Filing Overview
Registrant: Gaylord Entertainment Company, not Ryman Hospitality Properties, Inc. The supplied filing is an unaudited Form 10-Q for the three months ended March 31, 2011, filed May 6, 2011. The company operated hospitality, Opry and attractions, and corporate businesses, with approximately 94.8% of revenue generated by hospitality operations.
Financial Performance and Position
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Revenue | $220.7 million | $214.5 million | +2.9% |
| Operating income | $14.7 million | $15.0 million | -1.5% |
| Operating margin | 6.7% | 7.0% | Down 0.3 percentage points |
| Net loss | $2.0 million | $1.9 million | Loss increased 5.8% |
| Fully diluted loss per share | $0.04 | $0.04 | No change |
| Operating cash flow | $(8.0) million | $27.6 million | Declined $35.6 million |
| Capital expenditures | $37.5 million | $7.7 million | Increased $29.8 million |
| Ending unrestricted cash | $87.0 million | $179.5 million | Down $92.5 million year over year |
Hospitality revenue increased 2.8% to $209.3 million, while hospitality operating income declined 2.6% to $29.5 million as expenses, including depreciation, grew faster than revenue. Opry and Attractions revenue increased 5.6% to $11.4 million, and its operating loss improved to $0.6 million. Corporate and Other operating loss improved 3.0% to $14.1 million.
At March 31, 2011, total assets were $2.61 billion, current assets were $202.5 million, and current liabilities were $224.6 million, producing a $22.1 million working-capital deficit. Total debt and capital lease obligations were $1.16 billion, including $700.0 million outstanding under the credit facility, $309.6 million of convertible notes net of discount, and $152.2 million of senior notes.
The company had $291.8 million of remaining availability under its $1.0 billion credit facility after $8.2 million of letters of credit. Management stated that debt covenants were satisfied at quarter-end.
Material Changes Versus the Prior Period
- Revenue growth reflected higher occupancy and increased group-related food, beverage, and other spending.
- Hospitality occupancy increased to 69.6% from 67.9%, while ADR declined to $164.43 from $165.86. RevPAR increased 1.6% to $114.45, and Total RevPAR increased 4.7% to $292.61.
- Attrition declined to 6.1% of bookings from 10.6%, and cancellations decreased 38.9%. However, attrition and cancellation fee collections declined $1.4 million to $1.6 million.
- Gaylord National underperformed: revenue decreased 9.0%, occupancy declined to 64.2% from 70.5%, and Total RevPAR declined 9.0%.
- Operating cash flow shifted from $27.6 million provided to $8.0 million used, primarily because of seasonal increases in receivables and unfavorable working-capital movements.
- Capital expenditures increased substantially, primarily for remaining Nashville flood projects, a new resort pool at Gaylord Texan, information technology, and maintenance.
- Interest expense increased $0.7 million to $20.8 million. The prior-year period included a $1.2 million gain from repurchasing senior notes; no comparable gain occurred in 2011.
- The company recorded a $1.0 million income-tax benefit in 2011 versus a $1.0 million provision in 2010. The 2010 period included a $0.8 million non-cash tax charge related to Medicare Part D legislation.
Outlook, Risks, and Unusual Items
Management reported improving group travel, outside-the-room spending, occupancy, future bookings, and pricing for later periods, while noting continuing short-term rate pressure. No quantitative full-year earnings guidance was provided in the filing.
The Nashville Flood remained a significant unusual item. Gross remediation and rebuilding costs were projected at $215 million to $225 million, including $23 million to $28 million of pre-flood enhancement projects. Management estimated the net cash impact for 2010 and 2011, after tax refunds and insurance proceeds, at approximately $150 million. Remaining flood-related commitments were $7.7 million, with an additional $5 million to $7 million expected. A separate $12.0 million flood-protection enhancement was expected to be completed in spring 2012.
The $700.0 million credit facility matures July 25, 2012 and will require refinancing or amendment. Management stated that refinancing on acceptable terms was not assured. The $360.0 million convertible notes were convertible through June 30, 2011; no conversion notices had been received as of the filing. At the March 31 stock price of $34.68, potential settlement above face value was estimated at $26.2 million in cash or approximately 0.8 million net shares, at the company’s option.
Other risks included economic conditions affecting group hospitality demand, labor and benefit costs, geographic concentration, future development costs, interest-rate exposure, natural-gas prices, the ability to refinance debt, and continued effects of the flood. The company also disclosed a potential maximum contribution obligation of $23.8 million related to guarantees of joint-venture debt and $15.0 million of potential exposure under a limited NHL-related guarantee; no liabilities were recorded for these guarantees.
Management stated that current controls and procedures were effective and that there were no material changes to previously disclosed risk factors.
Investor Verification Items
- Verify the issuer identity: the source filing is for Gaylord Entertainment Company rather than Ryman Hospitality Properties, Inc.
- Reconcile the sharp decline in operating cash flow with higher receivables, accrued-liability payments, and the timing of group-customer collections.
- Assess remaining Nashville Flood expenditures, insurance recoveries, tax refunds, open commitments, and the $12.0 million flood-protection project.
- Evaluate refinancing risk for the $700.0 million credit facility maturing in July 2012 and compliance with borrowing-base and debt-incurrence requirements.
- Monitor convertible-note conversion exposure, potential cash settlement, and warrant-related dilution.
- Review Gaylord National’s declining occupancy and revenue and whether improvements at the other properties offset that weakness.
- Confirm the status and ultimate exposure of joint-venture guarantees, legal contingencies, and unrecognized tax benefits.