Description
Filed with the SEC from Sep 13 to Sep 19:
Gaylord Entertainment (GET)
Gamco decreased its holdings in the pop landmark hotel and convention-center owner to 5,929,072 shares (13.2%) after it sold 950,638 from July 13 through Sept. 12 at prices ranging from $35.25 to $41.24. Gamco also said it bought 53,900 shares in the period from July 16 through Sept. 11 for $35.41 to $40.68 each.
BUSINESS OVERVIEW
Strategy
Our goal is to become the nation’s premier hotel brand primarily serving the meetings and conventions sector and to enhance our business by offering vacation and entertainment opportunities to our guests and target consumers. Our Gaylord branded hotels focus on the large group meetings market in the United States. Our properties and services are designed to appeal to meeting planners who arrange these large group meetings.
“All-in-One-Place” Product Offering. Through our “All-in-One-Place” strategy, our Gaylord branded hotels incorporate meeting and exhibition space, signature guest rooms, award-winning food and beverage offerings, fitness and spa facilities and other attractions within a large hotel property so our attendees’ needs are met in one location. This strategy creates a better experience for both meeting planners and our guests, allows us to capture a greater share of their event spending, and has led to our Gaylord hotels claiming a place among the leading convention hotels in the country.
Create Customer Rotation Between Our Hotels. In order to further capitalize on our success in Nashville, we opened our Gaylord Palms hotel in January 2002, our Gaylord Texan hotel in April 2004 and our Gaylord National hotel in April 2008. We re-launched our Gaylord Opryland hotel in November 2010 after flood-related renovations. As further described in the “Future Development” section below, we have announced our plans to develop a resort and convention hotel in Aurora, Colorado, and we are a party to a land purchase agreement with respect to a potential hotel development in Mesa, Arizona. We have focused the efforts of our sales force to capitalize on our expansion and the desires of some of our large group meeting clients to meet in different areas of the country each year, as well as to establish relationships with new customers as we increase our geographic reach. We believe there is a significant opportunity to establish strong relationships with new customers and rotate them among our properties.
Leverage Brand Name Awareness. We believe the Grand Ole Opry is one of the most recognized entertainment brands in the United States. We promote the Grand Ole Opry name through various media, including our WSM-AM radio station, the Internet and television, and through performances by the Grand Ole Opry’s members, many of whom are renowned country music artists, and we believe that significant growth opportunities exist through leveraging and extending the Grand Ole Opry brand into other products and markets. As such, we have alliances in place with multiple distribution partners in an effort to foster brand extension. We are continuously exploring additional products, such as television specials and retail products, through which we can capitalize on our brand affinity and awareness. We believe that licensing our brand for products may provide an opportunity to increase revenues and cash flow with relatively little capital investment.
Industry Description
According to the February 2011 study, “The Economic Significance of Meetings to the U.S. Economy,” conducted by PriceWaterhouseCoopers and published by the Convention Industry Council, in 2009, the meetings industry generated approximately $263 billion in direct spending. Of this amount, approximately $62 billion was spent on accommodations and food and beverage. These revenues include attendee “economic impact” (which includes spending on lodging, meals, entertainment and in-city transportation), not all of which we capture. An additional approximate $150 billion was spent on meetings and other commodities, which include event producer total gross sales (which include exhibitor and sponsor expenditures) and venue rentals. Convention hotels that attract larger group meetings typically have more than 1,000 guest rooms and, on average, contain approximately 125,000 square feet of exhibit space and approximately 45 meeting rooms.
According to the same study published by the Convention Industry Council, the group meetings market was comprised of approximately 1.8 million events in 2009, of which approximately 71% were corporate meetings and approximately 29% were conventions, trade shows, incentive and other meetings. Of the 100 largest hotels with meeting space, as tracked by Smith Travel Research, over half of the hotels contain over 130,000 square feet of meeting and exhibit space. Conversely, only 4% of these properties feature 500,000 square feet or more to host the nation’s largest groups. Examples of industries participating in larger meetings include health care, home furnishings, computers, sporting goods and recreation, education, building and construction, industrial, agriculture, food and beverage, boats and automotive. Conventions and association-sponsored events, which draw a large number of attendees requiring extensive meeting space and room availability, account for over half of total group spending and economic impact. Because groups, associations and trade shows generally select their sites two to six years in advance, thereby increasing earnings visibility, and our group customers enter into contracts that provide for minimum spending on stays and cancellation and attrition fees, we believe the convention hotel segment of the lodging industry is more predictable than the general lodging industry.
Gaylord Hotels — Strategic Plan
Our goal is to become the nation’s premier brand in the meetings and convention sector. To accomplish this, our business strategy is to develop resorts and convention centers in desirable event destinations that are designed based in large part on the needs of meeting planners and attendees. Using the slogan “All-in-One-Place,” our hotels incorporate meeting, convention and exhibition space with a large hotel property so the attendees never have to leave the location during their meetings. This concept of a self-contained destination dedicated primarily to the meetings industry has placed our Gaylord hotels among the leading convention hotels in the country. In addition to operating Gaylord Opryland, we opened the Gaylord Palms in January 2002, the Gaylord Texan in April 2004 and the Gaylord National in April 2008. We believe that our hotels will enable us to capture additional convention business from groups that currently utilize one of our hotels but must rotate their meetings to other locations due to their attendees’ desires to visit different areas. In addition to our group meetings strategy, we are also focused on improving leisure demand in our hotels through special events (Country Christmas, DreamWorks experiences, proposed water and snow park, summer-themed events, etc.), social media strategies, and unique content and entertainment partnerships.
Gaylord Opryland Resort and Convention Center — Nashville, Tennessee. Gaylord Opryland is one of the leading convention destinations in the United States based upon number of rooms, exhibit space and conventions held. Designed with lavish gardens and expansive atrium areas, the resort is situated on approximately 172 acres in the Opryland complex. Gaylord Opryland is one of the largest hotels in the United States in terms of number of guest rooms. Gaylord Opryland has a number of themed restaurants, retail outlets, and a full-service spa with 27,000 square feet of dedicated space and 12 treatment rooms. It also serves as a destination resort for vacationers due to its proximity to the Grand Ole Opry, the General Jackson Showboat, the Gaylord Springs Golf Links (Gaylord’s 18-hole championship golf course), and other attractions in the Nashville area. Gaylord Opryland has 2,882 signature guest rooms, four ballrooms with approximately 127,000 square feet, 111 banquet/meeting rooms, and total meeting, exhibit and pre-function space of approximately 640,000 square feet. Gaylord Opryland has been recognized by many industry and commercial publications, receiving Successful Meetings magazine’s Pinnacle Award in 2007, 2008, 2010 and 2011, as well as Meeting & Convention’s Gold Key and Gold Platter Awards every year since 1993.
Gaylord Palms Resort and Convention Center — Kissimmee, Florida. Gaylord Palms has 1,406 signature guest rooms, three ballrooms with approximately 76,000 square feet, 76 banquet/meeting rooms, and total meeting, exhibit and pre-function space of approximately 400,000 square feet. The resort is situated on a 65-acre site in Osceola County, Florida and is approximately a five minute drive from the main gate of the Walt Disney World ® Resort complex. Gaylord Palms has a number of themed restaurants, retail outlets and a full-service spa, with 20,000 square feet of dedicated space and 25 treatment rooms. A new resort pool is currently under construction and is scheduled to open during the first half of 2012, and a new 2-story sports bar complex opened in February 2012. Hotel guests also have golf privileges at the world class Falcon’s Fire Golf Club, located a half-mile from the property. The Gaylord Palms is rated as a AAA Four-Diamond Hotel and has been recognized by many publications, receiving Successful Meetings magazine’s Pinnacle Award in 2007, 2008, 2009, 2010 and 2011 and Meeting and Convention’s Gold Key and Gold Platter Awards every year since 2003.
Gaylord Texan Resort and Convention Center — Grapevine, Texas. Gaylord Texan is situated on approximately 85 acres and is located approximately six minutes from the Dallas/Fort Worth International Airport. The hotel features a lavish and expansive atrium, 1,511 signature guest rooms, three ballrooms with approximately 85,000 square feet, 70 banquet/meeting rooms, and total meeting, exhibit and pre-function space of approximately 400,000 square feet. The property also includes a number of themed restaurants, retail outlets and a full-service spa with 25,000 square feet of dedicated space and 12 treatment rooms. Guests also have access to the adjacent Cowboys Golf Club. In 2006, we opened the Glass Cactus entertainment complex, an approximately 39,000 square feet venue with a performance stage, dance floor, and a two-story outdoor deck, on land we own adjacent to the hotel. In 2011, we opened the Paradise Springs resort pool, a western-themed 10-acre resort pool and lazy river complex. The Gaylord Texan is rated as a AAA Four-Diamond Hotel, and it received Successful Meetings magazine’s Pinnacle Award in 2008, Meeting and Convention’s Gold Key Award every year since 2005 and Meeting and Convention’s Gold Platter Award in 2007, 2010 and 2011.
Gaylord National Resort and Convention Center—Prince George’s County, Maryland. Gaylord National opened in April 2008 and is situated on approximately 42 acres of land located on the Potomac River in Prince George’s County, Maryland, eight miles south of Washington, D.C. The hotel has 1,996 signature guest rooms, four ballrooms with approximately 103,000 square feet, 82 conference and breakout rooms, and total meeting, exhibit and pre-function space of approximately 470,000 square feet. The hotel complex includes an 18-story glass atrium, a 20,000 square foot spa and fitness center with 12 treatment rooms, and entertainment options such as restaurants, shops, and a two-story rooftop nightclub. The Gaylord National is rated as a AAA Four-Diamond Hotel, and it received Successful Meetings magazine’s Pinnacle Award in 2011 and Meeting and Convention’s Gold Key Award in 2009, 2010 and 2011.
Radisson Hotel at Opryland. We also own and operate the Radisson Hotel at Opryland, a Radisson franchise hotel, which is located across the street from Gaylord Opryland. The hotel has 303 rooms and approximately 14,000 square feet of meeting space. In 2000, we entered into a 20-year franchise agreement with Radisson in connection with the operation of this hotel.
Future Development. In 2011, we announced our plans to develop a resort and convention hotel in Aurora, Colorado, located approximately 25 minutes from downtown Denver. The Aurora development, which is expected to feature 1,500 guest rooms and 400,000 square feet of exhibition and meeting space, will be located on 85 acres in LNR Property CPI Fund’s High Point Master Plan Development. The project is expected to cost approximately $800 million and could be funded by us, potential joint venture partners and the tax incentives that are being provided as a result of an agreement between us and the city of Aurora, and is contingent on receiving required governmental approvals, incentives, and final approval by our board of directors. We expect to break ground on construction in 2013 and expect the resort to be open for business in early 2016. At this time, we have not made any material financial commitments in connection with this development.
On September 3, 2008, we announced that we entered into a land purchase agreement with DMB Mesa Proving Grounds LLC, an affiliate of DMB Associates, Inc. (“DMB”), to create a resort and convention hotel at the Mesa Proving Grounds in Mesa, Arizona, which is located approximately 30 miles from downtown Phoenix. The DMB development is planned to host an urban environment that features a Gaylord resort property, a retail development, a golf course, office space, residential offerings and significant other mixed-use components. Gaylord’s purchase agreement includes the purchase of 100 acres of real estate within the 3,200-acre Mesa Proving Grounds. The Gaylord project is contingent on the finalization of entitlements and incentives and final approval by Gaylord’s Board of Directors. We made an initial deposit of a portion of the land purchase price upon execution of the agreement with DMB, and additional deposit amounts are due upon the occurrence of various development milestones, including required governmental approvals of the entitlements and incentives. These deposits are refundable to us upon a termination of the agreement with DMB during a specified due diligence period, except in the event of a breach of the agreement by us. The timing of this development is uncertain, and we have not made any financing plans or, except as described above, made any commitments in connection with the proposed development.
In January 2012, we announced that we had entered into a memorandum of understanding for a 50/50 joint venture with the Dollywood Company to develop a family entertainment zone adjacent to the Gaylord Opryland Resort & Convention Center on land that we currently own. The Dollywood Company will operate the park, and we will contribute both land and cash to represent our 50 percent share of the venture. Phase one of the project is a yet unnamed approximately $50 million water and snow park, which we believe will be the first of its kind in the U.S. An early 2013 groundbreaking date is expected with the park opening slated for summer 2014. The project is contingent upon finalizing agreements with governmental authorities pertaining to the construction of the necessary infrastructure and other contingencies.
We are also considering expansions at Gaylord Texan and Gaylord Palms, as well as other potential hotel sites throughout the country. In addition, we are reevaluating our prior considerations regarding a possible expansion at Gaylord Opryland. We have made no commitments to construct expansions of our current facilities. We are closely monitoring the condition of the economy and the availability of attractive financing. We are unable to predict at this time when we might make such commitments or commence construction of these proposed expansion projects.
Opry and Attractions
The Grand Ole Opry. The Grand Ole Opry, which celebrated its 86 th anniversary in 2011, is one of the most widely known platforms for country music in the world. The Opry features a live country music show with performances every Friday and Saturday night, as well as additional weekly performances on a seasonal basis. The Opry House, home of the Grand Ole Opry, seats approximately 4,400 and is located in the Opryland complex. The Grand Ole Opry moved to the Opry House in 1974 from its most famous home in the Ryman Auditorium in downtown Nashville. Each week, the Grand Ole Opry is broadcast live to millions of country lifestyle consumers on radio via WSM-AM and Sirius/XM Radio and streamed on the Internet. The Grand Ole Opry is also broadcast on television via the Great American Country network. The show has been broadcast since 1925 on WSM-AM, making it the longest running live radio program in the United States. In addition to performances by its members, the Grand Ole Opry presents performances by many other country music artists.
Ryman Auditorium. The Ryman Auditorium, which was built in 1892 and seats approximately 2,300, is designated as a National Historic Landmark. The former home of the Grand Ole Opry, the Ryman Auditorium was renovated and re-opened in 1994 for concerts and musical productions. The Grand Ole Opry returns to the Ryman Auditorium periodically, most recently from November 2011 to January 2012. The Ryman Auditorium has been nominated for “Theatre of the Year” by Pollstar Concert Industry Awards from 2003 to 2011, winning the award in 2003, 2004, 2010 and 2011, and was named the Venue of the Year by the Academy of Country Music in 2009 and 2011.
The General Jackson Showboat. We operate the General Jackson Showboat, a 300-foot, four-deck paddle wheel showboat, on the Cumberland River, which flows past the Gaylord Opryland complex in Nashville. Its Victorian Theatre can seat 600 people for banquets and 1,000 people for theater-style presentations. The showboat stages Broadway-style shows and other theatrical productions. The General Jackson is one of many sources of entertainment that Gaylord makes available to conventions held at Gaylord Opryland. During the day, it operates cruises, primarily serving tourists visiting the Gaylord Opryland complex and the Nashville area.
Gaylord Springs Golf Links. Home to a Senior PGA Tour event from 1994 to 2003 and minutes from Gaylord Opryland, the Gaylord Springs Golf Links was designed by former U.S. Open and PGA Champion Larry Nelson. The 40,000 square-foot antebellum-style clubhouse offers meeting space for up to 500 guests.
The Wildhorse Saloon. Since 1994, we have owned and operated the Wildhorse Saloon, a country music performance venue on historic Second Avenue in downtown Nashville. The three-story facility includes a dance floor of approximately 2,000 square feet, as well as a restaurant and banquet facility that can accommodate up to 2,000 guests.
WSM-AM. WSM-AM commenced broadcasting in 1925. The involvement of Gaylord’s predecessors with country music dates back to the creation of the radio program that became The Grand Ole Opry, which has been broadcast live on WSM-AM since 1925. WSM-AM is broadcast from the Gaylord Opryland complex in Nashville and has a country music format. WSM-AM is one of the nation’s “clear channel” stations, meaning that no other station in a 750-mile radius uses the same frequency for night time broadcasts. As a result, the station’s signal, transmitted by a 50,000 watt transmitter, can be heard at night in much of the United States and parts of Canada.
Corporate and Other
Corporate and Other includes operating and selling, general and administrative expenses related to the overall management of the Company which are not allocated to the other reportable segments, including costs for the Company’s retirement plans, equity-based compensation plans, information technology, human resources, accounting, and other administrative expenses, and formerly included our ownership interests in certain investments described below under Item 6, “Selected Financial Data.”
Employees
As of December 31, 2011, we had approximately 6,680 full-time and 3,683 part-time and temporary employees. Of these, approximately 6,057 full-time and 3,143 part-time employees were employed in Hospitality; approximately 298 full-time and 538 part-time employees were employed in Opry and Attractions; and approximately 325 full-time and 2 part-time employees were employed in Corporate and Other. We believe our relations with our employees are good.
As of December 31, 2011, approximately 1,400 employees at Gaylord National were represented by labor unions and are working pursuant to the terms of the collective bargaining agreements which have been negotiated with the four unions representing these employees.
Competition
Hospitality
The Gaylord Hotel properties compete with numerous other hotels throughout the United States and abroad, particularly the approximately 100 convention hotels that, on average, have over 1,000 rooms and a significant amount of meeting and exhibit space. Many of these hotels are operated by companies with greater financial, marketing and human resources than the Company. We believe that competition among convention hotels is based on, among other things: (i) the hotel’s reputation, (ii) the quality of the hotel’s facility, (iii) the quality and scope of a hotel’s meeting and convention facilities and services, (iv) the desirability of a hotel’s location, (v) travel distance to a hotel for meeting attendees, (vi) a hotel facility’s accessibility to a recognized airport, (vii) the amount of entertainment and recreational options available in and in the vicinity of the hotel, (viii) service levels at the hotel, and (ix) price. Our hotels also compete against municipal convention centers. These include the largest convention centers (e.g., Orlando, Chicago and Atlanta) as well as, for Gaylord Opryland, mid-size convention centers (between 100,000 and 500,000 square feet of meeting space located in second-tier cities).
The hotel business is management and marketing intensive. The Gaylord Hotels compete with other hotels throughout the United States for high quality management and marketing personnel. There can be no assurance that our hotels will be able to attract and retain employees with the requisite managerial and marketing skills.
Opry and Attractions
The Grand Ole Opry and our other attractions businesses compete with all other forms of entertainment and recreational activities. The success of the Opry and Attractions group is dependent upon certain factors beyond our control, including economic conditions, the amount of available leisure time, transportation cost, public taste and weather conditions. Our radio station competes with numerous other types of entertainment businesses, and success is often dependent on taste and fashion, which may fluctuate from time to time.
Seasonality
Portions of our business are seasonal in nature. Our group convention business is subject to reduced levels of demand during the year-end holiday periods. Although we typically attempt to attract general tourism guests by offering special events and attractions during these periods, there can be no assurance that our hotels can successfully operate such events and attractions or that we will attract enough general tourism guests during this period to offset the decreased group convention business.
Regulation and Legislation
Hospitality
Our hotels are subject to certain federal, state, and local governmental laws and regulations including, without limitation, labor regulations, health and safety laws and environmental regulations applicable to hotel and restaurant operations. The hotels are also subject to the requirements of the Americans with Disabilities Act and similar state laws, as well as regulations pursuant thereto. We believe that we are in substantial compliance with such regulations. In addition, the sale of alcoholic beverages by a hotel requires a license and is subject to regulation by the applicable state and local authorities. The agencies involved have the power to limit, condition, suspend or revoke any such license, and any disciplinary action or revocation could have an adverse effect upon the results of operations of our Hospitality segment.
Opry and Attractions
WSM-AM is subject to regulation under the Communications Act of 1934, as amended. Under the Communications Act, the Federal Communications Commission, or FCC, among other things, assigns frequency bands for broadcasting; determines the frequencies, location, and signal strength of stations; issues, renews, revokes, and modifies station licenses; regulates equipment used by stations; and adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, and other practices of broadcasting stations. Licenses issued for radio stations have terms of eight years. Radio broadcast licenses are renewable upon application to the FCC and in the past have been renewed except in rare cases. Competing applications will not be accepted at the time of license renewal, and will not be entertained at all unless the FCC first concludes that renewal of the license would not serve the public interest. A station will be entitled to renewal in the absence of serious violations of the Communications Act or FCC regulations or other violations which constitute a pattern of abuse. WMS-AM’s current radio station license will expire in August 2012; however, we are not aware of any reason why WSM-AM’s radio station license should not be renewed.
In addition, our Nashville area attractions are also subject to the requirements of the Americans with Disabilities Act and similar state laws, as well as the laws and regulatory activities associated with the sale of alcoholic beverages described above.
Additional Information
Our web site address is www.gaylordentertainment.com. Please note that our web site address is provided as an inactive textual reference only. We make available free of charge through our web site the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information provided on our web site is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report. The public may also read and copy these materials at the SEC’s public reference room located at 100 F. Street, N.E., Washington, D.C. 20549 or on their website at www.sec.gov. Questions regarding the operation of the public reference room may be directed to the SEC at 1-800-732-0330 .
CEO BACKGROUND
Glenn J. Angiolillo
Director since 2009. Age 58.
Mr. Angiolillo is President of GJA Management Corp., a consulting and advisory firm specializing in wealth management, a position he has held since 1998. Previously, Mr. Angiolillo was a partner and member of the Management Committee in the law firm of Cummings & Lockwood, where he concentrated in the areas of corporate law, mergers and acquisitions and banking and finance. With respect to other directorships held by any company registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or registered as an investment company under the Investment Company Act of 1940 during the past five years, Mr. Angiolillo previously served as a director of insurance company NYMAGIC, Inc. and electronics display company Trans-Lux Corporation.
The Nominating and Corporate Governance Committee concluded that Mr. Angiolillo should serve as a director, in part, because of his legal background, his understanding of corporate finance and his knowledge of corporate governance. As noted above, Mr. Angiolillo was originally nominated to the Board in 2009 pursuant to the GAMCO Agreement, and the Company is obligated to nominate Mr. Angiolillo to the Board at the Annual Meeting pursuant to the 2012 TRT Agreement.
Michael J. Bender
Director since 2004. Age 50.
Mr. Bender is the EVP and President, West Business Unit, of retailer Wal-Mart Stores, Inc., with overall responsibility for a group of stores in the western United States, a position he has held since February 2011. Mr. Bender previously served as SVP of the Mountain Division of Wal-Mart from February 2010 to February 2011 and as a VP/Regional General Manager at Wal-Mart from February 2009 to February 2010. From 2003 through 2007, Mr. Bender served as the President/General Manager of the Retail and Alternate Care business of healthcare retailer Cardinal Health. Prior to joining Cardinal Health, Mr. Bender was Vice President of Store Operations for clothing retailer Victoria’s Secret Stores. Mr. Bender also spent 14 years with beverage company PepsiCo in a variety of sales, finance and operating roles.
The Nominating and Corporate Governance Committee concluded that Mr. Bender should serve as a director, in part, because of his experience in retail sales, his knowledge of human resources and his understanding of corporate finance and accounting.
E. K. Gaylord II
Director since 1977. Age 54.
Mr. Gaylord served as the Company’s Chairman of the Board from May 1999 through April 2001. He served as interim President and Chief Executive Officer of the Company from July 2000 until September 2000, and as Vice-Chairman of the Board from May 1996 to May 1999. He was the President of the privately-held Oklahoma Publishing Company from June 1994 until December 2002. Mr. Gaylord has been Chairman of the privately-held sports management firm Gaylord Sports Management since January 2004 and Chairman of Medtrust Online, a privately-held healthcare services firm, since 2007. Mr. Gaylord is also a member of the Board of Trustees of the Scottsdale Healthcare Foundation, as well as a member of the National Board of the Smithsonian Institution, and is Chairman of the Smithsonian Institution’s Traveling Exhibitions.
The Nominating and Corporate Governance Committee concluded that Mr. Gaylord should serve as a director, in part, because of his previous specific experience in operations and management with the Company and the knowledge he has acquired from years of involvement with the Company.
Ralph Horn
Director since 2001. Age 71.
Mr. Horn served as the Chairman of the Board of financial services company First Tennessee National Corporation (now First Horizon National Corporation) and First Tennessee Bank, National Association, its principal subsidiary, from 1996 until his retirement in December 2003. Mr. Horn served as Chief Executive Officer of First Tennessee National Corporation from 1994 through 2002 and as its President from 1991 through 2001. Mr. Horn is co-lead director of Mid America Apartment Communities, Inc., an owner of apartment communities. With respect to other directorships held by any company registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or registered as an investment company under the Investment Company Act of 1940 during the past five years, Mr. Horn previously served as a director of gaming company Harrah’s Entertainment, Inc.
The Nominating and Corporate Governance Committee concluded that Mr. Horn should serve as a director, in part, because of his corporate finance background, his knowledge of the hospitality industry and his knowledge of corporate governance.
David W. Johnson
Director since 2009. Age 50.
Mr. Johnson is President and CEO of Aimbridge Hospitality, a privately-held hotel management and real estate investment company. Prior to joining Aimbridge as President and CEO in April 2003, Mr. Johnson spent 17 years at hospitality company Wyndham International in various capacities, including Executive Vice President/Chief Marketing Officer and President of Wyndham Hotels.
The Nominating and Corporate Governance Committee concluded that Mr. Johnson should serve as a director, in part, because of his knowledge of the hospitality and lodging industry and his sales and marketing background. As noted above, pursuant to the 2012 TRT Agreement, the Company is obligated to nominate Mr. Johnson to the Board at the Annual Meeting.
Ellen Levine
Director since 2004. Age 69.
Ms. Levine is Editorial Director of Hearst Magazines, one of the world’s largest magazine publishers. Prior to assuming this role in 2006, Ms. Levine had served as Editor-in-Chief of the Hearst publication Good Housekeeping since 1994. She was instrumental in founding O, The Oprah Magazine in 2000 (and continues to serve as its Editorial Consultant) and in founding Food Network Magazine in 2009. Ms. Levine also served as Editor-in-Chief of Redbook (1990-1994) and Woman’s Day (1982-1990) and as a Senior Editor of Cosmopolitan (1976-1982). With respect to other directorships held by any company registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or registered as an investment company under the Investment Company Act of 1940 during the past five years, Ms. Levine previously served as a director of retailer Finlay Enterprises, Inc.
The Nominating and Corporate Governance Committee concluded that Ms. Levine should serve as a director, in part, because of her sales and marketing background and her knowledge of human resources.
Terrell T. Philen, Jr.
Director since 2011. Age 57.
Mr. Philen has been the Chief Financial Officer for Alan Ritchey, Inc., a north Texas-based, privately-owned trucking and transportation logistics company, since June 2010. Prior to that time, Mr. Philen served as the Chief Financial Officer of TRT Holdings, Inc., a privately-owned, diversified holding company with primary interests in hospitality, energy, fitness and real estate, from 1994 to 2009. Prior to joining TRT, Mr. Philen worked for more than 10 years at Corpus Christi National Bank in a number of accounting roles, including Chief Financial Officer. Mr. Philen also spent four years as a Senior Staff Accountant with KPMG Peat Marwick.
The Nominating and Corporate Governance Committee concluded that Mr. Philen should serve as a director, in part, because of his knowledge of the hospitality and lodging industry and his accounting background. As noted above, pursuant to the 2012 TRT Agreement, the Company is obligated to nominate Mr. Philen to the Board at the Annual Meeting.
Robert S. Prather, Jr.
Director since 2009. Age 67.
Mr. Prather has been President and Chief Operating Officer of Gray Television, Inc., a television broadcast company, since September 2002. He was an Executive Vice President of Gray Television, Inc. from 1996 until September 2002. Mr. Prather is also a director of Gray Television, Inc. Mr. Prather also has served as Chairman of the Board of Directors at Triple Crown Media, Inc., a publishing and communication company, since December 2005. He served as Chief Executive Officer and director of Bull Run Corporation, a sports and affinity marketing and management company, from 1992 until its merger into Triple Crown Media, Inc. in December 2005. Mr. Prather is also a member of the Board of Directors of GAMCO Investors, Inc., the parent company of GAMCO Asset Management, Inc.
The Nominating and Corporate Governance Committee concluded that Mr. Prather should serve as a director, in part, because of his overall business acumen and his experience in the entertainment and media industries. As noted above, Mr. Prather was originally nominated to the Board in 2009 pursuant to the GAMCO Agreement, and the Company is obligated to nominate Mr. Prather to the Board at the Annual Meeting pursuant to the 2012 TRT Agreement.
Colin V. Reed
Director since 2001. Age 64.
Mr. Reed has served as Chief Executive Officer and a director of the Company since April 2001, and Mr. Reed was also elected Chairman of the Board of Directors of the Company in May 2005. From April 2001 until November 2008, Mr. Reed also served as President of the Company. Prior to joining the Company, Mr. Reed had served as a member of the three-executive Office of the President of Harrah’s Entertainment, Inc. since May 1999, and he had served as Harrah’s Chief Financial Officer since April 1997. Mr. Reed also was a director of Harrah’s from 1998 to May 2001. Mr. Reed served in a variety of other management positions with Harrah’s and its predecessor, hotel operator Holiday Corp., since 1977. Mr. Reed is a director of First Horizon National Corporation.
The Nominating and Corporate Governance Committee concluded that Mr. Reed should serve as a director, in part, because of his service as Chief Executive Officer of the Company, his financial and accounting background and his knowledge of the hospitality industry.
Michael D. Rose
Director since 2001. Age 70.
Mr. Rose served as Chairman of the Board of the Company from April 2001 through May 2005 and served as Chairman of the Executive Committee of the Board of the Company from May 2005 through May 2009. From January 2007 until December 2011, Mr. Rose served as Chairman of the Board of Directors of First Horizon National Corporation, and he currently serves as a director of First Horizon National Corporation. Since 1998, Mr. Rose has been a private investor and Chairman of Midaro Investments, a privately held investment firm. In 1995, Mr. Rose became Chairman of the Board of both hotel operator Promus Hotel Corporation and Harrah’s Entertainment, Inc. when the two companies split into two publicly-traded companies. He retired from the Boards of Harrah’s in 1996 and Promus in 1997. Mr. Rose also served as Chairman from 1990 to 1995, and Chief Executive Officer from 1990 to 1994, of the Promus Companies, Incorporated. Mr. Rose is also a director of restaurant operator Darden Restaurants, Inc. and food manufacturer General Mills, Inc.
The Nominating and Corporate Governance Committee concluded that Mr. Rose should serve as a director, in part, because of his experience with public companies, his prior tenure as Chairman of the Board of the Company, his knowledge of the hospitality industry, his service as compensation committee chairman for two Fortune 250 companies and his understanding of corporate governance and finance.
Michael I. Roth
Director since 2004. Age 66.
Mr. Roth is Chairman and Chief Executive Officer of the Interpublic Group of Companies, a global marketing services company. He was appointed Interpublic’s Chief Executive Officer in January of 2005. Prior to becoming Chairman of Interpublic in July 2004, Mr. Roth had been a member of Interpublic’s Board of Directors since 2002. Previously, Mr. Roth was Chairman of the Board and Chief Executive Officer of financial services company The MONY Group Inc. and its predecessor entities since 1997. Mr. Roth is also a director of Pitney Bowes, Inc.
The Nominating and Corporate Governance Committee concluded that Mr. Roth should serve as a director, in part, because of his legal and accounting background, his previous experience managing public companies and his knowledge of corporate finance.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overall Outlook
Our concentration in the hospitality industry, and in particular the large group meetings sector of the hospitality industry, exposes us to certain risks outside of our control. Recessionary conditions in the national economy have resulted in economic pressures on the hospitality industry generally, and on our Company’s operations and expansion plans. In portions of 2008 and the first half of 2009, we experienced declines in hotel occupancy, weakness in future bookings by our core large group customers, lower spending levels by groups and increased cancellation and attrition levels. We believe that corporate customers in particular delayed meetings and events and sought to minimize spending during these periods. In 2010 and 2011, we began to see stabilization in our industry and specifically in our business. In 2010 and 2011, we have seen increases in group travel as compared to the 2009 levels, as well as growth in outside-the-room revenue, indicating that not only are group customers beginning to travel again, they are spending more on food and beverage and entertainment during their stay at our properties. Our attrition and cancellation levels have also decreased compared to 2009 levels. As a result of the higher levels of group business, we experienced an increase in occupancy in 2010 and 2011. Although we continue to see pressure on rates for bookings that will travel in the shorter-term, we have experienced improved rates on bookings in future years. In conjunction with the improvements in our business, as well as our improved outlook on the hospitality industry generally, we are revisiting our future plans for growth. While we continue to focus our marketing efforts on booking rooms in 2012, in addition to later years, there can be no assurance that we can continue to achieve further improvements in occupancy and revenue levels. We cannot predict when or if hospitality demand and spending will return to historical levels, but we anticipate that our future financial results and growth will be harmed if the economy does not continue to improve or becomes worse.
See “Forward-Looking Statements” and “Risk Factors” under Part I of this report for important information regarding forward-looking statements made in this report and risks and uncertainties the Company faces.
Nashville Flood
As more fully described in Note 2 to our Consolidated Financial Statements included herein, on May 3, 2010, Gaylord Opryland, the Grand Ole Opry, certain of our Nashville-based attractions, and certain of our corporate offices experienced significant flood damage as a result of the historic flooding of the Cumberland River (collectively, the “Nashville Flood”). Gaylord Opryland, the Grand Ole Opry, and certain of our corporate offices were protected by levees accredited by the Federal Emergency Management Agency (“FEMA”) (which, according to FEMA, was based on information provided by us), and built to sustain a 100-year flood; however, the river rose to levels that over-topped the levees. We have segregated all costs and insurance proceeds related to the Nashville Flood from normal operations and reported those amounts as casualty loss or preopening costs in the accompanying consolidated statements of operations. During 2010, we recorded $42.3 million in casualty losses related to the flood, which includes $92.3 million in expenses, partially offset by $50.0 million in insurance proceeds. These amounts do not include lost profits from the interruption of the various businesses. During 2010, we also recorded $55.3 million in preopening costs related to reopening the properties damaged by the flood.
Gaylord Opryland reopened November 15, 2010. While the Grand Ole Opry continued its schedule at alternative venues, including our Ryman Auditorium, the Grand Ole Opry House reopened September 28, 2010. Certain of our Nashville-based attractions were closed for a period of time, but reopened in June and July, and the majority of the affected corporate offices reopened during November 2010. Gross total remediation and rebuilding costs came in at the low end of the projected $215-$225 million range, including approximately $23-$28 million in pre-flood planned enhancement projects at Gaylord Opryland. In addition, preopening costs came in under the projected $57-$62 million range. These costs included the initial eight-week carrying period for all labor at the hotel as well as the labor for security, engineering, horticulture, reservations, sales, accounting and management during the restoration, as well as the labor associated with re-launching the assets and the restocking of operating supplies prior to re-opening. In addition, we incurred a non-cash write-off of $45.0 million associated with the impairment of certain assets as a result of sustained flood damage, as further described in Note 2 to our consolidated financial statements included herein. We estimate that net of tax refunds of $36.5 million, insurance proceeds of $50.0 million, and the cost of projects slated for the property prior to the flood, the net cash impact of the flood was approximately $150 million.
In addition, we have initiated an approximate $12 million enhancement to our existing Nashville flood protection system in an effort to provide 500-year flood protection for Gaylord Opryland, as well as an approximate $5 million enhancement in an effort to provide the same protection for the Grand Ole Opry House. We have worked with engineers to design the enhancements to be aesthetically pleasing and sensitive to adjacent property owners. It is anticipated that both projects will be completed by mid-to-late 2012.
Refinancing of our Credit Facility
As further described below in “Liquidity and Capital Resources — Principal Debt Agreements,” on August 1, 2011, we refinanced our $1.0 billion credit facility by entering into a $925 million senior secured credit facility, extending the maturity to 2015.
Development Update
On June 21, 2011, we announced our plans to develop a resort and convention hotel in Aurora, Colorado, located approximately 25 minutes from downtown Denver. The Aurora development, which is expected to feature 1,500 guest rooms and 400,000 square feet of exhibition and meeting space, will be located on 85 acres in LNR Property CPI Fund’s High Point Master Plan Development. The project is expected to cost approximately $800 million and could be funded by us, potential joint venture partners and the tax incentives that are being provided as a result of an agreement between us and the city of Aurora, and is contingent on receiving required governmental approvals, incentives, and final approval by our board of directors. We expect to break ground on construction in 2013 and expect the resort to be open for business in early 2016. At this time, we have not made any material financial commitments in connection with this development.
In January 2012, we announced that we had entered into a memorandum of understanding for a 50/50 joint venture with the Dollywood Company to develop a family entertainment zone adjacent to Gaylord Opryland on land that we currently own. The Dollywood Company will operate the park, and we will contribute both land and cash to represent our 50 percent share of the venture. Phase one of the project is a yet unnamed approximately $50 million water and snow park, which we believe will be the first of its kind in the U.S. An early 2013 groundbreaking date is expected with the park opening slated for summer 2014. The project is contingent upon finalizing agreements with governmental authorities pertaining to the construction of the necessary infrastructure.
Our investments in 2010 and 2011 consisted primarily of capital expenditures associated with the flood damage and reopening of Gaylord Opryland and the Grand Ole Opry House, a new resort pool at Gaylord Texan, the commencement of renovation of the guestrooms, the addition of a sports bar entertainment facility and new resort pools at Gaylord Palms, and ongoing maintenance capital expenditures for our existing properties. Our investments in 2012 are expected to consist primarily of ongoing maintenance capital expenditures for our existing properties; the completion of the rooms renovation, new sports bar entertainment facility and resort pools at Gaylord Palms; design and architectural plans for our planned resort and convention center in Aurora, Colorado; and potentially, development or acquisition projects that have not yet been determined.
As more fully described in Note 14 to our Consolidated Financial Statements included herein, we are a party to a land purchase agreement with respect to a potential hotel development in Mesa, Arizona.
We are also considering expansions at Gaylord Texan and Gaylord Palms, as well as other potential hotel sites throughout the country. In addition, we are reevaluating our prior considerations regarding a possible expansion of Gaylord Opryland. We have made no commitments to construct expansions of our current facilities or to build new facilities. We are closely monitoring the condition of the economy and the availability of attractive financing. We are unable to predict at this time when we might make such commitments or commence construction of these proposed expansion projects.
Operating Results — Preopening costs
We expense the costs associated with start-up activities and organization costs associated with our development of hotels and significant attractions as incurred. Our preopening costs for 2011 primarily relate to a new restaurant concept at the Radisson Hotel at Opryland that opened in the third quarter of 2011.
In 2010, as a result of the extensive damage to Gaylord Opryland and the Grand Ole Opry House and the extended period in which these properties were closed, we incurred costs associated with the reopening of these facilities through the date of reopening. We have included all costs directly related to redeveloping and reopening the affected properties, as well as all continuing operating costs not directly related to remediating the flooded properties, other than depreciation and amortization, incurred from June 10, 2010 (the date at which we determined that the remediation was substantially complete), through the date of reopening, as preopening costs. During 2010, we incurred $55.3 million in preopening costs. See Note 2 to our Consolidated Financial Statements included herein for a further discussion of the components of these costs.
Liquidity and Capital Resources
Cash Flows From Operating Activities . Cash flow from operating activities is the principal source of cash used to fund our operating expenses, interest payments on debt, and maintenance capital expenditures. During 2011, our net cash flows provided by our operating activities — continuing operations were $153.9 million, reflecting primarily our income from continuing operations before non-cash depreciation expense, amortization expense, income tax provision, stock-based compensation expense, income from unconsolidated companies, the write-off of deferred financing costs related to the refinancing of our credit facility, losses on assets damaged in flood, and losses on the sales of certain fixed assets of approximately $170.6 million, partially offset by unfavorable changes in working capital of approximately $16.7 million. The unfavorable changes in working capital primarily resulted from an increase in accounts receivable at Gaylord Opryland, Gaylord Palms and Gaylord Texan due primarily to an increase in group business at the end of 2011, as compared to the end of 2010, which business typically has longer payment terms, a decrease in interest payable due to the repayment of $100.0 million under our credit facility, as well as lower interest rates and the expiration of the interest rate swaps associated with our credit facility, and a decrease in accounts payable due to timing of payments. These unfavorable changes were partially offset by the collection of federal tax refunds related to 2010 and an increase in deferred revenue due to increased receipts of deposits on advance bookings of hotel rooms at Gaylord National and Gaylord Palms.
During 2010, our net cash flows provided by our operating activities — continuing operations were $138.9 million, reflecting primarily our loss from continuing operations before non-cash depreciation expense, amortization expense, income tax benefit, stock-based compensation expense, income from unconsolidated companies, net gain on extinguishment of debt, losses on assets damaged in flood, and losses on the sales of certain fixed assets of approximately $82.2 million, as well as favorable changes in working capital of approximately $56.7 million. The favorable changes in working capital primarily resulted from a decrease in income taxes receivable, primarily due to the receipt of federal tax refunds related to 2008 and 2009, an increase in accrued compensation, an increase in accounts payable due to the timing of payments, and a decrease in accounts receivable at Gaylord National due to a change in the timing of group lodging versus payment received and at Gaylord Opryland due to the hotel reopening on November 15, 2010. These favorable changes in working capital were partially offset by a decrease in deferred revenues due to decreased receipts of deposits on advance bookings of hotel rooms at Gaylord National.
During 2009, our net cash flows provided by our operating activities — continuing operations were $125.0 million, reflecting primarily our income from continuing operations before non-cash depreciation expense, amortization expense, income tax provision, stock-based compensation expense, loss from unconsolidated companies, net gain on extinguishment of debt, and losses on the sales of certain fixed assets of approximately $160.7 million, partially offset by unfavorable changes in working capital of approximately $35.7 million. The unfavorable changes in working capital primarily resulted from an increase in income taxes receivable, an increase in interest receivable associated with the bonds that were received in connection with the development of Gaylord National, and a decrease in accrued compensation. These unfavorable changes in working capital were partially offset by a decrease in trade receivables due to a combination of lower revenues in the current year and better collection efforts and an increase in deferred revenues due to increased receipts of deposits on advance bookings of hotel rooms at Gaylord National.
Cash Flows From Investing Activities . During 2011, our primary uses of funds and investing activities were the purchase of property and equipment totaling $132.6 million, partially offset by the receipt of a $2.5 million principal payment on the bonds that were received in April 2008 in connection with the development of Gaylord National and $1.9 million in proceeds from the sale of certain fixed assets. Our capital expenditures during 2011 primarily included remaining flood-related projects at Gaylord Opryland, the commencement of renovation of the guestrooms, the addition of a sports bar entertainment facility and new resort pools at Gaylord Palms, the building of our new resort pool at Gaylord Texan, and various information technology projects, as well as ongoing maintenance capital expenditures for our existing properties.
During 2010, our primary uses of funds and investing activities were the purchase of property and equipment totaling $194.6 million, partially offset by the receipt of a $3.8 million payment on the bonds that were received in April 2008 in connection with the development of Gaylord National. Our capital expenditures during 2010 included construction at Gaylord Opryland, the Grand Ole Opry and our corporate offices of $136.8 million, $16.7 million and $11.3 million, respectively, primarily related to rebuilding costs associated with the Nashville Flood, as well as ongoing maintenance capital expenditures at our other properties.
During 2009, our primary uses of funds and investing activities were the purchase of property and equipment totaling $53.1 million, partially offset by the receipt of a $17.1 million payment on the bonds that were received in April 2008 in connection with the development of Gaylord National.
Cash Flows From Financing Activities. Our cash flows from financing activities reflect primarily the issuance of debt and the repayment of long-term debt. During 2011, our net cash flows used in financing activities — continuing operations were $105.7 million, primarily reflecting $100.0 million in repayments under our credit facility and the payment of $10.1 million in deferred financing costs associated with the refinancing of our credit facility, partially offset by $4.8 million in proceeds from the exercise of stock option and purchase plans.
During 2010, our net cash flows used in financing activities — continuing operations were $3.3 million, primarily reflecting the payment of $27.0 million to repurchase portions of our senior notes, partially offset by $26.1 million in proceeds from the exercise of stock option and purchase plans.
During 2009, our net cash flows provided by financing activities — continuing operations were $89.4 million, primarily reflecting $358.1 million in proceeds from the issuance of our 3.75% convertible notes, net of equity-related issuance costs, $169.0 million in proceeds from the issuance of common stock and warrants, net of issuance costs, and $5.0 million received from the termination of the interest rate swap agreements associated with our senior notes, partially offset by the payment of $329.6 million to repurchase portions of our senior notes, the payment of $76.7 million to purchase a convertible note hedge associated with the 3.75% convertible notes, $22.5 million in net repayments under our $1.0 billion credit facility, the payment of $8.1 million in deferred financing costs associated with the 3.75% convertible notes and the payment of $4.6 million to purchase shares of our common stock to fund a supplemental employee retirement plan.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern our goals, beliefs, expectations, strategies, objectives, plans, future operating results and underlying assumptions, and other statements that are not necessarily based on historical facts. Without limitation, you can identify these statements by the fact that they do not relate strictly to historical or current facts, and these statements may contain words such as “may,” “will,” “could,” “might,” “projects,” “expects,” “believes,” “anticipates,” “intends,” “plans,” “continue,” or “pursue,” or the negative or other variations thereof or comparable terms. In particular, they include statements relating to, among other things, future actions, new projects, strategies, future performance, the outcome of contingencies such as legal proceedings and future financial results. These also include statements regarding (i) our expectation to effect restructuring transactions intended to facilitate our qualification as a real estate investment trust (“REIT”) for federal income tax purposes, including the consummation of the Marriott sale transaction and fulfillment of the conditions to the closing, including our obtaining consent and waivers of the lenders to our $925 million senior secured credit facility permitting us to amend the facility; (ii) our expectation to effect the REIT conversion and to elect REIT status, including the timing and effect(s) of such election; (iii) the expected form, timing and amount of the special distribution of our accumulated earnings and profits; (iv) the anticipated benefits of the REIT conversion, Marriott sale transaction and merger, including potential increases in revenue and anticipated annualized cost synergies, net of management fees, of approximately $33 million to $40 million; (v) estimated one-time costs related to the REIT conversion, including conversion, transaction, severance, and retention costs of $55 million, and anticipated federal income taxes associated with the receipt of the purchase price in the Marriott sale transaction and other transactions related to the REIT conversion net of remaining net operating losses of approximately $43 million to $53 million; (vi) the holding of our non-qualifying REIT assets in one or more taxable REIT subsidiaries; (vii) our expectation that our common stock will trade on the New York Stock Exchange after the REIT conversion; (viii) potential growth opportunities, including future expansion of the geographic diversity of our existing asset portfolio through acquisitions; (ix) the anticipated pace of recovery in demand for products and services provided by the lodging industry relative to general economic conditions; (x) the potential operating and financial restrictions imposed on our activities under existing and future financing agreements and other contractual arrangements with third-parties; (xi) any potential future adoption of a shareholder rights plan before or after the REIT conversion; and (xii) any other business or operational matters. We have based these forward-looking statements on our current expectations and projections about future events.
We caution the reader that forward-looking statements involve risks and uncertainties that cannot be predicted or quantified, and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other things, those factors described in our Annual Report on Form 10-K for the year ended December 31, 2011, in this Quarterly Report on Form 10-Q, or described from time to time in our other reports filed with the SEC, and the following risks and uncertainties: those associated with economic conditions affecting the hospitality business generally; the failure to receive, on a timely basis or otherwise, the required approvals of our stockholders or the private letter ruling from the IRS; our ability to elect and qualify for REIT status, and the timing and effect(s) of that election; our ability to remain qualified as a REIT; the form, timing and amount of the special distribution of our accumulated earnings and profits; our and Marriott’s ability to consummate the Marriott sale transaction; operating costs and business disruption may be greater than expected; and our ability to realize cost savings and revenue enhancements from the proposed REIT conversion and the Marriott sale transaction.
Any forward-looking statement made in this quarterly report on Form 10-Q speaks only as of the date on which the statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements we make in this quarterly report on Form 10-Q, except as may be required by law.
Additional Information on the REIT Conversion and Where to Find It; Interests of Participants
This quarterly report on Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy securities or a solicitation of any vote or approval. Granite Hotel Properties, Inc. (“Granite”) and Gaylord Entertainment Company (“Gaylord”) have filed with the SEC a registration statement on Form S-4 containing a preliminary proxy statement/prospectus which describes our plans to qualify as a REIT for federal income tax purposes following the consummation of our transaction with Marriott International, Inc., and the contemplated merger of Gaylord with and into Granite to facilitate the REIT election. The registration statement has not yet become effective. Notice of a special meeting and a definitive proxy statement/prospectus will be mailed to stockholders of Gaylord who hold shares of Gaylord common stock on the record date to be determined by the Company. INVESTORS ARE URGED TO READ THE FORM S-4 AND PROXY STATEMENT (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT ARE FILED WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER AND REIT CONVERSION. You may obtain copies of all documents filed with the SEC concerning the proposed transaction, free of charge, at the SEC’s website at www.sec.gov or our website at www.gaylordentertainment.com. In addition, stockholders may obtain free copies of the documents by sending a written request to Gaylord’s Secretary at Gaylord Entertainment Company, One Gaylord Drive, Nashville, Tennessee 37214, or by calling the Secretary at (615) 316-6000 .
Gaylord and its directors and executive officers may be deemed to be participants in the solicitation of proxies from Gaylord’s stockholders in connection with the proposed merger and REIT conversion. Information regarding Gaylord’s directors and executive officers is set forth in Gaylord’s proxy statement for its 2012 annual meeting of stockholders and its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which were filed with the SEC on April 3, 2012 and February 24, 2012, respectively. Additional information regarding persons who may be deemed to be participants in the solicitation of proxies in respect of the proposed merger and REIT conversion is contained in the proxy statement/prospectus filed with the SEC.
Overall Outlook
Our concentration in the hospitality industry, and in particular the large group meetings sector of the hospitality industry, exposes us to certain risks outside of our control. Recessionary conditions in the national economy have resulted in economic pressures on the hospitality industry generally, and on our operations and expansion plans. However, in 2010 and 2011, and thus far in 2012, the trend has reversed, and we have begun to see stabilization in our industry and specifically in our business. During these periods, we have seen increases in group travel as compared to recessionary levels, as well as growth in outside-the-room revenue, indicating that not only are our group customers traveling again, they are spending more on food and beverage and entertainment during their stay at our properties.
Group customers typically book rooms and meeting space with significant lead times, sometimes several years in advance of guest arrival. During an economic recovery, group pricing tends to lag transient pricing due to the significant lead times for group bookings. Group business booked in earlier periods at lower rates continues to roll off, and with improving group demand, is being replaced with bookings reflecting generally higher rates. As a result of the higher levels of group business, we have experienced an increase in occupancy in recent quarters as well as increases in rates and future bookings, although there can be no assurance that we can continue to achieve further improvements in occupancy and revenue levels. Our attrition and cancellation levels have also decreased compared to recessionary levels.
Proposed REIT Conversion and Marriott Transaction
On May 30, 2012, the board of directors of Gaylord unanimously approved a plan to restructure our business operations to facilitate our qualification as a REIT for federal income tax purposes. We intend to complete the REIT conversion so that we may qualify as a REIT commencing with our 2013 tax year.
The REIT conversion will be implemented through a series of steps including, among other things, the merger of Gaylord with and into Granite, a Delaware corporation and wholly-owned subsidiary of Gaylord, which we formed in preparation for the REIT conversion. Upon the completion of the merger, the outstanding shares of Gaylord common stock will be converted into the right to receive the same number of shares of Granite common stock, and Granite will succeed to and continue to operate, directly or indirectly, the then existing business of Gaylord. We anticipate that the shares of Granite common stock will trade on the New York Stock Exchange after completion of the merger. Consummation of the merger is subject to Gaylord’s stockholders adopting the merger agreement and approving the issuance of shares of common stock in connection with our distribution of our undistributed earnings and profits attributable to taxable periods ending prior to the REIT election. Gaylord intends to hold a special meeting of stockholders in the third quarter of 2012 to seek such stockholder approval. On June 27, 2012, Gaylord caused Granite to file a registration statement on Form S-4 with the SEC. On July 30, 2012, Gaylord and Granite filed an amendment to the registration statement on Form S-4. The registration statement contains a preliminary proxy statement/prospectus that describes our plans to qualify as a REIT.
Due to federal income tax laws that restrict REITs from operating and managing hotels, after completing the anticipated REIT conversion, we will not operate or manage any of our hotel properties. We will lease or sublease our hotel properties to taxable REIT subsidiaries, and such taxable REIT subsidiaries will engage third-party hotel managers pursuant to hotel management agreements. Our third-party hotel managers will be responsible for the day-to-day management of our hotel properties, including, but not limited to, implementing significant operating decisions, setting rates for rooms and meeting space, controlling revenue and expenditures, collecting accounts receivable, and recruiting, employing and supervising employees at the hotel properties.
Gaylord’s board of directors unanimously approved a Purchase Agreement by and among Gaylord, Gaylord Hotels, Inc., Marriott Hotel Services, Inc., and Marriott International, Inc. pursuant to which we have agreed to sell the Gaylord Hotels brand and rights to manage the Gaylord Opryland Resort and Convention Center (“Gaylord Opryland”), Gaylord Palms Resort and Convention Center (“Gaylord Palms”), Gaylord Texan Resort and Convention Center (“Gaylord Texan”), and Gaylord National Resort and Convention Center (“Gaylord National”) to Marriott International, Inc. (“Marriott”) for $210 million in cash. The closing of the Marriott sale transaction is subject to the satisfaction of certain conditions, including our stockholders’ adoption of the merger agreement and our obtaining waivers and consents of the required lenders pursuant to our $925 million senior secured credit facility to amend the facility. We expect the consummation of the Marriott sale transaction to occur promptly after our stockholders adopt the merger agreement.
Upon the consummation of the Marriott sale transaction, we will become a party to four management agreements (one for each of our Gaylord Hotels properties) with Marriott. Under the management agreements, Marriott will be responsible for the day-to-day management of the Gaylord Hotels properties. We will not have the authority to require Marriott to operate our Gaylord Hotels properties in a particular manner, although we will have consent and approval rights for certain matters under the hotel management agreements, subject to the limitations described therein. Each management agreement will have a term of thirty-five years, with three automatic ten-year renewal terms (provided the applicable hotel has met certain performance thresholds), and Marriott will be entitled to a base management fee of two-percent of gross revenues from each Gaylord Hotel property for each fiscal year or portion thereof, which will be deducted by Marriott from gross revenues of each Gaylord Hotel property for each fiscal year.
The Marriott purchase agreement also calls for the Gaylord Hotels properties to enter into a pooling agreement, which provides for (i) the calculation of incentive management fees for the Gaylord Hotel properties on an aggregated basis; and (ii) the application of the limitations on secured debt on an aggregated basis. The incentive management fee will be based on the profitability of our Gaylord Hotels properties calculated on a pooled basis, and the fee, if any, will be retained by Marriott from Operating Profit (as defined in the pooling agreement).
We anticipate that this management transition will be complete by January 1, 2013, when the REIT election is anticipated to be effective. In addition, prior to the completion of the REIT conversion, we will identify and engage a third-party hotel manager to operate and manage the Radisson Hotel at Opryland (the “Radisson Hotel”).
Following the completion of the REIT conversion, we will own our Opry and Attractions businesses in taxable REIT subsidiaries, which will conduct their business consistent with past practice, except that we expect to negotiate a management or service agreement with Marriott to manage Gaylord Springs Golf Links. Additionally, we may negotiate and enter into additional management or service agreements with Marriott with respect to certain of our other Opry and Attractions businesses, including the General Jackson and the Wildhorse Saloon.
We anticipate that there will be a reorganization within, and a reduction in the number of members of, our current executive management team and the other employees currently within the Corporate and Other segment. In connection with the reorganization, we anticipate that our corporate overhead expenses within the Corporate and Other segment will be reduced. Although the specific actions to be taken in connection with this reorganization have not yet been finally determined, we anticipate that we will terminate the employment of approximately 310 employees within our Corporate and Other segment of whom approximately 40% will transition their employment to Marriott. The severance cost associated with these terminations is included within our $19 million estimate of severance and retention costs related to the REIT conversion.
A REIT is not permitted to retain earnings and profits accumulated during years when the company or its predecessor was taxed as a regular C corporation. To qualify for taxation as a REIT for the taxable year beginning January 1, 2013, we must distribute to our stockholders on or before December 31, 2013, our undistributed earnings and profits attributable to taxable periods ending prior to January 1, 2013 (the “Special E&P Distribution”). In the event we receive a favorable ruling from the Internal Revenue Service, we expect to limit the total amount of cash payable in the Special E&P Distribution to a maximum of 20% of the total value of the Special E&P Distribution. The balance of the Special E&P Distribution will be in the form of shares of our common stock.
We currently estimate that we will incur $55 million in one-time costs related to the REIT conversion. These costs would include approximately $10 million in investment banking fees, $6 million in legal fees, $4 million in consulting fees, $19 million in severance and retention costs, and $16 million in conversion costs. We also anticipate that we will incur federal income taxes associated with the receipt of the purchase price in the Marriott sale transaction and other transactions related to the REIT conversion, net of remaining net operating losses, of approximately $43 million to $53 million. In addition, we anticipate annualized costs synergies, net of management fees, of approximately $33 million to $40 million.
If Granite qualifies as a REIT, it generally will not be subject to federal corporate income taxes on that portion of its capital gain or ordinary income from its REIT operations that is distributed to its stockholders. This treatment would substantially eliminate the federal “double taxation” on earnings from REIT operations, or taxation once at the corporate level and again at the stockholder level, that generally results from investment in a regular C-corporation. As explained more fully in the registration statement on Form S-4, Granite’s non-REIT operations, which will consist of the activities of taxable REIT subsidiaries that will act as lessees of our hotels, as well as the businesses within our Opry and Attractions segment, would continue to be subject, as applicable, to federal and state corporate income taxes.
CONF CALL
Carter Todd - EVP & General Counsel
Good morning. My name is Carter Todd, and I am the General Counsel for Gaylord Entertainment Co. Thank you for joining us today on our second quarter 2009 earnings call.
You should be aware that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others, regarding Gaylord Entertainment's expected future financial performance.
For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.
You are hereby cautioned that these statements may be affected by the important factors among others, set forth in Gaylord Entertainment's filings with the Securities and Exchange Commission and in our second quarter 2009 earnings release. And consequently, actual operations and results may differ materially from the results discussed or projected in the forward-looking statements.
Gaylord Entertainment undertakes no obligation to update publicly any forward-looking statements whether as the result of new information, future events or otherwise.
I would also like to remind you that in our call today, we will discuss certain non-GAAP financial measures and a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures has been provided as an exhibit to our earnings release and is also available on our website under the Investor Relations section.
At this time, I would like to turn the call over to our Chairman and Chief Executive Officer, Colin Reed.
Colin Reed - CEO
Thank you Carter, good morning and welcome everyone and thank you for joining us today to discuss Gaylord Entertainment’s second quarter 2009 financial results. As usual I’ll begin our call with a strategic overview of our business and what we’re seeing in our industry, then our President and new Chief Operating Officer David Kloeppel, will provide color on what we are doing from an operational perspective in this environment.
And then our new Chief Financial Officer, Mark Fioravanti will conclude by providing some more detail on our financial results for the quarter and particularly how our profit has performed and then as always we will open up the phones to questions and look forward to that.
Now let me start off by saying that I am pleased with our results this quarter, especially when you consider a market environment that continues to challenge virtually every sector of the economy.
Our group centric business model characterized by the attrition and cancellation fees we collect once again worked well this quarter. These fees coupled with our aggressive management of costs again enabled us to deliver solid same store CCF margins of 28.3% which includes the impact of $400,000 one-time severance costs.
Last quarter we told you that we were beginning to see signs of stabilization in our business and we continue to see evidence of this trend. While cancellations in the second quarter remained elevated relative to historical levels, there were substantial improvement versus the first quarter of 2009.
Now while elevated over historical levels, attrition levels are beginning to show early signs of recovery versus the first quarter and we’ll be watching them closely over the coming months to determine if this is in fact an enduring trend.
Nevertheless attrition and cancellation fees enabled us to partially offset the impact of these elevated levels and we collected $8.2 million in fees in the second quarter. These fees provided a measure of protection to our bottom line, that is an advantage for our group centric model.
Of course we would clearly prefer to have guests staying at our unique properties in order for them to participate in our outside of the room offerings. On average 60% of our revenue is generated outside of the room and in an environment where corporate meeting budgets are being slashed, the resulting increases in attrition and cancellation levels do represent a lost revenue opportunity for our business.
Our business mix has played a critical role in our ability to deliver decent levels of CCF so far this year. It has been suggested to us on several occasions in the past by certain industry analysts that we should off from booking association business that tends to have longer lead time and book more corporate business.
Their hypothesis is that corporate business could be higher rated and we would thus drive higher levels of profitability. Now in good times there’s some validity to this thought but alas, not all times are good.
This year illustrates the peril of being overly committed to group corporate business. So far this year we’ve received approximately 96,000 room nights of cancellation and what’s interesting is over 90% of those room nights are from the corporate sector.
This was evident in the drop in the outside of the room spend in the second quarter that corresponded to a 45% decline in corporate room nights when compared to the second quarter of 2008.
Now fortunately on an annualized basis our group mix is not overly dependent on the corporate sector but is instead represented by a broad mix of association, government and other groups enabling our group business to be somewhat resilient in this environment.
We continue to receive feedback from meeting planners indicating that they remain cautious but many planners are beginning to consider new meetings. Subsequently while pricing continues to be challenging for the short-term booking window, we believe that once occupancy begins to recover rate will recover as well.
Accordingly we continue to hold back certain inventory for 2011 and beyond in an effort to mitigate the impact of the current pricing pressure on future rates. As regards to that profitability we continue to see the results of the aggressive cost management initiatives that we have been employing since late 2008.
These reductions have enabled solid margin performance across our brand throughout the first half of 2009. We will continue to look for opportunities to streamline our operations as we are managing our business as if this recession will stay with us for some time.
It is important to note the one area where we will not compromise is guest satisfaction. Our business is built on fostering loyalty and confidence in our brand among meeting planners and guests. This is what compels them to return to us in good times and bad.
So while we will continue to identify new opportunities through improved efficiency and reduced costs, we will not make the mistake of doing so at the expense of service and guest experience that defines our brand.
David will talk more about guest satisfaction as well as fast bookings but what I want to say is we are pleased with the volume of advanced group bookings that we accomplished in the second quarter. I believe these bookings were a direct result of our commitment to excellence for our brand.
In addition to cost management and other initiatives that is yielding results is the redeployment of our sales and marketing resources. David will get into more detail on this in a moment, but the decision to market more heavily to transient customers, improve online bookings and focus more on 2009 and 2010, has successfully translated into bookings for upcoming periods.
Despite elevated levels of attrition and cancellation our efforts have enabled us to maintain the on the books occupancy with which we entered 2009. We expect to see an even greater benefit going forward.
Now I’d like to take a moment to discuss the performance of our newest property, The Gaylord National in Washington, DC. The National delivered solid CCF performance of $20.6 million in the second quarter, the quarter which is historically the best for the DC market as a whole.
We are encouraged with the progress of the larger National Harbor development and the recent announcement that Disney will be developing a family themed resort hotel is a prime example of the positive momentum behind National Harbor.
Looking forward we believe that there is strong future for Gaylord Hotels and we are very encouraged by how this young brand has responded thus far in these unprecedented economic times. This resilience is a testament to the benefits of our unique model and the hard work and dedication of our wonderful stars.
While we continue to see signs of stabilization we fully expect the hospitality market to remain somewhat unpredictable for the foreseeable future and we will continue to closely monitor attrition and cancellation trends as well as customer behavior regarding advanced bookings.
As you would expect we’re paying close attention to the fourth quarter which is heavily dependent on transient business driven by our holiday programs. Early indicators are in line with prior expectation and as a result we’re maintaining our current guidance for the year.
Now with that I’ll turn things over to David for some color on our operations.
David Kloeppel - President & COO
Thanks Colin, our unique business model and level of profitability protection it provides us has certainly been a bright spot in an otherwise dreary market environment. While we believe that the differentiated components of our business will help carry us through what will likely be some additional challenges, we remain focused on identifying more ways to proactively improve our business.
From an operational perspective we’re focused on four key areas; guest satisfaction, star satisfaction, remember we call our employees stars, sales drivers, and margin management. I’ll now spend a few minutes providing you with a sense for why these are critical to our business and how we are driving improvements through each.
As we’ve stated before on a number of occasions, guest satisfaction is an essential measure for us. Why? Because building a loyalty and competent in the Gaylord brand is how we ensure that meeting planners and groups come back to our property time and time again.
Customer satisfaction scores are a critical component to our business so we monitor the results carefully and are always looking for ways to improve upon them. We gauge our guest satisfaction by a percentage of “top box scores” which is a very strict interpretation of satisfaction levels and reflects only those guests who are loyal advocates of ours.
This quarter our guest satisfaction scores were consistent with previous quarters and we’re pleased that we were able to maintain these very high guest satisfaction levels in a difficult environment and we continue to identify ways to improve them.
Our customer satisfaction results this quarter and every other quarter for that matter, correlate in many ways to the efforts of our individual stars. Stars as you will recall is the name for our employees and because we believe our stars are an essential advocate of driving customer satisfaction, we continue to invest in the core programs that drive star engagement.
High star engagement drives cost down as well and drives star turnover rates down and increases referrals from our stars for new employees thus driving down training and recruiting costs.
So as you can see investing in our stars is a critical element both for driving customer satisfaction and therefore revenues, and for controlling costs. Next I’m going to talk about sales drivers, another major initiative we undertook with a shift towards short-term bookings to replace those lost to cancellations and attrition, as Colin mentioned because of our visibility into future occupancy periods we made this decision ahead of the sector wide change in the demand climate.
To drive this shift through our sales team on an operational level we adjusted sales manager incentives to include a 2009 revenue booked component in order to focus the entire team on the in the year leads. Our second quarter in the year leads increased 28 percentage points compared to the first quarter which is a direct result of our focus in this area.
Looking closer at occupancy on the books, this focus on short-term lead generation has become a significant factor in driving bookings. Although we do not have quite as much on the books for 2009 as we would like, the sales and marketing shift has helped us prevent from losing any ground.
At this point we have about 52 points of group business on the books for the remainder of the year. And furthermore in the second quarter alone, we booked almost 500,000 room nights in gross advance bookings for all future years which was only down about 9.8% when compared to gross group bookings booked in the second quarter of 2008.
The sales team did a terrific job in the quarter. For 2010 while lead volumes are down about 33% compared to a year ago, our new gross bookings are up about 24% driven by a very significant increase in our conversion rate, an 83% increase in conversion as a result of our focus on securing that 2009 and 2010 business.
Overall 2010 bookings are moving in the right direction and with five months to go in 2009 we have about 41 points of occupancy on the books for 2010. Now all of you are going to ask how does this compare to the same time in 2008 for 2009. It’s a rather complicated question to answer, so bear with me here.
In 2008 around this same time, we had adjusted future inventory based on recent historical attrition experience. Recall that in July of 2008 we had not yet experienced a significant increase in attrition and cancellations. At that time we had 48 points of occupancy on the books but ultimately a large percentage of these room nights ended up [attriting] as the economy worsened.
Fast forward 12 months to July of 2009, we have experienced substantially higher attrition levels recently and our sales block for 2010 reflects this behavior. So what this means is that we’ve reduced 2010 expected group attendance to reflect the poor economic conditions.
Therefore we are able to sell today into those available patterns rather than waiting for the attrition to occur as occurred in 2009. If we were to revise our assumptions to reflect historical attrition levels instead of our more aggressive assumptions 2010 group room nights on the books would reflect roughly 45 percentage points of occupancy and would lag historical averages by around three percentage points.
And remember in early 2009 we did experience unprecedented levels of cancellations for 2009 due to the economic conditions and to adverse comments made by the Obama Administration. Net, net we’re comfortable with our business pace and inventory levels for 2010 and we continue to see positive trends building into 2010 demand patterns.
So I’d like to now touch on what we’ve been doing to maintain our margins and profitability, in terms of attrition and cancellation fees we are vigilantly working to anticipate attrition and are continuing to initiate dialogues with customers over those penalties.
Collecting these fees without risking the relationships we’ve built with our customers is a key focus for us and as a part of these efforts we are actively involved in tracking attrition in advance of meeting dates to ensure we are mitigating the financial impact from lost room nights or [inaudible] events.
And also as we’ve told you in the past, last year we embarked on a detailed review of our entire organization and developed a cost reduction plan tied to various levels of demand. Thus far our efforts have yielded $45 million in cost savings and directly impacted our bottom line margin performance.
As evidenced our CCF margins for our hotels for the second quarter of 2009 was 29.8% compared to 29.9% in the second quarter of 2008. And our efforts are ongoing as we continue to reassess our entire organization for additional savings.
And now I’m going to turn the call over to Mark for a look at the financials.
Mark Fioravanti - SVP & CFO
Thank you David, as we’ve done in the past I will discuss our financial performance during the quarter and then take you through some highlights from the result of each of our properties. I’ll then provide some additional color in terms of what we’re seeing for the rest of 2009.
On a consolidated basis Gaylord Entertainment performed in line with our expectations delivering revenue for the quarter of $218.3 million and a solid CCF performance of $55.8 million.
Its worth noting that CCF for the quarter includes $2.4 million of severance costs related to our cost cutting initiatives and a $3.6 million gain in connection with a tax increment financing arrangement related to the Ryman Auditorium. As Colin has discussed the economic challenges experienced across the industry in the first quarter of this year continued into the second quarter as evidenced by the RevPAR declines in the upscale lodging segment of 20.8% as reported by Smith Travel Research.
Gaylord Hotels including the National outperformed the upscale segment experiencing a RevPAR decline of 13.1% and a total RevPAR decline of 14.3% in the second quarter of 2009. At our same store hotels RevPAR declined 19.8%, 100 basis points better than the upscale segment and same store total RevPAR declined 19.6%.
Our same store hotels generated consolidated cash flow in the quarter of $39.1 million including severance costs of $400,000. Our CCF performance was driven by our continued success in the collection of attrition and cancellation fees coupled with the aggressive management of our costs.
These efforts resulted in a 28.3% same store CCF margin, a solid margin in a tough economy and a performance that only declined 420 basis points when compared to the second quarter of 2008.
We saw same store cancellations improve in the second quarter totaling only 28,820 room nights compared to 66,749 in the first quarter of 2009. Same store attrition in the second quarter was 14%, which showed signs of improvement from 16.7% in the first quarter.
During the quarter we collected $8.2 million in attrition and cancellation fees across the brand and to put this in perspective the attrition and cancellation fees we collected in the second quarter represent about half of what we collected all last year and more than two times what we collected in the second quarter of 2008.
As David already mentioned our second quarter 2009 gross advance group bookings for all future years were only down 9.8% when compared to the second quarter of 2008. However our net advance group bookings were down 59.9% when compared to the same period last year.
But this represents an improvement over the first quarter of 2009 when net advance group bookings were down 73.4% year over year. The year over year decline in net bookings is a result of elevated cancellation and attrition levels as well as our efforts to more aggressively cut the future room blocks in order to sell into the likely available inventory well in advance.
Now let me walk you quickly through the performance of our individual properties starting with Opryland. Gaylord Opryland generated revenue of $55.3 million in the second quarter of 2009 compared to $73.5 million a year ago. A 13.9 point decline in occupancy was largely driven by group cancellations and attrition in the corporate segment. CCF decreased 41.2% to $13.6 million and was impacted by one-time severance costs of $100,000.
The resulting second quarter margin for Opryland was 24.5%. Now looking at the Palms in Florida, in the second quarter occupancy was down 10.9 points in the quarter as a result of group cancellations and attrition. Group ADR was up slightly with an increase of 2% but transient ADR declined 14.6% due to the highly competitive Orlando market.
Despite an $8.6 million decrease in revenue aggressive cost management to property resulted in a solid CCF margin of 30.4%. The property delivered CCF that was in line with expectations at $11.9 million compared to $16 million in the prior year quarter. CCF results at the Palms include $100,000 of severance costs.
As for the Texan, revenue was $41.5 million in the second quarter, a decrease of 13.4% from $48 million in the prior year quarter. Despite a 10 point decrease in occupancy aggressive cost management resulted in a strong CCF margin of 31.4%. The property delivered CCF of $13 million compared to $15.9 million in the prior year quarter. CCF for the Texan was also impacted by severance costs of $200,000.
And finally turning to the National, as Colin mentioned the National delivered a solid second quarter. The property posted gains in all its primary metrics when compared to the second quarter of 2008. Occupancy for the quarter was 67.9%, an increase of 3.4 points and ADR was $213.84, up $1.74 when compared to the second quarter of 2008. RevPAR increased 6.1% to $145.25 and total RevPAR increased $0.87 to $343.99 over the second quarter of 2008.
The National generated CCF of $20.6 million including $200,000 of one-time severance costs resulting in a solid 33% CCF margin. We’re pleased with the National’s progress thus far in 2009 but recognize that it will continue to face the headwinds of the current economic environment.
Now moving to the Opry and attraction segment, Opry and attractions performed in line with our expectations producing $7 million of consolidated cash flow, aided in part by a $3.6 million payment received in connection with the tax increment financing arrangement related to the Ryman.
In terms of our balance sheet as of June 30 the company had long-term debt outstanding of $1.24 billion. Our liquidity position continues to be solid and we have no loan maturities until 2012 and we continue to take steps to opportunistically delever our balance sheet.
During the quarter we used available cash in our revolver to purchase some additional 8% and 6.75% senior notes at very attractive yields. During the quarter we purchased $28.3 million in face value and recorded a pre-tax gain of $8.2 million in the quarter.
We continue to ration capital and put any actions related to future development or expansions on hold. We have no significant capital commitments other than maintenance and the wrap up of [punch list] items at the National.
These punch list items were previously accrued for and do not represent additional capital spending at the National. Our focus going forward is to maximize free cash flow and we believe that the best thing to do with that cash is to continue to reduce indebtedness.
As we look towards the rest of 2009 we expect the current market conditions to persist throughout the year and while we’ve seen some stabilization in our business we continue to closely monitor attrition and cancellation levels to determine if the trend we experienced in the second quarter will continue.
However our performance this quarter also proves that our model coupled with aggressive cost management can produce solid margins and CCF results even in a very difficult environment. As we move through the second half of 2009 we’ll continue to focus on generating in the year for the year revenue through smaller meetings and transient guests, the aggressive collection of attrition and cancellation fees, a continued streamlining of our cost structure, and the prudent management of our balance sheet.
As Colin has already stated we’ll continue to closely monitor the leading indicators of our transient oriented fourth quarter. Based on what we’re currently seeing we’re comfortable with our current projections and are reaffirming our guidance for the full year.
With that I’ll turn it over to Colin.
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Fund Letters
