for the theatre business, which we think will generate over $50 million of EBITDA and 33% EBITDA margins in fiscal Levered to a return in corporate travel Given the large fixed cost nature of the hotel business, operating results in the Limited-Service Lodging and Hotels and Resorts segments are heavily levered to increases in occupancy and rate. We expect 2003 to represent the trough in the current lodging cycle. As the economy improves, and corporate travel increases, we expect to see rising EBITDA margins in both of MCS s lodging businesses, driven by higher occupancy and better pricing. - Well-run theatre business MCS has done a good job growing and managing its movie theatre business, which we think has a private market value of $330 million. Management has invested over $200 million in this division over the past few years, nearly doubling the number of company owned theatres to 454 at the end of FY 2003 and increasing the amount of screens with stadium seating. Meanwhile, EBITDA margins have risen over the past few years, from 27% in FY 1999, to 32% in FY MCS owns the land associated with 31 of the 46 theatres in operation. - Strong balance sheet With a net debt to total enterprise value ratio below 35%, and EBITDA greater than 5 times interest expense, MCS is conservatively capitalized. In addition to investing in its business segments, MCS has used cash flow to reduce debt. Debt has gone from approximately $330 million at the end of FY 2001, to $250 million at the end of November. We think management can reduce debt to the $150 million level by fiscal Please refer to important disclosures at the end of this report-

2 BUSINESS SEGMENTS MOVIE THEATRES At the end of November 2003, Marcus Theatres owned a total of 459 screens in 43 theatres and managed 34 screens in 3 theatres in Wisconsin, Ohio, Illinois and Minnesota. This division also includes one family entertainment center in Wisconsin. The following table outlines the revenue and EBITDA generated by this segment over the past five fiscal years as well as our expectations for growth in fiscal 2004: Table 2 MARCUS THEATRES Revenue & EBITDA FYE, May ($ in millions) 1999A 2000A 2001A 2002A 2003A 2004E Revenues $ $ $ $ $ $ Growth 21.2% 9.9% 4.3% 15.6% 2.1% 2.6% EBITDA $ 29.9 $ 33.7 $ 35.3 $ 47.0 $ 48.1 $ 50.8 Growth 16.1% 12.7% 4.7% 33.1% 2.5% 5.4% Margin 26.9% 27.6% 27.7% 31.9% 32.0% 32.9% Management has invested over $200 million in this division over the past few years, doubling the number of companyowned screens from 219 at the end of FY 1996 to 454 at the end of FY This capital investment plan also included adding stadium seating to nearly 90% of the company s first run screens. MCS does not disclose the actual attendance figures or average ticket prices of its theatre business, however, the percentage changes in attendance and average ticket price over the past five fiscal years were as follows: Table 3 MARCUS THEATRES Attendance & Ticket Price Trends FYE, May 1999A 2000A 2001A 2002A 2003A Attendance at comparable locations -4.1% -8.4% -7.3% 11.2% -0.3% Average ticket prices 1.3% 6.5% 3.9% 3.8% 3.8% Management s strategy for this division is to focus on megaplex theatres (12 or more screens), which allow MCS to show a very diversified selection of films while leveraging common box office, concession, projection and lobby facilities. MCS operates 19 megaplex theatres, which represents about 62% of the company s total screens. Management is also focused on growing ancillary revenues in this division, particularly pre-screen advertising, nearly every dollar of which drops to the bottom line. Results in this division are largely dependent on the appeal of available films and studio support of films through marketing and advertising campaigns. Results in fiscal 2003 were aided by the release of box office hits such as Lord of the Rings: Two Towers, Harry Potter and the Chamber of Secrets, My Big Fat Greek Wedding, Signs, Austin Powers in Goldmember, Matrix Reloaded, Chicago and Catch Me If You Can. Film product for the recent holiday season, such as Lord of the Rings: Return of the King, has performed well, while upcoming releases of new Spiderman and Harry Potter films bode well for the summer

3 At the end of FY 2004 s second quarter, MCS had 181 Baymont Inns & Suites in operation, including 94 that it owned or operated and 87 that were franchised. These hotels are located in over 30 states, with the largest concentration being in the states of Wisconsin, Michigan, Florida, and Illinois. The Limited-Service Lodging division also includes seven Woodfield Suites in Illinois, Wisconsin, Colorado, Ohio and Texas and one Budgetel Inn in Wisconsin. The following table outlines the revenue and EBITDA generated by this segment over the past five fiscal years as well as our expectations for growth in fiscal 2004: Table 4 Revenue & EBITDA FYE, May ($ in millions) 1999A 2000A 2001A 2002A 2003A 2004E Revenues $ $ $ $ $ $ Growth -2.2% -5.2% 1.8% -8.0% 0.7% 1.0% EBITDA $ 44.4 $ 40.0 $ 35.5 $ 32.7 $ 30.3 $ 31.1 Growth -16.6% -9.9% -11.4% -7.6% -7.4% 2.6% Margin 31.4% 29.8% 26.0% 26.0% 23.9% 24.3% The typical amenities of a Baymont Inns & Suites include conference centers, king-sized beds, free local telephone calls, incoming fax transmissions, non-smoking rooms, in-room coffee makers, remote control multi-channel televisions, extralong telephone cords, large working desks, lobby breakfasts, two-room suites, 25-inch televisions, fitness facilities, voice mail, hair dryers, irons and ironing boards, and complimentary copies of USA Today. Management does not disclose the actual occupancy, average daily rate (ADR) or revenue per available room (RevPAR) figures of its Limited-Service Lodging division, however, the percentage changes in occupancy, ADR, and RevPAR for comparable Baymont Inns & Suites and Woodfield Suites over the past five fiscal years were as follows: Table 5 Occupancy, ADR & RevPAR Trends FYE, May 1999A 2000A 2001A 2002A 2003A Baymont Inns & Suites Occupancy -3.9% -2.5% -5.7% -2.5% 4.8% Average Daily Rate (ADR) 3.1% 7.9% 10.0% -2.5% -5.7% Revenue per avaliable room (RevPAR) -3.7% 2.4% -0.1% -6.7% 2.6% Woodfield Suites RevPAR 7.9% 2.2% -1.3% -9.8% -4.5% Baymont Inns & Suites competes with national chains such as Hampton Inn, owned by Hilton Hotels Corporation, Fairfield Inn, owned by Marriott Corporation, Holiday Inn Express and Comfort Inn, as well as regional and local chains. Woodfield Suites competes with chains such as Comfort Suites, AmeriSuites and Courtyard by Marriott, as well as regional and local all-suite facilities. Although this segment tends to focus on the business traveler, the recent downturn in corporate travel has increased the percentage of business driven by leisure customers, putting pressure on price. We expect the demand for corporate travel to increase as the economy recovers, ultimately leading to increases in occupancy, ADR and RevPAR. Management s growth strategy for this segment involves opening new Baymont Inns & Suites through franchising and joint ventures. Management s franchising efforts have been thwarted by the recent downturn in the lodging industry, however, as the industry recovers, we would expect management s franchising efforts to bear fruit

4 Hotels and Resorts owns or manages 11 hotels and resorts in Wisconsin, California, Minnesota, Missouri and Texas, and one vacation club in Wisconsin. Notable properties include The Grand Geneva Resort & Spa, located in Lake Geneva, Wisconsin, The Pfister Hotel, located in downtown Milwaukee, and The Hilton Milwaukee City Center. The following table outlines the revenue and EBITDA generated by this segment over the past five fiscal years as well as our expectations for growth in fiscal 2004: Table 6 Revenue & EBITDA FYE, May ($ in millions) 1999A 2000A 2001A 2002A 2003A 2004E Revenues $ 81.2 $ 89.9 $ $ $ $ Growth 15.5% 10.7% 22.1% 4.8% 3.1% 5.4% EBITDA $ 15.5 $ 18.8 $ 20.1 $ 18.1 $ 21.8 $ 24.9 Growth 6.5% 21.3% 7.0% -10.1% 20.7% 14.2% Margin 19.1% 20.9% 18.3% 15.7% 18.4% 20.0% Management s goal is to double the number of rooms managed or owned by this division to 6,000 over the next three to five years, primarily through management contracts with other hotel owners. These hotels and resorts compete with the hotels and resorts operated by Hyatt Corporation, Marriott Corporation, Ramada Inns, Holiday Inns, Wyndham Hotels and others, along with other regional and local hotels and resorts. MCS also does not disclose the actual occupancy, ADR, or RevPAR figures for this segment, however, the percentage change in RevPAR for comparable properties over the past five fiscal years was as follows: Table 7 RevPAR Trends FYE, May 1999A 2000A 2001A 2002A 2003A RevPAR 10.5% 3.2% 3.8% -8.3% -0.5% This segment is very reliant on group business, and has suffered as corporate group travel dwindled post 9/11 and through the economic downturn. Nevertheless, Hotels and Resorts reported very strong second quarter results, with RevPAR up 15.9%, which may indicate that the demand for corporate group travel is picking up. Management has noted that segment results for the fiscal 2004 third quarter, which ends in February, may be better than last year and that the current booking pace for the fiscal 2004 fourth quarter is promising. RECENT RESULTS, ANNOUNCEMENTS & NOTABLES Second quarter results MCS reported second quarter fiscal 2004 results on December 18, Total revenues rose 6.6% to $94.6 million, while operating income rose 38.5%, to $10.7 million. Earnings per share increased to $0.14, from $0.07, excluding $0.02 per share of gains from the sale of property and equipment in both periods. Revenues at Marcus Theatres rose 4.1%, to $32.4 million, while operating income rose 12.0%, to $7.2 million. Results were aided by increases in attendance, average ticket price and average concession sales per person. Hotels and Resorts had a strong quarter, with RevPAR up 15.9%, revenue up 17.0% and operating income up 110%, aided by increased group business. Revenues in the Limited-Service Lodging segment rose 0.7%, to $30.8 million, and operating income increased 74.2%, to $3.0 million, driven by a 0.3% increase in RevPAR at comparable properties, a focus on expense management, increased franchise revenues and improved performance at the Woodfield Suites properties. New Cinema Construction On December 22, 2003, MCS announced plans to build a new movie theatre in Saukville, Wisconsin, north of Milwaukee. The theatre will have between 10 and 12 screens, stadium seating and digital sound. Construction of the theatre will begin this spring, with an expected opening sometime in late

5 Insider Ownership According to the September 2003 proxy statement, all directors and officers as a group owned 2.7% of MCS s common shares and 93.0% of MCS s class B shares. Stephen H. Marcus, chairman, president and CEO, owned 70.2% of MCS s class B shares, while his sister, Diane Marcus Gershowitz owned 58.7% of the class B shares. 3.5 million class B shares, or approximately 37% of class B shares outstanding, which are held in certain trusts are included in the beneficial ownership figures for both Stephen Marcus and Diane Marcus Gershowitz because they are both trustees of these trusts. Real estate ownership MCS owns a substantial portion of the real estate associated with its operations. At the end of FY 2003, MCS owned the real estate associated with all of the owned Baymont Inns & Suites, all of the Woodfield Suites, most of the theatres, the Pfister Hotel, the Hilton Milwaukee City Center, the Hilton Madison at Monona Terrace, the Grand Geneva Resort & Spa, the Miramonte Resort and the Hotel Phillips. RISKS We believe that some of the risks associated with an investment in MCS include, but are not limited to operating leverage, the economy, travel demand, the supply of hotel rooms, and the consumer appeal and general quality of film product. EARNINGS The following table outlines our abbreviated five-year earnings model. As the model illustrates, we think MCS can grow earnings at a compound annual growth rate of nearly 19% over the next five years, driven by steady revenue growth and margin expansion. Table 8 THE MARCUS CORPORATION SUMMARY EARNINGS MODEL '03-'08P FYE, May ($ in millions, except per share data) 2003A 2004E 2005P 2006P 2007P 2008P CAGR Revenue Theatres $ $ $ $ $ $ % Limited-Service Lodging % Hotels & Resorts % Corporate % Revenue $ $ $ $ $ $ % Growth 1.8% 2.8% 2.9% 2.8% 2.8% 2.8% EBITDA Theatres $ 48.1 $ 50.8 $ 51.7 $ 52.7 $ 53.7 $ % Limited-Service Lodging % Hotels & Resorts % Corporate (5.5) (7.1) (7.1) (7.1) (7.1) (7.1) 5.2% EBITDA $ 94.8 $ 98.3 $ $ $ $ % Margin 23.9% 24.1% 24.9% 25.4% 25.8% 26.2% Growth 2.6% 3.8% 6.3% 4.9% 4.3% 4.3% EPS* $ 0.61 $ 0.77 $ 0.93 $ 1.10 $ 1.27 $ % Growth -13.5% 27.0% 19.7% 18.4% 15.4% 14.3% *excludes non-recurring items nd First Page> VALUATION AND INVESTMENT SUMMARY At current prices, MCS is selling for 7 times our $105 million EBITDA estimate for FY 2004, excluding corporate expense. With an enterprise value of less than $750 million, and a lodging business worth at least $550-$600 million in our opinion, investors are implicitly paying a very low multiple for MCS s well run theatre business. Furthermore, we think MCS s private market value, or PMV, can grow from $21 in FY 2004, to $35 in FY 2008, driven by steady growth in the theatre business and a recovery in the lodging cycle. Given its strong balance sheet and the cash-based nature of MCS s business, we think the company should raise its dividend or aggressively repurchase shares. In any case, we think the company s unusual business mix has caused it to be overlooked by many investors, presenting the opportunity to acquire solid theatre and hotel assets at discounts to their PMV

6 <<Start age Two Table 9 THE MARCUS CORPORATION PRIVATE MARKET VALUATION End Report>> FYE, May ($ in millions, except per share data) 2003A 2004E 2005P 2006P 2007P 2008P MARCUS THEATRES Revenues EBITDA (a) Valuation Multiple Value Revenues EBITDA (a) Valuation Multiple Value Revenues EBITDA (a) Valuation Multiple Value Total Private Market Value , ,074.1 Plus: Other (b) Less: Net Debt (270.2) (247.6) (200.6) (148.6) (91.5) (29.1) Less: Options Payments (c) (6.2) (8.8) (12.5) (16.2) (19.9) (23.9) Equity Private Market Value ,031.5 Shares Outstanding PMV Per Share $ 19 $ 21 $ 25 $ 28 $ 31 $ 35 Current Market - Discount to PMV 11% 21% 31% 39% 46% 51% (a) Segment EBITDA excludes corporate overhead allocation. PMV based on EBITDA excluding corporate overhead. (b) Includes investments in joint ventures at book and estimated value of excess land after-tax (c) After-tax payments to option holders at the Private Market Value I, Michael Schneider, who prepared this report, hereby certify that the views expressed in this report accurately reflect my personal views about the subject companies and their securities. I also certify that I have not, am not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view in this report. Michael Schneider, CFA Gabelli & Company, Inc ONE CORPORATE CENTER RYE, NY GABELLI & COMPANY, INC. TEL (914) FAX (914) Gabelli & Company, Inc. ( we or us ) attempts to provide timely, value-added insights into companies or industry dynamics for institutional investors. We do not have any formal ratings system for our research reports, and we do not undertake to upgrade or downgrade ratings after publishing a report. We generally write reports on securities that we believe to be undervalued and do not issue any sell ratings. Thus, virtually all of our reports containing recommendations would be considered buy ratings. We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on the business day immediately prior to the date of this report. We do not use price targets predicting future stock performance. We do refer to private market value or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request. In the last 12 months we have provided investment banking services as a syndicate or selling group member of underwritten offering to approximately 0% of the companies that were the subjects of our research reports (all of which would be considered buy ratings). Our affiliates beneficially own on behalf of their investment advisory clients or otherwise approximately 0% of Class A common stock of MCS. Because the portfolio managers at our affiliates make individual investment decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or otherwise. The analyst who wrote this report may receive commissions from customers transactions in the securities mentioned in this report