Impact of COVID-19 Pandemic

3 Months Ended

Mar. 26, 2020

Impact of COVID-19 Pandemic

Impact of COVID-19 Pandemic

2. Impact of COVID-19 Pandemic

The recent outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and both of the Company’s business segments. The situation continues to be volatile and the social and economic effects are widespread. As an operator of movie theatres, hotels and resorts, restaurants and bars, each of which consists of spaces where customers and guests gather in close proximity, the Company’s businesses are significantly impacted by protective actions that federal, state and local governments have taken to control the spread of the pandemic. These actions include, among other things, declaring national and state emergencies, encouraging social distancing, restricting freedom of movement, mandating non-essential business closures and issuing shelter-in-place, quarantine and stay-at-home orders.

As a result of these measures, the Company temporarily closed all of its theatres on March 17, 2020, and it currently is not generating any revenues from its theatre operations (other than some limited online sales and curbside sales of popcorn, pizza and other assorted food and beverage items).  The Company also temporarily closed all of its hotel division restaurants and bars at approximately the same time and closed five of its eight company-owned hotels and resorts on March 24, 2020 due to a significant reduction in occupancy at those hotels.  The Company announced the closing of its remaining three company-owned hotels on April 8, 2020.  The Company currently is not generating any revenues from its hotels and resorts operations.  

Since the COVID-19 crisis began, the Company has been working proactively to preserve cash and ensure sufficient liquidity to withstand the impacts of the COVID-19 pandemic and ultimately emerge in a continued position of strength. In addition to obtaining additional financing and modifying previously existing debt covenants (see Note 5), additional measures the Company has already taken and intend to take in the future to enhance liquidity include:

● Discontinuing all non-essential operating and capital expenditures;

● Temporarily laying off the majority of its hourly theatre and hotel associates, in addition to temporarily reducing property management and corporate office staff levels;

● Temporarily reducing the salary of the Company’s chairman and president and chief executive officer by 50%, as well as reducing the salary of all other executives and remaining divisional/corporate staff;

● Temporarily eliminating all board of directors cash compensation;

● Temporarily suspending quarterly dividend payments;

● Actively working with landlords and major suppliers to modify the timing and terms of certain contractual payments;

● Evaluating the provisions of the CARES Act and utilizing the benefits, relief and resources under those provisions as appropriate (See Note 7); and

● Evaluating the provisions of any subsequent federal or state legislation enacted as a response to the COVID-19 pandemic.

The Amendment (see Note 5) allows the Company to consider additional borrowings from governmental authorities under provisions of the CARES Act or any other subsequent governmental actions that it could avail itself of if it deemed it necessary and appropriate. Although the Company intends to seek any available potential benefits under the CARES Act, it cannot predict the manner in which such benefits will be allocated or administered, and it cannot assure shareholders that it will be able to access such benefits in a timely manner or at all.

The timing for when the Company’s theatres and hotels will reopen is uncertain as of the date of this report. The majority of the Company’s theatres are currently required to be closed under various state and local governmental restrictions, and the Company will continue to monitor and follow those restrictions until lifted.  The Company is encouraged by recent federal guidance for a phased reopening of the U.S. economy that included the reopening of movie theatres in phase one, albeit under strict social distancing guidelines.  Prior to closing our theatres, the Company had announced a social distancing seating plan that effectively reduced each theatre auditorium’s capacity by 50%.  Current expectation is that, when theatres do reopen, they will open to similar capacity limitations.  When the Company closed its hotels, it was not because of any governmental requirements to close.  The restaurants and bars within the Company’s hotels were required to close, but the hotels themselves were considered “essential businesses” under most definitions.  The hotels closed due to a significant drop in demand that made it financially prudent for them to close rather than stay open.  As a result, the timing of reopening the Company’s hotels and resorts will likely be driven by an increase in demand, as individual and business travelers begin to travel more freely once again.  

The COVID-19 pandemic and the resulting impact on the Company's operating performance has affected, and may continue to affect, the estimates and assumptions made by management. Such estimates and assumptions include, among other things, the Company's goodwill and long-lived asset valuations and the measurement of compensation costs for annual and long-term incentive plans. Events and changes in circumstances arising after March 26, 2020, including those resulting from the impacts of COVID-19, will be reflected in management's estimates for future periods.

The Company believes that the actions that have been taken will allow it to have sufficient liquidity to meet its obligations as they come due and to comply with its debt covenants for at least 12 months from the issuance date of these consolidated financial statements. However, future compliance with the Company's financial debt covenants (see Note 5) could be impacted if the Company is unable to resume its operations as currently expected.