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Marcus Corporation (NYSE:MCS)

Q2 2011 Earnings Call

December 16, 2010 11:00 am ET

Executives

Gregory Marcus – President, Chief Executive Officer

Douglas Neis – Chief Financial Officer

Analysts

David Loeb – Robert W. Baird & Co.

Gregory Macosko – Lord Abbett

Operator

Good morning everyone and welcome to the Marcus Corporation Second Quarter Earnings conference call. My name is Keisha and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero and an operator will be happy to assist you. 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.

Douglas Neis

Thank you and welcome to our fiscal 2011 second quarter conference call. As usual, I need to begin by stating we plan on making a number of forward-looking statements on our call today. Our forward statements can 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 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 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 with that behind us, let’s talk about our fiscal 2011 second quarter results. We’re pleased to be reporting that the positive trends in our hotels and resorts division continued into our second quarter, resulting in significant year-over-year improvement from that division even after adjusting for last year’s impairment charge. Meanwhile, although our theater division is reporting a small increase in operating income, the fact remains that if not for last year’s one-time pension withdrawal liability charge, we would be reporting a decrease in operating results from this division during the quarter.

But before I get into the operating results, 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 too many variations in most of these lines this time around.

Our investment income continues to be down slightly from the prior year as our remaining outstanding loans from our former timeshare business continue to be paid down; and our interest expense was down over $100,000 during our fiscal 2011 second quarter and is down approximately $400,000 year-to-date compared to the prior year’s same period, due primarily to reduced borrowings.

Other than a theater acquisition during the quarter, our capital spending remains relatively low, contributing to the reduced borrowing levels. As you know, our cash inflows are typically lower during the winter months, so we might see our debt levels rise in future periods. Our overall debt to capitalization ratio at the end of the quarter was a very strong 40%, down from 41% in our May fiscal 2010 year-end.

Moving down the P&L, we had a negative comparison in our gains and losses on disposition line this quarter and for the first half of this year compared to the same periods during fiscal 2010 because last year benefited from a favorable legal settlement related to original construction on the condominium units at our Platinum Hotel and Spa in Las Vegas.

And finally, our effective income tax rate during the first half of fiscal 2011 was 38.3% compared to 37% last year, with both years’ second quarter rates benefiting from adjustments in our year-to-date assumptions. I currently expect our tax rate for the final two quarters of the year to be closer to our historical 39 to 40% range pending any further changes in assumptions, lapses in statute of limitations or potential changes in federal state tax rates.

Shifting gears, our total capital expenditures including acquisitions during the first half of fiscal 2011 totaled just under 16 million compared to just under 11 million last year at this same time. The largest component of this year’s expenditures, of course, was the previously announced Appleton, Wisconsin theater acquisition. The remainder of the fiscal 2011 capital expenditures were again spread almost equally between our two divisions and represented typical renovation and maintenance capital at our existing properties.

At the beginning of the fiscal year, we estimated that our capital expenditures for fiscal 2011 could total in the 40 to $60 million range, noting that a portion of this estimate included a certain level of potential unidentified growth projects; and while several of these types of expenditures still could arise in the remaining six months of our fiscal year, my current assumption is that our estimated fiscal 2011 capital expenditures may more likely end up in the 30 to $40 million range, which would still be very consistent with or even slightly higher than the last three fiscal years. Of course, the actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditure number, as will any current unidentified projects that could develop during the remainder of the fiscal year.

Now before I turn the call over to Greg, let me provide a few additional financial comments on our operations for the second quarter, beginning with theaters. As you saw in our press release, our box office revenues were down 3.1% during the second quarter with concession revenues down 5.8%. Year-to-date, box office revenues are now down 2.8% while our concession revenues are down 5.6%.

Similar to our first quarter, our entire decline in box office receipts really occurred during one week of the quarter; in this case, it was the last week. Prior to that last week before Thanksgiving, we had incurred six weeks with increased box office receipts and six weeks with decreased box office receipts during our fiscal 2011 second quarter compared to the same week the year before. But as we noted in our release that the comparisons to the opening week of the Twilight film and The Blindside last year were too much to overcome.

The overall decrease in theater revenues was entirely attributable to a decrease in attendance at our comparable theaters of 7% for the second quarter and 6.7% for the first half to date. The impact of our overall attendance decrease was partially offset by an increase in our average admission price for these theaters of 2.9% for the second quarter and 3.7% year-to-date. Premium pricing on our digital 3D attractions and ultra screens contributed to the higher average admission prices. Our average concessions and food and beverage revenues per person increase 0.3% during the second quarter and is now up 0.6% year-to-date.

As noted in our release, comparisons to last year were impacted by the one-time $1.4 million charge we took to operating income last year related to a Chicago union pension withdrawal liability. Excluding that charge from last year’s numbers, our operating margins from this division are now running two points behind last year at 18.4% compared to 20.4% last year. Approximately a quarter of that margin decline, or about half a point, related to favorable real estate tax adjustments made last year. The remainder of the decline in margin was due really just to the impact of the reduced attendance on our fixed operating costs.

Shifting over to our hotel and resort division, as we noted in our release, our overall hotel revenues were up 13% and total REVPAR was up 14.5% during the quarter compared to the same period last year. Year-to-date, our REVPAR is now running 15.1% higher than it was last year at this time, and as we’ve noted in the past, our REVPAR performance did vary by market and type of property; though once again, all eight 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 increased an increase in REVPAR of 7.8% during our fiscal 2011 second quarter, and 8.3% during the fiscal 2011 first half; so for the third quarter in a row, we have significantly outperformed the national average.

Our fiscal 2011 second quarter overall REVPAR increase was a result of an overall occupancy rate increase of 10.2 percentage points and an average daily rate decrease of 1.2%. For the first half of fiscal 2011, our occupancy is now running approximately 11.4 percentage points ahead of last year, and our average daily rate has decreased 1.7%. As we noted in our release, our comparisons to last year in this division were also favorably impacted by the $2.6 million impairment charge we took last year on our Las Vegas condominium units; but even excluding this charge from last year’s results, our operating income rose 36.2% during the second quarter and 43.6% during the first half of fiscal 2011 compared to the same periods last year. Our year-to-date operating margin of 11.4% compares very favorably to an adjusted margin of 9% last year.

Our fiscal 2011 second quarter and first half operating income and operating margins would have in fact been even better than if not for two other items that have negatively impacted our comparability of our financial statements, both related to the Platinum Hotel. Earlier, I referenced a legal settlement received last year that resulted in a favorable adjustment to last year’s gains on dispositions. That same settlement last year also reimbursed us for some legal costs and thus favorably impacted our operating income last year by over $200,000. Conversely this year, we continue to incur significant legal expenses related to various other Platinum lawsuits, and those costs which total over $700,000 so far this year, are running over $200,000 higher than last year at the same time. Combined, this is a $400,000-plus unfavorable comparison in our fiscal 2011 results compared to last year’s year-to-date operating results.

Finally, while I’m on the subject of comparisons to last year, I’d be remiss if I didn’t remind everyone that last year during our fiscal 2010 third quarter, which will be obviously the next quarter we report, our operating results benefited significantly by a change in estimate related to our deferred gift card revenue. More specifically, our theater division third quarter results last year included approximately 2.2 million in gift card breakage revenue related to periods prior to the third quarter, and our hotel division results included approximately $500,000 of similar revenue related to prior periods. We obviously won’t have this combined $2.7 million of pretax prior period breakage revenue which translates to approximately $0.05 per diluted share in our fiscal 2011 third quarter results that we’ll report next March.

With that, I’ll now turn the call over to Greg.

Gregory Marcus

Thanks, Doug. I’ll begin my remarks today with our theater division. After two consecutive years of record results in our theater business, we have now had two quarters in a row of reduced operating results. Disappointing, but certainly not unprecedented in this rollercoaster business.

I think it’s fair to say that the theater business is in a little bit of a funk right now. As Doug shared with you, we’ve been up and down from week to week all year long, and Hollywood has just not been able to put a string of top performing films together. In fact, I don’t think we’ve had more than two consecutive weeks of year-over-year box office improvement during the first six months of our fiscal year. The result has been an inconsistent first half that has seen box office revenues essentially even with the prior year in total for 23 of the first 26 weeks, bookended by year-over-year decreases in the two weeks following Memorial Day and the week leading into Thanksgiving, time periods the studios traditionally have saved for some of their best offerings.

As I indicated last quarter, there hasn’t been a lot of depth to films made this time around. While the final totals for calendar 2010 are not in yet, one of the problems has been a reduction in the number of films released during the year, a reflection at least in part of the reality that lack of financing over the past couple of years has resulted in less pictures being produced. As we have discussed in the past, part of this business is a numbers game – the more films released, the greater the odds that one or more of them will be hits with the movie-going public. The one or two extra blockbusters can make the difference between the record revenues we reported the last two years and the okay but not great couple of quarters like we’ve reported so far this year in this division.

And I must tell you that we haven’t seen a trend change during the early weeks of our fiscal 2011 third quarter. In general, the pictures released to date have generally underperformed, including this last weekend’s much anticipated releases of a third Narnia film and the Johnny Depp-Angelina Jolie film, The Tourist. And as you know, we are about to start going up against the results from the highest grossing film of all time, Avatar, so we certainly have our work cut out for us this next quarter.

While I’m paid to worry about our weekly box office results, it’s important sometimes to see the forest for the trees and remember that this can be an unpredictable business in the short term, while in the long term, it is more reliable and eventually we will see better trends with more hits. Hopefully a couple of those films listed in our press release will be those hit films; and if not, then we’ll look forward to the new releases scheduled for 2011. I know our booking department is already excited about next summer. They always are.

In the meantime, we’ll keep executing on the strategies we’ve communicated to you in the past, which include pursuing growth opportunities such as the theater acquisition and new theater site noted in our press release, as well as seeking ways to expand our revenue opportunities in our existing theaters.

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 three 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.

The release notes that our REVPAR growth has significantly outpaced nationwide REVPAR growth for the upper upscale segment. Doug shared with you that our compilation of Smith Travel’s numbers indicate that REVPAR for this segment grew by 7.8% during our second quarter compared to our reported REVPAR increase of 14.5%. That kind of performance implies market share growth. In fact, on a consolidated basis our owned hotel portfolio has shown an increase in our overall REVPAR index, which is an indicator of market share for 10 months in a row now versus our competitive set of hotels in our markets.

While there could be many reasons for this outperformance, I believe our aggressive marketing and innovative promotions, combined with our ongoing investments in our assets, including two of our largest properties, have contributed to our recent success. As I noted during our last call, it is 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 as I discussed during the first quarter call and as we indicated in our first quarter 10-Q, the more telling comparison might be how we are doing compared to our fiscal 2008 results prior to the industry downturn. This comparison clearly shows how the recovery has unfolded thus far and how much farther we have to go before we are truly back to pre-recession levels.

More specifically, our fiscal 2011 second quarter REVPAR was 9.3% lower than our fiscal 2008 second quarter REVPAR. While this is significantly better than the 20%-plus declines we were experiencing just a year ago, it also shows you that there is still room for improvement; and when you dig into the numbers a little more, it becomes pretty obvious that the biggest opportunity we have is in our average daily rate, or ADR. In fact, our combined second quarter occupancy percentage at our eight owned hotels of over 74% was actually more than 2.5 points higher than our second quarter fiscal 2008. Conversely, our overall ADR for these same eight periods in this year’s second quarter was just over $133, which was 12.7% lower than our fiscal 2008 second quarter ADR.

Thus in order for this current recovery to be complete and in order for operating margins to be maximized, we still need average rates to improve. This is the biggest challenge we are facing right now. The industry was hit hard and we remain in a very fragile economic environment. So, as I’m sure you have heard from other hotel operators, this will not happen overnight.

In the short term, we believe the tradeoff between occupancy and rate has been 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.

We made a little headway towards this end during our second quarter with three of our owned hotels reporting small increases in ADR, but we obviously still have a ways to go. This will not be an easy task as we continue to experience a strong pushback on rates during the quarter just completed, particularly from our leisure guests and corporate volume hotels. As you know, the leisure segment generally requires a greater use of alternate Internet channels which further erodes our effective average rate.

Our group bookings, while not back to where they were, continue to improve. A lot of this group business continues to be booked with minimal lead time, but we are starting to see some ADR improvements on this segment of our business. Ancillary spending, such as for food and beverage, that often goes along with group business is improving as well, but the pace is inconsistent and can best be described as chicken, not steak, on the plate. Over time, however, with supply growth in our market segment limited in the short term, it should be reasonable to expect that we will gain pricing power as the economy improves.

Looking ahead to the remainder of our fiscal year, we currently expect our third quarter revenues to continue to show increases over the prior year, but the dollar volume is so much lower during these winter months at our largely Midwestern properties that we don’t expect it to translate into as large an improvement in our operating income compared to the prior year as we have seen in recent quarters, particularly when you add in the one-time unfavorable comparison on gift card breakage income.

Our fiscal fourth quarter is even harder to predict at this time given the short lead times we have on most of our bookings. We had a very good fourth quarter last year, driven in part by some very strong group business that we don’t expect to replace at one of our largest hotels; so our comparisons to last year will get a lot tougher during the last quarter of our fiscal year.

Finally, we continue to look for opportunities to grow our hotels and our management through a variety of different ways. While transaction activity has improved, it’s still limited at this point. With a 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.

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

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, if you have a question please press star followed by one on your phone. If your question has been answered and you would like to withdraw your question, please press star followed by two. Questions will be taken in the order received. Please press star, one to begin.

We’ll go to the first question from the line of David Loeb representing Robert W. Baird. Please proceed.

David Loeb – Robert W. Baird & Co.

Good morning, gentlemen.

Douglas Neis

Hey, David.

Gregory Marcus

Hi David.

David Loeb – Robert W. Baird & Co.

I want to start one with an easy one for Doug, kind of a housekeeping thing. The legal expense related to the Platinum that you mentioned was ongoing, did that go in the hotel operating expense line or in G&A?

Douglas Neis

It is—well, when you look at the segment data, it is in the hotel P&L; so when you see hotel operating income, hotel operating income has been impacted. If you’re looking at the SEC—the face of the earning statement, then it’s probably on that G&A line. I believe so.

David Loeb – Robert W. Baird & Co.

Got it. Okay. But the segment data is what I’m paying more attention to.

Douglas Neis

Segment data, yes. It is in the hotel operating results.

David Loeb – Robert W. Baird & Co.

So that’s really one of the reasons—that’s holding back margin gains, that’s one of the things as well as (inaudible).

Douglas Neis

Absolutely. Yes, as I indicated, it’s $700,000 year-to-date and so that’s a pretty significant number.

David Loeb – Robert W. Baird & Co.

Yes. And just to continue on hotels, when do you—Greg, given the comments you made about group bookings and particularly in the fourth quarter, what’s the outlook for rate increases? Do you think you’ll be able to start seeing better rate increases in the third quarter and not in the fourth quarter, or do you think there’s enough transient business around that actually helps you start to push rates a bit?

Gregory Marcus

You know, it’s so hard to predict, David. What we’re seeing—I can tell you anecdotally, what we’re seeing in that is that there’s a lot of pent-up group business that’s coming back, but—and the rates are marginally better but they’re not—but we’re seeing resistance. We can’t—we’re not able to at this point just really push real hard on the rate, but we are pushing on it. Corporate, market-dependent—50/50, some markets, depending on what the buyer has, what the restrictions may be, if they’ve got less opportunity, then they are susceptible to rate increases. If there is more opportunity, there’s still a fair amount of supply out there and so it’s not as robust. But it’s—you know, it continues to just move along and move along at a decent pace. But it’s what we’re seeing now – we’re seeing a lot of occupancy but not a lot of rate.

David Loeb – Robert W. Baird & Co.

And as you stack in that additional occupancy, particularly the group, does it allow you to mix out some of the discount channel leisure?

Gregory Marcus

Yes, it does; but we still—you know, we still fill it when we have to, when we can—I hate to say can, but when we have to.

David Loeb – Robert W. Baird & Co.

Yeah. No, I get it. And then to switch over to the theater business, it sounds like you’re not overly optimistic about the film outlook. I guess you don’t think Yogi Bear can outperform Avatar.

Gregory Marcus

Ha! I can say with some confidence that probably won’t happen.

David Loeb – Robert W. Baird & Co.

Yeah. So when do the comps start getting easier?

Gregory Marcus

You know, we’ve started seeing kind of this current little—you know, we used the word funk earlier for lack of a better word, late spring. I mean—

Doug Neis

Shrek, Iron Man – nothing has really performed robustly in the last year.

Gregory Marcus

Correct. I’d say the last one that really came out of the gate that was really robust and where everyone stood up and took notice was Alice in Wonderland, which was that March picture; and then after that, everything—you know, it wasn’t as if pictures didn’t do alright. They did; but just nothing that was very consistent.

David Loeb – Robert W. Baird & Co.

Yeah, it does seem like there are a lot of me-toos and sequels. You get something like Avatar and Alice in Wonderland, they’re kind of different and they seem to find an audience.

Gregory Marcus

Yeah, it really—I think, look at it. There’s a lot of factors that go into it, and no one can ever point to one thing, I think, when they talk about the film business. It’s sometimes, they all say, well business bad is bad, we don’t have any product. When business is great, we have a lot of product. Well, it’s a mixture of things. It’s the economy is a big chunk of it. So as the economy has gotten better, that—and people are out on the road and travelling more, that impacts the theater business. As the product—the product does run—it can be streaky, and I think that we’re in a little bit of a product funk. We haven’t seen anything that’s really been getting anybody too excited on the product side. And when those things all come together—and then, you know, we’re going up against some tougher comps, it—oh, and then as we talked about, the numbers game. That’s really interesting when you think about it. That may be one of the biggest things that people talk about, and it takes a few years to wind through the system and it works in both directions. But when you see—you always see people gear up for strikes. They start making a lot of movies in anticipation of a talent strike of some sort, and then there’s always a lot of movies in the pipeline if they don’t go on strike and then, boy, the numbers get really good. Right now—you know, there was a lot of sloshing around money that was financing films in Hollywood a few years ago that dried up, and so while they always get movies made, because movies do do okay – the studios figure out a way to make them – they make less of them. And when they make less of them, then not surprisingly we have less opportunities for success. And so all those factors combined are coming together right now, and it’s funny – as I tried to talk about in those comments about the forest for the trees, we are only going up against the best year in the history of the movie business last year of exhibition, when we cracked $10 billion in revenues. So this year has been pretty good when you look at it on a more macro scale on the revenues, but it’s going up against some tough comps, so.

David Loeb – Robert W. Baird & Co.

Yeah, that all makes sense. I guess—is there a little bit of reallocation of the financing of those films that’s going into fewer films but bigger budgets, or more 3D?

Gregory Marcus

There is—you’re right. There’s been a mix shift on the side of Hollywood where they’re making more—they’re going for the larger tent poles and we’re seeing fewer of the midsize films. But there’s less money in the industry to make movies.

Doug Neis

Yeah, in fact David, it’s interesting. Where some of it is is not necessarily in the majors that we traditionally think of, but in some of the independent distributors. Just two years ago in 2008, there were—I’m looking at a schedule here that shows there were over 30 pictures released by MGM and Weinstein, that they virtually had nothing this past year. And some others have stepped up and maybe replaced some of it, but the indy—independent film distribution total has significantly dried up or has certainly declined, and that might make some sense from the money perspective. You know, that would be the first to go.

David Loeb – Robert W. Baird & Co.

I guess last question on this and on everything for now – as you look at the lineup and the 3D mix within that, do you think that the pricing mix continues to trend a little bit higher as it generally has over the last year?

Gregory Marcus

Boy, you have the crystal ball. You know, the pricing is moderating. We’re not seeing as much of the gains as we saw. Well, starting to lap it, too. So I don’t think that it’s going to continue to grow on the revenue side as much, on the ticket side as much, which for us might be okay because I’d like to see it come back to the concession side, so. It makes us more money there.

David Loeb – Robert W. Baird & Co.

Okay, great. Thanks.

Operator

Ladies and gentlemen, again, if you wish to ask a question please press star followed by one on your phone.

Your next question comes from the line of Gregory Macosko representing Lord Abbett. Please proceed.

Gregory Macosko – Lord Abbett

Well, I guess I’ll ask a question.

Gregory Marcus

Hey Greg. How are you doing?

Gregory Macosko – Lord Abbett

Hey, fine. Just give me a little more color in the group bookings, just to understand that. We’ve talked to some others about that, and that there’s—you know, they may be stretching out a little bit, but any feeling for that? You kind of said the rates are a little tougher, but are they going out further or what’s going on there?

Douglas Neis

Yeah, you know, the color that I got—I spent some time with Bill Otto, our Division President, to get some understanding of this myself, and it’s still a lot of last-minute stuff, Greg. A lot of the improvement has been coming in with—I mean, every week the phone ringing with a bunch of our local companies and other ones, as Greg used the term, pent-up demand. Well, there’s some of that going on, but the thing that he stressed with me how last-minute a lot of it is still. So that would certainly be one of the additional pieces of color I would add, is that it still is not—we’ve had now, I think it was five months when we talked last time, so I think now it’s probably eight months of the pace being better than it was before. So that’s all good, and the rates that we’re negotiating are a little better than what they’ve been but the hardest part is just the visibility because it’s not just not that long a lead time on most of this.

Gregory Macosko – Lord Abbett

What about—okay. I understand, yeah. That’s just good to get a sense of it. Talk about the pricing in the theater. That was up 2.9%. How much was that influenced by 3D? What’s the—I assume a lot of that was. Give me some color there.

Gregory Marcus

That’s all. That’s most of it.

Douglas Neis

All 3D. We have not been very—we’ve made periodic adjustments to our pricing and we’ve got a—you know, we follow kind of a schedule in that regard, but we haven’t made significant changes. That’s probably mostly 3D—just a few more 3D films. You know, we are starting to—there still is overall a general uptick in the number of 3D films that are being released, but even that’s starting to—before, we were comparing against only having a handful of them, and now we’re going to have 20-some films that were released in this current calendar year. It will be 30 or so next year, so the pace of the year-over-year number of films is probably declining a little bit now.

Gregory Macosko – Lord Abbett

Yeah, but still it’s going to be up. It’s going to be up in ’11.

Douglas Neis

It’s still expected to be up. Sure. So that’s why—you know, I think that’s why Greg answered the way he did, that we certainly—last year, though, or as recently as, I think it was in our fourth quarter, whenever it was, that we were reporting 7 and 8% increases in average ticket price.

Gregory Macosko – Lord Abbett

Ah, that’s true.

Douglas Neis

(Inaudible) that’s going to be the case.

Gregory Marcus

The other thing that’s going to keep us a little more moderated, and it’s because we have a conservative outlook, I would say, on what 3D means and where it’s going; and I think it’s still working its way through the business and what does it mean in terms of this—we haven’t had this severe a stratification in pricing that I can ever remember. Since I was a kid – I have to go back a long time. You know, what we bump into is we’ve deployed 3D through all of our complexes, or most all of them, all of our markets have it. We continue to cautiously add it where we can and when we think it has value. You know, as we’ve done recently—added it to our XL 3D, which is our ultra screen with a 3D version on it, which is a great presentation. But we haven’t just gone whole-hog crazy trying to get it everywhere, and so that’s a little bit of a governor on how much better we can do with it because they’re throwing enough product at it right now that we start to run into having to make trade-offs to what can play and when. And as we move along, unless we add more inventory, so to speak, more shelf space, we can’t put too much more inventory through ourselves.

Gregory Macosko – Lord Abbett

I see. Okay. And then with regard to the sort of upgrade of theaters, you basically pulled the CAPEX expectation because you’re probably not going to make any acquisitions or do anything there in terms of theater, but is there still sort of upgrades going on relative to 3D in terms of that 30 to 40 you probably are likely to spend this year?

Douglas Neis

Well, actually all along when we’ve been talking about the dollar amounts, Greg, in capital spending, the 3D component has been pretty minor because to date we’ve been able to have, through a variety of different programs that have been offered through RealD and others, we’ve been able to keep the investments relatively small initially while we still seek a longer term digital cinema program, a VPF program. As we’ve talked about, you have to have the digital projector first, and so we’ve been continuing to work on identifying ultimately the long-term solution for that. So we have not had a lot of—the capital expenditure dollars we’ve been talking about have not had a lot in there for the 3D because it just hasn’t required that much additional. You are correct in noting that we had some money in those dollars that we initially said not just for theaters but also on the hotel side for equity investments and things along those lines. And six months into it, while we’ve got a lot that we’re working on, we haven’t had to put any of that money out yet and so that’s why we mainly brought the number down.

Gregory Macosko – Lord Abbett

Okay. And yeah, I forgot about the 3D situation. But with regard to the theaters—in other words, the spending on theater is kind of ongoing, normal, kind of what you’ve always been doing?

Douglas Neis

Absolutely. I mean, we’ve done some—we’re doing some remodeling. We did some—a couple of our locations were due for some upgrades, and we’re looking at some food and beverage expansion, which we’ve always talked about in our strategy as well. And so it’s things along those lines.

Gregory Macosko – Lord Abbett

And then back to theaters, are you expecting—what’s the sort of the live event, the tenor there? I mean, has that continued to rise? I would assume that helps the theater tickets a bit too, albeit it’s not that big a piece of things, of total. But talk about that just a little bit.

Gregory Marcus

Yeah, I think your last little qualifier is what really sums it up. It’s not a very meaningful number yet. It continues to grow. It continues to be a piece of it, but the problem with alternative content – the live shows – you think about that. Start with how the dynamics of the movie business, where you get 20 to 30 million people on a weekend being driven by our theaters and the studios’ marketing; and they’re marketing for five shows a day, every single day. So that volume of people in a virtuous circle allows them to—or has them spending a lot of money on marketing because you can—you’ve got a long run going there. Not as long as it used to be, but a longer run. When you’re playing something once in a couple theaters in a market, how much marketing can you do? How big a piece will it ultimately be? Will it be a nice piece? Yeah. But it needs to be stuff that’s not on a Saturday night. We’re not exactly—you know, we’re busy on Saturday nights. We can do stuff for a Tuesday night.

Gregory Macosko – Lord Abbett

But if I look at it—I mean, obviously it’s small, yes. But I’m just curious – is the idea that when you play it on a Wednesday or a Thursday or whatever night you play it, does it really bring in—is the house fuller?

Gregory Marcus

Sure. Yes. It brings in the people, and the numbers—some of the numbers get our attention. Like the Glenn Beck stuff, we were like wow, that was pretty good. Glenn Beck does some nice numbers. The Met does good stuff. But you know, it’s—

Gregory Macosko – Lord Abbett

One night a week, one night in a week once a month or something like that.

Gregory Marcus

You know, it’s the nice plate of cookies they bring you after dinner. It’s not the full tiramisu, but it’s a nice little shortbread cookie.

Gregory Macosko – Lord Abbett

All right, thanks very much.

Operator

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

Douglas Neis

Well thank you. We certainly want to thank all of you for joining us today. We look forward to talking to you once again in March when we release our third quarter fiscal 2011 results. We certainly want to thank you again for joining us and we hope you al have a very wonderful holiday season and a happy new year.

Operator

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

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