Marcus Corp (MCS) 2012 Q4 法說會逐字稿

Good morning, everyone and welcome to the Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Bree, and I'll be your operator for today. At this time, all participants are in listen-only mode. (Operator Instructions)

Joining us today, are Greg Marcus, President and Chief Executive Officer and Doug Neis, Chief Financial Officer of the Marcus Corporation. At this time, I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you. Welcome everybody to Fiscal 2012 fourth quarter and year-end conference call. As usual, I do need to begin by stating we plan on making a number of forward-looking statements on our call today.

Forward-looking statements could include, but not be limited to statements about our future revenue and earnings expectation, 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 product 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 can be obtained from the FCC or the Company. We'll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So with that, let's begin by talking about our fiscal 2012 fourth quarter to year-end results. As you can see, we ended the year very strong. Certainly pleased to be reporting another significantly improved quarter compared to last year, thanks to much stronger results from our Theater division and continued positive trends in our Hotels and Resorts division.

I'm going to take you through some of the detail behind the numbers, and then turn the call over to Greg for his comments. Before I get into the operating results, let me first briefly address any variations in the line items below operating income versus last year. The first unusual item right off the bat is on the investment income line.

During our fourth quarter, we recognized a one-time gain of nearly $800,000 on the sale of securities that we had held as an investment for some time. Looking at the fiscal year results, this unusual amount becomes more pronounced due to an approximately $700,000 negative adjustment to investment income made last year. That was related to the change in estimate of interest income earned to date on the funds we had advanced several years ago in conjunction with the public portion of the Hilton Milwaukee parking garage.

We view both the gain recorded this year, and the loss recorded last year as one-time unusual items. Investment income has historically included interest earned on cash, cash equivalents and notes receivable, including notes related to prior sales of timeshare units in our Hotels and Resorts division. And we currently expect to return to reporting investment income on just those items during fiscal 2013.

Moving on, we reported another reduction in interest expense during the fourth quarter compared to the same period last year. Our interest expense was down approximately $240,000 during the fourth quarter and ended the year down nearly $1.1 million compared to the prior year's seem -- prior year, due primarily to reduced borrowings.

We were able to fund our fiscal 2012 capital expenditures, dividends, and share repurchases out of operating cash flow, eliminating the need for additional incremental debt during the year. Based upon our current expectations for increased capital expenditures during fiscal 2013, we currently believe our interest expense will likely increase during fiscal 2013 compared to the year that was just completed.

Our total debt remains at historically low levels and our comparable debt-to-capitalization ratio at the end of the year was 37%, down from 39% at the end of the year last year. I do want to point out that current maturities of long term debt on our balance sheet as of May 31, 2012 include a $15.1 million mortgage related to our Skirvin Hilton Hotel that has a maturity date in December of 2012, and $71 million in borrowings under our revolving credit agreement, with a maturity date in April of 2013.

We fully expect to refinance both of these debt agreements during fiscal 2013, at which time these borrowings would be reclassified as long term debt. So from my point of view, our only true current maturities during fiscal 2013 are the approximately $11.8 million due on our senior notes and other debt.

Looking at the next line, gains and losses from disposition of fixed assets, last year's fourth quarter includes some furniture and equipment write-offs related to hotel renovations. And as a reminder, the primary reason for the favorable comparison on this line for the full fiscal year was last year's $750,000 loss that was related to an adverse legal judgment that was related to our Las Vegas property.

There were no significant variations in the last line, on the any other income and expense section, that equity gains and losses of investments line, during the fourth quarter. For the fiscal year, just a reminder that comparisons to last year were negatively impacted by the fact that we benefitted during fiscal 2011 last year from one of the two hotels that we have a 15% interest in. They reported a sizable gain from refinancing of its debt, accounting for the comparative decrease in that line this year compared to the prior year.

Finally, our effective income tax rate for fiscal 2012 was 39.3% compared to 37.8% last year. And this higher rate was really primarily due to significantly -- to the significantly increased pre-tax earnings that we had during the year, compared to the prior year, which has the effect of reducing the impact of any favorable decreases in our liability for unrecognized tax benefits on our effective rate.

At this point, I don't expect our fiscal 2013 effective income tax rate to vary significantly from our historical average, which has always been in the 38% to 40% range, pending any further lapses in statutes of limitations or potential changes in federal or state tax rates.

Shifting gears, our total capital expenditures, including acquisitions during fiscal 2012 totaled approximately $39 million, compared to approximately $25 million last year. The year division capital expenditures totaled approximately $27 million of that total and included the acquisition of a theater in Franklin, Wisconsin out of receivership.

Our upfront contributions to the digital cinema rollout, a lobby remodel at one theater, and expenditures related to construction of our newest Zaffiro's Pizzeria and Bars in St. Cloud, Minnesota and New Berlin, Wisconsin, in addition to normal maintenance capital.

We incurred approximately $12 million of expenditures in our Hotel Division during the year, all of which were primarily maintenance capital, with the renovations at our Hotel Phillips and Hilton Madison properties representing the largest pieces.

Now, as we look forward to capital expenditures for fiscal 2013, we're currently estimating that our fiscal 2013 capital expenditures may increase significantly and be in the $65 million to $95 million range, with approximately 15 to $30 million of that estimated for our Theater Division and approximately $50 million to $60 million estimated for our Hotel division.

The range of potential capital spending was fairly large at this time because either the timing on several of our planned projects is not finalized yet or because some of the dollars are for several growth opportunities, primarily in our Hotel Division, that may or may not come to fruition. As a result, our actual fiscal 2013 capital expenditures certainly could vary from this preliminary estimate, just as they did this past year.

In addition, both divisions have acquisition strategies that could impact our actual capital expenditures, if the right opportunity arose during the year. Greg will expand on some of our capital expenditure plans for each division, as well as our proposed retail development in Brookfield, Wisconsin, during his prepared remarks.

So now, I'd like to provide some financial comments on our operations for the fourth quarter and fiscal year. Overall, as you know, thanks to the calendar year and our last Thursday in May year-end, our fourth quarter and fiscal year had an extra week this year. This extra week particularly benefited our Theater Division as it encompassed the traditionally strong Memorial Day weekend, which is typically one of the biggest weekends of our year.

The week that encompasses Memorial Day is actually not a particularly strong time for our Hotel Division, but it still added revenues and operating income to our results. The margin on this extra week of revenues is higher than average due to the fact that only incremental variable costs are added. Fixed costs are already annualized over 12 periods during the year. The result is a fairly sizable favorable impact to our fourth quarter results as a result of this extra week.

While determining the impact of one week on our operating results is not an exact science, we estimate that this additional week added approximately $7.6 million to our consolidated revenues and $2.1 million to our consolidated operating income. After interest expense and income taxes, we estimate that the extra week of operations contributed approximately $1.1 million to our fiscal 2012 net earnings, or about $0.04 per diluted common share.

Now, talking about our Theater Division, our box office revenues increased 19.4% during the quarter, and our concessions, food and beverage revenues were up a very healthy 22.2%, including the extra week. For the full year, box office revenues increased 7.2% compared to last year and our concession revenues were up a significant 15.9%. Now, the fourth quarter box office increase is partially attributable to an increase in attendance at our comparable theaters of 3.1%, including the extra week.

For the full fiscal year, comparable theater attendance increased 4.4%, including that extra week. And even if you take the extra week out, our comparable theater attendance increased 2.3% during fiscal 2012 compared to the prior year. The addition of the newly acquired theater in Franklin an increase in our average admission price also contributed to our improved box office receipts.

Our average admission price increased by 5.7% for the quarter and ended the year 1.5% higher than last year. The mix of films during any given quarter can impact our average admission price, and this time around the fact that our top film, The Avengers, had over 40% of its box office receipts come from 3D presentations, definitely contributed to the increase in our average admission price this quarter.

In addition, our average concessions and food and beverage revenues per person increased by 8.0%, eight point zero percent, during the fourth quarter, compared to the same quarter last year. It increased by 9.7% for the full fiscal year. Pricing, concession product mix and film product mix are the three primary factors that impact our concession sales per person.

Selected price increases, a change during the second half of last fiscal year from sales tax inclusive pricing to sales tax added pricing, and operational change to more grab and go candy offerings, and a change in concession product mix, including increased sales of higher priced non-traditional food and beverage items in our theaters, all contributed to our increased concession sales per person during the fourth quarter and fiscal year.

Now, as I noted earlier, the 53rd week had a favorable impact in our Theater operations, adding approximately $4.7 million of revenues and $1.6 million of operating income to our fiscal 2012 fourth quarter and year-end Theater results. Primarily as a result of the improved attendance and increased concession revenues, operating margins in this division have increased to 20.7% compared to 18% last year.

As we pointed out previously, our operating income and margin would have been even better year-to-date if not for approximately $1.4 million of accelerated depreciation that we reported during the first two quarters of the year related to 35mm film projection systems that were replaced in conjunction with our digital cinema deployment.

Now, shifting to our Hotels and Resorts division, our overall hotel revenues were up 12.6% and our total RevPAR was up 9.3% during the fourth quarter compared to the same period last year. We ended the year with a 9.7% increase in total revenues and a 9.5% RevPAR increase.

As we've noted in the past, our RevPAR performance did vary by market and type of property but all eight company-owned properties ended the year with increased RevPAR compared to the prior year.

According to the data received from Smith Travel Research and compiled by us in order to match our fiscal year, comparable upper up-scale hotels throughout the United States experienced an increase in RevPAR of 7.1% during the fourth quarter, our fourth quarter and 6.6% during fiscal 2012's full year. So we once again have outperformed the national average.

Our fiscal 2012 fourth quarter overall RevPAR increase was the result of an overall occupancy rate increase of three percentage points and an average daily rate increase of 4.8%. For the full year, our occupancy rate ended up 2.9 percentage points higher than last year and our average daily rate increased 5.2%. The 53rd week added approximately $2.9 million to our fourth quarter and fiscal year-end revenues and approximately $590,000 to our operating income during both periods.

Now finally, speaking about the 53rd week, I do want to explain the impact the extra week has on the following year, in this case, our fiscal 2013. If a week was a week was a week in our business, then there would not be any unusual comparisons in the following year to be concerned about, but unfortunately, as that's not true in our case.

As we have noted, the extra week during fiscal 2012 includes the traditionally busy Memorial Day holiday three-day weekend. Film studios usually target that weekend for one or more of their hopeful summer blockbusters.

During our recently completed fiscal 2012, the 2011 Memorial Day weekend represented the first week of the fiscal year. And the 2012 Memorial Day weekend represented the last week of the year. By definition that means that our fiscal 2013 first quarter will not have a Memorial Day weekend in it, but the year that we compare it to will.

In other words, we start the new fiscal year with a quarter that has a built-in challenge from a comparison perspective. Sometimes the films during the quarter make up for the negative comparison, sometimes they don't.

As we noted in our release, for our summer quarter so far, excluding that one week -- week one comparison, we're actually running slightly ahead of last year in our box office receipts. But including week one, we're behind at this point in the quarter.

In the long run, it has all worked itself out, and we'll have a normal 52-week year in fiscal 2013 and there'll be a Memorial Day weekend included as usual, just this time only in the fourth quarter. Thanks for your patience to explain that, and I hope that helps. So now I'll turn the call over to Greg.

Thanks, Doug. I'll begin my remarks today with our Theater Division. We're here to talk about the excellent results we reported today and we will do that. But first, I would like to make a couple of comments about the events of the past week, as they certainly put everything we do in perspective.

We, like everyone else, were terribly saddened by the horrible tragedy that occurred in Aurora, Colorado in the early morning hours last Friday. Our thoughts and prayers continue to go out to the victims and their families, as well as the larger Aurora community. In addition, the movie theater business is a tight-knit group. The owners of the theater involved are our friends. So we also want to express our concern for the associates of the Century Theater and its owners during this very difficult time.

I know that we all search for words to explain these senseless random acts of violence by disturbed individuals, yet there don't seem to be any that are adequate. We know intellectually that something like this can happen anywhere, but the U.S. movie theater industry has never had something like this occur in its 110 year history, and that approximately 1.3 billion guests go to the movies every year, without incident.

Yet, an event like this is obviously very painful. Interestingly, it could be that the American people tried to make a statement this weekend when they made The Dark Knight Rises opening the highest grossing 2D weekend opening ever. That they won't let a single disturbed individual take away their freedom to enjoy one of our favorite pastimes, the collective experience of seeing the latest movie in their local theater.

Having said that, we don't take what happened in Colorado lightly, far from it, in fact. We have a deep sense of responsibility to provide a safe and secure environment for our guests and associates, and this will always be a priority concern for us. We are constantly reinforcing our security procedures with our theaters, and our guests can rest assured that we'll take appropriate measures to have our security precautions in place today, tomorrow and every day that we open for business.

We would like to say thank you to our loyal guests, many of whom have offered us words of encouragement in the midst of this terrible tragedy. It is much appreciated. I'll now try to make the difficult transition of the subject at hand, our fourth quarter and fiscal year-end earnings announcement.

We're obviously very pleased with the results we are reporting today. After a very challenging year last year, it is very gratifying to follow that up with record revenues and operating income in our Theater Division.

In fact, we ended the year with two very strong quarters. And the interesting thing is, they were quite different in their composition. If you recall our last discussion regarding our third quarter results, you'll remember that the strength of that quarter was not any one picture or two, but rather the deep slate of movies that were presented.

I pointed out that our top 15 films during fiscal 2012 third quarter, actually performed worse than our top 15 films from the year before. But, thanks to a healthy middle tier of films, essentially our 16th through 40th best films, our box receipts increased by over 9%.

Well, we saw the other end of the spectrum during our recently completed fiscal 2012 fourth quarter. The strength of this quarter was essentially two blockbuster films, The Hunger Games and The Avengers that not only topped our fourth quarter charts, but ended up being our two best performing films for the full year.

Both the third and fourth quarters ended up being great quarters for us. But we got to those outstanding results through two very different ways. And while I'll be honest, I think a deep slate of movies at all times of the year is best for the long-term health of the industry. It is also very important that the studios continue to develop new franchises that the audience relates to and looks forward to. And they have clearly done that with these two films. So that is a very good thing.

Our press release highlighted the summer films that have performed well so far and Doug has already explained the Memorial Day weekend challenge we will have from a comparison perspective. Having said that, if The Dark Knight Rises has good legs and some of the films still to be released that we mentioned in the press release do well, maybe we can make up for the difference of not having Memorial Day in our first quarter numbers.

A wildcard may be the Olympics. Nightly TV coverage of this event has the potential of having a negative impact on attendance. But conversely, the time difference means that most of the prime time coverage will be taped. So we'll have to see what, if any, impact it has on us.

So since Doug has already gone over all the fourth quarter and year-end numbers with you, I'd like to spend a few minutes updating you on our capital plans for this division. As Doug noted, we are currently estimating that we may incur capital expenditures of $15 million to $30 million dollars during fiscal year 2013, excluding any acquisitions that could arise to support our strategic plans for our Theater Division.

The majority of these dollars will likely be spent to enhance our existing theaters, although we are continually looking for opportunities to add new locations organically or via acquisition. For example, we have previously disclosed plans to build a new theatre in Sun Prairie, Wisconsin, and it is possible that we could begin working on this project later this fiscal year.

Some of these capital dollars will support our plan to further enhance our food and beverage offerings within our existing theaters. We are nearing completion of our third Zaffiro's Pizzeria & Bar and will be opening this restaurant in our New Berlin, Wisconsin theater in one week. The place looks great, and we're excited to see our guests' reaction to it.

We also recently opened another of our Take 5 Cocktail Lounges in our Duluth Theatre and we have plans to expand this concept as well.

We also have capital dollars set aside to selectively expand in our successful premium large-screen format, our UltraScreens. We've recently opened our 14th such auditorium in Duluth, and we have plans to add this important differentiator to at least one other theater during fiscal 2013.

As always, we will also continue to maintain and enhance the value of our existing theater assets by regularly upgrading and remodeling our theatres in order to keep them fresh and new. We have dollars in our fiscal 2013 capital budget to renovate several theatres and add the latest in state of the art seating in many of our auditoriums.

With that, let's move on to our other division, Hotels & Resorts. You've seen the segment numbers, and Doug gave you some additional detail. Certainly we were pleased with yet another quarter of the year-over-year improvement.

In fact, the consistency of our recovery this fiscal year has been remarkable. Our RevPAR increased between 9.3% and 9.8% each and every quarter this year, compared to the same quarter during the prior year. And as Doug shared with you, it is also gratifying to see us continue to outperform the industry during this recovery.

Particularly encouraging in the detail behind our numbers was the fact that we reported an overall increase in average daily rate again this quarter, our sixth straight quarter of increased ADR. All eight of our Company-owned properties reported an increase in rate this year compared to the prior year.

And for the first time during this recovery, our increase in ADR actually contributed a larger portion of our overall RevPAR increase for the year than the increase in occupancy. That is not to say that occupancy hasn't played an important part of our continued recovery. It has. And that we aren't still experiencing pressure on our rates in this current environment, because we are.

Our overall -- our occupancy rates overall, are very strong with all segments of business travel, including individual business customers, the volume corporate business customer, and the group customer, contributing to our improved results during fiscal 2012.

But it is important to note that at the same time that our overall occupancy percentage is approximately five points and 7% higher than our pre-recession fiscal 2008 levels, our fiscal 2012 ADR is still approximately 7% lower than it was during fiscal 2008, resulting in RevPAR about even with those pre-recessionary levels. Yet the mix is more skewed toward occupancy, negatively impacting pre-recession margin comparisons.

So I know you've heard this before, but one of the keys to a continued industry recovery is a need to continue to regain the ability to increase prices for our business travelers and continue a customer mix shift away from lower price customer segments such as those using alternate Internet booking channels.

We've made important progress towards this goal during fiscal 2012, and we hope to see those trends continue during our upcoming year. With an increasing portion of our revenues coming from ADR increases we gained nearly three points in our operating margin this year, increasing it from 4% to 6.9%.

Looking ahead, we continue to be generally optimistic about the future, although there are always challenges on the horizon. We remain concerned about the fragility of the current economy as well as the uncertainty surrounding the current employment and political environment.

We generally expect our favorable revenue trends to continue in future periods, although our RevPAR increases are not likely to be as high as they have been in the past two years. We've talked previously about the expected increase in room supply in our important Milwaukee market and my belief that it would be important for the local community to invest in opportunities that will increase demand for the new supply that is being built over the next 12 to 24 months.

The good news is that there has been minimal lodging room supply growth in our other markets, a trend we expect may continue, at least in the near term.

Shifting gears for a moment let me expand on Doug's comments regarding our planned capital spending for this division during fiscal 2013. As he noted earlier, we are currently estimating that we might incur capital expenditures of $50 million to $60 million in this division this year, which would represent a significant increase over the past couple of years.

This is always our hardest number to estimate as a significant portion of our potential spending in this division relates to growth opportunities that are very difficult to predict.

Having said that, as we discussed previously, MCS Capital under the direction of Bill Reynolds, is actively exploring numerous opportunities that could provide long term value to the Marcus Corporation, and we fully expect that some of these opportunities will come to fruition in the near future.

We are continuing to look for opportunities to grow our hotels under management, through a variety of different ways, and a significant portion of our $50 million to $60 million estimated capital spending represents dollars set aside for those growth opportunities.

Our plans for our Hotels and Resorts division also include continued reinvestment in our existing properties in order to maintain and increase their value. During the last two years we completed renovations at the Hilton Milwaukee City Center, Grand Geneva Resort, Hilton Madison, and Hotel Phillips. And I'd like to call special attention to the Monarch Lounge at the Milwaukee Hilton.

It was previously a meeting room located off the lobby. We have now converted it to a lounge, opening it to the lobby. And I am not understating it when I say the impact of this work is dramatic. During fiscal 2013 renovations are planned for several additional properties including enhancements, and new guest amenities at our flagship Pfister Hotel in Milwaukee, Wisconsin, as it prepares to celebrate 50 years of Marcus Corporation ownership.

Before opening the call for questions, there are two other topics I wanted to address briefly. First, I want to give you a brief update on The Corners of Brookfield, our proposed open air, mixed use retail development anchored by one of the most sought after department stores in the Midwest, Van Maur.

There's been a lot going on behind the scenes and we continue to make progress on this project on a number of different fronts. Our discussions with the local community continue to progress and we remain confident that our discussion will result in a mutually beneficial public-private partnership with the town.

We continue to be pleased with the leasing discussions to date, and we are particularly pleased with the mix of premiere local, national, and first-to-market tenants that the project has attracted. We have many LOIs either signed or in advanced stages of negotiation. We intend to be the developer and sponsor of this project, and given the substantial progress we have made, we have already begun the next step of seeking an equity partner for this development in a joint venture structure, similar to what we have described for our hotel growth plans.

We believe we will remain on track to begin construction on this project early in calendar 2013 with the entire project scheduled to open in the fall of 2014. The actual timing and extent of our capital expenditures for this project may change depending upon the satisfactory and timely completion of the items noted above.

Finally, as our press release notes, we repurchased over 500,000 shares of our common stock in the fourth quarter and a total of nearly 1.1 million shares over the fiscal year. Our average repurchase price for the 1.1 million shares was just over $10. In addition, our Board recently authorized the repurchase of up to an additional 2 million shares.

With the strong cash flow and our underleveraged balance sheet, we believe that when timing and market conditions are appropriate we will be able to repurchase shares to enhance shareholder value while, at the same time, continuing to invest in our businesses to facilitate our growth. We do not view these as conflicting strategies, but rather as complementary.

With that, at this time, Doug and I would happy to open up the call for any questions you may have.

(Operator Instructions) We'll first go to David Loeb with Baird, please proceed.

Two out of three, that's pretty well done. I wanted to start with some big picture questions. Greg, it sounds like from your remarks about Dark Knight and the strong opening, that you don't see any structural change in the way audiences are viewing the movie going experience following Aurora. Is that fair?

David, to get a little more into the detail -- the answer is I don't know. It's too early to determine if there is a structural change. I think if we follow past patterns, there probably won't be, but I don't know. What we did see was that The Dark Knight actually performed very well.

Some of the family and the more adult pictures had drops a little more than might have expected, but it wasn't anything significant. So there's no -- given our business, there's no knowing what might have driven that. This is not a business that's that predictable, so.

Sure. Yep. That makes a lot of sense. We'll certainly all be watching that. And then to switch to the hotel side, clearly your hotel performance has been very strong with excellent ADR growth. A lot of that is clearly the three downtown Milwaukee hotels.

Can you give us an update on the new supply environment, the two hotels under construction, when you expect them to open and how long do you think it will be before the market absorbs that? Presumably, that will make it harder for you to get rate increases in the face of that. So, where are you in that process?

Well, yeah, I know, the new supply comes online in the fall of this year the Hilton Garden Inn is going to open up. We don't know exactly when. They don't actually check in with us, so they're not going to give us an exact date. I think that initially it was called for September. I don't know, the building's wrapped up so I don't know when it'll be done. But, it's probably -- I'm sure they're not too far off.

The Marriott, is I think supposed to open they say late next summer. I don't -- but again, I can't tell. They've not sent me a schedule. As you know also, the Potawatomi hotel just went under construction. I don't know how that's going to impact our properties.

But obviously, in a world with 1% growth and we're getting 30% growth in the Milwaukee market with no new demand on the horizon, and frankly, the airport going backwards with traffic counts, I don't foresee -- I don't know how the market's going to absorb this product. I don't have a good answer for you on that. I know what we're going to do. And that is we're going to compete vigorously.

As you know we've always taken great care of our assets, and I think that we do offer some significant advantages by being part of having all the product in the market. We can do things that other hotels can't do. But it's --

But as you look at the current demand environment, it does seem like there some compression into the suburbs. Maybe some of that reverses, but are you -- are you yet seeing long booking groups starting to sharpen their pencils in anticipation of playing you off of other hotels?

No, we haven't seen that. We haven't seen that yet because they're not able to really -- they're not open for taking reservations yet, so that we're not -- we have not seen that impact as of yet.

Okay. And then just to zoom in a little bit on real estate, you talked a little bit about continuing to explore acquisition opportunities. Two parts of this, and then I'll stop, one is are you looking at new markets, and if so how far afield from your core Midwestern focus today?

And two, and this is for Doug, was there some G&A cost in the quarter that related to ongoing acquisition-related expenses and can you quantify that? I guess the same question on Brookfield, was there some in there that kind of helps us understand the G&A?

I'm sorry. Can you repeat the first part of the question, David? I want to -- before that I just want to --

Yes.

-- go back to one thing that I was thinking about. I'm sorry. But the -- I was thinking about the one thing on the hotel issue that I think it's important to note. The big fear that we have, frankly, is that these hotels, especially the Marriott have been subsidized into existence beyond your wildest imagination.

And one of the things that's going to -- one of the concerns that we have is that if the market is not able to absorb all the product that the advantage that the Marriott, for example, has with its tremendous subsidy, we figure it's $15 to $20 a night minimum. And so they have the power to go low if they have to if they're struggling.

So I think with the -- everybody needs to be aware that that's the possibility and so I don't -- I want to -- and then that becomes -- it's not so -- it's a double problem. It's the absorption just of the hotels. If somebody actually thought that it made sense to build it with their own money, but when they're building with other people's money and taking subsidies on top of it, it makes for even more challenges. So I just wanted you to be aware of that. That is also -- I think it's important to note that. Every hotel has been built with a subsidy here now.

Yes.

But back to your first question, David, just to -- if you could repeat that and then I'll handle the second half, but repeat the --

Sure.

-- acquisition question.

On the first one in the acquisitions for the hotel real estate fund, are you looking at markets that are still kind of in your core Midwest or are you looking beyond that? Are you really looking nationally for those acquisitions?

We're looking nationally. I mean I -- this is a business that we can -- that has with our ability to have a broad footprint is fine. I mean you know when we operate we've operated as far west as California. So it's that, so we are looking nationally.

Okay.

And then on the second half of the question, actually I'm going to respond also to one of your first questions in just terms of the structural issue in theaters, which I mean I certainly echo what Greg said. I mean there's no way to know.

We certainly do have one thing to look at and that's that if you look at the long-term effects after 9/11 airline travel has not dipped in terms -- in fact, I think there's as many people as ever in the air. So whether that's an indicator or not I don't know, but it certainly is something you can look at from a long-term structural perspective.

As it relates to the G&A and kind of the corporate piece, no, you're exactly right that there's a couple things that make that a little bit unusual. Yes, throughout the year there's an element in there that represents kind of our conservative approach and some of the expenses related to the Brookfield development, and so while -- so there's certain elements that we've just been expensing all the way along just because it's we think it's the conservative thing to do. So certainly that has impacted our overall G&A a little bit.

The fact that we had such a good year, David, there's no question impacting that as well because just from a compensation expense perspective, bonuses, et cetera, they're just going to be, and as they should be, a lot better than what they were in the last year or two given that the years we had those years compared to this tremendous year that we had this year.

So that certainly -- and probably disproportionally ran through this quarter a little bit just because the quarter was so good with those two pictures that did so well, so it probably -- it certainly our estimate skewed up as the year went on because of that.

Those are probably the two main things. There certainly is just the underlying cost of MCS Capital that has yet to do a project but we believe is imminent in terms of actually starting to have some of these things start to hit. But those underlying costs of that organization are also impacting this overall G&A that you're seeing as well.

So no question there are some unusual things in there that today don't necessarily have any corresponding EBITDA that go with it. But we certainly think in the long term will.

Perfect, great. Thank you for that.

Your next question comes from the line of Brian Rafn with Morgan Dempsey Capital.

Good morning, guys.

Good morning.

Can you give me a sense on the cinema theater side. If you guys look at the mix of ticket sales in maybe 3D, dinner theater, maybe without breaking out percentages is that percentage of penetration rising incrementally over the last few years?

As a proportion of ticket sales are you suggesting, like 3D?

Yeah, I'm just wondering what that -- yeah, as a proportion of the total gross those kind of extras, not just the guy coming in for a regular theater [experience].

No, in fact if you want to go back to when it was first introduced, 3D was a higher percentage. As I shared on one particular movie, The Avengers, it was about 40%. And at one point in time it was 50% plus or more, and so it's -- from our perspective it seems to have kind of found -- it's kind of found its equilibrium to a certain extent now. And it depends on the picture and some pictures are going to be a little higher and some are going to be a little lower.

Okay.

Yes, family films are lower, and this is not even our numbers are not, you know, the national numbers you can see the national numbers family films performing lower on 3D probably because a family of four or five going to the movies with 3D added in can be very expensive and so that's impacting that performance.

Okay. If we just broke out -- I mean I think you certainly qualified the 3D, how about kind of the dinner theater side, and that which is specific to you guys? Has that found its equilibrium, too?

I mean that's a very small piece of what we have right now, Brian. I mean the -- we've got a managed property that has five auditoriums. The entire place is like that and that's not even in our results if you'd look at them.

Then we have three screens at our Majestic Theater in Brookfield. We opened it only as one. When we added in the three it became a better dynamic. We were able to leverage our costs better. It became financially a better arrangement than what it was before. But it's still -- and there's a clear audience that loves the dinner and the movie concept that -- and so it's found a good audience in that regard.

But that's a small piece, Brian, that it's really -- and we -- thus far we haven't expanded it elsewhere. We certainly will look at that, but right now it's just too small to matter a lot.

That piece, Greg, is that also leveraged to the content of the types of films coming out? In other words, is that better for a romantic love movie versus, say, Die Hard 5?

Yes. Yes, absolutely it does make a different.

Okay.

But there's always broad content over time, so --

Okay, all right. With the -- we're sitting here in the corn country, Wisconsin, the commodity inflation and that. I right away go to high fructose corn syrup. You guys get a sense if there's certainly some significant damage on a commodity basis that you're going to see some costs on the concession side, candy and whatnot rising and do you have incremental pricing over that?

Are you talking about with the drought conditions?

Yeah, right, the -- because we're seeing some -- in packaged food you're seeing some -- whether it's bread or candy or soda you're seeing some real pressures building in the pipeline.

They haven't -- I haven't gotten the email yet to tell me that, but it wouldn't surprise us if we start to see some of that obviously. But when you think about it as a percentage of our -- that's the bar margins, as you know, are strongest in that area, so it's --

Right. Okay. And then let me ask you --

And then by the way -- and Brian, by the way, while Greg was answering that I was just looking up a couple of things and back to your question about the in-theater dining, I will tell you that while today it's a pretty small piece for us, nationally it is a growing trend and growing revenues per screen. And so I do -- so I don't want to minimize the fact that we think that it is something that has growth potential and we're seeing it nationally.

Right. And that's something for the most part that given a theater footprint you guys can convert one auditorium to that. Is there anything specific about that that requires a specific type of construction or whatever? Or is that something you could just roll out pretty much anywhere in your chain?

Oh, no -- well, first of all there's different flavors, so to speak. Something we -- like in the Ridge which we're -- there was a theater we were about to open. It's we took out an auditorium and converted it to a restaurant and it was a very complicated project. Where we do the Majestic, for example, where we have the in-theater dining, it is also a -- it's significant but you take the -- you take -- you're basically reconfiguring the seating.

Now putting in the kitchen is what matters. The other side of that, though, is you can't just do it for one screen. Now, there's not -- the scale -- you need the scale of multiple screens to support the cost of a kitchen and the labor that can work multiple screens. So it's you need -- you just can't do it in one so it takes -- so it's a capital commitment.

I mean each one has different impacts if you think about it. If you put a restaurant in an auditorium that everyone can use that's for everybody in the movie theater, if you do in-theater dining, well, that's only for the people going to see that movie.

Right.

But on the other hand it's the benefit of being able to eat in a theater and combine your eating experience with your movie going experience to a lot of people is very attractive. So I think what you'll see is a combination of different experiences.

Yeah, okay. Okay, that's fair enough. Good. Your comments certainly, and you know, everybody's always configuring this with the theater violence out in Aurora, Colorado, obviously if you can have terrorists shoot up a military base the theater chain, a grocery store, I mean it makes it very, very hard. And you can't really lock it down and, again, turn the theater into a military base.

Let me ask you, like, here in Wisconsin, Greg, we've gone to a conceal and carry. One of the concerns might be to take that event and have other people in there packing where you turn it into an O.K. Corral. What's kind of Marcus Corp's gun policy in the theaters?

Our policy is is that we do not -- we would not -- we ask people to leave their guns or their weapons in their cars.

Okay. Okay.

Or at home.

Yeah, right. Okay. Let me ask from the standpoint how would you guys look at if you've got 165 to 170 to 190, 195 movies a year, how would you describe kind of your fiscal 2012 product from the studios?

Oh, man, Brian, I tell you if I could answer this one I'd be on a beach somewhere and not on this call. But having said that, in general quantity has been up. We reported that actually last time and so it's hard to fit it into our fiscal year but we had reported on our last quarter that we may during calendar 2012 we could play as many as 15 to 20 more pictures than we played in calendar 2011, which is a good thing, I mean because you just have a better chance of some of those being it.

From the actual film schedule certainly changes as you get -- you know, we have visibility out right now to about the Christmas holiday season. I mean there's other stuff on the calendar but as we look ahead, look there's some big -- certainly there's some big franchise pictures that are coming up.

And then we certainly -- such as for example in November you've got the next Bond picture. You have the next Twilight picture. In December you have the much anticipated The Hobbit, Part One coming out with Peter Jackson. That's being -- so that will be a real -- it's expected to be a really big picture for the Christmas season.

There's a variety of other pictures that have some big name directors and stars behind it that aren't parts of part two and part three types of things and so we're very hopeful that overall there's a very strong lineup ahead of us. Our film guys always think that's the case. Ultimately they've got to play and we'll see what happens.

Yeah, okay, but would you classify, just say fiscal 2012 as you guys close it, was that a pretty decent year relative to years in the past? Or would you say it's a year that we did better at Marcus on a weaker product mix?

It was a good year, Brian.

Okay.

I mean it was a -- fiscal 2011 was a difficult year and so I mean I indicated that our attendance was up 2.3% on a comparable theater basis and excluding the extra week. So it was a good year. It's not an all-time -- it wasn't an all-time year in either direction.

Okay. Okay. and then just a final question relative to, you know, Greg, so talking about the 30% increase in room supply in Milwaukee. Talk a little bit about -- and I've heard it in the past, obviously being a novice on the travel side -- Milwaukee being kind of a second tier city. You couldn't have a Super Bowl at Lambeau Field because where would all the people stay? Does a 30% increase in supply bring in any larger conventions that now say, oh, gee, Milwaukee, Wisconsin is now on the map because they've got that much capacity increase?

Well, actually it would if it were anywhere near the convention center. None of the supply is anywhere near the Convention Center. I mean that's another fundamental problem with what's going on. The Marriott is blocks and blocks away.

And the other problem is that Milwaukee needs to have those rooms considered -- the problem if you look at Milwaukee right now on the basis of and you compare it to two things that would generate demand. People could -- hotel rooms compared to office supply or if you look at hotel rooms compared to convention center space, I mean frankly have some -- we're certainly adequately supplied when you use those two metrics.

The problem is that especially as it relates to conventions is that the planners want the rooms to be consolidated to one or two convention center headquarters hotels, not spread out amongst lots of different hotels.

This was a problem that the community knew about before they got behind and put in the hotels that are going up now in place. So unfortunately the vision isn't there to see that if you're going to -- if there was going to be an increase in supply it needed to be near the Convention Center, not spread out around the downtown. And it's exacerbating the problem that already exists. Too many small properties, not enough ones that are large. And with a 30% supply I don't know how the market would then absorb an increase of a big hotel, so it's actually counterproductive to be honest with you.

Yeah, Greg, that's the buzz down at the replacing -- putting in a high-rise down by the old Firstar Center, the U.S. Bank Center on that parking garage. That doesn't have any hotel in that does it? Or I've heard retail mix, occupancy --

Oh, it has a hotel in it.

It does?

Oh yeah.

Okay. Well, all right, so the problem only gets worse as far as dispersion then it sounds like. So all right, thanks guys.

Thanks, Brian.

(Operator Instructions) Your next question comes from the line of Herb Buchbinder with Wells Fargo Advisors. Please proceed.

Greg, can you kind of -- this is kind of a tough question, but on Dark Knight can you sense how much business might have been lost from the tragedy? And if you can -- if you look at the first three days of the new week do you think there's some catch up here? Or do you think it's going to have a typical drop off in the second week? I think the industry is looking at something like $66 million the second weekend, but I was wondering if you sense maybe it will do a little bit better than that?

I have no idea, Herb. I wish I could tell you, but this is not a business where you can know what it was going to do. Before you didn't know -- you never know what it's going to do for sure.

So when you look at the first three days, and I don't know if you watch the numbers that closely, you can't really draw much conclusions from Monday, Tuesday and Wednesday's attendance?

No.

Okay. You sort of started and I was going to ask you this, that's the new product. You mentioned a couple of films, but is there some other films that you think we should really pay attention to for this year? Obviously when I look at the next fourth quarter, the comparisons are going to get really tough with Hunger Games and avengers both, and I don't know if you can look out that far, but at least in terms of through Christmas how do you think the comps might look and what are the things that you're most excited about?

Well, I'll answer your question, but I'm also going to tell you that I really think that's a very tough way to look at our business. You have to look at -- because you don't know that the product's going to do. You have to know that over time the product tends to have a certain consistency to it. I would tell you that we've had a relatively predictable growth pattern with a high standard deviation.

So to try and pick an individual film is pretty challenging to say, oh, that's going to be a great one. The Hobbit, that's a big one, 48 frames per second, Peter Jackson. Could be another -- it's the first of a trilogy and that could be another Lord of the Rings. It could be.

You've got another installment in Twilight coming out. It's we've got some big product coming, but I would tell you we could have the same conversation every single year. There's nobody more optimistic than a film booker.

No, I realize that. All right. Well, it will be interesting to see what Dark Knight does in the next couple of weeks as it certainly could affect your first quarter comparisons. All right, thanks a lot.

Thank you, Herb.

Your next question comes from the line of Brian Rafn. Please proceed.

Yeah, I just had a couple of follow-ups. One of the areas in retail where we're seeing some modest growth are the factory outlet centers. Like your kind of construction I think you mentioned the theater going out in Sun Prairie, and I don't know if that's expanding, if that's a new area for you or you're expanding on a building.

Are there any real estate demographics like factory outlet centers where you go out virtually in a field which historically wouldn't be a destination other than the farmer that's now a factory outlet center and perhaps create some destination traffic where you guys could look? I'm just wondering as you look across the U.S. how tight is your ability to do these kind of tuck-in constructions in areas that obviously are pretty dense already?

Pretty minimal.

Okay. Okay. And then on the construction of The Corners in Brookfield, you guys kind of building it -- is -- you certainly had -- at one point you had Marcus Cinemas there. You went across I-94 to the other side and you were kind of sitting with that. Is that project development a result of having owned that land or is this kind of general contractor, mixed retail construction? Is it like a third leg strategically for Marcus Corp?

It's --

Go ahead, Doug.

There's no question, Brian, that this was opportunistic. I mean we were out there trying to sell. We had two theaters that we had that we closed to when we built the Majestic. We, as you know, owned the underlying real estate of most of our theaters, which is a real strength of this company.

And so we -- and so we sold the first one for a significant gain to Gander Mountain and we were marketing this one when at the same time Menard's moved next door. Van Maur was out looking for a location in Wisconsin, fell in love with our location and it just kind of all came together from there. So it was very much opportunistic.

Okay. All right, guys, thanks.

Thank you.

Thank you. At this time there appears to be no other questions. I'd like to turn the call back over to Mr. Neis for any additional closing comments.

well, thank you, everybody for joining us today as we resulted -- presented these great results to you. We look forward to talking to you again once again in September, just a couple months from now when we release our fiscal 2013 first quarter results. Thanks and have a great day.

That concludes today's call. You may disconnect your line at any time. have a great day.