Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS:

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk and commodity price risk. Interest rate swaps are entered into to manage interest rate risk associated with portions of the Company’s variable rate borrowings. Natural gas price swaps are entered into to manage the price risk associated with forecasted purchases of natural gas and electricity used by the Company’s hotels. The Company designates its interest rate swaps as cash flow hedges of variable rate borrowings and its natural gas price swaps as cash flow hedges of forecasted purchases of natural gas and electricity. All of the Company’s derivatives are held for hedging purposes. The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes. All of the counterparties to the Company’s derivative agreements are financial institutions with at least investment grade credit ratings.

Cash Flow Hedging Strategy

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “interest expense” when the hedged transactions are interest cash flows associated with variable rate debt). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, or ineffectiveness, if any, is recognized in the statement of operations during the current period.

The interest rate swap agreement previously utilized by the Company until its expiration on July 25, 2011 effectively modified the Company’s exposure to interest rate risk by converting $500.0 million, or 71%, of the Company’s variable rate debt outstanding under the term loan portion of the Company’s $1.0 billion credit facility to a weighted average fixed rate of 3.94% plus the applicable margin on these borrowings, thus reducing the impact of interest rate changes on future interest expense. This agreement involved the receipt of variable rate amounts in exchange for fixed rate interest payments through July 25, 2011, without an exchange of the underlying principal amount. The critical terms of the swap agreements matched the critical terms of the borrowings under the term loan portion of the $1.0 billion credit facility. Therefore, the Company designated these interest rate swap agreements as cash flow hedges. As the terms of these derivatives matched the terms of the underlying hedged items, there was no gain (loss) from ineffectiveness recognized in income on derivatives.

The Company has entered into natural gas price swap contracts to manage the price risk associated with a portion of the Company’s forecasted purchases of natural gas and electricity used by the Company’s hotels. The objective of the hedge is to reduce the variability of cash flows associated with the forecasted purchases of these commodities. At September 30, 2011, the Company had nine variable to fixed natural gas price swap contracts that mature from October 2011 to December 2011 with an aggregate notional amount of approximately 265,000 dekatherms. The Company has designated these natural gas price swap contracts as cash flow hedges. The Company assesses the correlation of the terms of these derivatives with the terms of the underlying hedged items on a quarterly basis.

During 2010, the Company entered into natural gas price swap contracts to manage the price risk associated with a portion of the forecasted purchases of natural gas to be used at Gaylord Opryland. As a result of the Nashville Flood discussed above, the majority of these purchases were not going to be made while the hotel was closed. During June 2010, the Company terminated the contracts for that period and recorded the resulting gains in other gains and losses in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2010.

The fair value of the Company’s derivative instruments based upon quotes, with appropriate adjustments for non-performance risk of the parties to the derivative contracts, at September 30, 2011 and December 31, 2010 is as follows (in thousands):

	Asset Derivatives				Liability Derivatives
	September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010
Derivatives designated as hedging instruments:
Interest rate swaps	$	—	$	—	$	—	$	12,227
Natural gas swaps		—		22		345		248
Total derivatives designated as hedging instruments	$	—	$	22	$	345	$	12,475

The effect of derivative instruments on the statement of operations for the respective periods is as follows (in thousands):

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)							Amount Reclassified from Accumulated OCI into Income
Derivatives in Cash Flow Hedging Relationships	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Location of Amount Reclassified from Accumulated OCI into Income	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010
Interest rate swaps	$	1,529		$	3,100		Interest expense, net of amounts capitalized	$	—	$	—
Natural gas swaps		(125	)		(447	)	Other gains (losses), net		—		—
Total	$	1,404		$	2,653		Total	$	—	$	—

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)							Amount Reclassified from Accumulated OCI into Income
Derivatives in Cash Flow Hedging Relationships	Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010			Location of Amount Reclassified from Accumulated OCI into Income	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010
Interest rate swaps	$	12,227		$	8,698		Interest expense, net of amounts capitalized	$	—	$	—
Natural gas swaps		(119	)		(540	)	Other gains (losses), net		—		(89	)
Total	$	12,108		$	8,158		Total	$	—	$	(89	)

		Amount of Gain Recognized in Income on Derivative
Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivatives	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010
Natural gas swaps	Other gains and (losses), net	$	—	$	—	$	—	$	202