Marcus Corp (MCS) 2016 Q4 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation fourth quarter earnings conference call. My name is Michelle and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of this 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 The Marcus Corporation. At this time, I would like to turn the program over to Mr. Neis for his opening remarks. Sir, please go ahead.

Thank you very much. Welcome everybody to our fiscal 2016 fourth quarter and year-end conference call. As usual, I need to begin by stating that we plan on making a number of forward-looking statements in 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 & 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 could be obtained from the SEC or the Company. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2016 fourth quarter and our completed fiscal year. As our press release noted, we're reporting record revenues and operating income for both the quarter and the fiscal year thanks to a record performance from our theatre division in both periods once again significantly outperforming the industry. Results from our Hotels & Resorts division were down this quarter, but for the full fiscal year we reported increased operating income versus last year and we're also outperforming in this division.

So following our usual format for these calls, I'm going to take you through some of the detail behind the numbers both on a consolidated basis and for each division and then turn the call over to Greg for his comments. Now the logical place to start would be to acknowledge the fact that because we changed our fiscal year-end last year to December, we're comparing our fiscal 2016 fourth quarter and full-year results to recast comparable 2015 periods that include an extra week of operations. When comparing our 52-week fiscal 2016 results to last year's comparable 53-week period, the extra week is essentially the week between Christmas 2014 and New Year's Day 2015. As you'd expect, that extra week particularly benefited our theatre division's 2015 results as that week is typically one of the busiest weeks of the year.

And while that week is not a particularly strong week overall for our hotel division, it does include New Year's Eve which is very busy for many of our properties. And with our fiscal 2016 ending on December 29 this year, not only are we comparing our fiscal 2016 results to a year with two New Year's Eves in it, we don't have the benefit of a New Year's Eve at all in this year's results. Keeping in mind that the margin on this extra week of revenue is relatively high due to the fact that only incremental variable costs are added, fixed costs are already annualized over 12 periods during the year, so the result is a fairly sizable favorable impact on our comparable numbers in 2015 as a result of this extra week. Now while determining the impact of one week in our operating results is not an exact science, we do estimate that this additional week in last year's 2015 results added approximately $14 million to our consolidated revenues and $4.6 million to our consolidated operating income.

After interest expense and income taxes, we estimate the extra week of operations contributed approximately $2.6 million to our reported net earnings or $0.10 per diluted common share. So if you take $0.10 out of last year's numbers, our reported results for fiscal 2016 look even more impressive. Now at the risk of overly complicating matters, I do want to note that by definition the additional week of operations in last year's results is different for the fourth quarter when we compare our 13-week fiscal 2016 fourth quarter to the comparable 14-week quarter in 2015. If you really want to get technical about it, the extra week actually consists of five days at the end of September and the last two days in December. So, we estimate that the additional week in the fourth quarter last year added approximately $12.9 million to our consolidated revenues and $4 million to our consolidated operating income.

And after interest expense and income taxes, we estimate that the extra week of operations contributed approximately $2.2 million to our fourth quarter net earnings last year or $0.08 per diluted common share. So with that out of the way, I'll quickly comment on the line items below operating income. Starting with interest expense, which was down compared to last year during both the quarter and fiscal year due to having a lower average interest rate and due to the additional week in last year's numbers. Now having said that, I think it warrants mentioning that we do expect interest expense to likely increase in fiscal 2017 for two reasons. First, we increased our borrowings right at the end of fiscal 2016 as a result of the Wehrenberg Theatre acquisition. Second, we closed this week literally yesterday on the issuance of $50 million off of 4.32% 10-year senior notes. We used these proceeds to reduce our borrowings under our revolving credit facility.

A substantial portion of our total assets consist of long-term property, plant, and equipment and as a result, we believe that the majority of our borrowings should have a fixed rate and longer term associated with it. Based upon our expected increased borrowings and the increased average interest rate, we currently believe our interest expense may increase during fiscal 2017 by approximately $1.5 million to $2 million assuming no other changes to our total borrowings. Now of course changes in our borrowing levels due to variations in our operating results; capital expenditures, share repurchases, and asset sale proceeds among other items can certainly impact either favorably or unfavorably our actual reported interest expense in future periods as may changes in short-term interest rates. Now the other line items below operating income did not really change significantly. We had slightly less losses on disposition of property and equipment and slightly higher equity earnings from joint ventures, both of which helps our bottom line comparisons.

We also had a slightly lower effective income tax rate in fiscal 2016 also contributing to our improved net earnings. Now before I dig into each division, I do want to briefly shift away from the earnings statement and talk for a moment about capital expenditures telling you that in fiscal 2016 we had total capital expenditures of approximately $84 million excluding the Wehrenberg acquisition compared to approximately $85 million during last year's comparable period. Now approximately $69 million of that total spend during fiscal 2016 was incurred in our theatre division, the majority of which related to the completion of multiple DreamLounger seating projects, UltraScreen DLX screens, and new food and beverage outlets as well as costs related to two new theatres that are now under construction and the purchase and renovation of a closed theatre that now is open in the south side of Chicago.

As we look towards capital expenditures for fiscal 2017, we're currently estimating that our fiscal 2017 capital expenditures may be in the $100 million to $120 million range with approximately $80 million to $95 million estimated for our theatre division including about $40 million in carryover from projects already approved and in some cases started in fiscal 2016. Greg will expand on some of our capital expenditure plans for the theatre division during his prepared remarks. But as you may guess, a portion of these dollars will go towards renovating some of the newly acquired Wehrenberg Theatres. Another $20 million to $25 million is currently estimated for our Hotels & Resorts division including ROI projects such as the Grand Geneva villas and the Chicago SafeHouse that are both referenced in our press release as well as some additional maintenance capital and dollars set aside for possible growth or ROI opportunities that would be evaluated during the year.

As is always the case at this point in the year, the range of our potential capital spending is 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 that may or may not come to fruition. As a result, our actual fiscal 2017 capital expenditures certainly could vary from this preliminary estimate. In addition if another acquisition opportunity were to arise particularly in our theatre division, that would obviously impact our actual capital expenditures as well. So, now I'd like to provide some financial comments on our operations for the fourth quarter and fiscal year beginning with theatres. Looking at the theatre segment revenues and operating income, the first thing we should do is address the fact that this year's results include two weeks of operations of the Wehrenberg Theatres and last year's results include the additional week of operations, kind of messy.

So, let's start with revenues. While the segment totals show that theatre revenues increased 4.7% and 7% respectively during the fourth quarter and fiscal year, if you take out the Wehrenberg revenues from this year's results and the extra week of operations from last year's results, we find that our comparable fourth quarter and fiscal 2016 total revenues increased 7.9% during the fourth quarter and 9.1% for the full fiscal year. Shifting over to operating income where once again the segment totals show that the theatre operating income increased 11.9% and 14.1% respectively during the fourth quarter and fiscal year. If you make those same adjustments and back out Wehrenberg this year and the extra week out of last year's, we find that our comparable fourth quarter and fiscal 2016 operating income increased 32.8% during the fourth quarter, 22.9% during the full fiscal 2016; really great results.

Now as we expected, the operating income we made from Wehrenberg in the final two weeks of the year was completely offset by approximately $2 million of one-time acquisition costs that were expensed as incurred during the fourth quarter with the net result actually being a small about $500,000 loss this year from the Wehrenberg properties net of those acquisition costs. As we shared with you at the end of the third quarter, our fourth quarter revenues and operating income also benefited from a significant one-time incentive payment of approximately $3.3 million from our pre-show advertising provider Screenvision. And while it's true that this was a one-time payment, to ignore it as an anomaly in our numbers would in my opinion be a disservice to what we've been able to accomplish to earn this incentive payment. When we negotiated our agreement with Screenvision, we built in a mutually beneficial provision that was focused on increasing attendance at our theatres.

Screenvision benefited by having more people see their advertising and all along the way, we were getting closer to reaching the hurdle necessary to earn this one-time payment. So while accounting guidelines required us to wait until we reached the hurdle before recognizing the income, the practical reality was that we were earning this payment for the last couple of years with all the strategies we've been putting in place to increase attendance at our theatres. And while we won't be receiving a one-time special payment in 2017, reaching this attendance milestone did take us to a new level in our Screenvision contract, which we expect will provide additional financial benefits to our pre-show advertising revenues during fiscal 2017 and beyond not even counting the addition of the Wehrenberg screens to our contract.

Now let's drill down into theatre revenues a little bit. Looking at the numbers on the face of our earnings statement, our box office revenues increased 0.5% and 6% respectively during the fourth quarter and fiscal year and our concession revenues decreased 0.5% and increased 5.1% respectively during those same periods again both compared to last year. Obviously the extra week last year and the addition of the Wehrenberg Theatres for the last two weeks impacted those comparisons as well so I'm going to try once again to give you a little better comparison to last year. If we take approximately $3 million of Wehrenberg box office revenues out of this year's numbers and we back out the additional week of operations from last year, we find that our comparable fourth quarter and fiscal 2016 box office revenues increased 3.2% and 8.2% respectively.

Making those similar adjustments for concession revenues, we calculate that our concession revenues for our comparable theatres and comparable weeks increased 2.8% and 7.3% during the fourth quarter and fiscal year, which brings us to the comparison of our results for the US box office. Based upon US box office numbers compiled by us using data from Rentrak, a national box office reporting service for the theatre industry, we find that the national box office decreased by 5.8% during our fourth quarter and increased 1.8% during fiscal 2016. So if you use the number that is shared with you that calculates our box office increases for comparable theatres in comparable 13-week and 52-week periods. That means we outperformed the industry by 9 percentage points during the fourth quarter and 6.4 percentage points during fiscal 2016. It means we've now outperformed the industry during 12 of the last 13 reported interim periods or three plus years now, something we're very proud of.

Wrapping up my theatre comments with a few statistics. After adjusting for Wehrenberg and the extra week last year, the fourth quarter increase in our box office revenues is attributable to an increase in attendance at our comparable theatres of 1% and an increase in our average admission price of 2% for the fourth quarter. For fiscal 2016 again adjusting out Wehrenberg and the extra week, our increase in box office receipts is attributable to a 4.3% increase in attendance and a 3.9% increase in our average ticket price. Now the fact that we've increased our number of premium large format screens with a corresponding price premium certainly contributed to our increased average ticket price during fiscal 2016 periods as did a modest price increase taken in January and again in November of 2016.

Conversely, I'll tell you that the growth in our average ticket price was tempered during fiscal 2016 by the fact that two of our three highest grossing films during the year were animated or family-oriented films compared to none of our Top 3 last year meaning that we had a much higher percentage of our box office mix coming from lower price children's and matinee pricing. We also are very pleased to report an increase in our average concession and food and beverage revenues per person of 1.9% for the fourth quarter and 3.2% during fiscal 2016 compared to the same period as last year. Certainly our investments in non-traditional food and beverage outlets continue to contribute to this performance, but once again they've been tempered this year by the change in the film product mix as animated and family pictures tend not draw as many people to those same non-traditional food and beverage outlets compared to more adult oriented films.

Finally, shifting over to our Hotels & Resorts division. If you do the math, you'll see that our overall hotel revenues were down 11.7% for the fourth quarter and down 4.1% for fiscal 2016. But just like the theatres, we've got some apples and oranges here. So if you eliminate the extra week last year and the hotel that we sold in October 2015, the Hotel Phillips, from last year's results and for the full year the SafeHouse in Milwaukee was not open for all of last year so eliminating the SafeHouse restaurant from both years for the full-year results, you'll find that our same property revenues were actually only down 0.5% for the fourth quarter and actually increased 0.4% during fiscal 2016 both compared to last year. Our total RevPAR for eight comparable properties decreased 2.6% during the fiscal 2016 fourth quarter compared to the comparable period last year, but that decrease is accentuated by the fact that we're comparing 13 weeks to 14 weeks and that extra week last year was a strong fall week in our hotels.

Our total RevPAR for eight comparable properties increased 3% during the full fiscal 2016 compared to the comparable period last year and as we noted in the past, our RevPAR performance did vary by market and type of property. According to the data received from Smith Travel Research compiled by us in order to compare our fiscal quarter results, comparable upper upscale hotels throughout the United States experienced an increase in RevPAR of 0.6% during our fiscal 2016 fourth quarter. But competitive hotels in our collective markets experienced a decrease in RevPAR of 2.6% during the fiscal 2016 fourth quarter, exactly the same as ours. For fiscal 2016, the Smith Travel Research data indicates that upper upscale hotels experienced an increase in RevPAR of 2% and competitive hotels in our markets experienced an increase in RevPAR of 1.5%.

Thus you can see that we outperformed in this division as well during fiscal 2016. In fact for our full fiscal 2016 we were twice as high, we doubled the competitive market. Breaking out our numbers more specifically, our fiscal 2016 fourth quarter overall RevPAR decrease was due to a 1.1% decrease in our average daily rate and a 1.1 percentage point decline in our overall occupancy rate. For fiscal 2016, our occupancy rate increased 0.8 percentage points and our average daily rate increased 1.9%. A lot of numbers at you, I'm now going to turn the call back over to Greg.

Thanks, Doug. I'll begin my remarks today with our theatre division where the numbers certainly speak for themselves. It's tough to compare 13-week and 52-week numbers to 14-week and 53-week results last year especially when last year's results included the highest grossing film of all time. But thanks to our Screenvision incentive payment and yet another quarter of sizable box office outperformance, we reported another record quarter in our theatre division. And as our press release notes, this wasn't just a record fourth quarter; it was the best quarter we've ever reported in our history period and of course fiscal 2016 also was a record year for us. Thus I want to start my remarks by congratulating Rolando Rodriguez, our management team, and the entire theatre operational organization for their performance. Letting you in on a little secret. Our theme for this year's annual report will be the phrase: Deliver Great Experiences, Achieve Great Results.

And our theatre division performance in fiscal 2016 epitomizes those profound words. Our press release went into a fair amount of detail and now Doug has provided even more information about our theatre division's fourth quarter and fiscal year. Other than adding that the strength of the fourth quarter film slate was a four-week span in late October into early November and noting that we were pleasantly pleased with the performance of Rogue One: A Star Wars Story which lessened the impact of going up against Star Wars: The Force Awakens last year. I'm not going to use my time today to talk further about what just happened rather I'm going to focus my remarks today on two topics, the Wehrenberg Theatre acquisition and our plans for fiscal 2017. If you have additional questions about our reported results, I'll be happy to try to answer them during the Q&A portion of this call. So, let's start with the biggest news of the fourth quarter.

Our acquisition of Wehrenberg Theatres adding 197 screens at 14 theatres to our portfolio increasing our total number of screens by 29%. We think Wehrenberg is a great fit for our circuit and I think their prior owner would say that Marcus was a great fit for them. As you know, Wehrenberg was the oldest family owned and operated circuit in the United States and we share very similar values and philosophies. Wehrenberg has built an outstanding reputation in the markets they serve and we will retain the Wehrenberg name and build on their same tradition of excellence. We paid a purchase price of approximately $65 million plus normal closing adjustments and less networking capital assumed in the transaction. While we haven't disclosed our going in multiple, we expect the acquisition to be accretive to both earnings and cash flow and the multiple was reflective of the fact that we acquired the underlying real estate for six other theatres as well as an 84,000 square foot retail center in St. Louis.

Since Wehrenberg was a private company, its prior financial results will not be disclosed, but I will tell you this. Operating in four Midwestern states very similar to our existing circuit including nine theatres in the Greater St. Louis market, its average per screen box office revenues in recent years have been in a range very similar to what our existing circuit was producing prior to our significant investments in new amenities in the last few years, which brings me to one of the key features of this transaction from our perspective. Over the past three-and-a-half years, we've invested nearly $200 million to further enhance the movie going experience and amenities in new and existing theatres. We supplemented these investments with great operational expertise, innovative marketing initiatives like our $5 Tuesday program, and rolled out a best-in-class loyalty program that currently has approximately 1.8 million members.

We indicated that one of our next steps was to seek strategic acquisitions where we can take our secret sauce and apply it to others. The Wehrenberg acquisition checks that box and it is gratifying to say you are going to do something and then follow through and actually do it. As a result, what we were going to do with these theatres next was just as important to us as what we were going to pay for what was already there. Right now only one of the 14 theatres has recliner seating so rolling out our DreamLounger seating will certainly be one of our opportunities. We also will be looking for opportunities to introduce our proprietary food and beverage concepts as well as increasing the number of premium large format screens. This will obviously take some time to implement, but we're already hard at work on plans and we are looking forward to getting started. The fiscal 2017 capital expenditures estimates Doug shared with you certainly include significant dollars for our new Wehrenberg circuit.

We didn't have to wait however to introduce some of the other key strategies that have driven our outperformance over the past 10 years. Wehrenberg had previously offered a discounted price on Tuesdays, but we introduced our $5 Tuesday program with a free popcorn for loyalty members on the very first Tuesday after we closed on the transaction. And we're working on rolling Wehrenberg's approximately 200,000 loyalty members into our magical movie rewards program meaning that our combined reach is now an incredible 2 million guests. In addition, Wehrenberg was already a Pepsi and Screenvision customer so that transition was easy and we rolled their theatres into our larger program, which should also benefit us in the long run. All in all, we're very excited about this transaction. It demonstrates our continued confidence in our theatre business and we look forward to what lies ahead.

So, now we move on to fiscal 2017. On paper the film slate looks very good with a large number of titles from well-known series leading the way and the year ending with the next Star Wars film. But as you've heard us say before, our goal is to continue to outperform regardless of what the movies in any particular period look like. Everyone thought 2016 would be a down year so the reality is that no one really knows how the upcoming film slate will perform. We've had a good start to our first quarter and our press release was to do a number of films that will play during the remainder of the quarter. Our path to meeting our goals in 2017 starts with many of the same strategies you've been hearing about and that includes continuing to invest further to enhance the movie going experience and amenities in new and existing theatres. Doug shared with you that we may spend as much $80 million to $95 million in this division during fiscal 2017 and we would do that a number of ways.

A portion of these capital dollars are going to new theatres. That includes the new theatre in Minnesota that should open during our second quarter. It also includes our newest concept, our first standalone all-in theatre dining location; last week we gave it a name, BistroPlex, and we're very excited about its planned opening this coming summer. Of course our DreamLounger recliner seats have been a huge hit with our customers and we're proud of the fact that we currently offer this amenity in 48% of our company-owned first run screens excluding the Wehrenberg screens for the moment. A percentage we believe to be the highest among the top chains in the nation. We are currently evaluating opportunities to add our DreamLounger premium seating to 12 to 18 additional theatres during fiscal 2017 including multiple Wehrenberg Theatres in addition to the two new fiscal 2017 theatres I just mentioned.

The majority of these projects are expected to be completed during the second half of fiscal 2017 and it is certainly possible that a few may carry over into fiscal 2018. As a result by the end of fiscal 2017 or shortly thereafter, we may increase our percentage of total combined Marcus-Wehrenberg Theatres with all DreamLounger recliner seating to approximately 55% to 65% and our percentage of total combined Marcus-Wehrenberg company-owned first run screens with DreamLounger recliner seating to 60% to 70%. We also plan to continue expanding our proprietary large format concepts. We currently offer at least one PLF screen in approximately 64% of our original Marcus first run company-owned theatres, once again a percentage we believe to be the highest percentage among the largest theatre chains in the nation.

In addition, three of the recently acquired Wehrenberg Theatres feature IMAX PLF screens and one Wehrenberg Theatre features a proprietary mega screen PLF screen that we expect to convert to an UltraScreen DLX auditorium during fiscal 2017. We are currently evaluating opportunities to convert up to eight additional screens in six existing theatres including multiple Wehrenberg Theatres to UltraScreen DLX and SuperScreen DLX auditoriums during fiscal 2017 in addition to three new PLF auditoriums planned for the two fiscal 2017 theatres mentioned earlier. And we also continue to have success with our new food and beverage concepts with more to come. Currently approximately 38% of our original Marcus company-owned first run theatres offer our Take Five Lounge and approximately 44% offer our Zaffiro's Express concept. Another five theatres have our newest hamburger concept, Reel Sizzle.

We are currently evaluating opportunities to add up to five additional Take Five Lounge or Take Five Express outlets to existing theatres including multiple Wehrenberg Theatres during the second half of fiscal 2017 in addition to the two new fiscal 2017 theatres. We are also currently evaluating opportunities to add up to four additional Zaffiro's Express outlets during the second half of fiscal 2017. Five of the newly acquired Wehrenberg Theatres offered in lobby dining concepts and we'll be evaluating our options for those concepts as well. Wehrenberg also offers in-theatre dining in several screens at three theatres. So needless to say our team will continue to be busy, but that's a good thing because that means we believe there are still opportunities to further enhance our circuit and achieve great results. It will be fun to see it unfold.

And I would be remiss if I didn't note that just because we successfully acquired Wehrenberg doesn't mean that we aren't still very interested in expanding our circuit with selective acquisitions when the right opportunities arise. This will remain a strategy that we will focus on in the future. With that, let's move on to our division, Hotels & Resorts. You've seen the segment numbers and Doug gave you some additional detail. Overall fiscal 2016 was a good year for this division although the fourth quarter was a bit more challenging as we predicted when we were with you last. As we've discussed in the past, our portfolio of hotels does particularly well with group business especially some of our largest properties so when group business is soft, it hits us harder than some others. That was the case in the fourth quarter and unfortunately with reduced group business, we experienced a corresponding decrease in food and beverage revenues as groups were a big contributor to banquet and catering revenues, a key revenue source for our hotels.

Add to that the lack of a New Year's Eve in this year's results and the comparison to a quarter with an extra week and it was a lot to overcome. But fourth quarter aside, there was still much to like about our fiscal 2016 results. This past year I've been talking about the excellent job our man6agement team led by our hotel division President, Joe Khairallah, has done with managing costs while continuing its unwavering commitment to exceptional guest service. And as an example of this focus on cost of profitability during fiscal 2016 after adjusting for the hotel sold last year, the additional week last year, the SafeHouse which was not open during both full years, and last year's impairment charge; approximately 131% of our fiscal 2016 revenue increase in our Hotels & Resorts division flowed through to our operating income line. An outstanding achievement in an industry where 50% flowthrough is generally considered excellent.

Even though our fourth quarter had challenges, our RevPAR performance was in line with our specific competitors in our collective markets. And as Doug shared with you, for all of fiscal 2016 our RevPAR increase of 3% was twice what our competitors reported during the same period. And the fact that our increases in RevPAR continue to come primarily from increases in our ADR is also good news as that has continued to be an area of focus for us. In fact ADR increased at six of our eight comparable hotels during fiscal 2016. Although we believe the second half of fiscal 2016 may have been impacted by uncertainty regarding the Presidential election and concerns about the economic environment, we believe that reduced group occupancy during the second half of fiscal 2016 does not necessarily reflect a larger trend, but rather was related to difficult comparisons to the prior year during several months at those particular properties.

We base that conclusion on the fact that as of today, our group room revenue bookings for future periods in fiscal 2017, something commonly referred to in the hotels and resorts industry as group pace, are ahead of our group room revenues bookings for future periods as of this same date last year. Looking ahead, it is not easy to read the crystal ball for the hotel industry and our hotels in particular. Many published reports by those who closely follow the hotel industry suggest that the United States lodging industry will continue to achieve slightly slower, but steady growth in RevPAR in calendar 2017. There appears to be some recent improvement in sentiment regarding the possible positive impact that regulatory and tax reforms may have on our business customers, which we would hope might result in increased business travel in the future.

Whether the relatively positive trends in the lodging industry over the last several years will continue depends in large part on the economic environment as hotel revenues have historically tracked very closely with traditional macroeconomic statistics such as the gross domestic product. We also continue to monitor hotel supply in our markets as increased supply without a corresponding increase in demand may have a negative impact on our results. We generally expect to track or exceed the overall industry trends particularly in our respective markets. The AC Hotel Chicago Downtown is still ramping up and we hope to report continued improvement in that hotel's operating results during fiscal 2017. We also expect improvement in our operating results at the Grand Geneva Resort & Spa when the new villas open up in mid-2017.

Our Hotels & Resorts division management company operating results should also benefit in the future from the summer 2017 expected opening of the new Capitol District Marriott Hotel in Omaha, Nebraska mentioned in our press release. Conversely, several of our markets including Oklahoma City, Chicago, and Milwaukee have experienced an increase in room supply that may be an impediment to any substantial increase in ADR in the near term. Another opportunity for growth will come from our new SafeHouse that will open shortly in Downtown Chicago adjacent to our AC Hotel. We opened the SafeHouse Chicago in November as a prelude to the new SafeHouse and it's been exciting to see this combined project come together. We've been very pleased with the buzz surrounding the upcoming opening and we're looking forward to introducing this concept to the Chicago area.

And finally while I won't comment on any specific hotels, we will always consider opportunities to sell one or more owned hotels hopefully while retaining management when so desired. The Wehrenberg acquisition did include a fair amount of real estate so that does open up the possibility of completing a reverse 1031 transaction within six months of the acquisition if such an opportunity presents itself. Having said that, we did not underwrite the Wehrenberg transaction with an assumption that we would sell the hotel asset and defer income taxes, it was just too unpredictable. So, we insisted the deal stay on its own from a theatre division perspective. We can't control the timing of either transactions nor can we control the ups and downs of the hotel transaction market. So all we can do is explore potential opportunities when they arise and if they happen to line up from a timing perspective, great and if not, we keep focused on long-term strategies for the benefit of our shareholders.

So, that ends another fiscal year. It was an excellent year and we believe we have a lot to look forward to in 2017. I'm pleased to note that our Board expressed confidence in our future by raising our quarterly dividend by 11.1% during our fiscal 2017 first quarter, our third dividend increase in the last two years. I believe we are well positioned for growth and look forward to continuing our momentum in the year ahead. And with that, I also want to take a moment with it being the end of the year to thank all of our hardworking associates for a great year. Being in a family business, we have statements or sayings that we constantly repeat. My grandfather and my father whenever we brought a new project forward would always say who. I think that our associates answer the question of who resoundingly every day. They do a wonderful job, they give it their all, and I think the results speak for themselves so I thank them.

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

(Operator Instructions) Eric Wold, B. Riley.

Quick follow-up on Greg you just mentioned the Wehrenberg acquisition and possible 1031 tax strategy you talked about in the past. So if you were to do something on that, you'd have to complete it within six months, correct me if I'm wrong on the timing. So just remind us what is the timing for when you have to identify one or more assets and then does the six-month clock start from the closing of the Wehrenberg transaction or the closing of when you identify the asset? And then based on those, have you identified assets without naming them that you think would fit as a possible 1031?

So, the way the timing works is that you have 45 days after the close of the original transaction to identify, Eric. You have six months from again the closing of the original transaction to then follow through and execute on that. So the short answer is yes, we have met the requirements of the identification process, that date has come and gone in June. We closed on December 16 so that's June 15 whatever so mid-June of 2017 would be the six-month date.

And do you have to close on the sale of the hotel or it can be a definitive agreement with a closing later?

No. In any subsequent transaction and this goes either way with a regular 1031 transaction or a reverse 1031 transaction, the transactions themselves; the pairing, the matching transactions have to occur within that six-month time period.

Okay. And then a couple questions on Wehrenberg and I understand you're limited in terms of what you can say given that it was a private company. But you mentioned that their per screen average as box office would be similar to what Marcus had a few years ago before kind of the enhancements that have been done at theatres. Can you give us a sense of where their food and beverage per screen is relative to Marcus same timeframe and then also maybe some kind of general thoughts on margins?

So on the food and beverage side, Eric, it was remarkably close to what our percentage was back then as well because they have some food and beverage besides the traditional theatre type stuff. As Greg mentioned in his prepared remarks; they have several in-lobby concepts, they have dabbled with some in-theatre dining little bit as well. Having said that, it's not anywhere near as extensive as where we are today. So when I look at their current percentage of the concessions in food and beverage revenues as a percentage of box office. That's one way of looking at it. That percentage is also very close, very similar to where we were back in fiscal 2013 and fiscal 2014 before we really got heavy into our various investments. From a margin perspective, their margins have historically not been as good as ours; good but not quite as good as ours.

Okay. And if we look at the ramp that Marcus has had in terms of box office and food and beverage per screen over that call it three, four year period; should we expect a similar ramp timing for Wehrenberg? Are all the theatres (inaudible), should we consider all of them fair game for improvement and then conversely have you learned enough over the past few years that could actually make that ramp faster at Wehrenberg than versus what you experienced at Marcus?

I am going to answer that question in two ways, Eric. First in terms of the prediction of what the ramp will be, I'm not going to predict exactly what the ramp will be. But we are going to improving the assets actually at a faster pace than we did here and that's because frankly we have the experience now, we know what we're doing, the team is seasoned, and so our game plan is to move very rapidly to improve the assets.

As far as timing in this year, as I mentioned, I think the reality is that it will be second half of 2017 when some things will start to happen. The industry is now much farther along in this process than when we first, we were in the front end of this thing. We were one of the first theatre companies to really jump in on a bunch of these amenities. So, I don't think that anyone is necessarily predicting the same kind of dramatic improvement that we saw in our first four locations for example where locations were double. As you know, AMC proposed some similar things. But we certainly do expect some improvement and I will tell you this too.

Greg talked about the fact that there's been improvements, the capital investments, and then there's the other things. And we're already working on the other things and there's already been improvement in there just by introducing more formally our $5 Tuesday program and we're working very hard to integrate the loyalty program and we've done some other operating changes to kind of do things more the way that we have been very successful in doing not what Wehrenberg was doing because as I said, they've been very successful. But we've been continuing to try to add some of our operating elements as well and we've already seen some improvement in that regard.

The operating improvements that the team moved very fast on that and that was similar to what we did here. We were making these operating improvements here before we were able to do all the physical plans. I'm going to highlight one distinction here and that is it talks to the benefit of owning our own real estate. And one of the reasons we've been able to move very quickly in the existing Marcus circuit was because we owned so much of the real estate, we can make decisions and move up. And in Wehrenberg, we own the real estate, we can make decisions and move on them; but there's landlords involved in some of these locations and what do we do. We have to get the proper deal struck before we can make that investment. And so that may be the only thing that could slow things down a little bit, but really we're pushing to move things along.

Jim Goss, Barrington Research.

First, I was wondering about the immediacy of the benefits from your theatre upgrades and like is there sort of a pent-up demand when the locals see that occurring and have you had any pricing pushback and how do you try to measure that?

So, help me out a little bit more on the first. I'll take it each separately. First question, help us out a little bit more Jim in what you're asking there?

I'm just wondering usually the reseatings and the other amenity additions to the extent that they haven't been available in the theatre have been pointed out to say a 40% return, I think that seems to be a common thing I've heard about from the industry. Is that occurring almost immediately upon opening the doors with the upgrades or I suppose you're phasing in the upgrades too, you're not closing a theatre and you probably do half of the time or something like that. I'm just wondering how quick you see those returns occurring in the return on investment?

I don't know the exact speed of it. We see the initial path, we see it moving. The word gets out, but then it's something that we continue to market and work on. Our teams are out there selling it because you got to go sell it and we continue to see growth even in year-over-year. So, I'm not sure that we follow much of a different pattern than anybody else.

And I do appreciate your comment, Jim, about the fact that you're right, there's some disruption while this is going on as well and as we keep these theatres open and you take out auditoriums in blocks at a time and so there's an art to that as well in trying to minimize the negative impact. So, I would say that was an astute comment to mention as well and I would echo what Greg said is that we certainly see an initial pop, but it's not just a bam it's there and then we're done. There's certainly growth to it.

What was the second part of your question?

There's some price upside, but you can have too much of price upside and I'm wondering how you feel your way into that, what's appropriate to spur demand in that pushback?

I'm glad you asked that because it talks to our strategy, which I think is one of the benefits of having been in the hotel business and understand the concept of revenue management. The revenue management is the right price for the right customer at the right time and that's the philosophy for the approach that we've taken. So whatever our pricing if someone says wow, if someone ever does that. So, I don't think we get too much of it. But there's opportunity for a customer at a certain price point to experience our facilities. So whether it's $5 Tuesdays or Young at Heart Fridays or Student Thursdays for $5, there are ample opportunities to get an awesome experience in our theatres at a price point that's affordable. And yet when the demand is more strong Friday and Saturday night, the price point is appropriate for that as well. And so I think by providing those different avenues and as I said getting the right customer at the right price at the right time, we're able to maximize our revenues and deliver good value to the customer.

Okay. May I shift to Screenvision for a moment. You're sort of the king standing in terms of Screenvision with Carmike now being bought by AMC. Yet AMC is selling its MCMI stake and I wonder how that dynamic might change with them more involved in Screenvision potentially?

They haven't called me to discuss their game plan on that one so I don't know what they're planning.

Will it have any benefit to you or you become a bigger player sort of the way Carmike had or is there anything that might change aside from the one-time payment you were able to receive that you mentioned?

Screenvision has been a great vendor and we work together as partners and it's a very important part of what we do, what our experience is, and I'm not sure that's going to change.

Both are good companies and it certainly is healthy to have two solid stable competitors in that regard as well and so certainly we're happy to see Screenvision continue to have a strong footing.

Okay. And are you getting any greater appetite for alternative content given your information database with your rewards program and the ability to target audiences in that way?

You bet. That's where this is all going well. The idea of being able to talk to our customers and know what they like, to build a community, to have an engaged customer base. What a great opportunity the rewards program is offering us. And the ability then to go to those customers and say we have a product for you that you're going to like and then you add to that with virtually print fees starting to go away. I think there's going to be a very interesting dynamic in alternative content world, lot of opportunity there.

Okay. And my last thought is any progress in identifying additional management contracts on the hotel side?

We're working on it.

There's always a pipeline that we're working on and it's just like the transactional market and it's tied to the transactional market sometimes because it's not normal that someone just changes management companies, it's usually some sort of transaction or something that's causing that change to occur.

And with the market a little slow, that means there's less velocity in the management contract.

So, we're watching that. So they're kind of related topics, but we're certainly working on several things and it's hard to predict when they hit.

(Operator Instructions) Mike Hickey, The Benchmark Company.

Greg and Doug, congrats on your quarter and your deal, pretty awesome. When you look at your Wehrenberg network now and you think about your future recline installations and other amenities, how much competitive pressure is there in that network or is it fairly raw from competitor on many of your programs?

How much competition does Wehrenberg have? They are in competitive markets, but I think similarly to us they've done a good job of making sure they've built out their markets and again it's sort of market specific too.

Okay. I'm just thinking if you put a recliner installation and the average dealer within that network is the competitor with the recliner or is it fairly compelling from a competitive standpoint?

I'd say it's compelling.

Okay. I guess you sort of expressed your desire that you're still open to continue deals which obviously makes sense. But given the size here, Wehrenberg's increasing your network plus 30%. Is your appetite maybe less material or how do you think about the size of future deals and I'm guessing leverage would be a consideration here? I guess you historically in my view at least have been sort of bringing your leverage down.

I'll speak to the leverage part of it first, Mike, to just say that we just absorbed this transaction and the traditional debt cap calculation is still at 42%, which is when you think about how much real estate we have in our balance sheet certainly will suggest that we still have plenty of capacity. As Greg mentioned earlier in reference to a different question, certainly we took on some more leases as well and so all of the leases are financing and I don't think anyone should ever think anything other than that. And so we certainly need to continue to be cognizant of that and that that's going to be a growing area for us with increased rent exposure that we do some of the mental math that converts that to debt essentially and make sure that we always keep in mind that you're signing on the leases in that regard, but we certainly have capacity.

But to the point, Mike, we somehow got to 81 years by making sure we had a fortress balance sheet and being very sensitive to that and so nothing is going to change that is going to make us. We're going to always been very sensitive to making sure that our balance sheet is strong. That's how we got to where we are and it allows us to do the things that we do. As for bandwidth for the ability to grow and absorb, we got a very talented management team. Rolando and his gang are very good, they're very talented, and they have bandwidth. But you're asking exactly the right question is always the question I'm going to ask them. What can we take on? Because what we do, we are a company that has always been about quality not quantity and so we want to make sure that whatever we do, we can do with quality. But we have to be able to continue growing absolutely.

One last one and I'll try to ask this correctly here. If you have any data or view on sort of the organic versus share shift growth lift from theatres where you put in recliners and bars. If I remember, you may have been looking to add amenities to a theatre where there's less direct pressure, less competitive pressure sort of in single markets. I'm not sure if you've done that or not, but if you have any data there in terms of the growth lift that would be more organic versus shift that will be helpful. Thanks.

Mike, we don't release that data as you know so we're not going to be able to give you specific data on that. But I will say that we've been pleased with our investments. We've been making some of these investments in markets where we are the sole operator and we've been pleased with what we've been able to accomplish with that.

Wayne Archambo, Monarch Partners.

Just on the Wehrenberg acquisition, I don't know if you mentioned this or not, are you retaining the management team or are they being phased out?

We've retained certain people from the management team, yes, not everybody.

Okay. And secondly, are you closing any of their facilities?

No, actually I don't think so.

There's a pause. This is not a trick question, I just --.

It's funny, I paused because I was like did I miss something, no.

Again there are leases and things like that so it's a little different from owning. But no, we've bought 14 theatres with 197 screens with the intention of operating 14 theatres with 197 screens.

Once we get to know the assets and really understand what they produce and where they fit into their markets, we're good but we have to own them for a while then you never know, we'll make decisions.

And are they all leased?

Of the 14 properties, Wayne, 6 of them are owned with the fee-based with the real estate including also that 84,000 square foot retail center and then there are 8 theatres that are leased.

And those leases, there's a wide variance on expiration of those leases?

Certainly.

And do you know what the per capita income is in those markets relative to your existing markets?

I don't have numbers at my disposal, Wayne, but I would just in general say that it's very comparable to the types of markets that we're already in. St. Louis and Milwaukee have been compared often, two beer towns. They're in other states that we're already in, Rochester and Illinois, and so very comparable to the types of markets that we're already in, which is why it wasn't surprising to us that the per screen average of these theatres is very similar to where we were prior to a lot of our improvements.

Okay. And lastly, does this preclude you from doing any further deals this year or are there other properties out there that are for sale that you'd be interested in or is this going to keep you pretty tied up for the rest of the year?

It doesn't preclude us at all, we're just talking about that. Keep in mind this is a very fragmented industry. Once you get past, we're now Number 4 in the US; but the other half of the screens in the country are owned by like 800 guys and there are a lot of families and a lot of different dynamics at play and so it's not as if there are lots of marketed deals that are going on. It's just a case where you just keep relationships going and you talk to people and the timing needs to be right for some of these families. And so, we're being very intentional about it and we're being very diligent about watching the marketplace.

I often talk about the theatre business itself when you think about the theatre business and the hotel business. The theatre business is a completely uncorrelated asset really to almost any business because it really is product dependent. It can be modulated by the economy. When the economy is slower, that can be good for the theatre business. But really the big issue is what the product is and that's true for the transaction market for theatre is completely uncorrelated too. It really depends on more specific family issues and desires and where they are in their life cycle more than it is any specific overarching macroeconomic view.

Did you see any resurgence in the drive-in business? A lot of drive-ins have closed, but the ones that are in this Boston market seem to do quite well. Any sense of is there a resurgence in that business at all?

I'm just trying to think about how Uber might fit into the drive-in business. I have no idea. We are not involved in that at all. In our primarily Midwestern markets, you don't see a lot of it, Wayne. You just don't.

Brian Rafn, Morgan Dempsey Capital Management.

Great job this year, fabulous numbers. Let me ask you on the Wehrenberg. How are you guys going to brand that? Are you going to retain the name or is that going to be Marcus-Wehrenberg? And also when you look across their theatres, what's your sense of are they dated, are you gutting carpeting, counters, lighting, kiosk, electronics? How up to date would that circuit be?

As to your question is on branding, we are maintaining the Wehrenberg name but we are going to overlay the Marcus name into it so you will know it is a Marcus theatre. But Wehrenberg is an extremely strong name in the markets it's existed in with a rich history so we're going to take advantage of that. As for the work, the theatres need work. They've got great bones, but they need a lot of work to be up to date with what we all here know and have come to now and enjoy as very robust facilities.

Okay. So do they have any UltraScreens or the Dolby Atmos system? I'm assuming they're all digital cinemas that they're not the old reel stuff.

That's correct. They are all digital. We had mentioned they actually have four large format screens. One of them is proprietary, they call it the mega screen and then they have three IMAX screens at three of their locations. And so up until now we haven't had any IMAX screens, but now we do. Now we have three at three of these Wehrenberg locations.

Okay. Just out of curiosity, the size of the theatres. Of the six that you now own, is there acreage enough that you can expand parking or maybe add a freestanding restaurant or are they pretty tight slots?

There's a little bit of outlots and some things like that. They're very typical to what we do. But the interesting thing is actually the opposite, you don't really need to expand parking. Because when we go to recliners, which a lot of these theatres are going to get outfitted with, when we go to recliners when you cut that seating capacity in half, you don't need as much parking either.

Within their circuit do they have a flagship like you guys have at the Marcus Palace or Sun Prairie or The Majestic, anything large scale?

Yes, it's called Ronnies. Very well-known theatre in the St. Louis market.

Okay. And then you guys have done such a great job with food and beverage, it comes from your legacy, your restaurant side, certainly the hotels that you guys run. Are there any concepts that they have in food and beverage that interest you or is it all some part of what you guys run?

No, actually they do. And you bring up a good point because one of the things we talked about with this or really any acquisition is we certainly have a lot of ways that we think are best-in-class operating procedures. But you know what, Adam and Eve were the only originals so it's good to see what other people are doing and learn from what they're doing and we've seen some things in their circuit that we think maybe that we'll be able to learn from them.

Okay. Is there any opportunity with lease expirations or landlord turnover that you might pursue purchasing some of the real estate and some of the I think the eight theatres that are leased?

As you know, that's something we like to do. It's part of what we think is an operational advantage for us. So if we can, we will.

Just out of curiosity, 71 degree weather in February and obviously with heating and small plowing obviously there's a benefit to that. But with dramatic changes in weather and the winter, does that at all impact foot traffic?

It can, Brian, in tiny little segments of time. One of things that we talk about every year inevitably in our second quarter, it's not our fiscal second quarter but in the spring, we talk about in the Midwest that every year we go through a few weeks where as you know we've been consistently outperforming the industry by some sizable amounts at times. But inevitably there's always a few weekends in the spring when the weather turns nice, the mid Westerners love just to get outside and we see that we get impacted a little bit. When you look at it in totality, we outperformed by 6.5 points this past fiscal 2016. So in the totality it's a blip, but during that particular time period, sure. When you live in the Midwest and all of a sudden it turns nice, everyone thinks I don't want to be outside.

Maybe we've already seen a spring blip now. Doug, just a sense of maybe your Top 10, 15 pictures film slate, what percentage of revenues can you put a flavor on 2016? You mentioned a little bit about some of animated and family pictures impacting food and beverage I get that was like a Take Five launch. But just from a revenue mix on the admissions?

So from revenue mix, Brian, I'd tell you that for 2016 it was a little deeper of a film slate than it was last year. Our Top 5 pictures for example that we listed in our earnings release, in our press release were about just under 20% of our total box office. Last year our Top 5 pictures were about 23%. So on the edges, just slightly less dependent and of course you can pretty much hang that entire thing on Star Wars last year. So, Star Wars if you have the Number 1 picture of all time, then that's probably going to end up skewing the numbers a little bit.

And then Doug, you talked a little bit about the R2 when you're renovating things what blocks or auditoriums you close? Are any of the theatres going to be completely shut down or are you just going to work them auditorium by auditorium?

No theatres will be shut down.

Thank you. And at this time, it appears there are no more questions. I would like to turn the call back to Mr. Neis for any additional or closing comments.

Thanks everybody for joining us today, appreciate that. We look forward to talking to you again in late April when we release our fiscal 2017 first quarter results. Till then, thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.