The Marcus Corporation (MCS) Q4 2011 Earnings Call Transcript
Published at 2011-07-21 17:05:30
Doug Neis – CFO and Treasurer Greg Marcus – President and CEO
David Loeb – Robert W. Baird & Co Mike Rindos – Rodman & Renshaw
Good morning everyone and welcome to the Marcus Corporation Fourth Quarter Earnings conference call. My name is Dana 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 towards 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. Please go ahead, sir.
Thank you, and welcome to our fiscal 2011 fourth quarter conference call. As usual, I do need to begin by stating that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include but not be limited to statements about our future revenues and earnings expectations, our future RevPAR, occupancy rates, and room rate expectations for our hotels and resorts division, our expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future, our expectations about the future trends of the business group and leisure travel industry, and in our markets, our 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 statements, and our 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 SEC or the Company. We post all Regulation G disclosures when applicable on our website at www.marcuscorp.com. So that behind us, let’s talk about our fiscal 2011 fourth quarter and year-end results. I’m certainly pleased with the fourth quarter results that we reported this morning with Marcus Theaters rebounding from a very tough third quarter to leave the way for a solid 15% increase in overall net earnings compared to last year. And when we look at our year-end results, well our theaters overall has difficult year compared to the record results in the prior two years. We’re able to partially offset that with very strong year-over-year improvement from our Hotels and Resorts Division. Before we get into the operating results, let me first briefly address any variations in the line items below operating income versus last year as well as the two unusual items that we referenced in the full-year fiscal 2011 section of our press release. And the first unusual item showed up in that first line below operating income which is our investment income line while there is no variation in this line during our fourth quarter, I do want to remind you that the reason this line shows a $365,000 loss for the year compared to $607,000 of income last year was attributable almost entirely to an approximately $700,000 adjustment to investment income during our third quarter. And risk adjustment if you recall represented a change in estimate of interest income earned to-date and the funds we advanced several years ago in conjunction with the public portion of the Hilton Milwaukee Parking garage. We continue to project full repayment of the all the funds that were advanced albeit with interest earned in a lower interest than originally anticipated. We do not expect any additional significant revisions in its estimate in the future. Moving further down the P&L, we reported loss of our dispositions of property equipment and other assets of approximately $500,000 during our fourth quarter due primarily the fact that we ruled off the value of selected furniture pictures and equipments that was replaced in conjunction with recent renovations at several of our properties. I also want to remind you that the largest portion of our full-year fiscal 2011 losses and disposition relates to another unusual item that occurred and it was described during our fiscal 2011 third quarter, resulting in a negative comparison on our gains and losses and disposition lines from the year compared to fiscal 2010. More specifically as you recall an adverse legal judgment was granted against us during the last quarter related to architectural services rendered during the construction of the condominium units at our Platinum Hotel and Spa in Las Vegas. A large portion of that judgment which totaled approximately $750,000 appears on that gain and losses of disposition line because the majority of the construction costs associated with the Platinum project were deducted from proceeds from the sale of the condo units resulting in gains reported in prior years. The remaining portion of the contingent liability accrued this year as a result of this judgment relates to legal fees and has reduced our hotel division operating income during the full-year of fiscal 2011. We’ll also remind you however that although accounting guidance required us to accrue a contingent liability for this judgment, we continued vigorously appeal this ruling and believe that there is a reasonable possibility that the judgment may eventually be overturned. A motion for a new trial based on potential ex parte communications is currently pending. Now as our press release notes the combined impact of the two unusual items that is described totaled approximately $1.8 million on a pre-tax basis which negatively impacted our fiscal 2011 full-year results by approximately $0.04. Again that does not affect our fourth quarter results but there is also a press release announcing our full-year, I wanted to reiterate those particular adjustments. Conversely our interest expense was down $270,000 during our fiscal 2011 fourth quarter. And end of the year approximately $870,000 less than fiscal 2010 due primarily to reduce borrowings. We were able to fund our fiscal 2011 capital expenditures and dividends out of operating cash flow eliminating the need for additional incremental debt during the year. Borrowing in advance that would require significantly more borrowings during fiscal 2012 than currently planned such as an acquisition or significant share repurchase. We currently believe our interest expense may only increase slightly during fiscal 2012 assuming short-term interest rates still unchanged dramatically. Our overall debt to capitalization ratio at the end of the year was 39% down from 41% in our fiscal 2010 year-end and with limited senior debt maturities over the next couple of years, strong covenant ratios and approximately $129 million of available credit lines currently available. We also remain in an enviable liquidity position as well. With little changes in the last line in our other income expense action which is the equity gains and losses on investment and joint ventures during our fourth quarter, but for the full fiscal year we did benefit from the fact that one of the two hotels that we have a 50% interest in reported a sizable gain from recently refinancing the debt during our third quarter, accounting for the increase on that line compared to the prior year. And finally our effective income tax rate during fiscal 2011 was 37.8% compared to 36.1% of last year, resulting in a small negative comparison of this year’s results to the prior year’s. At this point, I don’t expect our fiscal 2012 effective income tax rate to vary significantly from our historical average which has been in the 38% to 40% range. Pending any further lapses in statues of limitations or potential changes in the federal tax or state tax rates. Shifting gears, our total capital expenditures including acquisitions during fiscal 2011 totaled approximately $26 million compared to $25 million last year, approximately $16 million of this amount occurred in our theater division with the largest components being the Appleton, Wisconsin Theater acquisition and a major lobby renovation in our Menomonee Falls Wisconsin Theater. Largest portion of the $9.5 million of capital expenditures that we incurred in our Hotels and Resorts division related to the completion of the previously described renovations at our Grand Geneva Hilton Milwaukee properties and the beginning of our renovation at our Hotel Phillips property, Kansas City. As we look towards capital expenditures for fiscal 2012, we’re currently estimating that our fiscal 2012 capital expenditures may increase significantly and be in the $50 million to $90 million range with approximately $25 million to $35 million estimated for each of our theater and hotel division. And up to $20 million possible for our proposed mixed use retail development in the town of Brookfield, Wisconsin. Now the range of 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 primarily in our hotel division that may or may not come to fruition. As a result, our actual fiscal 2012 capital expenditure certainly could vary from this preliminary estimate just as we 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 during his prepared remarks. So now before I turn the call over to Greg, let me provide a couple of additional financial comments on our operations for the fourth quarter and fiscal year and I’ll start with the Theater Division. As you saw in our press release, our box office revenues were up 2% during the fourth quarter and concession revenues were up 11.3%. Box office revenues ended the year however down 7.1% while our concession revenues were down 5.3%. Our fourth quarter got off to a tough start actually due to the difficult comparisons in last year’s hit Alice in Wonderland. So we ended the quarter with box office increases during five of our last six weeks and send it into the all quarter summer quarter on a very positive note. Total attendance at our comparable theaters increased 1.9% during the fourth quarter as a result. Our average admission price actually decreased 1.5% during our fourth quarter due primarily to the fact that more of our top picture this quarter were aimed to the younger audience. The overall decrease in fiscal 2011 theater revenues was entirely attributable to decrease in attendance at our comparable theaters of 9.6% for the year with the majority of that decrease occurring in our fiscal third quarter when attendance decreased over 23%. The impact of our overall attendance decrease was partially offset by an increase in our average admission price for those theaters of 1.7% for the year. The fact that last year’s top film during the year was Avatar, with its associated premium pricing for our digital 3-D showings in the film and such a large percentage of our box office to that film coming from 3-D showings, that contributed to a smaller increase in our average ticket price this year than we’ve been reporting in prior years. We’re also seeing a small decline in the performance of 3-D and while it’s still popular with a significant portion of our customers. The percentage of higher price tickets sold per picture had been shrinking as the number of 3-D titles have increased, also contributing to the smaller increase in our average admission price. Conversely, our average concessions and food and beverage revenues per person jumped by 7.5% during the fourth quarter and ended the year up 3.8% compared to last year. And I do want to remind want to remind you that the comparisons to the last year’s fiscal year operating income and operating margins in our Theater Division were negatively impacted by the change in estimate in deferred gift-card revenues that we reported last year during our third quarter. Our fiscal 2010 theater operating income was favorably impacted by approximately $2 million of gift-card income that related to prior years. The remainder of the decrease in operating margins this year is due to the aforementioned reduced attendance and its impact on the fixed cost of our business. Shifting to our Hotel and Resort Division, as we noted in our release, our overall hotel revenues were up 3.7% and total RevPAR was up 1% during the quarter comparing the same period last year. We ended the year with our RevPAR up 10.4%, 10.4% higher than it was last year. Now according to data received with Smith Travel Research and compiled by us in order match our fiscal year, comparable upper upscale hotels throughout the United States experienced an increase in RevPAR of 7.5% during our fiscal 2011 fourth quarter and 7.7% during our full fiscal year 2011. So as expected, we outperformed the national average for the year. And as we noted in our release and shared with you during our last call, we had an incredible fourth quarter last year particularly at one of our largest hotels that has significant group business last year that we knew we would not be able to fully replace. To put this in perspective, we reported a RevPAR increase last year during our fourth quarter of over 19% when the rest of the nation was reporting a 7% increase. So it’s not surprising to us that we essentially match last year’s result this quarter rather than exceed them like we did in prior quarters. Our fiscal 2011 fourth quarter overall RevPAR increase was a result of an overall occupancy rate decrease of 1.6 percentage points and an average daily rate increase of 3.2%. For fiscal 2011, the full-year our occupancy ended the year with 6.1 percentage points ahead of last year and our average daily rate increased 0.7% for the year. However as we’ve noted previously, our comparisons of last year in this division were also unfavorably impacted by approximately $400,000 of gift-card income reported last year in conjunction with the previously described change in estimate. And they were favorably impacted by the fact that we took a $2.6 million impairment charge last year related to our Las Vegas condominium units. Excluding these items from last year’s results, our operating income was still up approximately $3.1 million or 87% over last year’s results. A very nice increase after two very difficult years in the lodging industry. Our fiscal 2011 and 2010 operating income and operating margins would have in fact been even better than that if not for the legal expenses related to our Platinum hotel. We continued to incur significantly legal expenses related to various Platinum lawsuits and those costs including the legal expenses in the adverse judgment that I previously mentioned totaled approximately $1.8 million during fiscal 2011 and $1.7 million during fiscal 2010. Finally, I do want to remind you again that fiscal 2012 will be a 53-week year for us ending on May 31, 2012. And that extra week in May is no ordinary week but rather includes the Memorial Day weekend. And since the recent 2011 Memorial Day weekend fell in the first week of our new fiscal year, that means we’ll have two of these traditionally strong movie going weekends during the upcoming fiscal year. To put it in perspective while the company certainly has changed since the last time we had a 53-week in fiscal 2007, the extra week of that year contributed approximately $9.5 million in revenues and $2.9 million in operating income to our fourth quarter and fiscal 2007 results. I shared those numbers for illustrative purposes only as any projections of the impact of extra week would have in fiscal 2012 would be purely speculative at this time. With that I’ll now turn the call over to Greg.
Thanks Doug. I’ll begin my remarks today with our Theater Division. When we were last together I was trying to explain why we had just completed one of the more disappointing fiscal third quarters in recent memory clearly. The results of that poor holiday and early winter film season had a significant negative impact on our overall fiscal 2011 results that we report today. But in business where hopes bring eternal every single Friday with the latest Hollywood film release, I’m pleased it’s the day I can put those fourth and third quarter results behind us. And talk to you after a strong fourth quarter and good start to our new fiscal year. Once again film product has proven to be the most important driver of our results. And the list of fourth quarter films and early fiscal 2012, first quarter films that we mentioned in our press release have brought smiles back to our hard working theater division staff. Granted those are tired smiles right now as it has been a very busy week for our staff. Thanks to a record breaking midnight shows and weekend box office totals from our favorite wizard Harry Porter, plus plenty of hot weather to encourage our customers to escape the heat in their favorite Marcus Theater. I am sure the rest of fiscal 2012, we’ll still have a shares of high and lows but it is nice to end last year on a high note to begin the New Year with a strong start. We still have several additional films this summer that could do well for us and we are encouraged by the number of releases currently scheduled for our upcoming fall second quarter. So since Doug has already gone overall the fourth quarter and year-end numbers with you, I’d like to spend my time today updating you on our capital plans for this division as well as giving you a brief update on our upcoming digital cinema rollout. As Doug noted, we are currently estimating that we may incur capital expenditures of $25 million to $35 million during fiscal 2012 excluding any acquisitions that could rise to support our strategic plans for our Theater Division. Majority of these dollars will likely be spent to enhance our existing theaters. Although we are continually looking for land for potentially new theaters and we have previously disclosed plans to build selective new theaters during the next several years including for example in St. Peru [ph] Wisconsin. Now the portion of these capital dollars will support our plan to further enhance our food and beverage offerings within our existing theaters. During our fiscal 2011 fourth quarter, we expanded our exclusive recently renamed Big Screen Bistro in-theater dining concept that was the restaurant concept formerly known as CineDine in two different auditoriums at our flagship Majestic Theater. Our fiscal 2012 plans include the conversion of several more auditoriums in a different theater into the Big Screen Bistro concept as well as a possible addition of two more Zaffiro’s Pizzeria and Bars and several additional Take Five Cocktail Lounges into existing theaters. As always, we will also continue to maintain and enhance the value of our existing theater assets by regularly upgrading and remodeling our theater in order to keep them fresh and new. We have dollars in our fiscal 2012 capital budget to renovate several theaters and add the latest in state of the art ceiling in many of our auditoriums. And finally, we also have dollars set aside, the initial licensing fees required for our major circuit wide rollout and providing a platform for additional 3-D presentations as needed as well as maximizing the opportunities for alternate programming that may be available with this technology. As you know, we took our time to evaluate our digital cinema option and we believe our patience was rewarded with a very good off balance sheet arrangement that allows us to offer this state of the art technology to our guests, well preserving our company resources for other growth opportunities in this division and beyond. We’re excited to keep going on digital cinema and we’re looking forward to have much improved fiscal 2012 for our theater division. With that let’s move onto our other division, Hotels and Resorts. As you’ve seen in the segment numbers and Doug gave you some additional detail. Given the unusual quarter we were up against last year in this division, we were actually pretty happy to essentially breakeven with this last year’s operating results. If you recall, during our last call, we suggested that it was likely that we would report a decrease in operating income this quarter due to difficult comparisons to last year. As you might expect we are certainly pleased with the overall progress we’ve made this year in this division as we recover from one of the worst downturns we’ve ever experienced in our years in the hotel business. As Doug shared with you, even after adjusting last year’s numbers for a couple of unusual items, we nearly doubled our operating income in fiscal 2011 compared to year ago. Particularly encouraging in the detail behind our numbers was the fact that we reported an overall increase in our average daily rate of just over 3% this quarter, our second straight quarter of increased ADR after two years of year-over-year decline in this metric. We still have a long ways to go, with over half of our own properties reported in at least some increases in rate this quarter compared to the same quarter last year. Let us not to say that we aren’t still experiencing lot of pressure on our rates in this current environment. Our final fiscal 2011 RevPAR was still approximately 9% lower than our previous session of fiscal 2008 RevPAR with ADR being entire reason for the decline. Thus in order for this current recovery to be complete and in order for operating margins to be maximized, we still need the average rates to improve. This continues to be the biggest challenge we are facing right now. As I shared with your last quarter, the fix to this is not a symbol its raising our ways rather than long-term fix is what we refer to as share shift. We would like to return to our historical mix of business whereby group business represented approximately 50% of overall occupancy versus the 40% that is represented in the past couple of years. The fact that our occupancy is at or above even our highest levels of fiscal 2008, is due to the fact that we’ve had to replace that higher rated business with occupancy predominantly for the price sensitive leisure markets. To the extent that we can shift some of the occupancy back to group business or even the individual business traveler, it should provide an opportunity for us to reduce our usage of the various discount internet channels that the leisure guests relies heavily upon. Unfortunately demand from the individual business travel has increased and we are seeing the benefits of that so far this summer. And our group with group booking pace will not back to where we were also continues to improve. The rate on these book groups is up slightly over the prior year as well. In the near-term we still don’t expect significant increases in the group business ADR. But as we have pointed out in the past, the group business customer tends to provide more opportunities for ancillary spending once they are inside making the group customer a very desirable customer. Over time, with supply in our market segments limited in the short run should be reasonable to expect that we will continue to gain pricing power as the economy improves. Looking ahead as I mentioned our very important summer first quarter is off to a good start and we generally expect our favorable revenue trends to continue in future periods assuming the economic environment continues to improve. Shifting gears for a moment, let me expand on Doug’s comment regarding our planned capital spending for this division during fiscal 2012. As he noted earlier, we are currently estimating that we might incur capital expenditures of $25 million to $35 million in this division this year, which should represent an increase over the past couple of years. This is always hardest number to estimate and a significant portion of our potential spending in this division relates to growth opportunities that are very difficult to predict. As you know, we are continuing to look for opportunities to grow our hotels and our management through a variety of different ways. A significant portion of our $25 million to $35 million estimated capital spending represents dollar set aside for those growth opportunities. We are currently in various stages of discussion on many such opportunities and with the strong balance sheet and credit availability, it is possible to assemble these potential growth opportunities will come to fruition in the months ahead. Our plans for our Hotels and Resorts Division also include continued reinvestments in our existing priorities in order to maintain and increase their value. During the last two year, we completed a major guest room renovation at the Hilton Milwaukee City Center as well as a guest room renovation in Pool & Spa based in our Grand Geneva resort. Guest response in these renovations has been very positive and both properties have contributed to our improved operating results during fiscal 2011. We have several small to mid-sized property renovation plans to fiscal 2012 as well including renovation currently underway at our Hotel Phillips property in Kansas City. Lastly, unlike theater assets, whereby the majority of the return investment comes from the annual cash flow generated by operations, a portion on the return on hotel investment is derived by effective portfolio management which includes determining the proper branding strategy for given assets and the proper levels of investment and upgrades necessary as well as identifying an effective divesture strategy for the assets when appropriate. Our past hotel investments have been very opportunistic as we’ve acquired as the favorable terms and then improved the properties in operations in order to create value. Depending on market conditions, we’ll periodically avail the existing or future individual hotel assets in order to determine whether our divestiture strategy may be appropriate for that asset. We do not currently anticipate divesting any particular hotel assets during fiscal 2012 but if an opportunity to sell a particular hotel would arise that we determined was in the best interest of shareholders we will consider it. Now before we take questions, let me quickly update you on the other piece of our potential capital spending that Doug alluded to earlier. In addition to growth strategies in our operating divisions, we’re also leveraging our real estate experience by pursuing an opportunity to be the developer of a mixed used retail project for only proposed on the site of one of our former theaters in the town of Brookfield, Wisconsin. We have previously reported our intention to sell this valuable land parcel but an opportunity service to acquire an adjacent parcel and develop a high quality town center anchored by Von Maur Department Store. The project named in the corners of Brookfield is seeking local government financial support for our certain infrastructure costs and we are currently now completing this design specifications and construction costs estimates as well as our setting leasing interest in the project. I will tell you that we are very encouraged by the initial response we have had from potential tenants to this exciting project. Our portion of the total cost of the project makes even $100 million and we are currently hoping for construction to begin in spring 2012 with an opening plan for the second half of calendar 2013. The actual timing and extent of our capital expenditures for this project could change of course. It is possible that we make our capital expenditures during our fiscal 2012 above $20 million on this project related to the acquisition of the adjacent land and initial construction costs. With that I will conclude my prepared remarks by once again thanking you for your continuous support as we have navigated through unprecedented time in the lodging industry and a challenging year (inaudible). We believe we are poised to benefit from operating improvements in both of our businesses during fiscal 2012 and with an outstanding balance sheet, we have plenty of room to capitalize on the many growth opportunities that may be available to us in future periods. We are committed to executing these strategies necessary to provide value to our shareholders over the long term. At this time, Doug and I would be happy to open the call for any questions you may have.
Thank you. (Operator Instructions) And we’ll go first to David Loeb with R W. Baird. Please go ahead. David Loeb – Robert W. Baird & Co: Good morning gentlemen.
Good morning David. David Loeb – Robert W. Baird & Co: I just have a couple. Greg, I appreciate your candor about looking for investment opportunities and how uncertain that is. It’s something that was mentioned a couple of times in press release, particularly in the hotel division, and also in the summary. Are you looking to acquire whole ownership or are you looking to invest slivers to run the management platform and how would you describe that acquisition hunt and what are you seeing out there as opportunities?
Yes. I said it jokily but yes David, we can acquire properties. We have the balance sheet capacity to do that. We can put sliver equity to work, the way I view it is as our job is to maximize three [ph] in the hotel division, we got to maximize the cash flow coming in. We need to maximize the assets that we have, and we need to maximize the intellectual property if it comes from being an owner as developer and operator that we’ve accumulated through our 50 years in the business. So to that end, if we’re going to buy something with sliver equity we can do that or buy it to own it or buy as with other investors. There is multiple opportunities that we’re pursuing. My goal is to just maximize all three of those paths. David Loeb – Robert W. Baird & Co: It’s a pretty competitive market for acquisitions particularly in perhaps the top 10 markets since you’re focused more on markets 10 through 50?
I would say so, but we look at stuff in the top 10 markets, when we see them but you’re right, they are competitive. And that should always – prices are quite strong or priced for not making many mistakes or the asset quality isn’t great, I think you’re seeing that we all see that there is been a lot of holding on and frankly I can’t in a way fault the lenders for holding on that. I think they probably have the right strategy for themselves, I prefer that they didn’t invested buy [ph] but I’ve seen the stats, you know them I think I’ve read new research that percentage of the high quality assets that have been bought by the – it hasn’t bought by the lease with their currency has been pretty significant. David Loeb – Robert W. Baird & Co: Yes, for sure. And as you look in the theater division for acquisition activities, would you say that this is a time in the cycle that is good for those kind of opportunistic acquisitions or is this really a time when owners are more likely to hold on and ride out what could be good times for at least the next several months?
Well, until this lasts with the Harry Porter I might say, yes mostly but you get a (inaudible) like Harry Porter, and it makes people a lot more comfortable. I think that we are – this is one and the cycle in the theater business, if you could explain it to me I would love to know, I mean they are really tough to predict because it’s so product driven. There is a macro environment that I think that we see and we talked about it. It’s interesting as we’ve seen leisure business pickup and people are traveling for leisure, computer games haven’t been as robust as they were when the economy was going the way it was so it is (inaudible) from a macro perspective. But that we look again its broad thing, it’s for transitions, businesses and transition. It’s for – there may be potential opportunities where people don’t have the ability to finance additional deployment and that its coming, its coming fast, you were in the last major operator to put it out there, there is probably one other significant one but its otherwise been everybody in the past is done. So and make no mistake about it, I mean you need to have financial capacity to do it. It’s not just on the backs of the studios. So there potentially could be opportunities there as we look to it, but I can’t give you any predictions. We just keep hanging around the ribbons about the best I can say. David Loeb – Robert W. Baird & Co: Yes, and eventually they will come to you. And have you look at those investment opportunities in the return potential for them. How does that compare to looking at investing in your stock at the current level?
I expected that question David and but its heck of a question and we’ve been wrestling with ourselves. In the recent time (inaudible) we’ve been dealing with. And I think – we take a pretty conservative approach in terms of once we have a pretty good idea of how our quarter is shaping up, how our year was shaping up. I stay out of the market. So we’ve had kind of this watch as our stock has performed certainly at levels that we think are attractive. On the other hand, we just shared with your some pretty ambitious capital goals and some capital plan including all that that the corners [ph] project in Brookfield and when all said done in $100 million. And so we’ve – and we feel good about the opportunities that are in front of us in both of those divisions plus with that project. So we think we have some very attractive ways to invest our funds and I guarantee you, we’ll constantly have that internal discussion with among ourselves and with our Board and watch to our stock prices but right now we look at all the capital plans ahead of us. We’re excited about those. David Loeb – Robert W. Baird & Co: And given that context Doug, how do you look at the dividend, are you considering dividend increase as another opportunity to look for shareholders or do you see more benefit from continuing this investment term?
Yes, well and certainly that’s another topic that literally every quarter we have a discussion about that with our Board. And we’ve kept this dividend as we’ve gone through this last couple of tough years in the hotel business, we’ve held the dividend firm. Its yielding an 3% plus range right now, and as you know, there have been times when we’ve looked, we’ve done, we did the special dividend a handful of years ago and so yes, we do view dividend policy as another way of potentially providing value to our shareholders and it’s in an exact same discussion that we have when we’re talking about share repurchases and the capital. We’ve invested but all three of them into the pot and we talk about it every quarter. David Loeb – Robert W. Baird & Co: That makes perfect sense. I’ll come back in the queue to ask some additional questions (inaudible). Thank you.
(Operator Instructions) We’ll pause for a moment. And your next question is from the line of Mike Rindos from Rodman & Renshaw. Please go ahead. Mike Rindos – Rodman & Renshaw: Hi guys.
Hi Mike, how you’re doing. Mike Rindos – Rodman & Renshaw: Doing great, Greg you made an interesting comment about before about the theater owners and their upgrade to digital cinema and there is a financial resources on the part of the theater owners to make that happen it’s not just on the back of the studios. Do you think we’re coming into a period here where the smaller theater chains who may not be able to fund this upgrade, might be looking to sell some theaters and might that be part of your acquisition strategy to capitalize on that front?
Yes, that was why I was implying, we’ll have to see, we don’t know yet, the heat is not been turned up yet because it’s still a film. So but I just was reading the news, I can’t pay the details with but my (inaudible) technical or something just happened this week or there is a big signal that film is really going by the way side. It’s not going to happen tomorrow. We’re not going to wake up and still going tomorrow. But there is still lot of screens out there that’s doing this film. It’s going away. And so people are going to have to make the change. And some will even want their investment in it and some theaters are going to probably go away at it, it’s not our situation, we’ve been always been very good about maintaining the quality of our circuit and calling out the stuff that doesn’t, that’s absolute. Quite interestingly we had a conversation – I was having a conversation today with my wife and we’re talking about the first – we still own the first theater that my grandfather ever developed, at the Ripon, Wisconsin. She said what about the next one? I said I couldn’t tell you two through probably 20. We don’t have those, have the original because it’s important and make a statement about it as a company but the business we don’t – we continued to make sure that we’re on the right place with our assets. Mike Rindos – Rodman & Renshaw: Okay. Additionally could you give us some further color on booking trends for the hotel through this summer?
Summer is looking very good to us right now, Mike. As we mentioned in the prepared remarks that advanced booking pace and I think I mentioned this actually in last quarter, we were ahead – when I last checked we were ahead for every month in this coming new fiscal year that we’re in, fiscal ‘012, its possibly we’ve overtaken that one, now I haven’t asked. And so the pace itself where it occurs by. It’s all relative and that it’s still not back to where it was in a pre-recession times and that’s evident by some of the –couple of numbers that Greg shared with you. But yes, overall the pace is continuing to improve. And one of the things that we’re still noticing, the group business is that when a conference occurs or that events happens and Greg used to send three of us to it, now two of us go, I mean that’s seem being refused with lots of companies, making those kinds of decisions. So certainly the size, there was a time when we might fill up Grand Geneva with four groups. Today, if you go there, you might see 10, 12 names on the Board. And so I probably get there. And so it’s just – we’re just dealing with it and this is a different environment but overall pace is improving. Summer is prime time for us simply in our markets and we’re pretty encouraged by how it’s going so far. Mike Rindos – Rodman & Renshaw: Okay, great. Thanks guys.
Your next question is a follow-up question from David Loeb, R W. Baird. Please go ahead. David Loeb – Robert W. Baird & Co: Thanks. On the hotel side, can you talk a little bit about where do you see rate growth potential? Do you have more groups in the mix other than the fourth quarter comparison of course? Do you have more group in the mix that allows you to raise trending rates a bit. Is it more likely to be just less discount than in the mix. How do you see that going forward over the next couple of quarters?
Really both David, the trends in that individual business travelers, so I mean if you find to provide business into the two groups, a group business and then in the individual business traveler that particular segment has been particularly strong in some area [ph]. So a lot of our corporate business, lot of it has been quite strong. Now those tend to be – a lot of those tend to be at negotiated rates, contractual rates and so those don’t – those rates don’t just change overnight, I mean we do one year deals, two deals, and every one of them is different, some of them are dollar amounts, some of them are might be percentage tied to our bar rate might happen to be. So while it’s not an easy answer, the fact is that the trend of the individual business traveler is actually been may be the strongest right now and in order to get us the rest of the way, the rest is primarily with Greg alluded to in terms of that share shift where we just leisure customer sell very strong but very price sensitive and yes, by getting the compression, by getting more of the group business booked into the property and then supplementing with this individual business traveler, it does allows us to provide less rooms. And we don’t have to be more picky and that have to offer as many rooms to the discount channels. And that’s how we see one of the major ways of getting it up.
And there are other issues, when you’re in with the consumer has got smarter, I haven’t asked the guy, lately what’s going on but in terms of this one point, but one of the things that we saw happening when things started going in sideways was, as we got into the discount channels, even our group and our negotiating corporate, they would say – they would book around it, they would ignore it because if that was a higher rate than they could see on an Expedia or Hotels.com. They would just book around the table already. So it’s one more in those channels it has to lead negative way to the other channels of our business. David Loeb – Robert W. Baird & Co: That makes a lot of sense. On the theater side, you’ve got some big movies this summer clearly with Harry Porter and Captain America and few others. What’s the tradeoff for those kinds of blockbusters and the film cost versus the volume variance that helps your margins. I assume those are pretty high cost films for you?
Yes, they tend to be. It’s something that we really are vigilant about. It’s been a challenge because Hollywood is the hurt animal in the cage and they need to try and find out as these sell through a DVD market is disappearing on and is evidenced by even Netflix had a recent move sort of sent a signal that the DVD is going on the way of the dinosaur that we – I am telling it’s going to happen tomorrow, but it is happening. And so their margins have been impacted. They’ve built their model on DVD selling business that doesn’t exist. So they are looking for ways to get money. So there is that constant pressure, but the other side of it is this is a very important window for the whole business except the value of the film. It gets people talking about it and as I’ve said before on any given weekend, they can get 30 million people off their couches and into a movie theater, that’s something that people like to talk about on Monday morning. They’re not going to talk about how many people sat in your couch all weekend and watched something. They’re going to talk about people got up and left. And so it makes it a special environment and special window that’s very important. So we need to earn a return on the investment and the studious know that. And so there is quality accretive tension that apparently fits those numbers but yes, the film prices go up but then we have – but we see other, volume increases coming in for too. David Loeb – Robert W. Baird & Co: No, that’s actually really helpful. And finally on some of the initiatives within the theaters like the digital which of course is I guess a small increase in operating costs rather to capital but also on your investments in the food and beverage options and the like. What kind of consumer reaction are you getting and what kind of return expectations do you have for those cost increases or capital spending?
I think we’re getting very good consumer reaction, and the truth is we’re still in little bit in R&D as we figure it out but there is Zaffiro’s that we did in theater really has guided. If we do these, we do some – one of those one question surveys which says how much would you refer us to a friend or colleague and we score off the charts in Zaffiro’s. It really is been very impressive how much people really like the product. And the Big Screen Bistro’s have been very well received. And so we can – we want to thing to draw them and simply – but we got a gap and we expect the same return on our capital that we would in really, anything we would really do (inaudible). And we think it will as we work to in sort of as we flushed up the concepts and learn from them. We constantly keep learning, I mean in HotZone [ph] Zaffiro’s taking its time to learn how to maximize that box, we’ve got to delivery, we’ve added a The Dessert program, we’ve added all sorts of try to built – we built the lunch business. So it’s interesting because they are not traditional restaurant locations. So for us the challenges is to go out and get people to come there, but we do a significant amount of business that’s not even slightly related. We have further opportunity to get theater customers better.
And you also in your question David mentioned the digital and from a digital perspective, we’ve first of all to this one time to get this deal done because we were again very concerned about the economics. We didn’t want this to hurt us, one of the reasons why we wanted someone else’s money making this investment and so we weren’t tying up our capital on a project that wouldn’t have a traditional return than we could just compare to some of these things – F&B [ph] things, that we’re just talking about. We will see improved, some improved operating cost on labor costs on the other hand we will see increased maintenance cost. And the real wildcard about digital in terms of a return perspective probably is the alternative programming. The 3-D would be certainly you have to have digital first for you can do more 3-D. So it certainly give us a platform to really do some more 3-D, but the alternate programming is probably real wildcard that it did, we can’t pro forma, we don’t know exactly where that’s headed but certainly a lot in our industry believe, one of them that there will be greater content available to us, more content available to us as a result of everyone going digital. And so that could be the return element of that particular relatively small investment in our part as you know. David Loeb – Robert W. Baird & Co: Great, thank you.
At this time it appears there are no other questions. I’d like to turn the call back over to Mr. Neis for any additional or closing comments.
Thank you. I certainly want to thank everybody once again for joining us today. We would look forward to talking to you once again in September, just a couple of months from now when we release our fiscal 2012 first quarter results. Thank you and have a great day.
That concludes today’s call. You may disconnect your lines at any time. Enjoy your day.