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The Marcus Corporation (NYSE:MCS)

F4Q13 Conference Call

September 20, 2012, 11:00 am ET

Executives

Greg Marcus – President, CEO

Doug Neis - CFO

Analysts

David Loeb – Baird

Gregory Macosko – Lord Abbett

Brian Rafn – Morgan Dempsey Capital Management

Operator

Good morning, everyone, and welcome to the Marcus Corporation first quarter earnings conference call. My name is (Lisa) and I'll be your operator for today. At this time, all participants are in listen-only mode. (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.

Doug Neis

Thank you very much. Welcome, everybody, to our fiscal 2013 first quarter conference call. As usual, I 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 no be limited to statements about our future revenue and earnings expectations, our future RevPAR occupancy rates and room rate expectations for our hotels and resorts division, expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future, expectations about the future trends in the business group and leisure travel industry and in our markets, expectations and plans regarding growth in the number and type of our properties and facilities, expectations regarding various non-operating line items on our earnings statement and our expectations regarding future capital expenditures.

Of course, our actual results could differ materially from those projected or suggested by our forward-looking statement. 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 in the SEC or the company.

We'll also 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 2013 first quarter results. As you can see, it was a challenging quarter for our theater division, particularly as compared to the record fourth quarter results we just reported to you less than two months ago.

I'm going to take you through some of the details behind the numbers and then turn the call over to Greg for his comments.

As you can see, there really weren't any significant variations in most of the other income and expense line items below operating income other than an other reduction and interest expense compared to the prior year.

Interest expense was down nearly $300,000 during fiscal 2013 first quarter compared to the prior year due to both reduced borrowings an a lower average interest rate. As you know, during the summer, we're at our peak of our cash flow inflows and so while at the same time we generally refrain from significant capital spending.

As in the past, we'll likely see our debt level rise in future periods now that the summer is behind us. Our debt loss will increase once we close on our recently announced Cornhusker Hotel transaction due to the fact that we'll be assuming an existing mortgage on that hotel; more about that hotel in a minute.

Now our overall debt to capitalization ratio at the end of the quarter was 36%, down slightly from 37% on our recent May year-end due to the afore mentioned strong cash flow summer for us.

One non-operating item that did impact our reported first quarter results was an increase in our effective income tax rate for the quarter. Our effective rate of 41.9% this quarter was the result of an increase in our liability unrecognized tax benefits.

This arose due to our receipt of a preliminary proposed state tax audit adjustment from one of our taxing authorities during our fiscal 2013 first quarter. We're challenging this particular adjustment, so a final disposition of this item is yet to be determined.

I currently expect our effective income tax rate for the remaining three quarters of fiscal 2013 to be closer to our historical 40% average rate.

Shifting gears, our total capital expenditures during the first quarter of fiscal 2013 totaled approximately $5.3 million compared to $3.7 million last year. Approximately $3.6 million of this amount was incurred in our theater division, of which the completion of our newest Zaffiro's Pizzeria &Bar and our New Berlin, Wisconsin theater and renovation at our Crosswoods theater in Columbus, Ohio and the completion of our newest ultra screen in Duluth, Minnesota represented the largest component.

But noted earlier, we generally tend to limit our capital spending during our busy summer time period. 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 expenditures for fiscal 2013 of an amount in the $65 million to $90 million range recognizing that, as we've pointed out in our recent 10-K filing, the timing of several of our plant expenditures are still just estimates at this time.

We're still finalizing the scope and timing of many 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 underway or proposed will certainly impact our final CapEx number as will any currently unidentified projects that could develop during our fiscal year.

And now I would like to provide some additional financial comments on our operations for the first quarter beginning with theaters.

As you can see in the reported numbers, our box office revenues decreased 12.9% during the first quarter, with concession and food and beverage revenues down 8.3%. these decreases are attributable to a decrease in attendance at our comparable theaters of 13.7% for the first quarter.

Now, as our press release points out, the vast majority of the decrease in our attendance and revenues occurred as a result of the lack of a Memorial Day weekend during this year's results compared to last year and reduced results during the nearly three-week period during the Olympics.

In fact, approximately 88% of our total box office declined this quarter compared to the prior year occurred during these four applicable weeks.

Our average admissions price for these theaters decreased by 0.1% for the quarter due primarily to the fact that last year's top two films, sequels to the popular Harry Potter and Transformer series both were available in 3D, driving up our average admission price compared to this year's number.

Our average concession and food and beverage revenues per person increased by 4.7% compared to the same quarter last year, partially offsetting the impact of the reduced attendance on our concession revenues.

Our new Zaffiro's and New Berlin opened on August 3rd, so it did not have a significant impact on our reported results for our fiscal 2013 first quarter.

Shifting to our hotel and resort division, as we noted in our release, our overall hotel revenue was up 2.9% and our total RevPAR was up 3.7% during the quarter compared to the same period last year.

As we've noted in the past, our RevPAR performance did vary by market and type of property and all but one of our eight company-owned properties reported increased RevPAR again this quarter with the only very small decrease the result of a difficult group room comparison.

Our fiscal 2013 first quarter overall RevPAR increase was a result of an overall occupancy rate increase of 0.7 percentage points and an average daily rate increase of 2.9%.

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

Greg Marcus

Thanks, Doug. I'll begin my remarks today with our theater division. Forgive me if you've heard this before, but what a difference a few weeks can make. It was just eight weeks ago during our year-end conference call that I was commenting on our recently completed record fourth quarter and fiscal year results for this division.

We even gave you fiscal 2013 first quarter to date update indicating that other than the decrease in our box office due to the Memorial Day weekend comparison, our first quarter box office revenues up to that point were essentially even with the prior year.

Well, no sooner had I said that when we proceeded to end the quarter with five consecutive weeks of year-over-year box office declines. And if you shake your head a little when you see this happen, so do we.

That being said, having been in this business for seven year, we are well aware of the potential for high degrees of variability and performance. So while disappointed, we are always aware of the potential and do our best to manage that.

The good news in this business is that every Friday, optimism reigns as a new slate of films opens.

We don't always go from one extreme to another like we just did this time in consecutive quarters, but it is always exciting to see what happens, I will tell you that.

It's obviously no secret that the most important factor impacting attendance has been and always will be the quality and quantity of the films released during the period.

Doug shared with you the fact that nearly 90% of our box office decline this quarter occurred during the four weeks that included the Olympics and the lack of a Memorial Day weekend.

I'd like to look at the quarter's box office results differently highlighting another way of measuring the quality of the film slate this quarter as compared to prior year same period.

This summer slate certainly was highlighted by the performance of the top five pictures noted in our release led by the summer blockbuster The Dark Knight Rises. And while this film did not perform quite as well as last year's Harry Potter film and, for that matter, our top five films did not perform quite as well as our top five films last year, that is not where our problem was.

The challenge this quarter was not as much depth to the film slate this time around compared to the first quarter last year. One way to illustrate this is to break our top 15 films into three categories of five films each and compare our box office results from those films to the results from the same category as last year.

When we do that, we find that our top five films were down less than 5% in box office receipts compared to the top five films last year. Conversely, pictures six through 10 were down approximately 8.5% and pictures 11 through 15 were down a significant 37% compared to pictures 11 through 15 during our first quarter fiscal 2012 in actual dollars.

This equates to the top five films contributing $800,000 less in box office, films six through 10 contributing $700,000 less in box office and films 11 through 15 contributing $2.6 million less than box office.

As has been demonstrated time and time again, while we love the blockbusters, that second tier of films can make the difference between the record revenues we reported last year during the fourth quarter and a disappointing quarter like we reported today.

It certainly is too early to tell what our fiscal 2013 second quarter will be like. September is always our slowest month of the year and historically approximately 50% to 60% of our second quarter box office receipts are produced the last five to six weeks of the quarter as the holiday film season kicks off in earnest.

As always, we have high hopes for the third quarter's box office performance. The November lineup of films include the next James Bond film, Sky Fall, the final installment of the Twilight saga as well as 3D adaptations of the popular book's Life of Pie and Rise of the Guardian.

As a point of reference, our top films last year during our second quarter were the Twilight saga, Breaking Dawn Part I, Paranormal Activity 3 and Puss in Boots. And if I was to sneak a peak into December, the beginning of fiscal 2013 third quarter, we can look forward to films such as Les Miserables, Peter Jackson's much anticipated The Hobbit: An Unexpected Journey, and a number of other big budget studio films including the latest films from Tom Cruise and Leonardo DiCaprio, among others.

Meanwhile, we continue to execute on several of the strategies we highlighted in our recent 10-K and year-end conference call. We opened our 14th ultra screen and a new Take 5 lounge in Duluth, Minnesota.

And as we have noted already, our newest Zaffiro's Pizzeria & Bar opened in August. It is obviously still early but we are pleased with the customer response to these new investments of ours.

As I reported on our last call, we have several additional projects on the drawing board for fiscal 2013 that we hope to be able to talk about very soon. 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 pleased with another quarter of year-over-year improvement. The reality is that the quarter could have been even better if not for the fact that August was not a particularly strong month for this division either.

Some difficult group room comparisons to last year and a general lack of Milwaukee city-wide convention business in August this year negatively impacted our results the last month but it was still a good quarter overall for this division.

We continue to be encouraged by the fact that we reported an overall increase in our average daily rate of nearly 3% this quarter, our seventh straight quarter of increased ADR.

Once again, we were actually on pace to report an even higher average rate increase until we hit August. Seven of our eight owned properties reported an increase in rate this quarter compared to the same quarter last year.

That is not to say that we aren't still experiencing pressure on our rates in this current environment. Our fiscal 2013 first quarter ADR, average daily rate, was approximately 4.9% lower than it was in our pre-recession fiscal 2008 first quarter. That is actually the closest we have gotten so far during the recovery but an indication that there is still room for improvement.

It's interesting to note, however, that our fiscal 2013 first quarter RevPAR was 2.8% higher than our pre-recession fiscal 2008 first quarter RevPAR thanks to over six additional points of occupancy this year compared to the first quarter fiscal 2008.

And while this does feel good, our enthusiasm is somewhat tempered by the fact that this number is not adjusted for inflation.

With increasing portion of our revenues coming from ADR increases, our fiscal 2013 first quarter operating margin increased by nearly 1.5 points to 18.5% compared to 17.2% operating margin last year during the same quarter.

Looking ahead, our outlook for the future hasn't really changed since we last talked eight weeks ago. Whether the current positive trends continue depends in large part on the economic environment.

We remain concerned about the fragility of the current economy as well as the uncertainty surrounding the current employment and political environment. And a near-term RevPAR increases are not likely to be as great as they have been the past two years.

We also are concerned about an expected increase in room supply in our important Milwaukee market. The first of several new hotels being built with subsidies in this market may open late in our fiscal 2013 second quarter.

Finally, when we last talked, I suggested the efforts of Bill Reynolds and MCS Capital to find growth opportunities for our hotel business could be expected to bear fruit in the near future.

Well, as the (inaudible) reported, we recently announced an agreement to purchase the Cornhusker Hotel and Office Plaza in Lincoln, Nebraska as the majority owner of a joint venture.

We are currently managing this hotel and the transaction is expected to be completed any day now. We're very excited about several aspects of this transaction. First and foremost, we think this hotel is a great fit for our portfolio. We have 50 years of experience in restoring landmark hotels and we believe we can make this distinctive hotel an even greater asset to the community returning it to its former position as the social sector of Lincoln, Nebraska.

The Cornhusker Hotel renovation is similar to several other premier downtown restorations we have successfully completed, including the Fister Hotel in Milwaukee, the (Scervin) Hilton in Oklahoma City and the Hotel Phillips in Kansas City.

The hotel also aligns well geographically for us as we have been a part of the (linked) community since 2008 when our theater division entered the market through the acquisition of Douglas Leaders.

In addition, we are very familiar with university and state capital markets like Lincoln, having two hotels in Madison, Wisconsin and our current portfolio.

We're also excited about the new relationships forged as a result of this acquisition. We are partnering with a fund affiliate of LEM Capital of Philadelphia, a manager of a series of private equity funds with over $500 million of capital commitments under management and this will be our first hotel affiliated with Marriott International giving us existing relationships with all four leading full-service hotel brands.

Once the transaction is completed, the hotel operating results less the minority interest will be included in hotels and resorts division revenues and operating income during the remainder of fiscal 2013 and beyond.

We do not expect the property to have a significant impact on fiscal 2013 operating income, however, as the property will be undergoing a multimillion dollar renovation that will begin later during the fiscal year.

We plan to renovate the hotel lobby, all guest rooms and suites, meeting space, restaurants and bars. We are particularly pleased with plans to bring one of our successful restaurant and bar concepts, the Miller Time Pub & Grill developed in association with Miller Coors to this hotel.

We are also pleased to utilize our extensive real estate experience in conjunction with the acquisition of the adjoining Cornhusker Office Plaza.

We have a number of additional potential growth opportunities in the pipeline and hope to announce more details in the near future. As we have said in the past, the form of these opportunities will likely vary.

The Cornhusker transaction presented itself as a majority ownership of a joint venture and, with our balance sheet, we were easily able to accommodate it. Additional opportunities that we are currently pursuing include peer management contracts and management contracts with minority interest in joint ventures.

Regardless of the form of the transaction, we are looking forward to increasing the number of rooms under management by Marcus Hotels & Resorts. And while a lot of our focus is on growth, it's just as important that we take care of our existing hotels as well.

So we have plans for several new programs and amenities during the upcoming year. Our press release referenced our new beautiful Monarch Lounge at the Hilton Milwaukee that opened last month.

We also have plans to add new concierge and club lounges to our Fister Hotel and Grand Geneva Resort & Spa during fiscal 2013. We will also build on the success of our dining rewards program, Marcus Rewards, by expanding the program to include points for room nights beginning with the Fister Hotel this fall.

These programs and amenities are part of our strategy to create a greater value proposition for our guests, the hallmark of our company for the last 77 years.

Before I wrap up our prepared comments and open the call up for questions, I do want to note that we repurchased another 97,000 shares of our common stock in the fourth quarter, the majority of which occurred after our year-end earnings announcement in late July.

With our strong cash flow and our under-levered balance sheet, we believe that when timing and market conditions are appropriate, we are able to purchase shares to enhance shareholder value while at the same time continuing to invest in our businesses to facilitate our growth.

We do not view these as conflicting strategies but rather as complementary. With that, at this time, Doug and I would be happy to open the call up for any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of David Loeb – Baird.

David Loeb – Baird

So I'm still stuck in the concierge lounge at the Fister. What do we have to do to get in? Seriously, though, this is basically designed to compete for frequent travelers that may be tempted into kind of a Marriott or Hilton asset nearby that might appeal to guest loyalty kind of thing. Is that basically the idea?

Greg Marcus

David, I think it's actually – it's twofold. I mean, obviously, we're responding to potential competition coming in. But the truth also is that we think that there's opportunity in the market to get a little more rate and get paid for the service because people want it.

I mean, we're not going to be able to have the – we have some ideas for how to deal with some of the frequency questions that may come up that will – we don't want to talk about right this minute.

But the – but we believe that – because one of the ways that you can stay and one of the ways you can have access to the concierge lounge is you can buy rooms in a – that have that attached to it. And there's a premium in the price and so we think actually it'll be a double win.

And by the way, it will be the – I mean, so just so you know where it is, we're going to be doing it up on the 23rd floor. So as concierge lounges go, it will be the nicest one in the city really by a mile. It's – we're using what's that – the board – what we call the 23rd – the meeting room on the 23rd floor right now.

We're going to move that over and take that over to the concierge lounge. It'll be adjacent to blue, so it'll be able to overflow into blue, so it should be really wonderful.

David Loeb - Baird

Let me come back to the movies and then I'll ask you a question about MCS Capital. Did you say Frank and Weenie on the call yet? Did I miss that?

Greg Marcus

No, someone did. We put it in our press release but we weren't comfortable saying that out loud, David.

David Loeb - Baird

I was trying to think of a way to get Greg to say Frank and Weenie on the call. But the Life of Pie sounds like a real quality movie because it was a good book. And none of this really sounds like it's going to be competitive with some of the blockbusters that you had in fiscal 2012. Should we be thinking about 2013 as being flat at best on a same-store basis?

Greg Marcus

My comment to that, David, is our top couple pictures were actually in the fourth quarter last year, so I think it's a little early to say that yet. Obviously the Avengers and Hunger Games were pretty – they may have been – if I remember on the list, they may have been one and two last year.

And certainly they were both in the top three. So we have to take it a quarter at a time. When you look at the second quarter, we told you what the top three pictures were last year. You can draw your own conclusions.

On paper, there's nothing special about those last year but on the other hand we just never know about the pictures this year. The Hobbit, obviously, should be a big deal. But it's really hard to tell about the rest of the pictures.

I mean, it's no different than the position we're in every year at this time when we start talking about the Christmas season. It just – we haven't seen them yet and we just don't know.

David Loeb - Baird

Clearly we goofed in our modeling for the Memorial Day timing and we're just trying to avoid that whenever we can. It does sound like the concession growth is still kind of going in the right direction. Are there more locations where Zaffiro's can go in and are there other things like that that you will be looking at over the course of the next year?

Greg Marcus

There are certainly other locations where we can do it. I don't know where we're going to do it. We wanted to see how this one went. I will tell you that this one so far is great. I mean, it really turned out beautifully. It's our best design of the restaurant. The product is great. The performance has been very nice.

I wanted to get through this one before I started thinking about where the next one was going to go. But I'm actually thinking about where the next one might go.

David Loeb - Baird

So on the Lincoln purchase, it looks like a really interesting purchase on the surface and clearly will help you establish a track record and prove out a joint venture structure, for example.

What's your thought? Is this really kind of a pilot or will you do – will you look to do other transactions if you can find them over the next call it six months?

Greg Marcus

I think that it's exactly what we said just in the call, in the prepared remarks. There are other things going on. They take – some take different formats and I can't say what they may look like. It could be joint ventures. It could be more sliver equity kind of stuff but we just keep plugging away to build the portfolio.

David Loeb - Baird

And what about the office building? Is that something you expect you will liquidate to lower your basis or will you keep that do you think?

Greg Marcus

I think we want to finish the deal before we start figuring out what we're going to do with the different pieces of it.

David Loeb - Baird

Did I miss an update on the development in Brookfield, the Corners?

Greg Marcus

You didn't miss it mainly because there isn't an update to give you at this point in time. As we said in the past, David, this project is very complicated, very complicated. Part of it requires multiple pieces to com together, including the public financing component, the pre-leasing, the appropriate equity and debt financing, just to name a few.

There's been a lot of activity, a lot of activity surrounding every one of those elements and as a result everything is very fluid right now. I guess what I would just do is I would just reiterate what I said previously, which is the project will not proceed if any one of those elements does not reach an acceptable conclusion.

And if they do come together, we would still be looking to begin construction on this project early in calendar 2013 with the whole project opening up in 2014. So as soon as we have something more substantive to report, I assure you, we will.

Operator

(Operator Instructions) Your next question comes from the line of Gregory Macosko – Lord Abbett.

Gregory Macosko – Lord Abbett

Just a couple questions, with regard, you mentioned the Fister being part of that rewards program. Wasn't it part of it before? Just give me some color on that program and what you mentioned there.

Greg Marcus

It was – the Fister was only part of it from the food and beverage side from the Mason Street Grill. We're going to extend it into the room side as well for points for stay.

Gregory Macosko – Lord Abbett

And all your other hotels are on that program as well?

Greg Marcus

Well, we're starting with the Fister. All will really reflect the independence at this point because the (brands) have their own frequency programs.

Gregory Macosko – Lord Abbett

And what did you pay for on those 97,000 shares?

Doug Neis

You know what, Greg, I think it was just a shade under $13.

Gregory Macosko – Lord Abbett

You have plenty of authorization left? I haven't looked that up.

Doug Neis

Yes, if you recall in our July board meeting, the board authorized an additional 2 million shares on top of what we had left from the prior one, so we have plenty left.

Gregory Macosko – Lord Abbett

And you mentioned, did I hear Marriott, that's the first time you're working with Marriott? I didn't quite understand that with regard to the Cornhusker or something.

Greg Marcus

Yes, exactly.

Gregory Macosko – Lord Abbett

So that's a first time. So you have all the major brands then kind of under your umbrella.

Greg Marcus

And then talk about the 11 to 15, the second tier that you talked about. Is there anything relative to that – that was a big drop. I hear you, 37% relative to the others. We always look at the top 10 but that was an interesting point.

Was there anything you could say about that relative to kind of current environment or other things?

Greg Marcus

Well, I think that probably where you saw the drop was August and it coincided with the Olympics and, frankly, Colorado and but we don't know what the – the Olympics obviously have – they always have a negative impact on theater performance.

And so on top of it, what we don't have any sense for is what kind of product the (studios) knowing that they're going to have to go up against the Olympics put into that period.

Gregory Macosko – Lord Abbett

Well, and perhaps the Olympics kind of looked ahead and said, hey, wait a minute, we're not going to bring any hits out here. We'll just put our second tier in there and of course those second tier got hit particularly because of the Olympics. Maybe that was their thinking. I don't know.

Greg Marcus

That's what we're hoping.

Doug Neis

And of course, we can't expect you to look forward and understand what a hit is or not but certainly that's not the issue there. And then finally, is there anything with regard to book yield? I think – is there some kind of a public hearing going on or something that the public is going to get involved in as well?

Greg Marcus

Yes, the town has put forth – the town of (inaudible) has put forth a project plan and the first public hearing is scheduled for next week.

Gregory Macosko – Lord Abbett

And so you're rehearsing for that, Doug?

Greg Marcus

We would be prepared to – yes, we'll be prepared to present at that public hearing, yes.

Gregory Macosko – Lord Abbett

And that's just one of the many elements and, as you say, all have to kind of come together by – to begin in 2013.

Greg Marcus

That's correct.

Gregory Macosko – Lord Abbett

And was there anything with regard – I'm embarrassed to say – I don't remember the name of the lead tenant. But is there any more commitment on their part as a part of what's going on? Are they just committed and they can make the final decision as to when to start depending on these elements? Is that it?

Greg Marcus

I'm not sure if I understood the question, Greg.

Gregory Macosko – Lord Abbett

Your anchor tenant – I'm embarrassed.

Greg Marcus

Von Maur.

Gregory Macosko – Lord Abbett

Von Maur, have they made any more – is there anything more with regard to them? I'm sorry I didn't remember the name.

Greg Marcus

Yes, the Von Maur deal is locked up and has been locked up for some time, so they're onboard and they're – as we've said previously, all this timing is driven a lot by the fact that they will only open new stores in that October-November time period prior to Christmas.

So their main – they're just on the sidelines now waiting to see what happens with the rest of the project.

Gregory Macosko – Lord Abbett

And it's kind of a joint effort in deciding as to whether or go ahead or not on 2013 – in next year.

Greg Marcus

They'll be ready to go and start construction this spring if everything else comes together and that comes right back to what we said before. We've got all these balls in the air and they've all got to – if they all kind of come together then they'll be ready to go with us in the spring.

Operator

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

Brian Rafn – Morgan Dempsey Capital Management

Give me a sense – I missed your opening comments. I had theater music for about 10 minutes. Relative to traffic in the Marcus theaters, does a weather pattern of hot weather at all, does that – even if you have a weak movie schedule, does that at all influence traffic into a cinema, people wanting to get out of the heat like they would go to say the mall?

Greg Marcus

Well, let me answer the first more broad question. Yes, hot weather does help us and I think we were seeing more of that the beginning of summer when we did our last call. But if the product isn't any good, we'd like to use the old Yogi Bear-ism which, to paraphrase, which is if they ain't coming there's nothing you can do to stop them.

Doug Neis

And I would just add on the weather side, Brian, that hot weather can help. Rain helps more and that we didn't have a lot of.

Brian Rafn – Morgan Dempsey Capital Management

Given the fact the actual rain fall, the drought situation, you guys anticipating any with corn and that high fructose corn syrup, obviously a main ingredient in candy and that, any sense or any premonitions, tremors of any pricing inflation coming through on some of the concession costs?

Greg Marcus

Sure.

Doug Neis

Yes, I mean, there is some expectation that we might see some raw material price increase on corn.

Brian Rafn – Morgan Dempsey Capital Management

Is there flexibility there to raise prices or is it an absorption thing or what's kind of the strategy?

Greg Marcus

We'll have to deal with it when we get there. I mean fortunate (inaudible) that is our more higher – our margins are pretty high in that area, so I don't think it's going to be something that's going to impact us too significantly.

Brian Rafn – Morgan Dempsey Capital Management

Let me just ask a little more of a strategic question. The Obama administration's been trying to – I don't know if it's the first lady – trying to ram broccoli down everybody's mouth. Is there any sense today – we've certainly seen the whole issue with the big slurpie and high salt foods and all that type of thing.

Do you get any sense of encroachment into the theater or cinema business from dietary or pressure? We've certainly seen it in the school systems. Is that an issue or is that really a non-issue in the entertainment business?

Greg Marcus

I think it's an issue and it's something that we continue to monitor.

Brian Rafn – Morgan Dempsey Capital Management

If you look at – you guys talked about certainly the supply of new rooms coming into Milwaukee. If you have an economy that's weakening, decelerating, kind of what is your sense? Is it better to defend your ground from an existing hotel franchise or is it weaker? Does the new guy come in and suddenly he's a rapid discounter? What's kind of the dynamic of new supply coming into a weakening economy?

Greg Marcus

Well, I don't think it's going to be very good. It's what we've – that's what we've been talking about where the market was not oversupplied to begin with. So this is a product that's being developed simply because – not for economic reasons but simply because developers are trying to make a fee and so they aren't – because there wasn't a huge demand for this product.

So now adding – this is simple economics. If your demand is going down and your supply is going up, I don't think that's a good thing.

Brian Rafn – Morgan Dempsey Capital Management

And again, I missed your opening comments. Do you guys have a CapEx budget for 2013 and then did you put a number on the renovation costs for the Cornhusker?

Doug Neis

To answer your first question, Brian, is, yes, we've put out there a $65 million to $90 million range for the year, obviously a lot of variables associated with that, a lot of projects that are being talked about but haven't started yet. So that number could vary.

And no, we have not put a number – again, we haven't closed on the transaction yet. I do expect that closing to happen, as we've said, any day now but we have not put a number on the renovation. It will be multimillion and that's all that we've said so far.

Brian Rafn – Morgan Dempsey Capital Management

Yes, how does that – Doug, how does that $65 million to $90 million split between cinema and hotel?

Doug Neis

It's actually reported in our 10-K, Brian. The – roughly we have said that the – let me just pull it up right now as we're speaking here. The largest piece of it would be in our hotel side. We've given a range of $50 million to $60 million on the hotel side and on the theater side we said $15 million to $30 million and so those were – that's the rough, best guess we can provide right now.

And obviously, again, each of the divisions has respective projects that are on the drawing board and the timing is still the question.

Brian Rafn – Morgan Dempsey Capital Management

You guys mentioned certainly in the Lincoln area with the Douglas theater chain purchase, is there much cross selling ability between hotel properties and being able to tie that in with theater tickets or whatever cinema or is that really not kind of an unrelated …

Greg Marcus

Yes, they're unrelated. It helps us, too. But it helps for us to have been in this community and being a part of the community but there's not direct business.

Doug Neis

We have a theater three blocks away from this hotel, so certainly in that perspective it's nice but two separate businesses operating them separately.

((CROSSTALK))

Brian Rafn – Morgan Dempsey Capital Management

… talked about Milwaukee over supply. How would you kind of quantify or give us a sense of what the Lincoln, Nebraska market looks like for hotel supply and demand?

Greg Marcus

Stable market. There's a new little supply coming in but it looks nothing like Milwaukee. Milwaukee has got a lot of issues coming.

Operator

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

Thank you, everybody, for joining us today. We hope to see some of you at our annual meeting on Wednesday, October 17th at the Majestic Cinema in Brookfield, Wisconsin. Those of you who cannot attend, we will be webcasting the meeting.

We also look forward to talking to you once again in December when we release our second quarter fiscal 2013 results. Thank you and have a great day.

Operator

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

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