Business Context and Reporting Period
The provided filing is Gaylord Entertainment Company’s unaudited Form 10-Q for the quarter and six months ended June 30, 2012, not a filing for Ryman Hospitality Properties, Inc. The company operated hospitality properties focused on large group meetings and conventions, plus Opry and Attractions businesses. Results are seasonal and not necessarily indicative of full-year performance.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 |
|---|---|---|---|---|
| Revenue | $253.2 million | $236.8 million | $492.1 million | $457.5 million |
| Operating income | $31.6 million | $31.2 million | $53.3 million | $45.9 million |
| Operating margin | 12.5% | 13.2% | 10.8% | 10.0% |
| Net income | $9.0 million | $8.6 million | $15.0 million | $6.7 million |
| Fully diluted EPS | $0.17 | $0.17 | $0.29 | $0.13 |
| Net margin | 3.5% | 3.6% | 3.0% | 1.5% |
- Hospitality revenue increased 6.8% in the quarter and 7.4% year to date; hospitality operating income increased 11.3% and 21.5%, respectively.
- Opry and Attractions revenue increased 8.5% in the quarter and 10.2% year to date, while operating income increased 24.2% and 73.5%.
- Hospitality occupancy was 79.2% for the quarter and 74.6% year to date, compared with 73.3% and 71.5% in the prior-year periods. Year-to-date RevPAR increased 5.7% to $127.75 and Total RevPAR increased 5.7% to $312.76.
- Six-month net cash provided by operating activities was $79.2 million, versus $39.6 million in 2011. Capital expenditures were $58.8 million, producing negative operating cash flow after capital expenditures of approximately $20.4 million.
- Unrestricted cash was $29.5 million at June 30, 2012, down from $44.4 million at December 31, 2011. Working capital was negative $18.4 million, partly because deferred revenue deposits do not require future cash payments.
- Total debt was $1.035 billion, including $555.0 million under the credit facility, $326.0 million of convertible notes net of discount, and $152.2 million of senior notes. Credit-facility availability was $362.0 million, and the company reported compliance with debt covenants.
- Interest expense declined to $14.5 million in the quarter and $28.8 million year to date, primarily because of lower rates on the refinanced credit facility. The weighted-average borrowing rate was 5.4% in both 2012 periods, compared with 7.0% and 6.9% in the comparable 2011 periods.
Material Changes Versus the Prior Comparable Period
- Six-month revenue rose 7.6%, while operating income rose 16.0% and net income rose 124.3%, benefiting substantially from lower interest expense.
- Quarterly operating income increased only 1.3% because higher revenue was largely offset by higher operating and corporate expenses. The quarterly operating margin declined to 12.5% from 13.2%.
- Corporate and Other operating loss increased to $19.2 million in the quarter and $37.9 million year to date, primarily from legal and consulting costs associated with the planned restructuring and REIT conversion.
- Gaylord Palms and Gaylord National showed strong operating improvement, while Gaylord Texan revenue declined 2.7% in the quarter and 3.4% year to date, partly because the 2011 period benefited from the Super Bowl in the Dallas area.
- Net definite room nights booked increased 79.3% in the quarter and 45.1% year to date. Attrition declined to 6.7% and 5.6%, respectively, from 10.3% and 8.3% in the prior-year periods.
- In August 2012, subsequent to quarter-end, the company repurchased 5.0 million shares from TRT Holdings for $185.0 million, funded with borrowings under the credit facility.
Guidance, Outlook, Risks, and Unusual Items
- Management expected to sell the Gaylord Hotels brand and management rights to Marriott for $210 million in cash, subject to stockholder approval, lender waivers and other closing conditions. Marriott was expected to assume day-to-day management of the four Gaylord Hotels properties.
- The company planned a merger with wholly owned Granite Hotel Properties, Inc. and intended to elect REIT status effective January 1, 2013. Completion depended on stockholder approval, lender consents, transaction closing and satisfaction of REIT requirements.
- Estimated one-time REIT conversion costs were approximately $55 million, including $19 million of severance and retention costs. Estimated federal income taxes related to the Marriott transaction and conversion were $43 million to $53 million. Anticipated annualized cost synergies, net of management fees, were approximately $33 million to $40 million.
- The company expected 2012 capital expenditures of approximately $16 million to $19 million for the remaining Gaylord Palms renovation, hotel maintenance and the Grand Ole Opry flood levee. It expected 2013 maintenance and renovation spending of approximately $39 million to $47 million.
- The Marriott transaction could require the company to tender for or redeem some or all of its $152.2 million of 6.75% senior notes if sale proceeds were not reinvested or used to repay eligible debt under the indenture.
- The $360 million convertible notes were convertible through September 30, 2012 based on the company’s stock price. Management expected to settle the face value in cash, but conversion could require additional cash, shares or both.
- Key risks included weak economic conditions affecting group lodging demand, delays or failure of the Marriott transaction or REIT conversion, inability to obtain lender waivers, failure to qualify as a REIT, higher-than-expected conversion costs, and inability to realize projected synergies.
- The company reported a $250 million lawsuit against the U.S. Government related to the May 2010 Nashville flooding; the outcome and timing were uncertain.
- The company estimated a maximum potential contribution liability of $16.9 million related to guarantees associated with certain unconsolidated Hawaii hotel joint ventures, with no liability recorded at June 30, 2012.
Investor Verification Items
- Verify the issuer identity: the supplied text names Gaylord Entertainment Company, while the request identifies Ryman Hospitality Properties, Inc.
- Confirm completion, terms and financing effects of the Marriott brand-sale transaction, Granite merger and REIT conversion.
- Assess the effect of the August 2012 $185 million share repurchase on debt, liquidity, leverage and covenant capacity.
- Reconcile reported operating improvement with the increase in corporate restructuring costs and the higher effective tax rate of 56% for the quarter and 51% year to date.
- Evaluate the company’s ability to fund capital expenditures, the potential senior-note tender or redemption, convertible-note settlement obligations and the cash component of the special earnings-and-profits distribution.
- Monitor hotel demand, group bookings, occupancy, ADR, RevPAR, attrition, cancellations and performance at Gaylord Texan following the unfavorable comparison with the 2011 Super Bowl period.