1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission file number 1-13079
GAYLORD ENTERTAINMENT COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-0664379
- -------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Gaylord Drive
Nashville, Tennessee 37214
- -------------------------------- --------------------------
(Address of principal executive (Zip Code)
offices)
(615) 316-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of July 31, 2001
----- -------------------------------
Common Stock, $.01 par value 33,546,523 shares
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GAYLORD ENTERTAINMENT COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
INDEX
PAGE NO.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
For the Three Months Ended June 30, 2001 and 2000 3
Condensed Consolidated Statements of Operations -
For the Six Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 5
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Part II - Other Information
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000
--------- ---------
Revenues $ 104,243 $ 133,166
Operating expenses:
Operating costs 68,873 93,525
Selling, general and administrative 29,564 36,414
Preopening costs 2,413 1,284
Impairment and other charges 11,388 --
Restructuring charges (2,304) --
Depreciation and amortization 11,995 14,008
--------- ---------
Operating loss (17,686) (12,065)
Interest expense, net of amounts capitalized (12,148) (7,357)
Interest income 2,267 1,573
Unrealized gain on Viacom stock 85,603 --
Unrealized loss on derivatives (66,020) --
Other gains and losses 5,050 (946)
--------- ---------
Loss before income taxes and discontinued operations (2,934) (18,795)
Benefit for income taxes (966) (6,485)
--------- ---------
Loss before discontinued operations (1,968) (12,310)
Loss from discontinued operations, net of taxes (1,180) (1,933)
--------- ---------
Net loss $ (3,148) $ (14,243)
========= =========
Loss per share:
Loss before discontinued operations $ (0.06) $ (0.37)
Loss from discontinued operations, net of taxes (0.03) (0.06)
--------- ---------
Net loss $ (0.09) $ (0.43)
========= =========
Loss per share - assuming dilution:
Loss before discontinued operations $ (0.06) $ (0.37)
Loss from discontinued operations, net of taxes (0.03) (0.06)
--------- ---------
Net loss $ (0.09) $ (0.43)
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000
--------- ---------
Revenues $ 218,232 $ 243,317
Operating expenses:
Operating costs 147,740 173,465
Selling, general and administrative 58,467 68,192
Preopening costs 4,308 2,729
Impairment and other charges 11,388 --
Restructuring charges (2,304) --
Depreciation and amortization 24,225 27,044
--------- ---------
Operating loss (25,592) (28,113)
Interest expense, net of amounts capitalized (21,231) (12,832)
Interest income 3,361 2,064
Unrealized gain on Viacom stock 84,405 --
Unrealized loss on derivatives (27,081) --
Other gains and losses 4,266 (257)
--------- ---------
Income (loss) before income taxes, discontinued operations and
cumulative effect of accounting change 18,128 (39,138)
Provision (benefit) for income taxes 5,984 (13,504)
--------- ---------
Income (loss) before discontinued operations and accounting change 12,144 (25,634)
Loss from discontinued operations, net of taxes (3,077) (3,650)
Cumulative effect of accounting change, net of taxes 11,909 --
--------- ---------
Net income (loss) $ 20,976 $ (29,284)
========= =========
Income (loss) per share:
Income (loss) before discontinued operations and accounting change $ 0.36 $ (0.77)
Loss from discontinued operations, net of taxes (0.09) (0.11)
Cumulative effect of accounting change, net of taxes 0.36 --
--------- ---------
Net income (loss) $ 0.63 $ (0.88)
========= =========
Income (loss) per share - assuming dilution:
Income (loss) before discontinued operations and accounting change $ 0.36 $ (0.77)
Loss from discontinued operations, net of taxes (0.09) (0.11)
Cumulative effect of accounting change, net of taxes 0.35 --
--------- ---------
Net income (loss) $ 0.62 $ (0.88)
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31,
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents - unrestricted $ 102,045 $ 35,849
Cash and cash equivalents - restricted 31,265 12,667
Trade receivables, less allowance of $5,484 and $8,180, respectively 52,313 66,015
Inventories 14,784 16,893
Deferred financing costs 26,865 29,674
Other current assets 20,061 49,901
----------- -----------
Total current assets 247,333 210,999
----------- -----------
Property and equipment, net of accumulated depreciation 874,579 771,163
Intangible assets, net of accumulated amortization 80,018 103,792
Investments 649,130 598,251
Long-term notes receivable, net 18,848 19,134
Fair value of derivative assets 122,869 --
Long-term deferred financing costs 148,809 144,998
Net assets of discontinued operations 12,684 12,392
Other long-term assets 48,788 70,814
----------- -----------
Total assets $ 2,203,058 $ 1,931,543
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,004 $ 175,500
Accounts payable and accrued liabilities 109,264 150,478
----------- -----------
Total current liabilities 117,268 325,978
----------- -----------
Secured forward exchange contract 613,054 613,054
Long-term debt, net of current portion 364,995 15,036
Deferred income taxes 203,464 204,805
Fair value of derivative liabilities 131,629 --
Other liabilities 38,806 43,259
Minority interest 1,703 1,546
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares authorized, no shares
issued or outstanding -- --
Common stock, $.01 par value, 100,000 shares authorized,
33,544 and 33,411 shares issued and outstanding, respectively 335 334
Additional paid-in capital 516,764 513,599
Retained earnings 218,534 197,558
Unrealized gain on investments -- 17,957
Other stockholders' equity (3,494) (1,583)
----------- -----------
Total stockholders' equity 732,139 727,865
----------- -----------
Total liabilities and stockholders' equity $ 2,203,058 $ 1,931,543
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
2001 2000
--------- ---------
Cash Flows from Operating Activities:
Net income (loss) $ 20,976 $ (29,284)
Amounts to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Loss on discontinued operations 3,077 3,650
Impairment and other charges 11,388 --
Cumulative effect of accounting change, net (11,909) --
Unrealized loss on derivatives 27,081 --
Unrealized gain on Viacom stock (84,405) --
Depreciation and amortization 24,225 27,044
Loss on divestiture of businesses 1,673 --
Provision for deferred income taxes 5,287 2,887
Amortization of deferred financing costs 18,492 3,556
Changes in (net of acquisitions and divestitures):
Trade receivables 8,036 (3,653)
Accounts payable and accrued liabilities (33,199) (23,368)
Income tax receivable 23,868 (18,365)
Other assets and liabilities 6 (4,849)
--------- ---------
Net cash flows provided by (used in) operating activities - continuing operations 14,596 (42,382)
Net cash flows used in operating activities - discontinued operations (3,030) (5,074)
--------- ---------
Net cash flows provided by (used in) operating activities 11,566 (47,456)
--------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (124,802) (76,302)
Proceeds from divestiture of businesses, net of selling
costs paid and cash divested 19,808 --
Acquisition of businesses, net of cash acquired -- (11,620)
Investments in, advances to and distributions from affiliates, net -- (4,199)
Other investing activities (2,701) (6,800)
--------- ---------
Net cash flows used in investing activities - continuing operations (107,695) (98,921)
Net cash flows used in investing activities - discontinued operations (1,166) (6,954)
--------- ---------
Net cash flows used in investing activities (108,861) (105,875)
--------- ---------
Cash Flows from Financing Activities:
Repayment of long-term debt (237,501) (500)
Proceeds from issuance of long-term debt 439,282 500
Net repayments under revolving credit agreements -- (291,929)
Cash proceeds from secured forward exchange contract -- 613,054
Deferred financing costs paid (19,600) (106,655)
Increase in restricted cash (18,598) (3,960)
Proceeds from exercise of stock option and purchase plans 597 768
--------- ---------
Net cash flows provided by financing activities - continuing operations 164,180 211,278
Net cash flows used in financing activities - discontinued operations (688) (644)
--------- ---------
Net cash flows provided by financing activities 163,492 210,634
--------- ---------
Net change in cash 66,197 57,303
Increase in cash balance - discontinued operations (1) (1)
Cash, beginning of period 35,849 18,696
--------- ---------
Cash, end of period $ 102,045 $ 75,998
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of Gaylord
Entertainment Company and subsidiaries (the "Company") and have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the financial information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2000, filed with the Securities and
Exchange Commission. Effective October 1, 2000, the Company adopted the
provisions of Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" and certain related authoritative literature. Accordingly, the
Company classified certain amounts as revenues that historically, in accordance
with industry practice, were reported as a reduction to operating expenses. To
comply with the new requirements, the Company reclassified $5,663 and $11,390
from operating expenses to revenues for the three months and six months ended
June 30, 2000, respectively. In the opinion of management, all adjustments
necessary for a fair statement of the results of operations for the interim
period have been included. The results of operations for such interim period are
not necessarily indicative of the results for the full year.
2. INCOME PER SHARE:
The Company calculates income per share using Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share". The weighted average number of
common shares outstanding is calculated as follows:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------- ---------------
2001 2000 2001 2000
------ ------ ------ ------
Weighted average shares outstanding 33,517 33,372 33,472 33,351
Effect of dilutive stock options -- -- 131 --
------ ------ ------ ------
Weighted average shares outstanding -
assuming dilution 33,517 33,372 33,603 33,351
====== ====== ====== ======
For the three month period ended June 30, 2001, the Company's effect of dilutive
stock options was the equivalent of 179 shares. For the three month and six
month periods ended June 30, 2000, the Company's effect of dilutive stock
options was the equivalent of 123 shares and 149 shares, respectively, of common
stock outstanding. These incremental shares were excluded from the computation
of diluted earnings per share for the three months ended June 30, 2001 and the
three months and six months ended June 30, 2000 as the effect of their inclusion
would be anti-dilutive.
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3. COMPREHENSIVE INCOME:
Comprehensive income is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
------- --------- -------- --------
Net income (loss) $(3,148) $ (14,243) $ 20,976 $(29,284)
Unrealized gain (loss) on investments -- 107,532 (17,957) 62,220
Unrealized loss on interest rate hedges (106) -- (106) --
Foreign currency translation 134 (616) 487 (598)
------- --------- -------- --------
Comprehensive income (loss) $(3,120) $ 92,673 $ 3,400 $ 32,338
======= ========= ======== ========
4. DISCONTINUED OPERATIONS:
On June 1, 2001, the Company adopted a formal plan to sell its international
cable networks. The operating results of the international cable networks prior
to June 1, 2001 are reflected as discontinued operations, net of taxes, in the
condensed consolidated statements of operations. The Company anticipates
completing the sale within the next twelve months and expects to recognize a
gain on the sale. The operating results of the international cable networks
during June 2001 have been deferred and reflected in net assets of discontinued
operations on the accompanying condensed consolidated balance sheet. For the
month ended June 30, 2001, the revenues and net losses of the international
cable networks were $410 and $507, respectively. The assets and liabilities of
the discontinued operations, which are presented on a net basis in the
accompanying condensed consolidated balance sheets, are as follows:
JUNE 30, DECEMBER 31,
2001 2000
------- -------
Current assets $ 2,947 $ 4,654
Property and equipment, net of accumulated depreciation 6,484 7,797
Investments 8,851 7,755
Deferred loss 507 --
Other long-term assets 1,794 196
------- -------
Total assets 20,583 20,402
------- -------
Liabilities 1,694 1,117
Long-term debt 6,205 6,893
------- -------
Total liabilities 7,899 8,010
------- -------
Net assets of discontinued operations $12,684 $12,392
======= =======
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5. IMPAIRMENT AND OTHER CHARGES:
During the second quarter of 2001, the Company recorded pretax impairment and
other charges of $11,388. These charges include an investment in an IMAX movie
of $5,669, a minority investment in a technology business of $4,576 and an
investment in idle real estate of $1,143. The Company began production of an
IMAX movie during 2000 that will portray the history of country music. After
encountering a number of operational issues that created significant cost
overruns, the carrying value of the IMAX film asset was reassessed during the
second quarter of 2001 resulting in the $5,669 impairment charge. During 2000,
the Company made a minority investment in a technology start-up business. During
2001, the unfavorable environment for technology businesses has created
difficulty for this business to obtain adequate capital to execute its business
plan. During the second quarter of 2001, the Company was notified that this
technology business had been unsuccessful in arranging financing. As such, the
Company reassessed the investment's realizability and reflected an impairment
charge of $4,576 during the second quarter of 2001. The impairment charge
related to idle real estate of $1,143 recorded during the second quarter of 2001
is based upon certain third-party offers received during the second quarter of
2001 for such property.
6. DIVESTITURES:
During March 2001, the Company sold five businesses: Pandora Films, Gaylord
Films, Gaylord Sports Management, Gaylord Event Television and Gaylord
Production Company, to affiliates of The Oklahoma Publishing Company ("OPUBCO")
for $22,000 in cash and the assumption of debt of $19,318. During the first
quarter of 2001, the Company recorded a pretax loss of $1,673 related to the
sale in other gains and losses in the accompanying condensed consolidated
statement of operations. OPUBCO owns a minority interest in the Company. Four of
the Company's directors are also directors of OPUBCO and voting trustees of a
voting trust that controls OPUBCO. Additionally, those four directors
collectively own a significant ownership interest in the Company. The operating
results prior to the sale of the five businesses sold to OPUBCO included in the
condensed consolidated statements of operations are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ---------------------
2001 2000 2001 2000
------- -------- ------- --------
Revenues $ -- $ 12,459 $ 2,195 $ 14,753
======= ======== ======= ========
Operating loss $ -- $ (761) $(1,459) $ (2,341)
======= ======== ======= ========
7. DEBT:
During 2000, the Company entered into a six-month $200,000 interim loan
agreement (the "Interim Loan") with Merrill Lynch Mortgage Capital, Inc. During
the first quarter of 2001, the Company increased the borrowing capacity under
the Interim Loan to $250,000.
During March 2001, the Company, through special purpose entities, entered into
two loan agreements, a $275,000 senior loan (the "Senior Loan") and a $100,000
mezzanine loan (the "Mezzanine Loan") (collectively, the "2001 Loans") with
affiliates of Merrill Lynch & Company acting as principal. Proceeds
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of $235,000 from the Senior Loan were used to refinance the Interim Loan. The
Senior Loan is secured by a first mortgage lien on the assets of the Opryland
Hotel Nashville and is due in 2004. Amounts outstanding under the Senior Loan
bear interest at a blended rate of one-month LIBOR plus 0.9%. The Mezzanine
Loan, secured by the equity interest in the wholly-owned subsidiary owner of the
Opryland Hotel Nashville, is due in 2004 and bears interest at one-month LIBOR
plus 6.0%. For the six month period ended June 30, 2001, the weighted average
interest rates on the Senior Loan and Mezzanine Loan were 7.4% and 13.0%,
respectively. At the Company's option, the 2001 Loans may be extended for two
additional one-year terms beyond their scheduled maturities, subject to the
Company meeting certain financial ratios and other criteria. The Senior Loan
requires monthly principal payments of $667 during its three-year term. The 2001
Loans require monthly interest payments. The terms of the Senior Loan and the
Mezzanine Loan require the purchase of interest rate hedges in notional amounts
equal to the outstanding balances of the Senior Loan and the Mezzanine Loan in
order to protect against adverse changes in one-month LIBOR. Pursuant to these
agreements, the Company has purchased instruments which cap its exposure to
one-month LIBOR at 7.5%. At closing, the Company was required to escrow certain
amounts, including $20,000 related to future capital expenditures of the
Opryland Hotel Nashville. The net proceeds from the 2001 Loans, after
refinancing of the Interim Loan, required escrows and fees, were approximately
$97,600. At June 30, 2001, the unamortized balance of the deferred financing
costs related to the 2001 Loans is $17,144. The 2001 Loans require that the
Company maintain certain escrowed cash balances and certain financial covenants,
and imposes limits on transactions with affiliates and indebtedness. At June 30,
2001, the Company was in compliance with all covenants under the 2001 Loans.
Additional long-term financing is required to fund the Company's construction
commitments related to its hotel development projects and to fund its operating
losses on both a short-term and long-term basis. While the Company is
negotiating various alternatives for its short-term and long-term financing
needs, there is no assurance that financing will be secured with terms that are
acceptable to the Company. Management currently anticipates securing long-term
financing for its hotel development and construction projects; however, if the
Company is unable to secure additional long-term financing, capital expenditures
will be curtailed to ensure adequate liquidity to fund the Company's operations.
Currently, the Company's management believes that the net cash flows from
operations, together with the amount expected to be available from the Company's
financing arrangements, will be sufficient to satisfy anticipated future cash
requirements, including its projected capital expenditures, on both a short-term
and long-term basis.
8. DERIVATIVE FINANCIAL INSTRUMENTS:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", effective, as
amended, for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires all derivatives to be recognized in
the statement of financial position and to be measured at fair value. During
2000, the Company entered into a seven-year secured forward exchange contract
with respect to 10,938 shares of its Viacom stock investment. Under SFAS No.
133, components of the secured forward exchange contract are considered
derivatives. The Company adopted the provisions of SFAS No. 133 on January 1,
2001 and recorded a gain of $11,909, net of taxes of $6,413, as a cumulative
effect of an accounting change in the condensed consolidated statements of
operations, to record the derivatives associated with the secured forward
exchange contract at fair value as of January 1, 2001. For the three months and
six months ended June 30, 2001, the Company recorded pretax losses of $66,020
and $27,081, respectively, related to the decrease in fair value of the
derivatives associated with the secured forward exchange contract. Additionally,
the Company recorded a nonrecurring pretax gain of $29,391 on January 1, 2001,
related to reclassifying its investment in Viacom stock from available-for-sale
to trading as defined by SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". For the three month and six month periods
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ended June 30, 2001, the Company recorded pretax gains of $85,603 and $55,014,
respectively, related to the increase in fair value of the Viacom stock
subsequent to January 1, 2001.
9. RESTRUCTURING CHARGES:
During the fourth quarter of 2000, the Company recognized pretax restructuring
charges of $16,426 related to exiting certain lines of business and implementing
a new strategic plan. The restructuring charges consisted of contract
termination costs of $9,987 to exit specific activities and employee severance
and related costs of $6,439. As of June 30, 2001, the Company has recorded cash
charges of $8,651 against the restructuring accrual. During the second quarter
of 2001, the Company negotiated reductions in certain contract termination
costs, which allowed the reversal of $2,304 of the restructuring charges
originally recorded during the fourth quarter of 2000. The remaining balance of
the restructuring accrual at June 30, 2001 of $5,471 is included in accounts
payable and accrued liabilities in the condensed consolidated balance sheet.
10. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest for the three months and six months ended June 30, 2001
and 2000 was comprised of:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Debt interest paid $ 5,652 $ 5,891 $ 11,996 $ 11,825
Deferred financing costs paid 272 106,655 19,600 106,655
Capitalized interest (4,228) (1,197) (8,307) (1,976)
--------- --------- --------- ---------
$ 1,696 $ 111,349 $ 23,289 $ 116,504
========= ========= ========= =========
11. NEWLY ISSUED ACCOUNTING STANDARDS:
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 141 supercedes Accounting Principles Board ("APB") Opinion No. 16,
"Business Combinations" and requires the use of the purchase method of
accounting for all business combinations prospectively. SFAS No. 141 also
provides guidance on recognition of intangible assets apart from goodwill. SFAS
No. 142 supercedes APB Opinion No. 17, "Intangible Assets" and changes the
accounting for goodwill and intangible assets. Under SFAS No. 142, goodwill and
intangible assets with indefinite useful lives will not be amortized but will be
tested for impairment annually and whenever events or circumstances occur
indicating that these intangible assets may be impaired. The Company will adopt
SFAS No. 141 and SFAS No. 142 on January 1, 2002 and is currently assessing the
impact the new standards will have on its financial statements.
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12. FINANCIAL REPORTING BY BUSINESS SEGMENTS:
The Company is organized and managed based upon its products and services. The
following information is derived from the Company's internal financial reports
used for corporate management purposes.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
Hospitality and attractions $ 56,793 $ 67,660 $ 116,911 $ 124,307
Music, media and entertainment 47,427 65,506 101,272 119,010
Corporate and other 23 -- 49 --
--------- --------- --------- ---------
Total $ 104,243 $ 133,166 $ 218,232 $ 243,317
========= ========= ========= =========
Depreciation and amortization:
Hospitality and attractions $ 6,875 $ 6,982 $ 13,733 $ 13,428
Music, media and entertainment 3,489 5,574 7,302 10,544
Corporate and other 1,631 1,452 3,190 3,072
--------- --------- --------- ---------
Total $ 11,995 $ 14,008 $ 24,225 $ 27,044
========= ========= ========= =========
Operating income (loss):
Hospitality and attractions $ 5,730 $ 14,265 $ 13,862 $ 20,469
Music, media and entertainment (2,546) (15,977) (8,936) (28,221)
Corporate and other (9,373) (9,069) (17,126) (17,632)
Preopening costs (2,413) (1,284) (4,308) (2,729)
Impairment and other charges (11,388) -- (11,388) --
Restructuring charges 2,304 -- 2,304 --
--------- --------- --------- ---------
Total $ (17,686) $ (12,065) $ (25,592) $ (28,113)
========= ========= ========= =========
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS
The Company is managed using the following three business segments: hospitality
and attractions; music, media and entertainment; and corporate and other. The
hospitality and attractions segment primarily consists of the Opryland Hotel
Nashville; the Opryland Hotel Florida and Opryland Hotel Texas, which are under
construction; as well as the General Jackson Showboat and various other tourist
attractions located in Nashville, Tennessee. The Opryland Hotel Nashville is
owned and operated by Opryland Hotel Nashville, LLC, a wholly-owned Delaware
special purpose entity. The music, media and entertainment segment primarily
consists of Word Entertainment ("Word"), the Company's contemporary Christian
music company; the Grand Ole Opry; the Wildhorse Saloon in Nashville; Acuff-Rose
Music Publishing; Corporate Magic, Inc., a company specializing in the
production of creative events in the corporate entertainment marketplace; and
three radio stations in Nashville, Tennessee. On June 1, 2001, the Company
adopted a formal plan to dispose of its international cable networks, which have
been segregated from continuing operations and reported as discontinued
operations in the accompanying condensed consolidated financial statements. The
Company's unallocated corporate expenses are reported separately.
STRATEGIC DIRECTION
During the second quarter of 2001, the Company hired a new Chairman of the Board
of Directors and Chief Executive Officer. Under its new management, the Company
is currently reassessing its long-term strategy to return to profitability. As a
part of this reassessment, the Company intends to divest of certain businesses
which produce low returns and are not part of its core strategy. Additionally,
the Company plans to streamline its administrative structure to align with its
strategy. Capital from asset dispositions and cost savings will be used to
develop the Company's core businesses. As part of its revised strategy, the
Company adopted a formal plan of disposal of its international cable networks on
June 1, 2001 and began accounting for these businesses as discontinued
operations. The operating results of the international cable networks prior to
June 1, 2001 are reflected as discontinued operations, net of taxes, in the
condensed consolidated statements of operations. The Company anticipates a sale
within the next twelve months and expects to recognize a gain. The operating
results of the international cable networks during June 2001 have been deferred
and reflected in net assets of discontinued operations on the accompanying
condensed consolidated balance sheet. As the Company continues to divest of
other non-core businesses, this reassessment of the Company's strategic
direction may result in non-recurring charges in the second half of 2001. Due to
the magnitude of this review and the uncertainty of any outcome, management is
currently unable to quantify the potential effects to the Company's results of
operations, financial position or liquidity.
DIVESTITURES
During the first quarter of 2001, the Company sold five businesses: Pandora
Films, Gaylord Films, Gaylord Sports Management, Gaylord Event Television and
Gaylord Production Company, to affiliates of The Oklahoma Publishing Company
("OPUBCO") for $22.0 million in cash and the assumption of $19.3 million in
debt. During the first quarter of 2001, the Company recorded a $1.7 million
pretax loss related to the sale. As of the disposal date, OPUBCO owned a 6.3%
interest in the Company. Four of the Company's directors, who were, as of the
disposal date, the beneficial owners of an additional 27.8% of the Company, are
also directors of OPUBCO and voting trustees of a voting trust that controls
OPUBCO.
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As part of the Company's strategic assessment completed during the fourth
quarter of 2000, the Company closed Gaylord Digital in the fourth quarter of
2000. Gaylord Digital was formed to initiate a focused Internet strategy through
the acquisition of a number of websites and investments in technology start-up
businesses. Also during 2000, the Company divested the Wildhorse Saloon near
Orlando, the KOA Campground located near the Opryland Hotel Nashville and ceased
plans to develop a country music record label.
The combined operating results for the three month and six month periods ended
June 30 of the businesses divested during 2000 and 2001 consisting of: Gaylord
Digital, Wildhorse Saloon near Orlando, KOA Campground, country music record
label development costs, Pandora Films, Gaylord Films, Gaylord Sports
Management, Gaylord Event Television and Gaylord Production Company ("Divested
Businesses") were, in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- ------- --------
Revenues $ -- $ 15,268 $ 2,213 $ 20,191
======== ======== ======= ========
Operating loss $ -- $(11,244) $(1,464) $(19,296)
======== ======== ======= ========
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RESULTS OF OPERATIONS
The following table contains unaudited selected summary financial data for the
three month and six month periods ended June 30, 2001 and 2000 (amounts in
thousands). Effective October 1, 2000, the Company adopted the provisions of
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" and
certain related authoritative literature. Accordingly, the Company classified
certain amounts as revenues that historically, in accordance with industry
practice, were reported as a reduction to operating expenses. To comply with the
new requirements, the Company reclassified $5.7 million and $11.4 million from
operating expenses to revenues for the three months and six months ended June
30, 2000, respectively. The table also shows the percentage relationships to
total revenues and, in the case of segment operating income (loss), its
relationship to segment revenues.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2001 % 2000 % 2001 % 2000 %
-------- ----- --------- ---- -------- ----- --------- -----
Revenues:
Hospitality and attractions $ 56,793 54.5 $ 67,660 50.8 $116,911 53.6 $ 124,307 51.1
Music, media and entertainment 47,427 45.5 65,506 49.2 101,272 46.4 119,010 48.9
Corporate and other 23 - - - 49 - - -
-------- ----- --------- ---- -------- ----- --------- -----
Total revenues 104,243 100.0 133,166 100.0 218,232 100.0 243,317 100.0
-------- ----- --------- ---- -------- ----- --------- -----
Operating expenses:
Operating costs 68,873 66.1 93,525 70.2 147,740 67.7 173,465 71.3
Selling, general & administrative 29,564 28.4 36,414 27.4 58,467 26.8 68,192 28.1
Preopening costs 2,413 2.3 1,284 1.0 4,308 2.0 2,729 1.1
Impairment and other charges 11,388 10.9 - - 11,388 5.2 - -
Restructuring charges (2,304) (2.2) - - (2,304) (1.1) - -
Depreciation and amortization:
Hospitality and attractions 6,875 6,982 13,733 13,428
Music, media and entertainment 3,489 5,574 7,302 10,544
Corporate and other 1,631 1,452 3,190 3,072
-------- ----- --------- ---- -------- ----- --------- -----
Total depreciation and amortization 11,995 11.5 14,008 10.5 24,225 11.1 27,044 11.1
-------- ----- --------- ---- -------- ----- --------- -----
Total operating expenses 121,929 117.0 145,231 109.1 243,824 111.7 271,430 111.6
-------- ----- --------- ---- -------- ----- --------- -----
Operating income (loss):
Hospitality and attractions 5,730 10.1 14,265 21.1 13,862 11.9 20,469 16.5
Music, media and entertainment (2,546) (5.4) (15,977) (24.4) (8,936) (8.8) (28,221) (23.7)
Corporate and other (9,373) - (9,069) - (17,126) - (17,632) -
Preopening costs (2,413) - (1,284) - (4,308) - (2,729) -
Impairment and other charges (11,388) - - - (11,388) - - -
Restructuring charges 2,304 - - - 2,304 - - -
-------- ----- --------- ---- -------- ----- --------- -----
Total operating income (loss) $(17,686) (17.0) $ (12,065) (9.1) $(25,592) (11.7) $ (28,113) (11.6)
======== ===== ========= ==== ======== ===== ========= =====
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PERIODS ENDED JUNE 30, 2001 COMPARED TO PERIODS ENDED JUNE 30, 2000
Revenues
Total revenues decreased $28.9 million, or 21.7%, to $104.2 million in the
second quarter of 2001, and decreased $25.1 million, or 10.3%, to $218.2 million
in the first six months of 2001. Excluding the revenues of the Divested
Businesses from both periods, revenues decreased $13.7 million, or 11.6%, to
$104.2 million in the second quarter of 2001, and decreased $7.1 million, or
3.2%, to $216.0 million in the first six months of 2001 as discussed below.
Revenues in the hospitality and attractions segment decreased $10.9 million, or
16.1%, to $56.8 million in the second quarter of 2001, and decreased $7.4
million, or 5.9%, to $116.9 million in the first six months of 2001. In the
first six months of 2001, the Opryland Hotel Nashville's revenues decreased $5.7
million, or 5.1%, to $107.0 million. This decrease was attributable to the
impact of a softer economy and the annual rotation of convention business among
different markets that is common in the meeting and convention industry. The
collection of a $2.2 million cancellation fee in the second quarter of 2000 also
adversely affects comparisons with the prior year period. The Opryland Hotel
Nashville's occupancy rate decreased to 69.0% in the first six months of 2001
compared to 73.2% in the first six months of 2000. The Opryland Hotel Nashville
sold 345,200 room nights in the first six months of 2001 compared to 368,600
room nights sold in the same period of 2000, reflecting a 6.3% decrease from
2000. Revenue per available room (RevPAR) for the Opryland Hotel Nashville
decreased 4.7% to $99.71 for the first six months of 2001 compared to $104.62 in
the first six months of 2000. The Opryland Hotel Nashville's average daily rate
increased to $144.44 in the first six months of 2001 from $142.85 in the first
six months of 2000.
Revenues in the music, media and entertainment segment decreased $18.1 million,
or 27.6%, to $47.4 million in the second quarter of 2001, and decreased $17.7
million, or 14.9%, to $101.3 million in the first six months of 2001. Excluding
the revenues of the Divested Businesses from both periods, revenues in the
music, media and entertainment segment decreased $3.2 million, or 6.2%, in the
second quarter of 2001, and decreased $0.2 million, or 0.2%, for the six months
ending June 30, 2001. Word revenues decreased $9.0 million in the first six
months of 2001 as a result of a lower number of new releases. Revenues of the
Company's radio stations decreased $1.1 million in the first six months of 2001
as a result of a weak advertising market and significant competition with the
country music radio stations. The decreases in revenues were partially offset by
the increased revenues of Corporate Magic, which was acquired in March 2000.
Revenues of Corporate Magic increased $9.2 million in the first six months of
2001 as compared to revenues subsequent to its acquisition in March 2000.
Operating Expenses
Total operating expenses decreased $23.3 million, or 16.0%, to $121.9 million in
the second quarter of 2001, and decreased $27.6 million, or 10.2%, to $243.8
million in the first six months of 2001. Operating costs, as a percentage of
revenues, decreased to 67.7% during the first six months of 2001 as compared to
71.3% during the first six months of 2000. Selling, general and administrative
expenses, as a percentage of revenues, decreased to 26.8% during the first six
months of 2001 as compared to 28.1% during the first six months of 2000.
Operating costs decreased $24.7 million, or 26.4%, to $68.9 million in the
second quarter of 2001, and decreased $25.7 million, or 14.8%, to $147.7 million
in the first six months of 2001. Excluding the operating costs of the Divested
Businesses from both periods, operating costs decreased $7.4 million, or 9.8%,
to $68.9 million in the second quarter of 2001, and decreased $3.9 million, or
2.6%, to $145.4 million in the first six months of 2001. The decrease in the
first six months of 2001 is primarily attributable to decreased operating costs
of Word of $8.8 million related to lower revenues, lower employment costs and
lower warehousing costs. Operating costs of the Opryland Hotel Nashville
decreased $1.2 million related to lower revenues in the first six months of
2001. The decreases were partially offset by increased operating costs in the
first six months of 2001 of Corporate Magic, which was acquired in March 2000,
of $8.6 million related to increased revenues.
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Selling, general and administrative expenses decreased $6.9 million, or 18.8%,
to $29.6 million in the second quarter of 2001, and decreased $9.7 million, or
14.3%, to $58.5 million in the first six months of 2001. Excluding the selling,
general and administrative expenses of the Divested Businesses from both
periods, selling, general and administrative expenses increased $0.1 million to
$29.6 million for the second quarter of 2001 and increased $0.2 million to $57.5
million for the first six months of 2001.
Preopening costs increased $1.1 million, or 87.9%, to $2.4 million in the second
quarter of 2001, and increased $1.6 million, or 57.9%, to $4.3 million in the
first six months of 2001. Preopening costs are related to the development of the
Opryland Hotel Florida and Opryland Hotel Texas.
During the second quarter of 2001, the Company recorded pretax impairment and
other charges of $11.4 million. These charges include an investment in an IMAX
movie of $5.7 million, a minority investment in a technology business of $4.6
million and an investment in idle real estate of $1.1 million. The Company began
production of an IMAX movie during 2000 that will portray the history of country
music. After encountering a number of operational issues that created
significant cost overruns, the carrying value of the IMAX film asset was
reassessed during the second quarter of 2001 resulting in the $5.7 million
impairment charge. During 2000, the Company made a minority investment in a
technology start-up business. During 2001, the unfavorable environment for
technology businesses has created difficulty for this business to obtain
adequate capital to execute its business plan. During the second quarter of
2001, the Company was notified that this technology business had been
unsuccessful in arranging financing. As such, the Company reassessed the
investment's realizability and reflected an impairment charge of $4.6 million
during the second quarter of 2001. The impairment charge related to idle real
estate of $1.1 million recorded during the second quarter of 2001 is based upon
certain third-party offers received during the second quarter of 2001 for such
property.
During the fourth quarter of 2000, the Company recognized pretax restructuring
charges of $16.4 million related to exiting certain lines of business and
implementing a new strategic plan. The restructuring charges consisted of
contract termination costs of $10.0 million to exit specific activities and
employee severance and related costs of $6.4 million. During the second quarter
of 2001, the Company negotiated reductions in certain contract termination
costs, which allowed the reversal of $2.3 million of the restructuring charges
originally recorded during the fourth quarter of 2000.
Depreciation and amortization decreased $2.0 million, or 14.4%, to $12.0 million
in the second quarter of 2001, and decreased $2.8 million, or 10.4%, to $24.2
million in the first six months of 2001. Excluding the depreciation and
amortization of the Divested Businesses from both periods, depreciation and
amortization increased $0.4 million, or 3.6%, to $12.0 million in the second
quarter of 2001 and increased $1.2 million, or 5.3%, to $23.8 million in the
first six months of 2001. The increase in the first six months of 2001 is
primarily attributable to the depreciation expense of capital expenditures and
the amortization expense of intangible assets, primarily goodwill, associated
with acquisitions.
Operating Income (Loss)
Total operating loss increased $5.6 million to an operating loss of $17.7
million in the second quarter of 2001, and decreased $2.5 million to an
operating loss of $25.6 million in the first six months of 2001. Operating
income in the hospitality and attractions segment decreased $6.6 million during
the first six months of 2001 as a result of decreased operating income of the
Opryland Hotel Nashville. Music, media and entertainment segment operating loss
decreased $19.3 million during the first six months of 2001 primarily due to the
effects of the Divested Businesses. Excluding the operating results of the
Divested Business from both periods, the operating loss of the music, media and
entertainment segment decreased $1.5 million to $7.5 million. Operating loss of
the corporate and other segment decreased $0.5 million during the first six
months of 2001 as a result of personnel reductions and stringent cost controls.
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Interest Expense
Interest expense, including amortization of deferred financing costs, increased
$4.8 million to $12.1 million for the second quarter of 2001, and increased $8.4
million to $21.2 million in the first six months of 2001. The increases are
primarily attributable to higher average borrowing levels, including the secured
forward exchange contract, higher average interest rates and the amortization of
deferred financing costs. The increase in the first six months of 2001 was
partially offset by increased capitalized interest related to new hotel
construction of $6.3 million. The Company's weighted average interest rate on
its borrowings, including amortization of the deferred financing costs related
to the secured forward exchange contract entered into during the second quarter
of 2000, was 7.1% in the first six months of 2001 as compared to 6.7% in the
first six months of 2000.
Interest Income
Interest income increased $0.7 million to $2.3 million for the second quarter of
2001, and increased $1.3 million to $3.4 million in the first six months of
2001. The increase in the first six months of 2001 primarily relates to an
increase in invested cash balances.
Unrealized Gain (Loss) on Viacom Stock and Derivatives
Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended, and
reclassified its investment in Viacom stock from available-for-sale to trading.
During 2000, the Company entered into a seven-year secured forward exchange
contract with respect to 10.9 million shares of its Viacom stock investment.
Under SFAS No. 133, components of the secured forward exchange contract are
considered derivatives. The Company recorded a $29.4 million nonrecurring pretax
gain on January 1, 2001 to record the initial reclassification of its Viacom
stock investment. In addition, the Company recorded a pretax gain of $55.0
million related to the increase in the fair value of the Viacom stock investment
during the first six months of 2001. In accordance with SFAS No. 133, the
Company recorded a pretax loss of $27.1 million related to the decrease in the
fair value during the first six months of 2001 of the derivatives associated
with the secured forward exchange contract.
Other Gains and Losses
The indemnification period related to the 1999 disposal of television station
KTVT ended during the second quarter of 2001, which allowed the Company to
recognize a non-operating pretax gain of $4.6 million related to the settlement
of the remaining contingencies.
Income Taxes
The benefit for income taxes decreased $5.5 million to $1.0 million for the
second quarter of 2001. The provision for income taxes increased $19.5 million
to $6.0 million in the first six months of 2001. The effective tax rate on
income (loss) before provision (benefit) for income taxes was 33.0% for the
first six months of 2001 compared to 34.5% for the first six months of 2000. In
addition, the Company recorded deferred taxes of $6.4 million in the first six
months of 2001 associated with the cumulative effect of an accounting change.
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Discontinued Operations
On June 1, 2001, the Company adopted a formal plan to sell its international
cable networks. The operating results of the international cable networks prior
to June 1, 2001 are reflected as discontinued operations, net of taxes, in the
condensed consolidated statements of operations. The Company anticipates
completing the sale within the next twelve months and expects to recognize a
gain on the sale. The operating results of the international cable networks
during June 2001 have been deferred and reflected in net assets of discontinued
operations on the accompanying condensed consolidated balance sheet. For the
month ended June 30, 2001, the revenues and net losses of the international
cable networks were $0.4 million and $0.5 million, respectively.
Cumulative Effect of Accounting Change
Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended.
During 2000, the Company entered into a seven-year secured forward exchange
contract with respect to 10.9 million shares of its Viacom stock investment.
Under SFAS No. 133, components of the secured forward exchange contract are
considered derivatives. On January 1, 2001, the Company recorded a gain of $11.9
million, net of deferred taxes of $6.4 million, as a cumulative effect of an
accounting change to record the derivatives associated with the secured forward
exchange contract at fair value as of January 1, 2001.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2001, the Company, through special
purpose entities, entered into two loan agreements, a $275 million senior loan
(the "Senior Loan") and a $100 million mezzanine loan (the "Mezzanine Loan")
(collectively, the "2001 Loans") with affiliates of Merrill Lynch & Company
acting as principal. The Senior Loan is secured by a first mortgage lien on the
assets of the Opryland Hotel Nashville and is due in 2004. Amounts outstanding
under the Senior Loan bear interest at a blended rate of one-month LIBOR plus
0.9%. The Mezzanine Loan, secured by the equity interest in the wholly-owned
subsidiary owner of the Opryland Hotel Nashville, is due in 2004 and bears
interest at one-month LIBOR plus 6.0%. For the six month period ended June 30,
2001, the weighted average interest rates on the Senior Loan and Mezzanine Loan
were 7.4% and 13.0%, respectively. At the Company's option, the 2001 Loans may
be extended for two additional one-year terms beyond their scheduled maturities,
subject to the Company meeting certain financial ratios and other criteria. The
Senior Loan requires monthly principal payments of approximately $0.7 million
during its three-year term. The 2001 Loans require monthly interest payments.
The terms of the Senior Loan and the Mezzanine Loan require the purchase of
interest rate hedges in notional amounts equal to the outstanding balances of
the Senior Loan and the Mezzanine Loan in order to protect against adverse
changes in one-month LIBOR. Pursuant to these agreements, the Company has
purchased instruments which cap its exposure to one-month LIBOR at 7.5%. The
Company used $235 million of the proceeds from the Senior Loan to refinance its
six-month interim loan (the "Interim Loan"). At closing, the Company was
required to escrow certain amounts, including $20 million related to future
capital expenditures of the Opryland Hotel Nashville. The net proceeds from the
2001 Loans, after refinancing of the Interim Loan, required escrows and fees,
were approximately $98 million. At June 30, 2001, the unamortized balance of the
deferred financing costs related to the 2001 Loans is $17.1 million. The 2001
Loans require that the Company maintain certain escrowed cash balances and
certain financial covenants, and imposes limits on transactions with affiliates
and indebtedness. At June 30, 2001, the Company was in compliance with all
covenants under the 2001 Loans.
While the Company has available the balance of the net proceeds from the 2001
Loans, proceeds from the sale of businesses to OPUBCO and the net cash flows
from operations to fund its cash requirements, additional long-term financing is
required to fund the Company's construction commitments related to the Opryland
Hotel Florida and Opryland Hotel Texas and to fund its anticipated operating
losses on both a short-term and long-term basis.
The Company has received commitments from three financial institutions for a
$210 million credit facility for general corporate purposes, including the
financing of the Florida hotel project, and expects to finalize this financing
in the third quarter of 2001. The Company anticipates that the proceeds from
this financing combined with the 2001 Loans will allow it to complete the
construction of the hotel,
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open it on schedule in February 2002, and provide initial working capital. The
Company is also pursuing financing alternatives for the Texas hotel project.
While there is no assurance that any such financing will be secured, the Company
has had discussions with certain lenders and believes it will secure acceptable
funding. However, if the Company is unable to obtain any part of the financing
it is seeking, or the timing of such financing is significantly delayed, it
would require the curtailment of development capital expenditures to ensure
adequate liquidity to fund the Company's operations.
The Company currently projects capital expenditures for 2001 of approximately
$315 million, which includes approximately $285 million related to the Company's
new hotel construction in Florida and Texas. The Company's capital expenditures
from continuing operations for the six months ended June 30, 2001 were $124.8
million.
SEASONALITY
Certain of the Company's operations are subject to seasonal fluctuation.
Revenues in the music business are typically weakest in the first calendar
quarter following the Christmas buying season.
NEWLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 141 supercedes Accounting Principles Board ("APB") Opinion No. 16,
"Business Combinations" and requires the use of the purchase method of
accounting for all business combinations prospectively. SFAS No. 141 also
provides guidance on recognition of intangible assets apart from goodwill. SFAS
No. 142 supercedes APB Opinion No. 17, "Intangible Assets" and changes the
accounting for goodwill and intangible assets. Under SFAS No. 142, goodwill and
intangible assets with indefinite useful lives will not be amortized but will be
tested for impairment annually and whenever events or circumstances occur
indicating that these intangible assets may be impaired. The Company will adopt
SFAS No. 141 and SFAS No. 142 on January 1, 2002 and is currently assessing the
impact the new standards will have on its financial statements.
FORWARD-LOOKING STATEMENTS/RISK FACTORS
This report contains certain forward-looking statements regarding, among other
things, the anticipated financial and operating results of the Company. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions investors that future
financial and operating results may differ materially from those included in
forward-looking statements made by, or on behalf of, the Company. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance, or achievements of
the Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. The
Company's future operating results depend on a number of factors which were
derived utilizing numerous assumptions and other important factors that, if
altered, could cause actual results to differ materially from those anticipated
in forward-looking statements. These factors, many of which are beyond the
Company's control, include the level of popularity of country and Christian
music; the advertising market in the United States in general and in the
Company's local radio markets in particular; the perceived attractiveness of
Nashville, Tennessee and the Company's properties as a convention and tourist
destination; the ability of the Company to successfully finance, develop and
operate hotel properties in other markets; consumer tastes and preferences for
the Company's programming and other entertainment offerings; competition; the
impact of weather on construction schedules; the Company's ability to obtain
long-term financing on acceptable terms; the ability of the Company to
successfully complete the proposed divestitures described herein; and the
Company's ability to attract and retain management personnel for its various
operations.
In addition, investors are cautioned not to place undue reliance on
forward-looking statements contained in this report because they speak only as
of the date hereof. The Company undertakes no obligation to release
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publicly any modifications or revisions to forward-looking statements contained
in this report to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
Readers are also referred to the Risk Factors included in the Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Form 10-K for the twelve months ended December 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Based upon the Company's overall market risk exposures at June 30, 2001, the
Company believes that the effects of changes in the stock price of Viacom, Inc.
common stock, changes in fair value of derivatives and changes in interest rates
on the Company's consolidated financial position, results of operations or cash
flows could be material as further discussed in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, filed with the Securities and
Exchange Commission. However, the Company believes that fluctuations in foreign
currency exchange rates on the Company's consolidated financial position,
results of operations or cash flows will not be material.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 3,
2001 (the "Annual Meeting"). At the Annual Meeting, the
stockholders of the Company voted to amend the Company's
Restated Certificate of Incorporation to eliminate classes of
directors and provide for annual election of all directors
upon the expiration of each director's current term. A total
of 28,539,881 votes were cast for such proposal, 14,535 votes
were cast against such proposal, and 10,175 votes abstained
with respect to such proposal. There were 1,616,583 broker
nonvotes on such proposal.
The stockholders of the Company also voted to elect three
directors whose terms expired at the Annual Meeting, Edward L.
Gaylord, Joe M. Rodgers, and Craig L. Leipold, for one-year
terms and until their successors are duly elected and
qualified. The following table sets forth the number of votes
cast for and withheld/abstained with respect to each of the
nominees:
Withheld/
Nominee For Abstained
------- ---------- ---------
Edward L. Gaylord 29,567,109 614,065
Joe M. Rodgers 29,863,546 317,628
Craig L. Leipold 29,628,077 553,097
The third proposal submitted to the stockholders of the
Company was the ratification of the appointment of Arthur
Andersen LLP as the independent public accountants for the
Company in 2001. A total of 29,829,968 votes were cast for
such proposal, 347,809 votes were cast against such proposal,
and 3,397 votes abstained with respect to such proposal. There
were no broker nonvotes with respect to the proposal.
ITEM 5. OTHER INFORMATION
On April 23, 2001, the Company appointed Colin V. Reed as a
director and its President and Chief Executive Officer and
Michael D. Rose as a director and Chairman of the Board. 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, executive vice president
of Harrah's Entertainment from September 1995 to May 1999 and
chief financial officer of Harrah's Entertainment since April
1997. Upon the resignation of the Company's Chief Financial
Officer in July 2001, Mr. Reed also assumed the position of
acting Chief Financial Officer. The Company presently is
recruiting a Chief Financial Officer. Mr. Rose previously
served as chairman of both Harrah's Entertainment and Promus
Hotel Corporation, retiring as chairman of Harrah's
Entertainment in December 1996 and as chairman of Promus in
1997.
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Mr. Reed entered into an employment agreement with the Company
and Mr. Rose entered into an agreement regarding his service
as Chairman of the Company's Board of Directors. Mr. Reed's
agreement provides for a four-year term as President and Chief
Executive Officer of the Company, a base salary, incentive
cash bonus compensation based upon the Company's attainment of
prescribed performance targets, stock options vesting over
four years, shares of restricted stock with restrictions being
removed over four years, and other senior executive benefits.
Mr. Rose's agreement provides for a two-year term as Chairman
of the Board of Directors of the Company, remuneration for his
services, stock options vesting over four years, and shares of
restricted stock with restrictions being removed over four
years. Each agreement also provides for the accelerated
vesting of stock options and removal of limitations on
restricted stock if the executive's employment is terminated
in certain circumstances, including upon a change of control.
In addition, if Edward L. Gaylord or his affiliates consummate
a "going private" transaction, all of their stock options
would vest and all restrictions would be removed from their
restricted shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index to Exhibits following the Signatures page.
(b) A Current Report on Form 8-K, dated April 24, 2001,
reporting Regulation FD disclosure under Item 9 was
filed with the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GAYLORD ENTERTAINMENT COMPANY
Date: August 14, 2001 By: /s/ Colin V. Reed
---------------- ---------------------------------------
Colin V. Reed
President, Chief Executive Officer,
and acting Chief Financial Officer
(Principal Executive and Financial
Officer)
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INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3 to the Registrant's Current Report on Form
8-K dated October 7, 1997).
3.2 Amendment to the Registrant's Restated Certificate of Incorporation,
effective May 3, 2001.
10.1 Executive Employment Agreement dated as of April 23, 2001 between the
Registrant and Colin V. Reed.
10.2 Agreement dated as of April 23, 2001 between the Registrant and Michael
D. Rose.
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