rhp_Current_Folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1‑13079

RYMAN HOSPITALITY PROPERTIES, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

    

73-0664379

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

One Gaylord Drive

Nashville, Tennessee 37214

(Address of Principal Executive Offices)

(Zip Code)

(615) 316‑6000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). ☐ Yes ☒ No

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

    

Outstanding as of October 31, 2018

Common Stock, par value $.01

 

51,333,386 shares

 

 

 

 

 


 

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RYMAN HOSPITALITY PROPERTIES, INC.

FORM 10‑Q

For the Quarter Ended September 30, 2018

INDEX

 

    

Page

 

 

 

Part I - Financial Information 

 

3

 

 

 

Item 1. Financial Statements. 

 

3

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2018 and December 31, 2017 

 

3

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) - For the Three Months and Nine Months Ended September 30, 2018 and 2017 

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - For the Nine Months Ended September 30, 2018 and 2017 

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited) 

 

6

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

 

24

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk. 

 

46

 

 

 

Item 4. Controls and Procedures. 

 

47

 

 

 

Part II - Other Information 

 

47

 

 

 

Item 1. Legal Proceedings. 

 

47

 

 

 

Item 1A. Risk Factors. 

 

47

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 

 

48

 

 

 

Item 3. Defaults Upon Senior Securities. 

 

48

 

 

 

Item 4. Mine Safety Disclosures. 

 

48

 

 

 

Item 5. Other Information. 

 

48

 

 

 

Item 6. Exhibits. 

 

48

 

 

 

SIGNATURES 

 

49

 

 

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Part I – FINANCIAL INFORMATION

Item 1. – FINANCIAL STATEMENTS.

RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2018

 

2017

ASSETS:

 

 

  

 

 

  

Property and equipment, net of accumulated depreciation

 

$

2,126,764

 

$

2,065,657

Cash and cash equivalents - unrestricted

 

 

86,025

 

 

57,557

Cash and cash equivalents - restricted

 

 

38,372

 

 

21,153

Notes receivable

 

 

108,696

 

 

111,423

Investment in Gaylord Rockies joint venture

 

 

89,403

 

 

88,685

Trade receivables, less allowance of $820 and $651, respectively

 

 

80,595

 

 

57,520

Deferred income tax assets, net

 

 

40,449

 

 

50,117

Prepaid expenses and other assets

 

 

74,341

 

 

72,116

Total assets

 

$

2,644,645

 

$

2,524,228

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY:

 

 

  

 

 

  

Debt and capital lease obligations

 

$

1,693,427

 

$

1,591,392

Accounts payable and accrued liabilities

 

 

214,711

 

 

179,649

Dividends payable

 

 

44,668

 

 

42,129

Deferred management rights proceeds

 

 

174,784

 

 

177,057

Other liabilities

 

 

159,560

 

 

155,845

Commitments and contingencies

 

 

  

 

 

  

Stockholders' equity:

 

 

  

 

 

  

Preferred stock, $.01 par value, 100,000 shares authorized, no shares issued or outstanding

 

 

 —

 

 

 —

Common stock, $.01 par value, 400,000 shares authorized, 51,333 and 51,198 shares issued and outstanding, respectively

 

 

513

 

 

512

Additional paid-in capital

 

 

898,845

 

 

896,759

Treasury stock of 579 and 567 shares, at cost

 

 

(14,195)

 

 

(13,253)

Accumulated deficit

 

 

(504,577)

 

 

(479,170)

Accumulated other comprehensive loss

 

 

(23,091)

 

 

(26,692)

Total stockholders' equity

 

 

357,495

 

 

378,156

Total liabilities and stockholders' equity

 

$

2,644,645

 

$

2,524,228

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

Rooms

 

$

103,181

 

$

100,534

 

$

332,490

 

$

314,577

Food and beverage

 

 

118,496

 

 

104,437

 

 

392,488

 

 

359,047

Other hotel revenue

 

 

27,563

 

 

24,619

 

 

81,129

 

 

73,493

Entertainment

 

 

43,009

 

 

35,134

 

 

108,446

 

 

92,427

Total revenues

 

 

292,249

 

 

264,724

 

 

914,553

 

 

839,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Rooms

 

 

29,563

 

 

27,575

 

 

88,550

 

 

83,962

Food and beverage

 

 

67,305

 

 

62,649

 

 

211,677

 

 

200,091

Other hotel expenses

 

 

74,350

 

 

72,299

 

 

226,965

 

 

220,073

Management fees, net

 

 

6,558

 

 

4,708

 

 

22,323

 

 

16,417

Total hotel operating expenses

 

 

177,776

 

 

167,231

 

 

549,515

 

 

520,543

Entertainment

 

 

31,327

 

 

22,651

 

 

80,947

 

 

61,637

Corporate

 

 

7,212

 

 

7,909

 

 

23,181

 

 

22,786

Preopening costs

 

 

300

 

 

877

 

 

3,972

 

 

1,587

Depreciation and amortization

 

 

30,994

 

 

28,546

 

 

89,655

 

 

83,862

Impairment and other charges

 

 

4,540

 

 

 —

 

 

4,540

 

 

 —

Total operating expenses

 

 

252,149

 

 

227,214

 

 

751,810

 

 

690,415

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

40,100

 

 

37,510

 

 

162,743

 

 

149,129

Interest expense

 

 

(19,220)

 

 

(16,621)

 

 

(55,574)

 

 

(49,640)

Interest income

 

 

2,678

 

 

2,957

 

 

8,197

 

 

8,874

Loss from joint ventures

 

 

(985)

 

 

(899)

 

 

(2,227)

 

 

(2,616)

Other gains and (losses), net

 

 

1,881

 

 

1,453

 

 

2,085

 

 

57

Income before income taxes

 

 

24,454

 

 

24,400

 

 

115,224

 

 

105,804

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

(1,863)

 

 

(530)

 

 

(9,748)

 

 

(2,022)

Net income

 

$

22,591

 

$

23,870

 

$

105,476

 

$

103,782

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.44

 

$

0.47

 

$

2.06

 

$

2.03

Fully diluted income per share

 

$

0.44

 

$

0.46

 

$

2.05

 

$

2.02

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.85

 

$

0.80

 

$

2.55

 

$

2.40

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income, net of taxes

 

$

26,030

 

$

25,434

 

$

109,077

 

$

105,391

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

Cash Flows from Operating Activities:

 

 

  

 

 

  

Net income

 

$

105,476

 

$

103,782

Amounts to reconcile net income to net cash flows provided by operating activities:

 

 

  

 

 

  

Provision (benefit) for deferred income taxes

 

 

8,591

 

 

(500)

Depreciation and amortization

 

 

89,655

 

 

83,862

Amortization of deferred financing costs

 

 

4,237

 

 

3,958

Impairment and other charges

 

 

4,540

 

 

 —

Write-off of deferred financing costs

 

 

1,956

 

 

925

Stock-based compensation expense

 

 

5,824

 

 

4,954

Changes in:

 

 

 

 

 

  

Trade receivables

 

 

(22,975)

 

 

(8,865)

Accounts payable and accrued liabilities

 

 

34,679

 

 

31,994

Other assets and liabilities

 

 

(6,707)

 

 

(4,340)

Net cash flows provided by operating activities

 

 

225,276

 

 

215,770

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

  

 

 

  

Purchases of property and equipment

 

 

(132,804)

 

 

(127,148)

Investment in Gaylord Rockies joint venture

 

 

 —

 

 

(16,309)

Investment in other joint ventures

 

 

(2,199)

 

 

(6,819)

Purchase of remaining interest in Opry City Stage

 

 

(3,948)

 

 

 —

Other investing activities

 

 

(3,591)

 

 

(4,139)

Net cash flows used in investing activities

 

 

(142,542)

 

 

(154,415)

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

  

 

 

  

Net borrowings (repayments) under revolving credit facility

 

 

99,000

 

 

(235,900)

Borrowings under term loan A

 

 

 —

 

 

200,000

Borrowings under term loan B

 

 

 —

 

 

500,000

Repayments under term loan B

 

 

(2,500)

 

 

(392,500)

Deferred financing costs paid

 

 

(642)

 

 

(12,268)

Payment of dividends

 

 

(128,769)

 

 

(120,740)

Payment of tax withholdings for share-based compensation

 

 

(4,121)

 

 

(3,775)

Other financing activities

 

 

(15)

 

 

13

Net cash flows used in financing activities

 

 

(37,047)

 

 

(65,170)

 

 

 

 

 

 

 

Net change in cash, cash equivalents, and restricted cash

 

 

45,687

 

 

(3,815)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

78,710

 

 

81,190

Cash, cash equivalents, and restricted cash, end of period

 

$

124,397

 

$

77,375

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash to balance sheet:

 

 

 

 

 

 

Cash and cash equivalents - unrestricted

 

$

86,025

 

$

62,672

Cash and cash equivalents - restricted

 

 

38,372

 

 

14,703

Cash, cash equivalents, and restricted cash, end of period

 

$

124,397

 

$

77,375

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION:

On January 1, 2013, Ryman Hospitality Properties, Inc. (“Ryman”) and its subsidiaries (collectively with Ryman, the “Company”) began operating as a real estate investment trust (“REIT”) for federal income tax purposes, specializing in group-oriented, destination hotel assets in urban and resort markets. The Company’s owned assets include a network of upscale, meetings-focused resorts that are managed by Marriott International, Inc. (“Marriott”) under the Gaylord Hotels brand. These resorts, which the Company refers to as the Gaylord Hotels properties, consist of the Gaylord Opryland Resort & Convention Center in Nashville, Tennessee (“Gaylord Opryland”), the Gaylord Palms Resort & Convention Center near Orlando, Florida (“Gaylord Palms”), the Gaylord Texan Resort & Convention Center near Dallas, Texas (“Gaylord Texan”) and the Gaylord National Resort & Convention Center near Washington D.C. (“Gaylord National”). The Company’s other owned hotel assets managed by Marriott include the Inn at Opryland, an overflow hotel adjacent to Gaylord Opryland, and the AC Hotel at National Harbor, Washington D.C. (“AC Hotel”), an overflow hotel adjacent to Gaylord National.

The Company also owns a 35% interest in a joint venture (the “Gaylord Rockies joint venture”) that is developing and owns Gaylord Rockies Resort & Convention Center near Denver, Colorado (“Gaylord Rockies”), which is scheduled to open in late 2018 and will be managed by Marriott. On September 13, 2018, the Company entered into a purchase agreement (“Purchase Agreement”) with Aurora Convention Center Hotel Partners, LLC and certain affiliates of the other Gaylord Rockies joint venture partners to increase the Company’s ownership interest in the Gaylord Rockies joint venture to approximately 62.3% for a purchase price of approximately $242 million in cash. The Company expects the transaction to close by the end of 2018, subject to the satisfaction or waiver of the various closing conditions in the Purchase Agreement, including required consent of the Gaylord Rockies joint venture lender and Marriott, the release of certain guarantees and indemnities (which may involve the substitution of the Company on such guarantees and indemnities), no occurrence of any material casualty to Gaylord Rockies and other customary closing conditions. The Company has sufficient cash on hand and availability under its existing credit facility to finance the cash purchase price.

The Company also owns a number of media and entertainment assets, including the Grand Ole Opry, the legendary weekly showcase of country music’s finest performers; the Ryman Auditorium, the storied live music venue and former home of the Grand Ole Opry; WSM-AM, the Opry’s radio home; Ole Red, a brand of Blake Shelton-themed bar, music venue and event spaces, with a flagship location in Nashville that opened in May 2018; and three Nashville-based assets managed by Marriott – Gaylord Springs Golf Links, the Wildhorse Saloon, and the General Jackson Showboat.

The Company also owns Opry City Stage, a four-level entertainment complex in Times Square that opened in December 2017 under a joint venture agreement for which the Company owned 50%. In the second quarter of 2018, the Company acquired the remaining 50% joint venture interest in Opry City Stage for a combination of $3.9 million in cash and the forgiveness of a note receivable previously due to the Company from the other joint venture partner of $7.9 million. Subsequent to the Company’s purchase of the remaining 50% joint venture interest, the Company determined that current ongoing operations were not meeting the revenue expectations from the time of purchase. In September 2018, the Company announced that it was temporarily suspending operations at Opry City Stage to appropriately reposition the venue and its operations. As a result, the Company performed an impairment assessment of the carrying amount of Opry City Stage assets based on the related estimated total future net cash flows and determined that an impairment charge of $4.5 million was warranted, which is reflected as impairment and other charges in the accompanying condensed consolidated statements of operations and comprehensive income.

The condensed consolidated financial statements include the accounts of Ryman and its subsidiaries and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from this report pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim periods have been included. All adjustments are of a normal,

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recurring nature. The results of operations for such interim periods are not necessarily indicative of the results for the full year because of seasonal and short-term variations.

The Company conducts its business through an umbrella partnership REIT, in which all of its assets are held by, and all of its operations are conducted through, RHP Hotel Properties, LP, a subsidiary operating partnership (the “Operating Partnership”) that the Company formed in connection with its REIT conversion. Ryman is the sole limited partner of the Operating Partnership and currently owns, either directly or indirectly, all of the partnership units of the Operating Partnership. RHP Finance Corporation, a Delaware corporation (“Finco”), was formed as a wholly-owned subsidiary of the Operating Partnership for the sole purpose of being a co-issuer of debt securities with the Operating Partnership. Neither Ryman nor Finco has any material assets, other than Ryman’s investment in the Operating Partnership and its 100%-owned subsidiaries. As 100%-owned subsidiaries of Ryman, neither the Operating Partnership nor Finco has any business, operations, financial results or other material information, other than the business, operations, financial results and other material information described in this Quarterly Report on Form 10‑Q and Ryman’s other reports, documents or other information filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended.

The Company principally operates, through its subsidiaries and its property managers, as applicable, in the following business segments: Hospitality, Entertainment, and Corporate and Other.

Newly Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑09, “Revenue from Contracts with Customers,” the core principle of which is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Under this guidance, companies will need to use more judgment and make more estimates than under previous guidance. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Due to the short-term, day-to-day nature of the Company’s hospitality and entertainment segment revenues, the pattern of revenue recognition did not change significantly upon adoption. The Company adopted this ASU in the first quarter of 2018 using the modified retrospective approach and has applied the standard to all contracts at the date of initial application. As such, prior period amounts have not been restated, and the Company recorded a transition adjustment to retained earnings of $0.1 million, which is reflected in the condensed consolidated balance sheet for September 30, 2018 included herein. See Note 2, “Revenues,” to the condensed consolidated financial statements included herein for further disclosures.

In February 2016, the FASB issued ASU No. 2016‑02, “Leases,” that requires lessees to record most leases on their balance sheet, but recognize expenses on their income statements in a manner similar to previous accounting. The ASU also eliminates the required use of bright-line tests for determining lease classification. The ASU is effective for the Company in the first quarter of 2019, and the Company plans to adopt this standard at that time using the modified retrospective approach, with a cumulative-effect adjustment, if any, to retained earnings in the period of adoption. Prior period amounts will not be restated. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” both of which provide practical expedients that the Company intends to adopt. By adopting these practical expedients, the Company will not be required to reassess (i) whether an expired or existing contract meets the definition of a lease; (ii) the lease classification at the adoption date for existing leases; and (iii) whether costs previously capitalized as initial direct costs would continue to be amortized. The Company is evaluating its inventory of leases and determining the appropriate discount rates that will be used to determine the right-of-use assets and lease liabilities to be recorded, and the primary impact of the adoption is estimated to be the inclusion of the Company’s 75‑year ground lease at Gaylord Palms on its balance sheet. See Note 12, “Commitments and Contingencies,” to the consolidated financial statements included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017 for a further disclosure of the Company’s outstanding leases.

In June 2016, the FASB issued ASU No. 2016‑13, “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments,” which will change how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-

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looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The ASU is effective for the Company in the first quarter of 2020. The Company is currently evaluating the effects of this ASU on its financial statements, and such effects have not yet been determined.

In November 2016, the FASB issued ASU No. 2016‑18, “Restricted Cash,” which requires entities to disclose changes in the total of cash and restricted cash in the statement of cash flows. As a result, entities no longer present transfers between cash and restricted cash in the statement of cash flows, and present a reconciliation of the totals in the statement of cash flows to the related captions on the balance sheet. The Company adopted this ASU in the first quarter of 2018, and this adoption did not have a material impact on the Company’s financial statements. The prior period presentation has been updated to conform to the current year presentation.

In March 2017, the FASB issued ASU No. 2017‑07, “Compensation – Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the cost of benefits in the income statement. Under the new guidance, the service cost component of net periodic benefit cost is presented in the same income statement line items as other employee compensation costs. In addition, the other components of net periodic benefit cost are presented separately from service cost and outside of operating income, which the Company has included in other gains and (losses), net in the accompanying condensed consolidated statements of operations and comprehensive income. The Company adopted this ASU in the first quarter of 2018, and this adoption did not have a material impact on the Company’s financial statements. The prior period presentation has been updated to conform to the current year presentation.

2. REVENUES:

Revenues from occupied hotel rooms are recognized over time as the daily hotel stay is provided to hotel groups and guests. Revenues from concessions, food and beverage sales, and group meeting services are recognized over the period or at the point in time those goods or services are delivered to the hotel group or guest. Revenues from ancillary services at the Company’s hotels, such as spa, parking, and transportation services, are generally recognized at the time the goods or services are provided. Cancellation fees and attrition fees, which are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for, are generally recognized as revenue in the period the Company determines it is probable that a significant reversal in the amount of revenue recognized will not occur, which is the period these fees are collected. The Company generally recognizes revenues from the Entertainment segment at the point in time that services are provided or goods are delivered or shipped to the customer, as applicable. Almost all of the Company’s revenues are either cash-based or, for meeting and convention groups who meet the Company’s credit criteria, billed and collected on a short-term receivables basis. The Company is required to collect certain taxes from customers on behalf of government agencies and remit these to the applicable governmental entity on a periodic basis. These taxes are collected from customers at the time of purchase, but are not included in revenue. The Company records a liability upon collection of such taxes from the customer and relieves the liability when payments are remitted to the applicable governmental agency.

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The Company’s revenues disaggregated by major source are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel group rooms

 

$

69,258

 

$

66,758

 

$

241,804

 

$

228,122

Hotel transient rooms

 

 

33,923

 

 

33,776

 

 

90,686

 

 

86,455

Hotel food and beverage - banquets

 

 

82,742

 

 

69,820

 

 

280,729

 

 

251,362

Hotel food and beverage - outlets

 

 

35,754

 

 

34,617

 

 

111,759

 

 

107,685

Hotel other

 

 

27,563

 

 

24,619

 

 

81,129

 

 

73,493

Entertainment admissions/ticketing

 

 

19,215

 

 

19,167

 

 

51,282

 

 

47,465

Entertainment food and beverage

 

 

14,606

 

 

8,305

 

 

33,000

 

 

22,823

Entertainment retail and other

 

 

9,188

 

 

7,662

 

 

24,164

 

 

22,139

Total revenues

 

$

292,249

 

$

264,724

 

$

914,553

 

$

839,544

 

The Company’s Hospitality segment revenues disaggregated by location are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaylord Opryland

 

$

80,591

 

$

76,237

 

$

258,251

 

$

231,459

Gaylord Palms

 

 

38,901

 

 

37,238

 

 

147,071

 

 

139,619

Gaylord Texan

 

 

62,826

 

 

50,166

 

 

179,794

 

 

159,683

Gaylord National

 

 

60,304

 

 

58,936

 

 

200,747

 

 

195,388

AC Hotel

 

 

2,496

 

 

2,928

 

 

8,378

 

 

9,066

Inn at Opryland and other

 

 

4,122

 

 

4,085

 

 

11,866

 

 

11,902

Total Hospitality segment revenues

 

$

249,240

 

$

229,590

 

$

806,107

 

$

747,117

 

Almost all of the Company’s Entertainment segment revenues are concentrated in Nashville, Tennessee.

The Company records deferred revenues when cash payments are received in advance of its performance obligations, primarily related to advanced deposits on hotel rooms in its Hospitality segment and advanced ticketing in its Entertainment segment. At September 30, 2018 and December 31, 2017, the Company had $72.6 million and $51.2 million, respectively, in deferred revenues, which are included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. Of the amount outstanding at December 31, 2017, approximately $44.2 million was recognized in revenue during the nine months ended September 30, 2018.

3. INCOME PER SHARE:

The weighted average number of common shares outstanding is calculated as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Weighted average shares outstanding - basic

 

51,325

 

51,191

 

51,281

 

51,131

Effect of dilutive stock-based compensation

 

194

 

185

 

195

 

200

Weighted average shares outstanding - diluted

 

51,519

 

51,376

 

51,476

 

51,331

 

 

4. ACCUMULATED OTHER COMPREHENSIVE LOSS:

The Company’s balance in accumulated other comprehensive loss is comprised of amounts related to the Company’s minimum pension liability and amounts related to an other-than-temporary impairment of a held-to-maturity investment with respect to the notes receivable discussed in Note 6, “Notes Receivable,” to the condensed consolidated financial statements included herein, and Note 3, “Notes Receivable,” to the consolidated financial statements included in the

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Company’s Annual Report on Form 10‑K for the year ended December 31, 2017. Changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2018 and 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other-Than-

 

 

 

 

 

Minimum

 

Temporary

 

 

 

 

 

Pension

 

Impairment of

 

 

 

 

    

Liability

    

Investment

    

Total

Balance, December 31, 2017

 

$

(20,149)

 

$

(6,543)

 

$

(26,692)

Amounts reclassified from accumulated other comprehensive loss

 

 

4,429

 

 

249

 

 

4,678

Income tax expense

 

 

(1,077)

 

 

 —

 

 

(1,077)

Net other comprehensive income

 

 

3,352

 

 

249

 

 

3,601

Balance, September 30, 2018

 

$

(16,797)

 

$

(6,294)

 

$

(23,091)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other-Than-

 

 

 

 

 

Minimum

 

Temporary

 

 

 

 

 

Pension

 

Impairment of

 

 

 

 

    

Liability

    

Investment

    

Total

Balance, December 31, 2016

 

$

(22,268)

 

$

 —

 

$

(22,268)

Amounts reclassified from accumulated other comprehensive loss

 

 

1,609

 

 

 —

 

 

1,609

Income tax benefit

 

 

 —

 

 

 —

 

 

 —

Net other comprehensive income

 

 

1,609

 

 

 —

 

 

1,609

Balance, September 30, 2017

 

$

(20,659)

 

$

 —

 

$

(20,659)

 

 

5. PROPERTY AND EQUIPMENT:

Property and equipment at September 30, 2018 and December 31, 2017 is recorded at cost and summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2018

    

2017

Land and land improvements

 

$

268,521

 

$

267,051

Buildings

 

 

2,556,311

 

 

2,440,471

Furniture, fixtures and equipment

 

 

715,507

 

 

647,988

Construction-in-progress

 

 

99,887

 

 

138,702

 

 

 

3,640,226

 

 

3,494,212

Accumulated depreciation

 

 

(1,513,462)

 

 

(1,428,555)

Property and equipment, net

 

$

2,126,764

 

$

2,065,657

 

 

6. NOTES RECEIVABLE:

As further discussed in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017, in connection with the development of Gaylord National, the Company is currently holding two issuances of governmental bonds and receives debt service and principle payments thereon, payable from property tax increments, hotel taxes and special hotel rental taxes generated from Gaylord National through the maturity dates of July 1, 2034 and September 1, 2037, respectively. The Company records interest income over the life of the notes using the effective interest method.

During the three months ended September 30, 2018 and 2017, the Company recorded interest income of $2.6 million and $2.9 million, respectively, on these bonds. During the nine months ended September 30, 2018 and 2017, the Company recorded interest income of $7.9 million and $8.7 million, respectively, on these bonds. The Company received payments of $10.9 million and $11.1 million during the nine months ended September 30, 2018 and 2017, respectively, relating to these notes receivable.

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7. DEBT:

The Company’s debt and capital lease obligations at September 30, 2018 and December 31, 2017 consisted of (in thousands):

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2018

    

2017

$700 Million Revolving Credit Facility, interest at LIBOR plus 1.55%, maturing May 23, 2021, less unamortized deferred financing costs of $7,185 and $9,076

 

$

262,815

 

$

161,924

$200 Million Term Loan A, interest at LIBOR plus 1.50%, maturing May 23, 2022, less unamortized deferred financing costs of $1,305 and $1,557

 

 

198,695

 

 

198,443

$500 Million Term Loan B, interest at LIBOR plus 2.00%, maturing May 11, 2024, less unamortized deferred financing costs of $5,527 and $7,595

 

 

488,223

 

 

488,655

$350 Million Senior Notes, interest at 5.0%, maturing April 15, 2021, less unamortized deferred financing costs of $2,624 and $3,340

 

 

347,376

 

 

346,660

$400 Million Senior Notes, interest at 5.0%, maturing April 15, 2023, less unamortized deferred financing costs of $4,305 and $4,929

 

 

395,695

 

 

395,071

Capital lease obligations

 

 

623

 

 

639

Total debt

 

$

1,693,427

 

$

1,591,392

 

The majority of amounts due within one year consist of the amortization payments for the $500 million term loan B of 1.0% of the original principal balance, as described in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017.

At September 30, 2018, the Company was in compliance with all of its covenants related to its outstanding debt.

$500 Million Term Loan B

On June 26, 2018, the Company entered into an Amendment No. 2 (the “Amendment”) to the Company’s Fifth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”). The Amendment reduces the applicable interest rate margins for borrowings under the term loan B to, at the Company’s option, either (i) LIBOR plus 2.00% or (ii) a base rate as set in the Credit Agreement. In addition, the Amendment extends the date of commencement of any excess cash flow payments by one year to December 31, 2019. The Amendment did not change the maturity dates existing under the Credit Agreement or result in any increase or decrease in outstanding borrowings.

As a result of the repricing of the term loan B, the Company wrote off $2.0 million of deferred financing costs during the nine months ended September 30, 2018, which is included in interest expense in the accompanying condensed consolidated statement of operations.

For descriptions of the Company’s other outstanding debt obligations, see “Principal Debt Agreements” within “Liquidity and Capital Resources” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10‑Q.

8. DEFERRED MANAGEMENT RIGHTS PROCEEDS:

On October 1, 2012, the Company consummated its agreement to sell the Gaylord Hotels brand (the “IP Rights”) and rights to manage the Gaylord Hotels properties (the “Management Rights”) to Marriott for $210.0 million in cash. Effective October 1, 2012, Marriott assumed responsibility for managing the day-to-day operations of the Gaylord Hotels properties pursuant to a management agreement for each Gaylord Hotel property. The Company allocated $190.0 million of the purchase price to the Management Rights and $20.0 million to the IP Rights.

For financial accounting purposes, the amount related to the Management Rights was deferred and is amortized on a straight line basis over the 65‑year term of the hotel management agreements, including extensions, as a reduction in management fee expense. The amount related to the IP Rights was recognized into income as other gains and losses during 2012.

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9. STOCK PLANS:

During the nine months ended September 30, 2018, the Company granted 0.1 million restricted stock units with a weighted-average grant date fair value of $71.91 per award. There were 0.3 million and 0.4 million restricted stock units outstanding at September 30, 2018 and December 31, 2017, respectively.

The compensation expense that has been charged against pre-tax income for all of the Company’s stock-based compensation plans was $1.9 million and $1.7 million for the three months ended September 30, 2018 and 2017, respectively, and $5.8 million and $5.0 million for the nine months ended September 30, 2018 and 2017, respectively.

10. PENSION AND POSTRETIREMENT BENEFITS OTHER THAN PENSION PLANS:

Net periodic pension expense reflected in the accompanying condensed consolidated statements of operations included the following components for the respective periods (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Interest cost

 

$

808

 

$

891

 

$

2,422

 

$

2,706

Expected return on plan assets

 

 

(1,087)

 

 

(1,051)

 

 

(3,259)

 

 

(3,098)

Amortization of net actuarial loss

 

 

259

 

 

282

 

 

778

 

 

861

Net settlement loss

 

 

1,004

 

 

1,218

 

 

1,004

 

 

1,218

Total net periodic pension expense

 

$

984

 

$

1,340

 

$

945

 

$

1,687

 

As a result of increased lump-sum distributions from the Company’s qualified retirement plan during 2018 and 2017, net settlement losses of $1.0 million and $1.2 million were recognized in the three months and nine months ended September 30, 2018 and 2017, respectively.

In addition, the increase in lump-sum distributions required the Company to re-measure its liability under its pension plan as of September 30, 2018. As a result of the re-measurement, as well as an increase in the pension plan’s assumed discount rate from 3.3% at December 31, 2017 to 4.0% at September 30, 2018, the Company recorded a $3.4 million decrease in its liability under the pension plan and a corresponding decrease in accumulated other comprehensive loss in the accompanying condensed consolidated balance sheet at September 30, 2018.

Net postretirement benefit income reflected in the accompanying condensed consolidated statements of operations included the following components for the respective periods (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Interest cost

 

$

24

 

$

27

 

$

72

 

$

81

Amortization of net actuarial loss

 

 

64

 

 

61

 

 

193

 

 

184

Amortization of prior service credit

 

 

(329)

 

 

(328)

 

 

(986)

 

 

(985)

Total net postretirement benefit income

 

$

(241)

 

$

(240)

 

$

(721)

 

$

(720)

 

 

11. INCOME TAXES:

The Company has elected to be taxed as a REIT effective January 1, 2013, pursuant to the U.S. Internal Revenue Code of 1986, as amended. As a REIT, generally the Company will not be subject to federal corporate income taxes on ordinary taxable income and capital gains income from real estate investments that it distributes to its stockholders. The Company will continue to be required to pay federal and state corporate income taxes on earnings of its taxable REIT subsidiaries (“TRSs”).

The Company recorded an income tax provision of $1.9 million and $0.5 million for the three months ended September 30, 2018 and 2017, respectively, and $9.7 million and $2.0 million for the nine months ended September 30, 2018 and 2017, respectively, related to the current period operations of the Company. These results differ from the

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statutory rate primarily due to the REIT dividends paid deduction in both periods and the change in valuation allowance required at the TRSs for the nine months ended September 30, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted and included a reduction to the U.S. federal corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. As discussed in SEC Staff Accounting Bulletin No. 118, the accounting for the TCJA should be completed within one year from enactment. As of September 30, 2018, the Company has completed its accounting for all of the enactment-date income tax effects of the TCJA. During the nine months ended September 30, 2018, the Company has made no adjustments to the provisional amounts recorded at December 31, 2017.

At September 30, 2018 and December 31, 2017, the Company had no unrecognized tax benefits.

12. COMMITMENTS AND CONTINGENCIES:

The Company currently owns a 35% interest in a joint venture that is developing and owns Gaylord Rockies, which is expected to open in late 2018. In connection with the joint venture, the Company agreed to provide guarantees of the hotel’s construction loan, including a principal repayment guarantee of up to $21 million of the total $500 million principal amount of the construction loan previously obtained from a consortium of eight banks, with such amount reducing to $14 million and further reducing to $8.75 million upon the hotel’s satisfaction of designated debt service coverage requirements following completion and opening of the hotel. The Company has also provided a completion guarantee under the construction loan capped at its pro rata share of all costs necessary to complete the project within the time specified in the joint venture’s loan documents. Further, the Company has agreed to a guarantee capped at its pro rata share of the joint venture’s obligations under the construction loan prior to the hotel’s opening related to interest accruing under the construction loan and the operating expenses of the property (estimated pro rata share of interest prior to the hotel opening is $9.8 million). In addition to guarantees related to the construction loan, the Company agreed to provide a guarantee of the mezzanine debt related to the hotel including a payment guarantee capped at $8.75 million for which the Company is only liable in the event there is a casualty or condemnation event at the hotel and the construction lenders elect to apply those proceeds to the construction loan balance and release the construction loan guarantees and liens. The guarantee related to the mezzanine debt also includes an uncapped completion guarantee and an uncapped guarantee of the Gaylord Rockies joint venture’s obligations under the mezzanine loan prior to the hotel’s opening related to interest accruing under the mezzanine loan and the operating expenses of the property to the extent not already satisfied by the parties under the guarantees related to the construction loan. As of September 30, 2018, the Company had not recorded any liability in the consolidated balance sheet associated with these guarantees.

The Company has entered into employment agreements with certain officers, which provide for severance payments upon certain events, including certain terminations in connection with a change of control.

The Company, in the ordinary course of business, is involved in certain legal actions and claims on a variety of matters. It is the opinion of management that such contingencies will not have a material effect on the financial statements of the Company.

13. STOCKHOLDERS’ EQUITY:

On February 23, 2018, the Company’s board of directors declared the Company’s first quarter 2018 cash dividend in the amount of $0.85 per share of common stock, or an aggregate of approximately $43.6 million in cash, which was paid on April 16, 2018 to stockholders of record as of the close of business on March 30, 2018.

On June 18, 2018, the Company’s board of directors declared the Company’s second quarter 2018 cash dividend in the amount of $0.85 per share of common stock, or an aggregate of approximately $43.6 million in cash, which was paid on July 16, 2018 to stockholders of record as of the close of business on June 29, 2018.

On September 17, 2018, the Company’s board of directors declared the Company’s third quarter 2018 cash dividend in the amount of $0.85 per share of common stock, or an aggregate of approximately $43.6 million in cash, which was paid on October 15, 2018 to stockholders of record as of the close of business on September 28, 2018.

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14. FAIR VALUE MEASUREMENTS:

The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

At September 30, 2018 and December 31, 2017, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included investments held in conjunction with the Company’s non-qualified contributory deferred compensation plan. These investments consist of mutual funds traded in an active market. The Company determined the fair value of these mutual funds based on the net asset value per unit of the funds or the portfolio, which is based upon quoted market prices in an active market. Therefore, the Company has categorized these investments as Level 1.

The Company has consistently applied the above valuation techniques in all periods presented and believes it has obtained the most accurate information available for each type of instrument.

The Company had no liabilities required to be measured at fair value at September 30, 2018 and December 31, 2017. The Company’s assets measured at fair value on a recurring basis at September 30, 2018 and December 31, 2017, were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Markets for

    

Observable

    

Unobservable

 

 

September 30, 

 

Identical Assets

 

Inputs

 

Inputs

 

 

2018

 

(Level 1)

 

(Level 2)

 

(Level 3)

Deferred compensation plan investments

 

$

26,148

 

$

26,148

 

$

 —

 

$

 —

Total assets measured at fair value

 

$

26,148

 

$

26,148

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Markets for

    

Observable

    

Unobservable

 

 

December 31, 

 

Identical Assets

 

Inputs

 

Inputs

 

 

2017

 

(Level 1)

 

(Level 2)

 

(Level 3)

Deferred compensation plan investments

 

$

25,055

 

$

25,055

 

$

 —

 

$

 —

Total assets measured at fair value

 

$

25,055

 

$

25,055

 

$

 —

 

$

 —

 

The remainder of the assets and liabilities held by the Company at September 30, 2018 are not required to be recorded at fair value, and the carrying value of these assets and liabilities approximate fair value.

15. FINANCIAL REPORTING BY BUSINESS SEGMENTS:

The Company’s operations are organized into three principal business segments:

·

Hospitality, which includes Gaylord Opryland, Gaylord Palms, Gaylord Texan, Gaylord National, the Inn at Opryland, the AC Hotel, and the Company’s equity investment in Gaylord Rockies;

·

Entertainment, which includes the Grand Ole Opry, the Ryman Auditorium, WSM-AM, Ole Red, Opry City Stage, and the Company’s Nashville-based attractions; and

·

Corporate and Other, which includes the Company’s corporate expenses.

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The following information is derived directly from the segments’ internal financial reports used for corporate management purposes (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

Hospitality

 

$

249,240

 

$

229,590

 

$

806,107

 

$

747,117

Entertainment

 

 

43,009

 

 

35,134

 

 

108,446

 

 

92,427

Corporate and Other

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

292,249

 

$

264,724

 

$

914,553

 

$

839,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

  

 

 

  

 

 

  

 

 

  

Hospitality

 

$

27,946

 

$

26,061

 

$

81,379

 

$

76,786

Entertainment

 

 

2,613

 

 

1,965

 

 

6,885

 

 

5,465

Corporate and Other

 

 

435

 

 

520

 

 

1,391

 

 

1,611

Total

 

$

30,994

 

$

28,546

 

$

89,655

 

$

83,862