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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, 1999
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 offices) (Zip Code)
(615) 316-6000
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(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, 1999
----- -------------------------------
Common Stock, $.01 par value 32,833,665 shares
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GAYLORD ENTERTAINMENT COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PAGE NO.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income -
For the Three Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Statements of Income -
For the Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998
--------- ---------
Revenues $ 128,362 $ 126,963
Operating expenses:
Operating costs 81,763 73,431
Selling, general and administrative 30,800 29,922
Depreciation and amortization 12,374 10,600
--------- ---------
Operating income 3,425 13,010
Interest expense (3,870) (7,661)
Interest income 947 6,524
Other gains and losses 569 34
--------- ---------
Income before provision for income taxes 1,071 11,907
Provision for income taxes 413 4,585
--------- ---------
Net income $ 658 $ 7,322
========= =========
Net income per share $ 0.02 $ 0.22
========= =========
Net income per share - assuming dilution $ 0.02 $ 0.22
========= =========
Dividends per share $ 0.20 $ 0.15
========= =========
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 INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998
--------- ---------
Revenues $ 241,501 $ 234,984
Operating expenses:
Operating costs 156,254 139,787
Selling, general and administrative 62,072 61,295
Depreciation and amortization 24,398 20,430
--------- ---------
Operating income (loss) (1,223) 13,472
Interest expense (7,018) (14,557)
Interest income 1,394 12,944
Other gains and losses 130,268 3,362
--------- ---------
Income before provision for income taxes 123,421 15,221
Provision for income taxes 42,971 5,860
--------- ---------
Net income $ 80,450 $ 9,361
========= =========
Net income per share $ 2.45 $ 0.29
========= =========
Net income per share - assuming dilution $ 2.43 $ 0.28
========= =========
Dividends per share $ 0.40 $ 0.30
========= =========
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, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DEC. 31,
1999 1998
----------- -----------
ASSETS
Current assets:
Cash $ 11,255 $ 18,746
Trade receivables, less allowance of $5,173 and $5,517, respectively 89,931 94,429
Inventories 28,743 27,018
Other assets 45,255 49,009
----------- -----------
Total current assets 175,184 189,202
----------- -----------
Property and equipment, net of accumulated depreciation 597,328 586,898
Intangible assets, net of accumulated amortization 117,302 117,529
Investments 82,570 78,140
Long-term notes receivable 36,768 9,015
Other assets 36,759 31,208
----------- -----------
Total assets $ 1,045,911 $ 1,011,992
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,125 $ 6,269
Accounts payable and accrued liabilities 93,138 115,837
----------- -----------
Total current liabilities 94,263 122,106
----------- -----------
Long-term debt 272,011 276,712
Deferred income taxes 51,146 52,747
Other liabilities 33,620 33,039
Minority interest 2,294 2,228
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares authorized, no shares
issued or outstanding -- --
Common stock, $.01 par value, 150,000 shares authorized,
32,826 and 32,808 shares issued and outstanding, respectively 328 328
Additional paid-in capital 500,608 500,434
Retained earnings 94,022 26,699
Other stockholders' equity (2,381) (2,301)
----------- -----------
Total stockholders' equity 592,577 525,160
----------- -----------
Total liabilities and stockholders' equity $ 1,045,911 $ 1,011,992
=========== ===========
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, 1999 AND 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
1999 1998
--------- --------
Cash Flows from Operating Activities:
Net income $ 80,450 $ 9,361
Amounts to reconcile net income to net cash flows
used in operating activities:
Depreciation and amortization 24,398 20,430
Deferred income taxes (1,601) 387
Gain on equity participation rights (129,875) --
Noncash interest income -- (12,470)
Gain on sale of investments -- (19,155)
Write-off of Z Music note receivable -- 23,616
Changes in:
Trade receivables 4,498 (5,351)
Accounts payable and accrued liabilities (19,820) (25,741)
Other assets and liabilities (1,830) (10,176)
--------- --------
Net cash flows used in operating activities (43,780) (19,099)
--------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (29,957) (21,279)
Proceeds from equity participation rights 130,000 --
Acquisition of businesses, net of cash acquired -- (22,462)
Proceeds from sale of property and equipment -- 6,113
Proceeds from sale of investments -- 20,130
Investments in, advances to and distributions from affiliates (34,274) (9,691)
Other investing activities (6,630) (4,376)
--------- --------
Net cash flows provided by (used in) investing activities 59,139 (31,565)
--------- --------
Cash Flows from Financing Activities:
Repayment of debt (8,850) (984)
Proceeds from issuance of debt 500 500
Net (repayments) borrowings under revolving credit agreements (1,495) 62,095
Proceeds from exercise of stock options 122 294
Dividends paid (13,127) (9,849)
--------- --------
Net cash flows provided by (used in) financing activities (22,850) 52,056
--------- --------
Net change in cash (7,491) 1,392
Cash, beginning of period 18,746 8,712
--------- --------
Cash, end of period $ 11,255 $ 10,104
========= ========
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, 1998, filed with the Securities and
Exchange Commission. 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 the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". Under the
standards established by SFAS No. 128, earnings per share is measured at two
levels: basic earnings per share and diluted earnings per share. Basic earnings
per share is computed by dividing net income by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
outstanding after considering the additional dilution related to stock options.
The weighted average number of common shares outstanding is calculated as
follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1999 1998 1999 1998
------ ------ ------ ------
Weighted average shares outstanding 32,817 32,806 32,813 32,802
Effect of dilutive stock options 343 448 300 425
------ ------ ------ ------
Weighted average shares outstanding -
assuming dilution 33,160 33,254 33,113 33,227
====== ====== ====== ======
3. COMPREHENSIVE INCOME:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires that changes in the amounts of certain
items, including gains and losses on certain securities, be shown in the
financial statements. The Company adopted the provisions of SFAS No. 130 on
January 1, 1998. The Company's comprehensive income is substantially equivalent
to net income for the three month and six month periods ended June 30, 1999 and
1998.
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4. OTHER GAINS AND LOSSES:
The Company recognized a pretax gain of $129,875 during the first six months of
1999 related to the collection of $130,000 in proceeds from the redemption of
certain equity participation rights in cable television systems which the
Company sold during 1995. The Company recognized a current provision for income
taxes of $45,456 related to the gain during the first six months of 1999.
5. LONG-TERM NOTES RECEIVABLE:
The Company owns a minority limited partnership interest in Bass Pro, L.P.
("Bass Pro"). During the first six months of 1999, the Company advanced $28,080
to Bass Pro under an unsecured note agreement which bears interest at 8%
annually and is due in 2003. Interest under the note agreement is payable
annually.
6. FINANCIAL REPORTING BY BUSINESS SEGMENTS:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues:
Hospitality and attractions $ 74,318 $ 75,599 $ 141,719 $ 137,040
Broadcasting and music 53,240 50,455 97,973 93,895
Cable networks 804 909 1,809 4,049
--------- --------- --------- ---------
Total $ 128,362 $ 126,963 $ 241,501 $ 234,984
========= ========= ========= =========
Depreciation and amortization:
Hospitality and attractions $ 7,511 $ 7,043 $ 15,276 $ 13,730
Broadcasting and music 2,911 1,948 5,552 3,589
Cable networks 484 443 961 884
Corporate 1,468 1,166 2,609 2,227
--------- --------- --------- ---------
Total $ 12,374 $ 10,600 $ 24,398 $ 20,430
========= ========= ========= =========
Operating income (loss):
Hospitality and attractions $ 10,090 $ 14,421 $ 13,449 $ 18,185
Broadcasting and music 2,835 7,233 3,468 12,696
Cable networks (2,564) (2,613) (4,450) (5,671)
Corporate (6,936) (6,031) (13,690) (11,738)
--------- --------- --------- ---------
Total $ 3,425 $ 13,010 $ (1,223) $ 13,472
========= ========= ========= =========
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS
The Company operates in the following business segments: hospitality and
attractions; broadcasting and music; and cable networks. The hospitality and
attractions segment primarily consists of the Opryland Hotel located in
Nashville, Tennessee and the Company's Nashville-based attractions. The
broadcasting and music segment includes the Company's television station; radio
stations; music publishing business; Word Entertainment ("Word"), the Company's
contemporary Christian music company; and Pandora Investments, S.A. ("Pandora"),
a Luxembourg based company which acquires, distributes and produces theatrical
feature film and television programming primarily for markets outside of the
United States. The cable networks segment consists primarily of CMT
International, a country music video cable network operated in Latin America and
the Pacific Rim. The Company's unallocated corporate expenses are reported
separately.
PENDING SALE OF KTVT
During April 1999, the Company announced it had entered into an agreement to
sell its television station KTVT in Dallas-Ft. Worth to CBS Corporation in
exchange for $485 million of CBS common stock and other consideration. The
transaction is anticipated to close during the third quarter of 1999 and result
in a gain of approximately $280 million, net of deferred taxes.
GET DIGITALMEDIA
During July 1999, the Company announced the creation of GET digitalmedia, a new
division formed to initiate a focused Internet strategy, and the acquisition of
a 51% equity interest in two online operations, Musicforce.com and
Lightsource.com, for $15 million in cash. The parties have entered into option
agreements regarding the additional equity interests in the online operations.
The acquisition was financed through borrowings under a revolving credit
agreement and will be accounted for using the purchase method of accounting. The
Company expects that GET digitalmedia will have operating losses of $15 million
to $20 million (excluding goodwill amortization) over the next eighteen months.
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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, 1999 and 1998 (amounts in
thousands). The table also shows the percentage relationships to total revenues
and, in the case of segment operating income, its relationship to segment
revenues.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ---------------------------------------
1999 % 1998 % 1999 % 1998 %
--------- ----- -------- ----- -------- ----- -------- ------
Revenues:
Hospitality and attractions $ 74,318 57.9 $ 75,599 59.5 $141,719 58.7 $137,040 58.3
Broadcasting and music 53,240 41.5 50,455 39.8 97,973 40.6 93,895 40.0
Cable networks 804 0.6 909 0.7 1,809 0.7 4,049 1.7
--------- ----- -------- ----- -------- ----- -------- ------
Total revenues 128,362 100.0 126,963 100.0 241,501 100.0 234,984 100.0
--------- ----- -------- ----- -------- ----- -------- ------
Operating expenses:
Operating costs 81,763 63.7 73,431 57.8 156,254 64.7 139,787 59.5
Selling, general & administrative 30,800 24.0 29,922 23.6 62,072 25.7 61,295 26.1
Depreciation and amortization:
Hospitality and attractions 7,511 7,043 15,276 13,730
Broadcasting and music 2,911 1,948 5,552 3,589
Cable networks 484 443 961 884
Corporate 1,468 1,166 2,609 2,227
--------- ----- -------- ----- -------- ----- -------- ------
Total depreciation and amortization 12,374 9.6 10,600 8.4 24,398 10.1 20,430 8.7
--------- ----- -------- ----- -------- ----- -------- ------
Total operating expenses 124,937 97.3 113,953 89.8 242,724 100.5 221,512 94.3
--------- ----- -------- ----- -------- ----- -------- ------
Operating income (loss):
Hospitality and attractions 10,090 13.6 14,421 19.1 13,449 9.5 18,185 13.3
Broadcasting and music 2,835 5.3 7,233 14.3 3,468 3.5 12,696 13.5
Cable networks (2,564) -- (2,613) -- (4,450) -- (5,671) --
Corporate (6,936) -- (6,031) -- (13,690) -- (11,738) --
--------- ----- -------- ----- -------- ----- -------- ------
Total operating income $ 3,425 2.7 $ 13,010 10.2 $ (1,223) -- $ 13,472 5.7
========= ===== ======== ===== ======== ===== ======== ======
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PERIODS ENDED JUNE 30, 1999 COMPARED TO PERIODS ENDED JUNE 30, 1998
Revenues
Total Revenues - Total revenues increased $1.4 million, or 1.1%, to $128.4
million in the second quarter of 1999, and increased $6.5 million, or 2.8%, to
$241.5 million in the first six months of 1999. The increase for the first six
months of 1999 results primarily from increased revenues in the hospitality and
attractions segment, principally the Opryland Hotel, and increases in the
broadcasting and music segment, principally from Word, offset in part by
decreased revenues in the cable networks segment as a result of CMT
International ceasing its European operations effective March 31, 1998.
Hospitality and Attractions - Revenues in the hospitality and attractions
segment decreased $1.3 million, or 1.7%, to $74.3 million in the second quarter
of 1999, and increased $4.7 million, or 3.4%, to $141.7 million in the first six
months of 1999. Opryland Hotel revenues increased $4.2 million, or 4.0%, to
$109.8 million in the first six months of 1999. The hotel's occupancy rate
increased to 78.1% in the first six months of 1999 compared to 76.3% in the
first six months of 1998. The hotel sold 392,300 rooms in the first six months
of 1999 compared to 383,900 rooms sold in the same period of 1998, reflecting a
2.2% increase from 1998. The hotel's average guest room rate decreased to
$135.74 in the first six months of 1999 from $139.17 in the first six months of
1998. The increase in revenues for the first six months of 1999 is also due to
revenues from the Wildhorse Saloon in Orlando, Florida, which opened in April
1998, of $2.3 million. These increases are partially offset by a decrease
related to the Company's investment in Bass Pro, L.P. ("Bass Pro") of $1.2
million.
Broadcasting and Music - Revenues in the broadcasting and music segment
increased $2.8 million, or 5.5%, to $53.2 million in the second quarter of 1999,
and increased $4.1 million, or 4.3%, to $98.0 million in the first six months of
1999. The increase for the first six months of 1999 is primarily due to an
increase in revenues of Word of $3.2 million and Pandora, which was acquired in
July 1998, of $3.4 million. This increase is partially offset by a decrease in
KTVT's revenues of $3.5 million. The decrease in KTVT revenues is primarily
related to the carriage of the 1998 Winter Olympics. Revenues for KTVT for the
first six months of 1999 were $24.0 million.
Cable Networks - Revenues in the cable networks segment decreased $0.1 million,
or 11.6%, to $0.8 million in the second quarter of 1999, and decreased $2.2
million, or 55.3%, to $1.8 million in the first six months of 1999. The decrease
for the first six months of 1999 is primarily the result of CMT International
ceasing its European operations effective March 31, 1998.
Operating Expenses
Total Operating Expenses - Total operating expenses increased $11.0 million, or
9.6%, to $124.9 million in the second quarter of 1999, and increased $21.2
million, or 9.6%, to $242.7 million in the first six months of 1999. Operating
costs, as a percentage of revenues, increased to 64.7% during the first six
months of 1999 as compared to 59.5% during the first six months of 1998.
Selling, general and administrative expenses, as a percentage of revenues,
decreased to 25.7% during the first six months of 1999 as compared to 26.1%
during the first six months of 1998.
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Operating Costs - Operating costs increased $8.3 million, or 11.3%, to $81.8
million in the second quarter of 1999, and increased $16.5 million, or 11.8%, to
$156.3 million in the first six months of 1999. The increase in the first six
months of 1999 is primarily attributable to increased operating costs of Word of
$3.1 million related to increased revenues. The operating costs of Pandora,
which was acquired in July 1998, were $3.2 million in the first six months of
1999. Additionally, operating costs of the Wildhorse Saloon in Orlando, Florida,
which opened in April 1998, increased $1.9 million in the first six months of
1999. The operating costs of the Opryland Hotel increased $1.8 million in the
first six months of 1999. Costs associated with the growth strategy of CMT
International and Z Music increased operating costs of the cable networks
segment by $1.6 million in the first six months of 1999.
Selling, General and Administrative - Selling, general and administrative
expenses increased $0.9 million, or 2.9%, to $30.8 million in the second quarter
of 1999, and increased $0.8 million, or 1.3%, to $62.1 million in the first six
months of 1999. The increase in the first six months of 1999 is primarily
attributable to lower selling, general and administrative expenses of the
European operations of CMT International, which ceased operations on March 31,
1998, of $1.6 million and the recognition of a valuation reserve of $2.6 million
on a long-term note receivable from Z Music, Inc. during the first six months of
1998. These decreases are partially offset by an increase of $2.6 million in
selling, general and administrative expenses of Word in the first six months of
1999.
Depreciation and Amortization - Depreciation and amortization increased $1.8
million, or 16.7%, to $12.4 million in the second quarter of 1999, and increased
$4.0 million, or 19.4%, to $24.4 million in the first six months of 1999. The
increase is primarily attributable to the depreciation expense of acquisitions
and capital expenditures made in 1998. Depreciation and amortization for KTVT
for the first six months of 1999 was $1.3 million.
Operating Income
Total Operating Income - Total operating income decreased $9.6 million to $3.4
million in the second quarter of 1999, and decreased $14.7 million to an
operating loss of $1.2 million in the first six months of 1999. Operating income
in the hospitality and attractions segment decreased $4.7 million during the
first six months of 1999 as a result of lower earnings from the Company's
investment in Bass Pro partially offset by increased operating income of the
Opryland Hotel. Broadcasting and music segment operating income decreased $9.2
million during the first six months of 1999 primarily due to a decrease at KTVT
and Word. The operating income of KTVT for the first six months of 1999 was $6.4
million. Operating losses of the cable networks segment decreased $1.2 million
during the first six months of 1999 primarily as a result of CMT International
ceasing its European operations effective March 31, 1998. Corporate operating
losses increased $2.0 million during the first six months of 1999 as a result of
increased administrative costs.
Interest Expense
Interest expense decreased $3.8 million to $3.9 million in the second quarter of
1999, and decreased $7.5 million to $7.0 million in the first six months of
1999. The decrease in the first six months of 1999 is primarily attributable to
lower average borrowing levels during the first six months of 1999 than in the
first six months of 1998. The Company's weighted average interest rate on its
borrowings was 6.3% in the first six months of 1999 compared to 6.7% in the
first six months of 1998.
Interest Income
Interest income decreased $5.6 million to $0.9 million in the second quarter of
1999, and decreased $11.6 million to $1.4 million in the first six months of
1999. The decrease in the first six months of 1999 relates to the December 1998
collection of a long-term note receivable which originated from the sale of the
Company's cable television systems.
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Other Gains and Losses
During the first six months of 1999, the Company recognized a pretax gain of
$129.9 million related to the collection of $130 million in proceeds from the
redemption of certain equity participation rights in cable television systems
which the Company sold during 1995.
Income Taxes
The provision for income taxes decreased $4.2 million to $0.4 million in the
second quarter of 1999, and increased $37.1 million to $43.0 million in the
first six months of 1999. The effective tax rate on income before provision for
income taxes was 34.8% for the first six months of 1999 compared to 38.5% for
the first six months of 1998. The Company recognized a current provision for
income taxes of $45.5 million related to the non-recurring gain from the equity
participation rights discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has an unsecured revolving loan (the "Revolver") which provides for
borrowings of up to $600 million until its maturity in July 2002. At July 31,
1999, the Company had approximately $322 million in available borrowing capacity
under the Revolver. The terms and conditions of the Revolver require the Company
to maintain certain financial ratios and minimum stockholders' equity levels and
subject the Company to limitations on, among other things, mergers and sales of
assets, additional indebtedness, capital expenditures, investments,
acquisitions, liens, and transactions with affiliates. The $130 million proceeds
from the equity participation rights were used to reduce outstanding
indebtedness under the Revolver. Acquisitions and operating losses of GET
digitalmedia, the Company's new Internet division, of approximately $35 million
will be financed through borrowings under the Revolver.
The Company currently projects capital expenditures of approximately $55 million
for 1999, of which $30 million had been spent as of June 30, 1999. Depending
upon the financing structure of the development of the Opryland Hotel - Florida
and the Opryland Hotel - Texas, capital expenditures for 1999 could increase by
approximately $50 million. The Company's management believes that the net cash
flows from operations, together with the amount expected to be available for
borrowing under the Revolver, will be sufficient to satisfy anticipated future
cash requirements of the Company on both a short-term and long-term basis.
YEAR 2000
Without programming modifications or embedded technology replacements, certain
computer systems (hardware, software and equipment) will not operate properly
when using the two digits used in date calculations for the year 2000. These
computer systems interpret the "00" used in date calculations to represent the
year 1900. During 1996, the Company formed an internal task force responsible
for assessing, testing and correcting the Company's information technology and
systems risks associated with the year 2000. The task force has completed its
assessment of the Company's systems, has identified the Company's hardware,
software and equipment that will not operate properly in the year 2000, and is
taking the appropriate action to ensure compliance. In certain instances,
hardware, software and equipment that will not operate properly in the year 2000
are being replaced.
As of July 31, 1999, the task force has determined and confirmed through testing
that approximately 90% of the Company's systems, in certain circumstances
following completed programming changes or replacements, will operate properly
in the year 2000. As of July 31, 1999, all of the Company's internally developed
software applications are considered year 2000 compliant.
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As to the approximately 10% of systems not currently determined to be year 2000
compliant, the Company is currently replacing or repairing hardware, software
and equipment that it anticipates will not work properly in the year 2000. The
Company expects that replacements and repairs of hardware, software and
equipment for systems that are not currently considered year 2000 compliant will
be completed during August 1999. The Company is testing all of its systems to
ensure their proper operation upon the arrival of the year 2000. The Company
expects that the testing phase of its year 2000 remediation effort will be
completed during August 1999.
The Company has requested written documentation from vendors and suppliers with
whom the Company has a material relationship regarding their ability to operate
properly in the year 2000. In many cases, the Company is considering
alternatives related to vendors and suppliers that do not confirm their year
2000 readiness. There can be no assurance that the Company's significant vendors
and suppliers will have remedied their year 2000 issues in a timely manner. The
failure of a significant supplier to remedy its year 2000 issues could have a
material adverse effect on the Company's operations, financial position or
liquidity. The Company will continue to monitor its significant vendors and
suppliers to mitigate its risks. Contingency plans are being developed for
vendors and suppliers that are deemed critical to the Company's operations.
Based upon the Company's current estimates, the costs of the Company's year 2000
remediation efforts are between $7 million and $9 million. Included in the
Company's cost estimates are the costs of replacing hardware and software of
approximately $6 million, which are capitalized and amortized over their
estimated useful lives. Certain software replacements included in these cost
estimates were planned prior to the assessment of the year 2000 issue and were
accelerated as part of the Company's year 2000 remediation effort. The remaining
costs are expensed as incurred. These projected costs are based upon
management's best estimates, which were derived utilizing numerous assumptions
of future events. There can be no guarantee, however, that these cost estimates
will be achieved and actual results could differ materially.
Management's estimate of the Company's most reasonably likely worst case
scenario involves the replacement of hardware, software or equipment during the
third and fourth quarters of 1999 that is determined during the testing phase of
the remediation effort to not be correctable. The foregoing notwithstanding,
management does not currently believe that the costs of assessment, remediation
or replacement of the Company's systems, or the potential failure of third
parties' systems, will have a material adverse effect on the Company's business,
financial condition, results of operations or liquidity.
SEASONALITY
Certain of the Company's operations are subject to seasonal fluctuation. The
first calendar quarter is the weakest quarter for most television and radio
broadcasters, including the Company, as advertising revenues are lower in the
post-Christmas period. Revenues in the music business are typically weakest in
the first calendar quarter following the Christmas buying season.
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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 projected 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 projected in
forward-looking statements. These factors, many of which are beyond the
Company's control, include growth in the popularity of country music and country
lifestyles; growth in the popularity of Christian music and family values
lifestyles; the ability to control costs relating to the development of the Opry
Mills retail complex; the ability to integrate acquired operations into the
Company's businesses; the ability of the Company to implement successfully its
focused Internet strategy; the ability of the Opryland Hospitality Group to
develop successfully hotel properties in other markets; the advertising market
in the United States in general and in the Company's Dallas television and
Nashville radio markets in particular; the perceived attractiveness of
Nashville, Tennessee and the Company's properties as convention and tourist
destinations; consumer tastes and preferences for the Company's programming and
other entertainment offerings; competition; the impact of weather on
construction schedules; the ability of the Company to avoid operational problems
associated with year 2000 compliance; and consolidation in the broadcasting and
cable distribution industries.
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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Based on the Company's overall market interest rate and foreign currency
exchange rate exposure at June 30, 1999, the Company believes that the effect,
if any, of reasonably possible near-term changes in interest rates or
fluctuation in foreign currency exchange rates on the Company's financial
position, results of operations or cash flows would 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 13,
1999 (the "Annual Meeting"). At the Annual Meeting, the
stockholders of the Company voted to elect three Class II
directors, Martin C. Dickinson, Christine Gaylord Everest, and
Howard L. Wood, for three-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
------- ---------- ---------
Martin C. Dickinson 26,227,814 60,371
Christine Gaylord Everest 26,226,352 61,833
Howard L. Wood 26,251,637 36,548
The stockholders of the Company also voted to amend the
Company's Amended and Restated 1997 Stock Option and Incentive
Plan to increase the number of shares authorized for grant and
issuance pursuant thereto. A total of 22,238,482 votes were
cast for such proposal, 2,051,524 votes were cast against such
proposal, and 12,018 votes abstained with respect to such
proposal. There were 1,986,161 broker nonvotes with respect to
the proposal.
The third proposal submitted to the stockholders of the
Company was the approval and adoption of the Company's
Employee Stock Purchase Plan. A total of 24,202,231 votes were
cast for such proposal, 87,032 votes were cast against such
proposal, and 12,761 votes abstained with respect to such
proposal. There were 1,986,161 broker nonvotes with respect to
the proposal.
The fourth 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 1999. A total of 26,269,235 votes were cast for
such proposal, 5,388 votes were cast against such proposal,
and 13,562 votes abstained with respect to such proposal.
There were no broker nonvotes with respect to the proposal.
Item 5. OTHER INFORMATION
Inapplicable
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 19, 1999,
reporting the Company's execution of a definitive
agreement to sell its ownership in KTVT-TV located in
Dallas-Fort Worth to CBS Corporation 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 16, 1999 By: /s/ Joseph B. Crace
--------------- -----------------------------------------
Joseph B. Crace
Executive Vice President, Chief Operating Officer,
and Chief Financial Officer
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INDEX TO EXHIBITS
10.1 Gaylord Entertainment Company 1997 Stock Option and Incentive Plan
Amended and Restated as of May 13, 1999.
27 Financial Data Schedule (for SEC use only).
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