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The Marcus Corporation (NYSE:MCS)

F1Q2011 Earnings Call Transcript

September 16, 2010 11:00 am ET

Executives

Doug Neis – CFO and Treasurer

Greg Marcus – President and CEO

Analysts

David Loeb – Robert W. Baird & Company

Herb Buchbinder – Wells Fargo

Marla Backer – Hudson Square

Operator

Good morning everyone, and welcome to The Marcus Corporation first quarter earnings conference call. My name is Omicka, and I will be your operator for today. (Operator instructions) Joining us today are Greg Marcus, President and Chief Executive Officer and Doug Neis, Chief Financial Officer of The Marcus Corporation.

At this time I would like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Doug Neis

Well thank you and welcome to our fiscal 2011 first quarter conference call. As usual I need to begin by saying that we plan on making a number of forward-looking statements in our call today. 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 in the business group in 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 lines on our earnings statement 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 will, of course, post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So with that let us talk about our fiscal 2011 first quarter results. The positive trends in our hotels and resorts division continued in our first quarter resulting in substantial year-over-year improvements in that division, but even though our theatre business reported reduced operating results, we were able to report increased revenues, operating income and pre-tax earnings this quarter. So we are pleased with that.

Before I get into quarter results, however, let me first briefly address any variations in the line items below operating income versus last year. As you can see, there really weren’t any significant variations in most of these line terms. The activity on our investment income, gains and losses on dispositions, and equity earnings and losses lines was very limited with no significant variations compared to last year. At this point in time, I don’t expect we will see significant variations in these same line items in future fiscal ’11 quarters as well, barring any unforeseen dispositions or anything along those lines during the year.

Meanwhile our interest expense was down over $300,000 during our fiscal 2011 first quarter compared to the prior year due primarily to reduced borrowings. As you know, during the summer and we were at the peak of our cash inflows, while at the same time we generally refrain from significant capital spending. As in the past, we will likely see our debt level rise in the future periods now that the summer is behind us.

Our overall debt to capitalization ratio at the end of the quarter was a very strong 39.5%, down from 41% in our recent May year-end due to the aforementioned strong cash flow summer for us. And finally, the only reason that our net earnings for a quarter were slightly lower than last year was because of a higher effective income tax rate during fiscal 2011.

Our effective income tax rate during the first quarter this year was approximately 14.2% compared to an effective income tax rate last year during the first quarter of 36.5%. This is really all about last year, the last year’s rate benefited from a decrease in the amount of unrecognized tax benefits as a result of a lapse of the applicable statute of limitations. This year’s annual tax rate is expected to return to our historical 38% to 40% range, excluding any further lapses in statute of limitations or potential changes in federal or state tax rates.

Shifting gears, our total capital expenditures during the first quarter of fiscal 2011 totaled approximately $2 million compared to just under $7 million last year. Of course, last year we were in the midst of the ongoing renovations at our Grand Geneva and Hilton Milwaukee properties. As I noted earlier, we generally tend to limit our capital spending during our busy summer time period, and the amount we did spend this year was spent equally between our two divisions. At this early stage of our fiscal year, despite the low CapEx number during our first quarter, I have no reason to adjust our previous estimate for capital expenditure for fiscal 2011 of an amount in the $40 million to $60 million range.

In fact, as you saw yesterday we announced an acquisition of a theatre in Appleton, Wisconsin. We are also still finalizing the scope and timing of the various requested projects by our two divisions, and we anticipate proceeding with many of these projects as the year unfolds. The actual timing of various projects currently under way or proposed will certainly impact our final capital expenditure number as will any currently unidentified projects that could develop during our fiscal year.

Now, before I turn the call over to Greg let me provide a few additional financial comments on our operations for the first quarter beginning with theatres. Our box office revenues were down 2.7% during the first quarter and concession revenues down 5.6%. These decreases are entirely attributable to a decrease in total attendance at our theatres of 6.6% for the first quarter.

Now, while we had a mix of both up and down weeks throughout the 13-week quarter, I will tell you that the entire decline in box office receipts can be attributed to the first two weeks of our fiscal year. Our overall box office revenues actually increased slightly over the span of the last 11 weeks of the quarter. This year’s Memorial Day holdovers and films released in early June, which included Shrek, Sex and the City, and Prince of Persia just did not perform as well compare to pictures last year, which included Night at the Museum 2, Up, and the surprise hit the Hangover.

The impact of our overall attendance decrease was partially offset by an increase in our average admission price for these theatres of 4.2% for the quarter, an increase in our average concessions and food and beverage revenue per person of 1.1%. Premium pricing for our digital 3-D attractions and UltraScreens contributed to the higher average admission prices.

Our operating margins in this division decreased to 22.5% compared to 24.4% last year with approximately half of that margin decline related to favorable real estate tax adjustments made last year during the first quarter. The remainder of that decline, the other 1% or so is really due to the impact of the reduced attendance on our fixed costs.

Shifting to our hotels and resorts division, as we noted in our release, our overall hotel revenues were up 14.1% and total RevPAR was up 15.7% during the quarter compared to the same period last year. As we have noted in the past, our RevPAR performance did vary by market and type of property, but all 8 of our company owned properties reported increased RevPAR this quarter.

According to data received from Smith Travel Research and compiled by us in order to match our fiscal year, comparable upper-upscale hotels throughout the United States experienced increased in RevPAR of 8.7% during our equivalent fiscal 2011 first quarter. So for the second quarter in a row we have significantly outperformed the national average. Our fiscal 2011 first quarter overall RevPAR increase was a result of an overall occupancy rate increase of 12.6 percentage points and an average daily rate decrease of 2.2%.

With that I will now turn the call over to Greg.

Greg Marcus

Thanks Doug. I will begin my remarks today with our theatre division. I think it has been pretty widely reported in the national press that this summer’s film slate didn’t create a lot of excitement amongst the movie going public, continuing a trend we saw in the last two months of fiscal 2010.

While we had several films that performed well during the period led by the outstanding Toy Story sequel, the latest Twilight film, and the well-made original film Inception, we didn’t have a lot of depth to the film slate this time around. The indication of this is the fact that last year we had seven films produce at least $2 million of box office receipts for our circuit during our first quarter. This year we only had five films reach that mark.

That second tier of films can make the difference between the record revenues we reported last year during the first quarter and a good but not great quarter like we just reported this year. As Doug pointed out, partially offsetting our decreased attendance this quarter was another increase in our average ticket price, driven once again by the premium associated with 3-D films and the fact that we have more 3-D screens and more 3-D films to show this year versus last year.

Three of our top six films during the quarter were exhibited in digital 3-D including Toy Story 3, Despicable Me, and Shrek Forever After with approximately 50% of our revenues from these films coming from 3-D screens. In addition, as our press release notes, we were pleased with the customer’s response to our new UltraScreen XL3-D screens, and we are proceeding with the addition of large screen digital 3-D to three more of our existing UltraScreens.

Once installed, 11 of our 13 UltraScreens will have digital 3-D capability and we will have digital 3-D in 65, or approximately 10% of our screens. And with 30 or more 3-D films currently scheduled to be released from now through December 2011, we will not be lagging in product for these 3-D screens.

Having said that, it is also no secret that not every 3-D film performs like Avatar and Alice in Wonderland did. Done well, but it is clear that 3-D can have a positive impact on our results and will be well received by moviegoers. And certain types of 3-D films seem to do better than others. But it is also clear that 3-D does not guarantee success, as evidenced by a number of films that did not perform well in recent months. Frankly, this really shouldn’t be a surprise to anyone, many elements go into a movie’s success story, acting, directing, special effects et cetera, and the fact is that 3-D alone will not make a sub-par movie a hit.

So time will tell what the long-term impact of 3-D will be and whether the current ticket price premium is sustainable. We remain bullish on the impact it can have on our business, but would suggest that 3-D alone is not some sort of magic elixir for the movie business. We are happy with the investments we have made and look forward to a number of potential 3-D hits over the coming months as highlighted in our press release.

We have mentioned it in the past, so I also want to note that we are pleased with our just announced opportunity to purchase a theatre in one of our existing markets, the College Avenue 16 Cinema in Appleton, Wisconsin. Purchasing this theatre from Regal is in keeping with our expressed desire to continue to grow our circuit by considering selective acquisition opportunities as they may arise. We obviously know the market well, and we look forward to closing on this theatre next week and having it contribute positively to our results in future periods.

With that, let's move on to our other division, hotels and resorts. You've seen the segment numbers and Doug gave you some additional detail, certainly we were very pleased with the significant year-over-year improvement we have reported for two straight quarters now. And as Doug shared with you, it is also gratifying to see us continue to outperform the industry during the early stages of this recovery.

As I noted during our last call, it's not surprising that as we continue to lap the time period when revenues were declining last year, we would see our RevPAR trends continue to improve. But what I continue to find most encouraging was the improvement in our trends compared to two years ago. During our first three quarters of fiscal 2010, our RevPAR was down approximately 20% each quarter compared to the same quarter two years prior. This trend finally began to turn during our fiscal 2010 fourth quarter with our RevPAR down 8.2% compared to fiscal 2008 fourth-quarter. I’m happy to say that we maintained that trend, and our recently completed first quarter RevPAR was down approximately 8.8% compared to 2 years ago.

I think there are a couple of takeaways from this. First, it should be clear that while we are extremely pleased with our year-over-year improvement, we have a ways to go before we can expect our operating results to return to pre-recession levels. The industry was hit hard and we remain in a very fragile economic environment. So we certainly expect continued challenges in the future.

And secondly, as we have previously pointed out, all of our RevPAR increase was predominantly the result of increased occupancy. Our average daily rate or ADR was still down versus last year in many locations. In the short term, we believe the trade-off between occupancy and rate is worth it, particularly at properties like the Grand Geneva, where the ancillary spend by the typical guest more than makes up for the decreased average rate.

But until we can begin to consistently increase our ADR, a full recovery cannot occur. Increased occupancy is a wonderful thing, and we worked hard to achieve the significant increases we reported today. But keep in mind that increased occupancy also puts a lot of pressure on our operating margins. Additional guests drive additional costs, while additional rate falls more directly to our bottom line.

So the challenge in the months ahead will be to begin realizing year-over-year increases in our ADR. This will not be an easy task as we continue to experience a strong push back on rate during the quarter just completed. Our leisure business was very strong during this summer, but this is one of our most price sensitive customer segments. The leisure segment also generally requires a greater use of alternate Internet channels, which further erode our effective average rate. And meanwhile the customer segment that has traditionally produced the highest ADRs for our hotels, the individual corporate traveler, continues to be relatively soft.

Our group bookings, while not back to where they were continued to improve. We have had five straight months now of consistent progress with this customer segment. So if I had to summarize my remarks, I would characterize our current view of the hotel landscape as one of cautious optimism. On a year-over-year basis, we’re off to a very good start, and we are hopeful that the trends we have seen in the last two quarters will continue in the near term. Many challenges remain and our visibility remains limited due to our continued relatively short booking windows. But the trends are encouraging.

Whether the current positive trends continue will depend largely upon whether the economy continues to show signs of gradual improvement. We remain concerned about the fragility of our current economy, as well as the uncertainty that is arising out of our current political environment. We as an industry have expressed disappointment in the past with comments of some government officials regarding travel and the Federal government’s recent announcement that it was reducing their travel programs. This puts further pressure on an industry trying to recover from the worst downturn in recent memory. But regardless of what additional challenges lie ahead, I’m glad to have had the chance to share some more good news regarding our hotels and resorts business today.

Finally, we continue to look for opportunities to grow our hotels sunder management through a variety of different methods. While transaction activity remains very limited at this point, with the strong balance sheet and credit availability we remain poised to explore and follow through on potential growth opportunities that may arise in the coming months.

And as I wrap up our prepared comments, I will be remiss if I didn’t note as our press release indicated and I shared with you during our last call, our great balance sheet allowed us to repurchase some shares during this quarter pursuant to an existing board authorization, while still leaving us plenty of room to consider growth opportunities in both of our businesses.

With a debt to capitalization ratio under 40%, over $120 million in revolving credit availability as of quarter end, and a $150 million universal shelf registration statement on file and effective will the SEC, we have the flexibility to explore and follow through on potential growth and value creation opportunities that may arise during the months and years ahead.

We will continue to manage our balance sheet very carefully in the future, but we are committed to executing the strategies necessary to provide value to our shareholders. We look forward to celebrating our 75th anniversary on November 1, and hope you share our excitement for the opportunities that lie ahead for The Marcus Corporation.

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

Question-and-Answer Session

Operator

(Operator instructions) We will go first to David Loeb with Baird. Please proceed.

David Loeb – Robert W. Baird & Company

Thanks gentlemen. I wonder if we could start on theatres, can you give us a little color at least on the Appleton acquisition, if not explicitly the purchase price what kind of returns you expect, purchase price would be great?

Doug Neis

You know, eventually David, you will probably see the purchase price. At this point in time we’re not disclosing as the transaction hasn’t closed yet, but you know, it is – we have done a couple of other acquisitions. This is a single theatre. It does include real estate, which would tell you that the multiple is a little higher than if it was a lease, and our past acquisitions had kind of a mix of real estate and a few leases.

It is Appleton, Wisconsin, so from a – certainly we know the market well. We have been there. We’re already there from a market perspective. It is not Milwaukee or Chicago, and so from an average box office perspective it is probably a little less on average. But for the market it does very well, and it has been a very consistent theatre and we certainly applied our usual metrics in terms of how we have evaluate the investment, and feel that it certainly will be an accretive investment for us. And we are pleased to have it.

Greg Marcus

Good theatre. A good piece of real estate.

Doug Neis

Yes.

David Loeb – Robert W. Baird & Company

Given it is perhaps lower box office, is it fair to say this is likely somewhere below what we have seen as kind of an average of 0.5 million of screen

Doug Neis

Now you are talking on a purchase price standpoint now?

David Loeb – Robert W. Baird & Company

Yes, but just kind of general, not explicitly, we think 0.5 million of screen maybe around the going rate. So, given what you just said, is this likely to be less than that?

Doug Neis

Well, you know, I have shared with you in the past that when including real estate we can’t build a theatre for $0.5 million a screen. So, depending on – in Appleton the land cost is not going to be as much as we're building in Chicago. So in the past we have typically built a theatre from anywhere from $750,000 a screen to $1 million a screen or more in some cases. So, I would suggest that because there is real estate involved, and the past average you saw had a mix, you’ve got to build that into a little bit.

David Loeb – Robert W. Baird & Company

Okay. That makes sense. Thanks [ph]. Greg on the 3-D, I have asked you several times about the business model, are you still kind of in the same place with the distributors, where the revenue splits are running around the same for 3-D even though it is a higher ticket price and you have to put in additional capital, or has there been any movement on that?

Greg Marcus

You know, to have the distributors decide to let us have more money?

David Loeb – Robert W. Baird & Company

That they really want you to show these movies in 3-D?

Greg Marcus

You know, they are eager to have them shown but not that eager. The margins continued to be the same and we face – look at these guys have got a lot of pressure, and their business is really quite challenged, their whole model is challenged. And so they are pushing on every end, and they are pushing on us and it is – so, the answer to your question is no. The margins are no better.

David Loeb – Robert W. Baird & Company

The incremental revenue mix worthwhile to make this investment, could you continue to roll it out to more and more locations?

Greg Marcus

It is a positive David is that there is incremental revenue because we still get to keep 50% or little less than that of the increase in price. So, a chunk of that goes to cover our investment and the operating cost of 3-D. We pay, we pay through realty a fee, and so we have got that going on, but there is increased margin, and the thing that catches our eyes, which is no secret is that we’re seeing the box office, you are seeing increased box office and less people just the industry as a whole. And you know for us that is not the equation we like a whole lot because we make money when we get – we need more people coming in the door, and how is 3-D impacting that I’m not quite sure yet. The jury is still out.

We have to be very careful, and as we pointed out in our prepared remarks, movies that are not very good, but are 3-D and the big rush to 3-D so that they can sell them for more money. That is very short-term thinking and we’re concerned that – we don’t want that to happen too much because it can negatively impact us on the long haul.

David Loeb – Robert W. Baird & Company

So, you may sell fewer tickets, but certainly sold less popcorn?

Greg Marcus

Got it.

David Loeb – Robert W. Baird & Company

Yes, okay. That is bad for everybody.

Doug Neis

David, I would just jump in, the only caveat I would put would be that on the film cost issue and we have actually mentioned it briefly at our last conference call is that with our UltraScreen XL3-D we had found, and this is not enough to move the needle enough that you have noticed the big picture, but we have found that it was our desirable screens, and so we have had some situations where the studios have been willing to negotiate a little bit more on film rental if they can get that screen, which puts us in a position of as more product comes out saying, how badly do you want that screen?

David Loeb – Robert W. Baird & Company

Yeah.

Doug Neis

And so in fact, the ones we're putting out – the new, the latest announcement was just three more of the UltraScreen XL3-D.

David Loeb – Robert W. Baird & Company

And this will get you to 85%, I’m guessing that you will hit the last 15% in time as well (inaudible)?

Doug Neis

For the rhyme and reason to why we picked these three, but I certainly would think – we are heading that way with all the screens ultimately, in general at least.

David Loeb – Robert W. Baird & Company

Yes, okay. That makes perfect sense. On the hotel side, I guess as you come into the fall, particularly a time as you said that is a little more group dependent, a little less leisure dependent. Is occupancy getting high enough that you are comfortable with some kind of rate increases, and what have you locked in for group going forward, and is that going to hold back rate increases?

Doug Neis

I guess, I will respond first, the last half of the question, I mean as we have indicated the bookings, the pace has been better, or was but it has been better. The rates that we’re locking in that we are booking here are still lower. I mean there has been a little bit of movement there, but in general there is still – there is just as much pressure on that group booking rate as there is elsewhere right now, and so that still is a challenge. It is certainly lower than where it was.

On a year-over-year basis, we are making a little bit of progress. As it relates to the fall itself, and even it really reflects how we kind of managed the business this past summer as well. As Greg indicated, it wasn’t across the board, I mean, in average overall as indicated we were down 2.2% in ADR, but it wasn’t all 8 properties. We have a separate strategy for each property and in that market. So, we’re trying to approach it from a market by market basis, and Greg gave the example of Grand Geneva where I mean in the summer it was important to have people on campus. And so that was our approach with that property, but we are dealing with it on a property by property basis, and trying to push the rate a little bit in a couple of these properties.

Greg Marcus

I mean that has been – David as you know, in this business right now, everybody is seeing big occupancy drives, and not getting the rate. Now we’re pushing, we are pushing to get the rate. That is what we have been telling our guys, let us go out and get some more rate. I don’t think that we have got – it is not as – (inaudible), if there seems to be a clip with the leisure guys like could push the rate, sure. Let us turn off the faucet.

David Loeb – Robert W. Baird & Company

Right.

Greg Marcus

That is very frustrating. It is not so much with the group. And we’re pushing for it, and we will see how we do over time.

David Loeb – Robert W. Baird & Company

That makes sense. Last topic is capital allocation, you have spent on keeping your hotels fresh, which clearly is paying off. You have spent a little bit in this most recent acquisition, and you have been buying back stock. How do you view looking ahead, let us say the next year, how do you view your opportunities for investment? Do you think your stock is still likely the best use of your capital at this point?

Greg Marcus

Well, I mean the stock that we bought – you saw the numbers, basically the same that we talked about in July. So it was earlier in the quarter. Our remaining focus on trying to look at some opportunities to grow the two businesses that certainly would be our preference. But having said that, nothing is off the table in terms of buying back stock could be in the mix, dividend policy. I mean, we have talked about that in the past. That could be in the mix. We are not excluding any of the options at this point in time, and acquisition of a single theatre came along. We wanted to make sure we have the ability to do that.

Clearly, right now with our balance sheet we have got the ability to do more than that and we are focused on seeking some of those opportunities right now.

David Loeb – Robert W. Baird & Company

Are you seeing – I am sorry, go ahead Greg?

Greg Marcus

So, we look at these issues virtually every day, and I think what you will see is that we continue to we keep making. Yes, we take measured steps as we go along, and we will just keep doing that. So if the stock is appropriate, we will buy the stock back. But we are probably not going to make – we’re just going to keep making measured steps. That is what we do with our company and so it is – how we have always operated like that so we will continue to do.

David Loeb – Robert W. Baird & Company

Are you seeing interesting opportunities out there? It does look to us from our vantage point that the major urban market hotels are well bid, there are a lot of buyers out there for them, but in some of the secondary markets, it seems like there is less and it does seem like there is some distress situations that are beginning to percolate up and be disposed of. Are you seeing more opportunities there?

Doug Neis

Yes, the volume has picked up a little bit. It is not excessive, but it is happening. And we keep looking at properties, and you are right, in the good urban markets, it is not surprising to see 15, 20 bids on something now, but we keep looking at it, and we’re looking in all markets.

David Loeb – Robert W. Baird & Company

And I assume the same in theatre, are you still looking and talking to people, but it is just a matter of when opportunities arise?

Doug Neis

Yes, theatres are completely different. There is nothing driving that necessarily. It is just somebody – it is more personal motivation what is going on with a family member. Certainly, given the business robust nature over the last few years, there is not really anybody pressed to sell anything.

David Loeb – Robert W. Baird & Company

Okay, great. That is what I had. Thanks.

Greg Marcus

Thanks David.

Operator

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

Herb Buchbinder – Wells Fargo

You know actually, I kind of answered my question, I thought there were enough properties out there in the hotels that you might be able to do something this year, and maybe you just could give us an idea if you thought there is a good chance you would be able to acquire a hotel property in 2010 and even 2011? Do you think that is in the cards?

Doug Neis

You know, Herb, as Greg said, we have got a decent list of projects we are working on. To be clear, and as Greg said in his prepared remarks, we’re looking at this in a variety of different ways, and so it might not necessarily mean acquire a ninth company-owned property that would be structured that way. We are looking to expand our management business. We are willing to co-invest. And so there is a variety of different ways that we are looking at trying to grow that and you know, the project list in the our development guys are working on right now is maybe a little bit longer than what it was previously, but it is not – as Greg said, it is not excessive. So, it is hard to tell if we will have several of them hit or we will have one of them hit. We certainly have some dollars set aside in our capital budget for something to happen.

Herb Buchbinder – Wells Fargo

You typically have an equity interest when you manage your property, what percentage of the managed properties due you have an actual equity interest in the whole property?

Doug Neis

Today we have of the 11 managed properties that we have, we have an equity interest in 2 of them that are just the traditional equity interest, and we have a 15% interest in 2 of that we are managing. However, another two of them are those condo hotels that we certainly have a financial interest in as well. It is not structured the same way. So, 4 out of the 11, we have some sort of financial interest, and the other ones are straight management contracts.

Herb Buchbinder – Wells Fargo

As you look at some of these deals in the future, is that something that you like to do, has it had the equity interest, or it is not a major consideration when you look at doing a management deal?

Doug Neis

You know, we are willing to do both. We think it is a strategic advantage for us, not every management company can do what we can do in that perspective. So we think that in some cases that does provide with a competitive advantage, but some of the deals that we are pursuing may just be straight management as well.

Herb Buchbinder – Wells Fargo

All right. Thank you.

Operator

Your next question comes from the line of Marla Backer with Hudson Square. Please proceed.

Marla Backer – Hudson Square

Thank you. I was hoping we could get a little bit more color on the 3-D footprint that you are growing, so in your markets where you have upgraded to 3-D what percent of the total 3-D footprint do you comprise? Are you it, or are they other 3-D players?

Greg Marcus

There are other 3-D players. It depends on which markets you are talking about Marla, but in some markets we are it, and in some markets there are other three players.

Doug Neis

Again with the caveat that in general, we have the vast majority of the screens in our specific markets. Now, if you can define the market as Chicago, there are 3-D players. If you are going to be a little more narrow about the definition of the market, and talk about the various zones in Chicago, then we tend to be – the 3-D competition will just be in an adjacent zone where someone will be driving theoretically kind of out of their normal territory to just go see a film, but locally here in Milwaukee there is a theatre that is kind of in the centre of town that has an IMAX 3-D.

Marla Backer – Hudson Square

And in your theatres where you have the 3-D screens, are you providing side-by-side 2-D screens on the same title?

Doug Neis

It depends on the title Marla. It depends on what the distributor’s preference is, what our preference is.

Greg Marcus

You know, with all the major titles, the answer will likely be yes. But (inaudible).

Marla Backer – Hudson Square

Right, nobody showed that.

Greg Marcus

Right.

Marla Backer – Hudson Square

And then has there been any change for you in terms of the day-to-day operations of Screenvision given all of the potential changes with management there?

Greg Marcus

No. We had a good summer for our advertising ancillary income and the operating folks have been consistent. The short answer is no.

Marla Backer – Hudson Square

Okay, good. And then my last question, just so that I understand when you are talking about on the hotel business, the group bookings, that is also corporate but it is unrelated to convention business, is that how I should think about that?

Doug Neis

Yes. I mean, two of our hotels are convention hotels in Milwaukee and Madison that have convention centers, where they are getting citywide type of activity as well. So group business is a sub – convention business is to subset of that, but on the broader sense, Grand Geneva does lots of group business. The Milwaukee Hilton, which is a convention hotel also, does its own group business that is not associated with the convention business. So, yes, it is corporate group business that is vast majority of that business with convention citywide type activity being a subset.

Marla Backer – Hudson Square

Thank you.

Doug Neis

You are welcome.

Operator

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

Doug Neis

All right. We certainly want to thank you once again for joining us today. We hope to see some of you at our annual meeting on Wednesday, October 13, at the North Shore Cinema in Mequon, Wisconsin. For those of you who cannot attend, we will be web casting that meeting. We also look forward to talk with you once again in December, when we release our second quarter fiscal 2011 results. Thank you and have a great day.

Operator

That concludes today’s call. You may disconnect your line at any time.

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