Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
COMMISSION FILE NO. 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 Identification No.)
Incorporation or Organization)
ONE GAYLORD DRIVE, NASHVILLE, TENNESSEE 37214
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (615) 316-6000
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK - $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 18, 2002, there were 33,829,600 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the registrant based on the closing price of the
Common Stock on the New York Stock Exchange on March 18, 2002 was approximately
$595,029,906. For purposes of the foregoing calculation only, shares of Common
Stock held by non-affiliates exclude only those shares beneficially owned by
officers and directors.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held May 14, 2002 are incorporated by reference
into Part III of this Form 10-K.
GAYLORD ENTERTAINMENT COMPANY
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business..................................................................................... 1
Item 2. Properties................................................................................... 13
Item 3. Legal Proceedings............................................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 14
Item 6. Selected Financial Data...................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................... 37
Item 8. Financial Statements and Supplementary Data.................................................. 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 37
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 37
Item 11. Executive Compensation....................................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 37
Item 13. Certain Relationships and Related Transactions............................................... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 38
SIGNATURES............................................................................................. 39
PART I
Throughout this report, we refer to Gaylord Entertainment Company,
together with its subsidiaries, as "we," "us," "Gaylord Entertainment,"
"Gaylord," or the "Company."
ITEM 1. BUSINESS
We are a diversified hospitality company operating principally in four
groups: (i) Hospitality, (ii) Attractions, (iii) Media, and (iv) Corporate and
Other. The Hospitality segment comprises the operations of the Gaylord Hotel
properties and the Radisson Hotel at Opryland. The Attractions segment
represents all of the Nashville-area attractions, including the Grand Ole Opry,
General Jackson Showboat, Ryman Auditorium, Springhouse Golf Club and the
Wildhorse Saloon. It also includes the results of Corporate Magic, the Company's
corporate event production business. The Media segment includes Acuff-Rose Music
Publishing and the Company's three radio stations. The Corporate and Other
segment includes corporate expenses and results from investments in sports
franchises and minority investments. These four business segments - Hospitality,
Attractions, Media, Corporate and Other - represented 70.3%, 20.3%, 7.4%, and
2.0%, respectively of total revenues in the calendar year ended December 31,
2001. Financial information by industry segment and geographic area for each of
the three years in the period ended and as of December 31, 2001, appears in Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," under the caption "Results of Operations" and in the Financial
Reporting by Business Segments note to our Consolidated Financial Statements
included in this annual report on Form 10-K. All periods presented in this
annual report on Form 10-K have been restated to conform to the new reporting
format of four business segments (as opposed to the three segments - (i)
Hospitality and Attractions, (ii) Music, Media and Entertainment, and (iii)
Corporate and Other that were used in last year's annual report on Form 10-K).
HOSPITALITY
GAYLORD HOTELS - STRATEGIC PLAN. Gaylord Entertainment's goal is to
become the nation's premier brand in the meetings and convention sector. To
accomplish this, our business strategy is to develop resorts and convention
centers in desirable event destinations that are created based in large part on
the needs of meeting planners and attendees. Using the slogan "Everything under
one roof," Gaylord Hotels incorporate meeting, convention and exhibition space
with a large hotel property so the attendees never have to leave the location
during their meetings. This concept of a self-contained destination dedicated
primarily to the meetings industry has made our Gaylord Opryland Resort and
Convention Center in Nashville one of the leading convention hotels in the
country. In addition to operating Gaylord Opryland in Nashville, we opened our
Gaylord Palms Resort and Convention Center in Kissimmee, Florida in January
2002, are scheduled to open our new Gaylord hotel in Grapevine, Texas in
mid-2004, and have announced plans to develop a Gaylord hotel in the Washington,
D.C. area. The Company believes that its new convention hotels will enable the
Company to capture additional convention business from groups that currently
utilize Gaylord Opryland but must rotate their meetings to other locations due
to their attendees' desires to visit different areas. The Company also
anticipates that its new hotels will capture new group business that currently
does not come to the Nashville market and will seek to gain additional business
at Gaylord Opryland in Nashville once these groups have experienced a Gaylord
hotel in other markets.
Plans for the properties to be developed include the following
components, which the Company believes are the foundation of its success with
Gaylord Opryland: (i) state-of-the-art meeting facilities, including a high
ratio of square footage of meeting and exhibit space per guest room; (ii)
expansive atriums themed to capture geographical and cultural aspects of the
region in which the property is located; and (iii) entertainment components and
innovative venues creating a superior guest experience not typically found in
convention hotels.
In October 2001, the Company announced a re-branding of the Opryland
Hotels under the new brand of "Gaylord Hotels." Opryland Hotel Nashville was
renamed Gaylord Opryland and the Opryland Hotel Florida was renamed the Gaylord
Palms.
GAYLORD OPRYLAND RESORT AND CONVENTION CENTER - NASHVILLE, TENNESSEE.
Our flagship Gaylord Opryland in Nashville is one of the leading convention
destinations in the United States. Designed with the lavish
1
gardens and magnificent charm of a glorious Southern mansion, the resort is
situated on approximately 172 acres in the Opryland complex. Gaylord Opryland is
one of the largest hotels in the United States in terms of number of guest
rooms. Gaylord Opryland attracts convention business from trade associations and
corporations, which accounted for approximately 80% of the hotel's revenues in
each of 2001, 2000, and 1999. It also serves as a destination resort for
vacationers due to its proximity to the Grand Ole Opry, the General Jackson
showboat, the Springhouse Golf Club (the Company's 18-hole championship golf
course), and other attractions in the Nashville area. The Company believes that
the ambiance created at Gaylord Opryland and the combination of the quality of
its convention facilities and availability of live musical entertainment are
factors that differentiate it from other convention hotels. In late 1999, the
Company began a three-year renovation and capital improvement program to
refurbish the hotel. Of the anticipated cost of $54 million, approximately $39
million had been spent or committed as of December 31, 2001.
The following table sets forth information concerning the Gaylord
Opryland hotel in Nashville for each of the five years in the period ended
December 31, 2001.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Average number of guest rooms 2,883 2,883 2,884 2,884 2,866
Occupancy rate 70.3% 75.9% 78.0% 79.1% 85.4%
Average daily rate ("ADR") $140.33 $140.03 $135.48 $137.02 $130.86
Revenue per available room ("RevPAR") $98.65 $106.22 $105.66 $108.33 $111.81
Food and beverage revenues (in thousands) $72,800 $81,093 $85,686 $81,518 $85,186
Total revenues (in thousands) $221,953 $229,859 $234,435 $233,645 $240,969
Gaylord Opryland has 2,883 guest rooms, four ballrooms with
approximately 124,000 square feet, 85 banquet/meeting rooms, and total dedicated
exhibition space of approximately 289,000 square feet. Total meeting, exhibit
and pre-function space in the hotel is approximately 600,000 square feet.
GAYLORD PALMS RESORT AND CONVENTION CENTER - KISSIMMEE, FLORIDA. We
opened our Gaylord Palms Resort and Convention Center in Kissimmee, Florida in
January 2002. Gaylord Palms has 1,406 signature guest rooms and approximately
400,000 square feet of total meeting and exhibit space. The hotel is situated on
a 65-acre site in Osceola County, Florida and is approximately 5 minutes from
the main gate of the Walt Disney World(R) Resort complex. Gaylord Palms is
designed similar to Gaylord Opryland, with rooms overlooking large glass-covered
atriums. The three atriums at Gaylord Palms are modeled after famous areas from
the State of Florida: the Everglades, Key West and St. Augustine. Gaylord Palms
also has a full-service spa, which with 20,000-square feet of dedicated space
(over 25 treatment rooms) is one of the largest spas in Central Florida. The
spa, known as the Canyon Ranch Spa Club, is managed by the Canyon Ranch Spa
Company from Arizona, a leader in spa management. Hotel guests also have golf
privileges at the world class Falcon's Fire Golf Club, located a half-mile from
the property. Total net real estate, construction, and furnishings, fixtures and
equipment and capitalized interest costs incurred for Gaylord Palms through
December 31, 2001 was $361 million, $181.5 million of which was incurred in the
year ended December 31, 2001.
THE NEW GAYLORD HOTEL IN GRAPEVINE, TEXAS. We began construction on our
new Gaylord hotel in Grapevine, Texas in June of 2000, and the hotel is
scheduled to open in mid-2004. The 1,508 room hotel and convention center is
located eight minutes from the Dallas/Fort Worth Airport. Like its sister
property in Kissimmee, Florida, our Texas hotel will feature a grand atrium
enclosing several acres as well as over 400,000 square feet of pre-function,
meeting and exhibition space all under one roof. The property will also include
a number of themed restaurants with an additional restaurant located on the
point overlooking Lake Grapevine. Situated directly on Lake Grapevine, this
hotel will be surrounded by 36 holes of golf.
Total net real estate, construction, and furnishings, fixtures and
equipment and capitalized interest costs for the new Texas hotel are currently
anticipated to be in the range of $415 million. As of December 31, 2001, the
Company has incurred approximately $86 million of these costs. This property is
still in the development phase, and decisions pertaining to the final design of
the hotel could impact its estimated cost. Following the September 11, 2001
terrorist attacks, we elected to slow down the construction of our Texas hotel
and reduce construction spending in the short term. See "Management's Discussion
and Analysis of Financial Condition and Results of
2
Operations - Terrorist Attacks," for a discussion of the terrorist attacks and
the schedule for construction of our Texas property.
GAYLORD HOTELS DEVELOPMENT PLAN. In January 2000, the Company announced
plans to develop a Gaylord hotel on property to be acquired from The Peterson
Companies on the Potomac River in Prince George's County, Maryland (in the
Washington, D.C. market). This project is subject to the availability of
financing and final approval of the Company's Board of Directors. Management
would also consider other sites in Phoenix, San Diego or Chicago as possible
locations for a future Gaylord hotel.
RADISSON HOTEL AT OPRYLAND. We also own and operate the Radisson Hotel
at Opryland, a Radisson franchise hotel which is located across the street from
Gaylord Opryland. The hotel has 303 rooms and approximately 14,000 square feet
of meeting space. The Company purchased the hotel in April 1998 for
approximately $16 million. A major renovation of the guest rooms and meeting
space was completed in 1999 at a cost of approximately $7 million. In March
2000, the Company entered into a 20-year franchise agreement with Radisson in
connection with the operation of this hotel. The franchise agreement contains
customary terms and conditions. Pursuant to the franchise agreement, the Company
will make additional capital expenditures of approximately $2 million to be
completed during 2002.
ATTRACTIONS
THE GRAND OLE OPRY. The Grand Ole Opry, which celebrated its 75th
anniversary in 2000, is the most widely known platform for country music in the
world. The Opry features a live country music show with performances every
Friday and Saturday night, as well as Tuesday Night Opry's in the summer. The
Opry House, home of the Grand Ole Opry, is located in the Opryland complex. The
Grand Ole Opry moved to the Opry House in 1974 from its original home in the
Ryman Auditorium in downtown Nashville.
The Grand Ole Opry is broadcast live on the Company's WSM-AM radio
station every Friday and Saturday night, and the broadcast of the Opry is also
streamed on the Internet via www.opry.com and www.wsmonline.com. The show has
been broadcast since 1925 on WSM-AM, making it the longest running live radio
program in the world. In 2001, the Company entered into an agreement (the "CMT
Opry Live Agreement") with Viacom, Inc. pursuant to which Viacom agreed to move
the exhibition of the Opry Live from its TNN channel to CMT. Under the CMT Opry
Live Agreement, Viacom will air the Opry Live on CMT each week through September
30, 2003 and will re-air the Opry Live show twice each week for a total of three
airings per week.
The Grand Ole Opry currently has approximately 70 performing members
who are stars or other notables in the country music field. There are no
financial inducements attached to membership in the Grand Ole Opry other than
the prestige associated with membership. In addition to performances by members,
the Grand Ole Opry presents performances by many other country music artists.
Members include traditional favorites, such as Loretta Lynn and George Jones, as
well as contemporary artists, like Garth Brooks, Vince Gill, and Trisha
Yearwood.
The Opry House contains a 45,000 square foot auditorium with 4,424
seats, a television production center that includes a 300-seat studio and
lighting, audio, and video control rooms, and set design and scenery shops. The
Opry House is used by the Company for the production of television and other
programming and by third parties such as national television networks and the
Public Broadcasting System. The Opry House is also rented for concerts,
theatrical productions, and special events and is used by Gaylord Opryland for
convention entertainment and other events such as the Radio City Christmas
Spectacular featuring the world famous Rockettes(TM).
RYMAN AUDITORIUM. The Ryman Auditorium, which was built in 1892 and
seats approximately 2,300, was recently designated as a National Historic
Landmark. The former home of the Grand Ole Opry, the Ryman Auditorium was
renovated and re-opened in 1994 for concerts and musical productions. Recent
concert performers have included Harry Connick, Jr., Bob Dylan, The Doobie
Brothers, Ricky Skaggs, Bruce Springsteen, Alison Krauss and Gladys Knight. The
Ryman Auditorium consistently has received local awards as a venue for live
music performances, and in January 2001, CitySearch editors listed the Ryman
Auditorium among the top five concert venues in the United States for the second
year in a row.
3
Since its reopening, the Ryman Auditorium has featured musicals
produced by the Company such as Always . . . Patsy Cline, Lost Highway - The
Music & Legend of Hank Williams, and Bye Bye Love - The Everly Brothers Musical.
In the fall of 2001, the Ryman Auditorium premiered Stand By Your Man: The Tammy
Wynette Story, a new bio-musical based on the life of country music legend Tammy
Wynette, and that musical will appear again at the Ryman Auditorium during the
fall of 2002. The Grand Ole Opry returns to the Ryman Auditorium periodically,
most recently from November 2001 to February 2002. The Ryman Auditorium is also
host to a number of special events.
THE GENERAL JACKSON SHOWBOAT. The Company operates the General Jackson,
a 300-foot, four-deck paddle wheel showboat, on the Cumberland River, which
flows past the Opryland complex. Its Victorian Theatre can seat 620 people for
banquets and 1,000 people for theater-style presentations. The showboat stages
Broadway-style shows and other theatrical productions. The General Jackson is
one of many sources of entertainment that the Company makes available to
conventions held at Gaylord Opryland. It contributes to the Company's revenues
from convention participants as well as local business. During the day it
operates cruises, primarily serving tourists visiting the Opryland complex and
the Nashville area.
THE SPRINGHOUSE GOLF CLUB. Home to a Senior PGA Tour event since 1994
and minutes from Gaylord Opryland, the Springhouse Golf Club was designed by
former U.S. Open and PGA Champion Larry Nelson. The 43,000 square-foot
antebellum-style clubhouse offers meeting space for up to 450 guests.
THE WILDHORSE SALOON. Since 1994, the Company has owned and operated
the Wildhorse Saloon, a country music performance venue on historic Second
Avenue in downtown Nashville. The three story, 66,000 square-foot facility
includes a dance floor of approximately 2,500 square feet, a restaurant and
banquet facility which can accommodate up to 2,000 guests, and a 15' x 22'
television screen which features country music videos and sporting events. The
Wildhorse Saloon has featured performers such as Tim McGraw and the Dixie
Chicks. The club has a broadcast-ready stage and facilities to house mobile
production units from which broadcasts of live concerts may be distributed
nationwide.
CORPORATE MAGIC. In March 2000, the Company acquired Corporate Magic,
Inc., a company specializing in the production of creative and entertainment
events in support of the corporate and meeting marketplace, for $9.0 million. We
believe the event and corporate entertainment planning function of Corporate
Magic complements the meeting and convention aspects of our Gaylord Hotels
business.
MEDIA
ACUFF-ROSE MUSIC PUBLISHING. Acuff-Rose Music Publishing is primarily
engaged in the music publishing business and owns one of the world's largest, as
well as Nashville's oldest, catalog of copyrighted country music songs. The
Acuff-Rose catalog also includes popular music, with songs by legendary writers
such as Hank Williams, Pee Wee King, Roy Orbison, and Don and Phil Everly. The
Acuff-Rose catalog contains at least 70 songs that have been publicly performed
over a million times. The roster of Acuff-Rose songs includes standards such as
"Oh, Pretty Woman," "Blue Eyes Cryin' in the Rain," and "When Will I Be Loved."
Acuff-Rose licenses the use of its songs in films, plays, print, commercials,
videos, cable, television and toys. In addition to its U.S.-based business,
through various subsidiaries and sub-publishers, Acuff-Rose collects royalties
on licenses granted in a number of foreign countries. Management has determined
that our Acuff-Rose Music Publishing business is not one of our core assets, and
as a result, we are considering strategic alternatives with respect to this
business. See "Recent Developments and Strategic Direction" below direction for
a discussion of this decision.
WSM-AM AND WSM-FM. WSM-AM and WSM-FM commenced broadcasting in 1925 and
1967, respectively. The involvement of the Company's predecessors with country
music dates back to the creation of the Grand Ole Opry, which has been broadcast
live on WSM-AM since 1925.
WSM-AM and WSM-FM are each broadcast from the Opryland complex and have
country music formats. WSM-AM went on the air in 1925 and is one of the nation's
25 "clear channel" stations, meaning that no other station in a 750-mile radius
uses the same frequency for nighttime broadcasts. As a result, the station's
signal, transmitted by a 50,000 watt transmitter, can be heard at night in much
of the United States and parts of Canada. The Company also has radio broadcast
studios in Gaylord Opryland, the Wildhorse Saloon, the Ryman Auditorium, and the
Opry Mills retail complex in Nashville.
WWTN-FM. In 1995, the Company acquired the assets of radio station
WWTN-FM, which operates out of Nashville, Tennessee. WWTN-FM has a
news/talk/sports format and is the flagship station of the Nashville Predators,
a National Hockey League club in which the Company owns a minority interest.
4
CORPORATE AND OTHER
OPRY MILLS. The Company owns a one-third partnership interest in Opry
Mills, an entertainment/retail complex with 1.2 million square feet of leasable
space, located next to Gaylord Opryland. Opened in May 2000, Opry Mills
includes more than 200 stores, restaurants and entertainment venues. The Mills
Corporation owns the remaining two-thirds interest in the partnership.
BASS PRO SHOPS. From 1993 to December 1999, the Company owned a
minority interest in Bass Pro, L.P. As part of a reorganization of Bass Pro in
December 1999, the Company contributed its limited partnership interest to a
newly formed Delaware corporation, Bass Pro, Inc. for a 19% interest in the new
entity. Bass Pro, Inc. owns and operates Bass Pro Shops, a retailer of premium
outdoor sporting goods and fishing tackle. Bass Pro Shops serves its customers
through an extensive mail order catalog operation, a retail center in
Springfield, Missouri, and additional retail stores at Opry Mills in Nashville
and in various other U.S. locations.
NASHVILLE PREDATORS. The Company owns a 16.5% interest in the Nashville
Hockey Club Limited Partnership, a limited partnership that owns the Nashville
Predators, a National Hockey League franchise which began its fourth season in
the fall of 2001. In August 1999, the Company entered into a Naming Rights
Agreement with the limited partnership whereby the Company purchased the right
to name the Nashville Arena as the "Gaylord Entertainment Center" and to place
certain advertising within the arena. Under the agreement, which has a 20-year
term, the Company is required to make annual payments, beginning at $2,050,000
in the first year and with a 5% escalation each year thereafter, and to purchase
a minimum number of tickets to Predators games each year.
OKLAHOMA REDHAWKS. Since 1993, the Company has owned an interest in OKC
Athletic Club Limited Partnership, a limited partnership that owns the Oklahoma
Redhawks, a minor league baseball club located in Oklahoma City, and in certain
concession rights for the club. In a series of transactions in 1999 and 2000,
the Company acquired an additional 10% interest for $875,000, increasing its
position to 75.2% of the interests in OKC Athletic Club Limited Partnership.
RECENT DEVELOPMENTS AND STRATEGIC DIRECTION
During the second quarter of 2001, the Company hired a new Chairman of
the Board and a new Chief Executive Officer. Once the new senior management team
was in place, they devoted a significant portion of 2001 to reviewing the many
different businesses they inherited when they joined the Company. After
significant review, it was determined that, while the Company had four business
segments for financial reporting purposes (Hospitality, Attractions, Media and
Corporate and Other - all described above), the future direction of the Company
would be based on two core asset groups, which were aligned as follows:
HOSPITALITY CORE ASSET GROUP: consisting of the Gaylord Hotels, the
Corporate Magic meeting and event planning business and the various
attractions that provide entertainment to guests of the hotels.
OPRY CORE ASSET GROUP: consisting of the Grand Ole Opry, WSM radio, and
the Ryman Auditorium.
It was thus determined that Word Entertainment, Music Country/CMT
International and GET Management were not core assets of the Company, and as a
result each has either been sold or otherwise disposed of by the Company.
Gaylord Digital, Pandora Films, Gaylord Films, Gaylord Sports Management,
Gaylord Event Television, Gaylord Production Company, Z Music and the Opryland
River Taxis, also not core assets of the Company, had previously been sold or
otherwise disposed of by the Company. Remaining businesses to be sold include
the Company's interests in the Nashville Predators, Opry Mills and the Oklahoma
Redhawks, and certain miscellaneous real estate holdings. Management has yet to
make a final decision as to whether to sell its Acuff-Rose Music Publishing
business or its minority interest in Bass Pro Shops, both of which have been
determined to be non-core assets. Following the decision to divest certain
businesses, we restructured the corporate organization to streamline operations
and remove duplicative costs. The Opryland Hospitality management group was
collapsed into the Corporate management group and all Nashville management
employees were consolidated into the Company's Wendell Office Building.
Highlights of some of the key developments resulting from this corporate
redirection are set forth below.
SALE OF WORD ENTERTAINMENT TO WARNER MUSIC GROUP. On January 4, 2002,
the Company completed the sale of its Word Entertainment operations through the
contribution of substantially all of the assets and liabilities of
5
Gaylord Creative Group, Inc. ("GCG"), a wholly-owned subsidiary of the Company,
to Idea Entertainment LLC ("Idea"), a wholly-owned subsidiary of GCG, and the
sale of all of the outstanding membership interests of Idea to WMGA LLC, an
affiliate of Warner Music Group Inc. GCG and its subsidiaries, operating under
the trade name "Word Entertainment," engaged in the business of producing,
distributing and marketing recorded music and related products, music publishing
and creating audio-visual work. The proceeds to the Company from the sale
totaled approximately $84 million in cash.
CLOSING OF INTERNATIONAL CABLE OPERATIONS. On February 25, 2002, the
Company closed its cable network operations in Brazil, Asia and Australia by
selling its assets associated with MusicCountry Asia and MusicCountry Brazil to
the Sound Track Channel ("STC"), a privately owned California limited liability
company. In exchange for the assets, STC delivered to the Company promissory
notes totaling approximately $3 million and a 5% equity interest in STC. In
addition, as a part of the transaction with STC, STC assumed a portion of the
Company's obligations under the Transponder Agreement with PanAmSat Corporation.
The Company also closed its international cable operations in Argentina under an
agreement with its joint venture partners pursuant to which the Company
transferred its equity in Solo Tango, S.A. and Latin America MusicCountry, S.A.
in exchange for cancellation of future obligations the Company had to its
minority partners. The Company continues to own a minority investment in Video
Rola in Mexico.
SALE OF FIVE BUSINESSES TO OPUBCO. On March 9, 2001, the Company sold
its stock and equity interests in five of its businesses to The Oklahoma
Publishing Company ("OPUBCO") for a purchase price of $22 million in cash and
the assumption of approximately $20 million in debt. The businesses sold were
Gaylord Production Company, Gaylord Films, Pandora Films, Gaylord Sports
Management Group, and Gaylord Event Television. OPUBCO beneficially owns 6.2% of
the Company's common stock. Four of the Company's directors, who are the
beneficial owners of an additional 26.6% of the Company's common stock, are also
directors of OPUBCO and voting trustees of a voting trust that controls OPUBCO.
The transaction was reviewed and approved by a special committee of the
independent directors of the Company. The Company received an appraisal from a
firm that specializes in valuations related to films, entertainment and service
businesses as well as a fairness opinion from an investment bank in connection
with this transaction.
FINANCING ACTIVITIES. On March 27, 2001, the Company entered into two
new loan agreements, a $275 million senior loan (the "Senior Loan") and a $100
million mezzanine loan (the "Mezzanine Loan") (collectively, the "Nashville
Hotel Loans"). The Senior Loan is secured by a first mortgage lien on the
Gaylord Opryland hotel. The Mezzanine Loan is secured by the equity interest in
the wholly-owned subsidiary that owns Gaylord Opryland.
On October 9, 2001, the Company entered into a three-year $210 million
delayed-draw senior term loan (the "Term Loan") with Deutsche Banc Alex. Brown
Inc., Salomon Smith Barney, Inc. and CIBC World Markets Corp. Proceeds of the
Term Loan were used to finance the completion of Gaylord Palms and for general
operating needs of the Company. The Term Loan is primarily secured by the
Company's ground lease interest in Gaylord Palms.
During May 2000, the Company entered into a seven-year secured forward
exchange contract with an affiliate of Credit Suisse First Boston with respect
to approximately 10.9 million shares of the Company's Viacom, Inc. Class B
non-voting common stock ("Viacom Stock"). The contract has a face amount of
$613.1 million and required contract payments based upon a stated 5% rate. The
secured forward exchange contract protects the Company against decreases in the
fair market value of the Viacom Stock while providing for participation in
increases in the fair market value. By entering into the secured forward
exchange contract, the Company realized cash proceeds of $506.3 million, net of
discounted prepaid contract payments related to the first 3.25 years of the
contract and transaction costs totaling $106.7 million. During October 2000, the
Company prepaid the remaining contract payments related to the final 3.75 years
of the contract for $83.2 million. As a result of the prepayment of the
remaining contract payments, the Company was released from the covenants in the
secured forward exchange contract which limited the Company's right to sales of
assets, to incur additional indebtedness and to grant liens. The Company
utilized $394.1 million of the net proceeds from the secured forward exchange
contract to repay all outstanding indebtedness under its revolving credit
facility.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," for a description of both the Nashville Hotel Loans and
the Term Loan and the monetization of the Viacom Stock.
6
EMPLOYEES
As of December 31, 2001, the Company had approximately 4,495 full-time
and 507 part-time and temporary employees. Of these, approximately 3,461
full-time and 181 part-time employees were employed in Hospitality;
approximately 416 full-time and 287 part-time employees were employed in
Attractions; approximately 320 full-time and 29 part-time employees were
employed in Media; and approximately 298 full-time and 10 part-time employees
were employed in Corporate and Other. The Company believes its relations with
its employees are good.
COMPETITION
HOSPITALITY. The Gaylord Hotel properties compete with numerous other
hotels throughout the United States and abroad, particularly the approximately
125 convention hotels located outside of Las Vegas, Nevada that have more than
800 rooms each, as well as the Las Vegas hotel/casinos. Many of these hotels are
operated by companies with greater financial, marketing, and human resources
than the Company. The Company believes that competition among convention hotels
is based on, among other things, factors which include: (i) the hotel's
reputation, (ii) the quality of the hotel's facility, (iii) the quality and
scope of a hotel's meeting and convention facilities and services, (iv) the
desirability of a hotel's location, (v) travel distance to a hotel for meeting
attendees, (vi) a hotel facility's accessibility to a recognized airport, (vii)
the amount of entertainment and recreational options available in and in the
vicinity of the hotel, and (viii) price. The Company's hotels also compete
against civic convention centers. These include the largest convention centers
(e.g., Orlando, Chicago and Atlanta) as well as, for Gaylord Opryland, mid-size
convention centers (between 100,000 and 500,000 square feet of meeting space
located in second-tier cities).
The hotel business is management and marketing intensive. The Gaylord
Hotels compete with other hotels throughout the United States for high quality
management and marketing personnel. There can be no assurance that the Company's
hotels will be able to attract and retain employees with the requisite
managerial and marketing skills.
ATTRACTIONS. The Grand Ole Opry and other attractions businesses of the
Company compete with all other forms of entertainment and recreational
activities. The success of the Attractions group is dependent upon certain
factors beyond the Company's control including economic conditions, the amount
of available leisure time, transportation cost, public taste, and weather
conditions.
MEDIA. The Company's media businesses compete with numerous other types
of entertainment businesses, and success is often dependent on taste and
fashion, which may fluctuate from time to time. Acuff-Rose competes with other
record and music publishing companies to sign songwriters. The Company's ability
to sign and re-sign successful songwriters depends on a number of factors,
including marketing capabilities and the royalty and advance arrangements
offered.
WSM-AM, WSM-FM, and WWTN-FM compete for advertising revenues with other
radio stations in the Nashville market on the basis of formats, ratings, market
share, and the demographic makeup of their audiences. Advertising rates of the
radio stations are based principally on the size, market share, and demographic
profile of their listening audiences. The Company's radio stations primarily
compete for both audience share and advertising revenues. They also compete with
the Internet, newspapers, billboards, cable networks, local cable channels, and
magazines for advertising revenues. Management competence and experience,
station frequency signal coverage, network affiliation, effectiveness of
programming format, sales effort, and level of customer service are all
important factors in determining competitive position.
7
REGULATION AND LEGISLATION
The Gaylord Hotels are subject to certain federal, state, and local
governmental regulations including, without limitation, health, safety, and
environmental regulations applicable to hotel and restaurant operations. The
Company believes that it is in substantial compliance with such regulations. In
addition, the sale of alcoholic beverages by a hotel requires a license and is
subject to regulation by the applicable state and local authorities. The
agencies involved have the power to limit, condition, suspend, or revoke any
such license, and any disciplinary action or revocation could have an adverse
effect upon the results of operations of the Company's Hospitality and
Attractions segments.
The Company's radio stations are subject to regulation under the
Communications Act of 1934, as amended (the "Communications Act"). Under the
Communications Act, the FCC, among other things, assigns frequency bands for
broadcasting; determines the frequencies, location, and signal strength of
stations; issues, renews, revokes, and modifies station licenses; regulates
equipment used by stations; and adopts and implements regulations and policies
that directly or indirectly affect the ownership, operation, and other practices
of broadcasting stations.
Licenses issued for radio stations have terms of eight years. Radio
broadcast licenses are renewable upon application to the FCC and in the past
have been renewed except in rare cases. Competing applications will not be
accepted at the time of license renewal, and will not be entertained at all
unless the FCC first concludes that renewal of the license would not serve the
public interest. A station will be entitled to renewal in the absence of serious
violations of the Communications Act or the FCC regulations or other violations
which constitute a pattern of abuse. The Company is not aware of any reason why
its radio station licenses should not be renewed.
The foregoing is only a brief summary of certain provisions of the
Communications Act and FCC regulations. The Communications Act and FCC
regulations may be amended from time to time, and the Company cannot predict
whether any such legislation will be enacted or whether new or amended FCC
regulations will be adopted, or the effect on the Company of any such changes.
RISK FACTORS
You should carefully consider the following specific risk factors as
well as the other information contained or incorporated by reference in this
annual report on Form 10-K as these are important factors, among others, that
could cause our actual results to differ from our expected or historical
results. It is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a complete statement
of all our potential risks or uncertainties. Some statements in this "Business"
section and elsewhere in this annual report on Form 10-K are "forward-looking
statements." For a discussion of those statements and of other factors to
consider see "Forward-Looking Statements," in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
WE MAY NOT BE ABLE TO IMPLEMENT SUCCESSFULLY OUR BUSINESS STRATEGY.
We have refocused our business strategy on the development of
additional resort and convention center hotels in selected locations in the
United States and our attractions and media properties which are engaged
primarily in the country music genres. The success of our future operating
results depends on our ability to implement our business strategy by completing
and successfully operating the recently-opened Gaylord Palms, our new Gaylord
hotel in Grapevine, Texas, which is under construction, and further exploiting
our attractions and media assets. Our ability to do this depends upon many
factors, some of which are beyond our control. These include:
o Our ability to finance and complete the construction of our new Gaylord
hotel in Grapevine, Texas on schedule and to achieve positive cash flow
from operations within the anticipated ramp-up period.
o Our ability to hire and retain hotel management, catering and
convention-related staff for our hotels.
o Our ability to capitalize on the strong brand recognition of certain of our
media assets.
8
o Our ability to develop new avenues of revenue and to exploit further our
music catalogs.
OUR HOTEL AND CONVENTION BUSINESS IS SUBJECT TO SIGNIFICANT MARKET RISKS.
Our ability to continue successfully to operate Gaylord Opryland,
Gaylord Palms, and our new Gaylord hotel in Grapevine, Texas upon its completion
is subject to factors beyond our control which could adversely impact these
properties. These factors include:
o The desirability and perceived attractiveness of Nashville, Tennessee,
Kissimmee, Florida and Grapevine, Texas as tourist and convention
destinations.
o Adverse changes in the national economy and in the levels of tourism and
convention business that would affect our hotels.
o Increased competition for convention and tourism business in Nashville,
Tennessee and Kissimmee, Florida.
o Gaylord Palms is operating and our new Texas hotel will operate in highly
competitive markets for convention and tourism business.
o Our group convention business is subject to reduced levels of demand during
the year-end holiday periods, and we may not be able to attract sufficient
general tourism guests to offset this seasonality.
WE REQUIRE ADDITIONAL FINANCING TO COMPLETE OUR NEW HOTEL PROJECTS.
We require additional financing to complete the construction for our
new Gaylord hotel in Grapevine, Texas. Our ability to obtain additional debt
financing for this capital project is limited by our existing level of
indebtedness and limitations on our ability to grant liens on unencumbered
assets. Accordingly, it is likely that we will need to seek alternative sources
of debt capital as well as equity capital. These financing efforts will be
subject to market conditions prevailing from time to time as well as our
financial condition and prospects. We may also need to divest certain non-core
businesses in order to finance additional hotel development, and there can be no
guarantee that such divestitures, if required, can be successfully completed. If
we are unable to obtain additional financing or divest non-core assets on terms
acceptable to us to complete the construction of our hotel projects as currently
scheduled, our future prospects could be adversely affected in a material way.
OUR MEDIA ASSETS DEPEND UPON POPULAR TASTES.
The success of our operations in our media division depends to a large
degree on popular tastes. There has been a reduction in the popularity and
demand for country music over recent years. A continued decline in the
popularity of this genre could adversely affect our revenues and operations.
OUR BUSINESS PROSPECTS DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN SENIOR LEVEL
EXECUTIVES.
During 2001, the Company named a new chairman, a new chief executive
officer and had numerous changes in senior management. Our future performance
depends upon our ability to attract qualified senior executives and to retain
their services. Our future financial results also will depend upon our ability
to attract and retain highly skilled managerial and marketing personnel in our
different areas of operation. Competition for qualified personnel is intense and
is likely to increase in the future. We compete for qualified personnel against
companies with significantly greater financial resources than ours.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY OUR LEVERAGE.
As of February 28, 2002, the total amount of our long-term debt,
including the current portion, was approximately $403 million. We intend to
continue to make additional borrowings under our credit facilities in connection
with the development of new hotel properties and for other general corporate
purposes, and the aggregate
9
amount of our indebtedness will likely increase, perhaps substantially. The
amount of our indebtedness could have important consequences to investors,
including the following:
o Our ability to obtain additional financing in the future may be
impaired;
o A substantial portion of our cash flow from operations must be applied
to pay principal and interest on our indebtedness, thus reducing funds
available for other purposes;
o Some of our borrowings, including borrowings under our credit
facilities are and will continue to be at variable rates based upon
prevailing interest rates, which will expose us to the risk of
increased interest rates;
o We may be further constrained by financial covenants and other
restrictive provisions contained in credit agreements and other
financing documents;
o We may be substantially more leveraged than some of our competitors,
which may place us at a competitive disadvantage; and
o Our leverage may limit our flexibility to adjust to changing market
conditions, reduce our ability to withstand competitive pressures and
make us more vulnerable to a downturn in general economic conditions
or our business.
UNANTICIPATED EXPENSES COULD AFFECT THE RESULTS OF HOTELS WE OPEN IN NEW
MARKETS.
As part of our growth plans, we may open new hotels in geographic areas
in which we have little or no operating experience and in which potential
customers may not be familiar with our business. As a result, we may have to
incur costs relating to the opening, operation and promotion of those new hotel
properties that are substantially greater than those incurred in other areas.
Even though we may incur substantial additional costs with these new hotel
properties, they may attract fewer customers than our existing hotels. As a
result, the results of operations at new hotel properties may be inferior to
those of our existing hotels. The new hotels may even operate at a loss. Even if
we are able to attract enough customers to our new hotel properties to operate
them at a profit, it is possible that those customers could simply be moving
future meetings or conventions from our existing hotel properties to our new
hotel properties. Thus, the opening of a new hotel property could reduce the
revenue of our existing hotel properties.
FLUCTUATIONS IN OUR OPERATING RESULTS AND OTHER FACTORS MAY RESULT IN DECREASES
IN OUR STOCK PRICE.
In recent periods, the market price for our common stock has fluctuated
substantially. From time to time, there may be significant volatility in the
market price of our common stock. We believe that the current market price of
our common stock reflects expectations that we will be able to continue to
operate our existing hotels profitably and to develop new hotel properties
profitably. If we are unable to accomplish this, investors could sell shares of
our common stock at or after the time that it becomes apparent that the
expectations of the market may not be realized, resulting in a decrease in the
market price of our common stock. In addition to our operating results, the
operating results of other hospitality companies, changes in financial estimates
or recommendations by analysts, adverse weather conditions, increased
construction costs, changes in general conditions in the economy or the
financial markets or other developments affecting us or our industry, such as
the recent terrorist attacks, could cause the market price of our common stock
to fluctuate substantially. In recent years, the stock market has experienced
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to their operating performance.
OUR HOTEL PROPERTIES ARE CONCENTRATED GEOGRAPHICALLY.
Our existing hotel properties are located predominately in the
southeastern United States. As a result, our business and our financial
operating results may be materially effected by adverse economic, weather or
business conditions in the Southeast.
10
HOSPITALITY COMPANIES HAVE BEEN THE TARGET OF CLASS ACTIONS AND OTHER LAWSUITS
ALLEGING VIOLATIONS OF FEDERAL AND STATE LAW.
We are subject to the risk that our results of operations may be
adversely affected by legal or governmental proceedings brought by or on behalf
of our employees or customers. In recent years, a number of hospitality
companies have been subject to lawsuits, including class action lawsuits,
alleging violations of federal and state law regarding workplace and employment
matters, discrimination and similar matters. A number of these lawsuits have
resulted in the payment of substantial damages by the defendants. Similar
lawsuits have been instituted against us from time to time, and we cannot assure
you that we will not incur substantial damages and expenses resulting from
lawsuits of this type, which could have a material adverse effect on our
business.
THE VALUE OF THE VIACOM STOCK WE OWN IS SUBJECT TO MARKET RISKS.
The shares of Viacom Stock we own represent a significant asset of the
Company. However, we have no right to vote on matters affecting Viacom or to
otherwise participate in the direction of the affairs of that corporation. Our
investment in Viacom is subject to the risks of declines in the market value of
Viacom equity securities. While we have mitigated our exposure to declines in
the stock market valuation below $56.04 per share by entering into the secured
forward exchange contract described under the subheading "Financing Activities"
under the heading "Corporate and Other" in this Item 1 and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
value of this asset ultimately is subject to the success of Viacom and its value
in the securities markets. Further, accounting principles generally accepted in
the United States applicable to the treatment of this contract will require us
to record, and to reflect in our Company's financial statements, gains or losses
based upon changes in the fair value of the derivatives associated with the
secured forward exchange contract and the changes in the fair value of our
Viacom Stock. The effect of this accounting treatment could be material to our
results reflected in our consolidated financial statements for relevant periods.
WE HAVE A NUMBER OF OTHER MINORITY EQUITY INTERESTS OVER WHICH WE HAVE NO
SIGNIFICANT CONTROL.
We have a number of minority investments which are not liquid and over
which we have no rights, or ability, to exercise the direction or control of the
respective enterprises. These include our equity interests in Bass Pro, Opry
Mills and the Nashville Predators. The ultimate value of each of these
investments will be dependent upon the efforts of others over an extended period
of time. The nature of our interests and the absence of a market for those
interests restricts our ability to dispose of them.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers and certain other officers of the Company as of December 31,
2001. All officers serve at the discretion of the Board of Directors.
Name Age Position
- ---- --- --------
Michael D. Rose.................. 60 Chairman of the Board*
Colin V. Reed.................... 54 President and Chief Executive Officer*
David C. Kloeppel................ 32 Executive Vice President and Chief
Financial Officer*
Jay D. Sevigny................... 42 Senior Vice President, Marketing and
Attractions; President, Gaylord
Opryland Resort and Convention Center*
Karen L. Spacek.................. 42 Senior Vice President, Communications,
Human Resources and Systems
John P. Caparella................ 44 Senior Vice President; General
Manager, Gaylord Palms Resort and
Convention Center
Carter R. Todd................... 44 Senior Vice President, General Counsel
and Secretary*
Roderick F. Connor, Jr........... 49 Senior Vice President and Chief
Administrative Officer*
* Subject to the reporting and other requirements of Section 16 of the
Securities Exchange Act of 1934, as amended, as of December 31, 2001.
The following is additional information with respect to the above-named
executive officers.
Mr. Rose has served as Chairman of the Board of the Company since April
2001. Prior to that time he was a private investor and prior to December 1997,
he was Chairman of the Board of Promus Hotel Corporation, Memphis, Tennessee, a
franchiser and operator of hotel brands. Prior to January 1997, Mr. Rose was
also Chairman of the Board of Harrah's Entertainment, Inc., an owner and manager
of casinos in the United States. Mr. Rose is a director of four other public
companies, Darden Restaurants, Inc., FelCor Lodging Trust, Inc., First Tennessee
National Corporation, and Stein Mart, Inc.
Mr. Reed was elected President and Chief Executive Officer and a
director of the Company in April 2001. Prior to that time, he was a member of
the three-executive Office of the President of Harrah's Entertainment, Inc., an
owner and manager of casinos in the United States, since May 1999 and the Chief
Financial Officer of Harrah's since April 1997. Mr. Reed was a director of
Harrah's Entertainment from 1998 to May 2001. He was Executive Vice President of
Harrah's Entertainment from September 1995 to May 1999 and has served in several
other management positions with Harrah's and its predecessor, Holiday Corp.,
since 1977. As part of his duties at Harrah's, Mr. Reed served as a director and
Chairman of the Board of JCC Holding Company, an entity in which Harrah's held a
minority interest. On January 4, 2001, JCC Holding Company filed a petition for
reorganization relief under Chapter 11 of the United States Bankruptcy Code. He
is also a director of ResortQuest International, Inc.
Mr. Kloeppel is the Company's Chief Financial Officer and Executive
Vice President. Prior to joining the Company in September of 2001, Mr. Kloeppel
worked in the Mergers and Acquisitions Department at Deutsche Bank in New York,
where he was responsible for that department's activities in the lodging,
leisure and real estate sectors. Mr. Kloeppel earned an MBA from Vanderbilt
University's Owen Graduate School of Management, graduating with highest honors.
He received his bachelor of science degree from Vanderbilt University, majoring
in economics.
Mr. Sevigny was hired in October 2001 as the Senior Vice President in
charge of the Company's Marketing and Attractions. In February of 2002, Mr.
Sevigny was also named President of the Company's Gaylord Opryland Resort and
Convention Center in Nashville. Prior to joining the Company, Mr. Sevigny worked
in different capacities for Harrah's Entertainment, most recently as Division
President Hotel/Casino in Las Vegas during 2000 and 2001, and as President and
Chief Operating Officer of Harrah's New Orleans casino operations from 1998 to
2000. From 1997 to 1998, Mr. Sevigny was President of Midwest Operation Station
Casino in Kansas City, Missouri. Mr. Sevigny has a finance degree from the
University of Nevada.
Ms. Spacek is the Company's Senior Vice President for Communications,
Human Resources and Systems. Prior to joining Gaylord in August of 2001, Ms.
Spacek worked for more than five years in different positions with
12
Harrah's Entertainment, most recently as Vice President of Strategic Sourcing.
Ms. Spacek earned both her MBA degree (with honors) and her undergraduate degree
from the University of Texas.
Mr. Caparella is a Senior Vice President of the Company and the General
Manager of Gaylord Palms. Prior to joining the Company in November 2000, Mr.
Caparella served as Executive Vice President, Planning, Development and
Administration and President of PlanetHollywood.com for Planet Hollywood
International, Inc., a creator and developer of consumer brands relating to
movies, sports and other entertainment-based themes, in Orlando, Florida since
September 1997. Before joining Planet Hollywood, Mr. Caparella was with ITT
Sheraton, an owner and operator of hotel brands, for 17 years in convention,
resort, business and 4-star luxury properties, as well as ITT Sheraton's
corporate headquarters. Mr. Caparella is a graduate of the State University of
New York at Delhi.
Mr. Todd joined Gaylord Entertainment in July 2001 as the Company's
Senior Vice President, General Counsel and Secretary. Prior to that time, he was
a Corporate and Securities partner in the Nashville office of the regional law
firm Baker, Donelson, Bearman & Caldwell. Mr. Todd has practiced law in
Nashville since 1982 and is a graduate of Vanderbilt University School of Law
and Davidson College.
Mr. Connor has served as the Senior Vice President and Chief
Administrative Officer of the Company since December 1997. From February 1995 to
December 1997, Mr. Connor was the Vice President and Corporate Controller of the
Company. Prior to February 1995, Mr. Connor was the Corporate Controller of the
Company.
ITEM 2. PROPERTIES
The Company owns its executive offices and headquarters located at One
Gaylord Drive, Nashville, Tennessee, which consists of a four-story office
building comprising approximately 80,000 square feet. The Company believes that
its present facilities for each of its business segments are generally well
maintained.
HOSPITALITY. The Company owns the land and improvements that comprise
the Opryland complex in Nashville, Tennessee. The Opryland complex includes the
site of Gaylord Opryland (approximately 172 acres), the site of the Opry Mills
retail complex, the General Jackson showboat's docking facility, the production
and administration facilities that are currently being leased to CBS for TNN and
CMT, the Opry House, and WSM Radio's offices and studios. In connection with the
Nashville Hotel Loans, a first mortgage lien was granted on Gaylord Opryland,
including the site on which it stands. The Company has executed a 75-year lease
with a 24-year renewal option on a 65-acre tract in Osceola County, Florida, on
which Gaylord Palms is located. The Company has acquired approximately 100 acres
in Grapevine, Texas, through ownership (approximately 75 acres) or ground lease
(approximately 25 acres), on which our new Gaylord hotel in Grapevine, Texas is
being constructed.
ATTRACTIONS. The Company has entered into 99-year lease agreements with
The Mills Corporation for approximately 124 acres of the Opryland complex in
exchange for, among other consideration, a one-third interest in the partnership
formed for the development of Opry Mills. The Company owns the Springhouse Golf
Club, an 18-hole golf course situated on approximately 240 acres, and the
6.7-acre site of the Radisson Hotel at Opryland, both located near the Opryland
complex. In downtown Nashville, the Company owns the Ryman Auditorium, the
Wildhorse Saloon dance hall and production facility, and an office building. The
office building, which has approximately 38,800 square feet, was acquired by the
Company in September 1999 to serve as administrative and executive office space
for Gaylord Digital. The Company currently has this building listed with a real
estate broker and is attempting to sell it.
MEDIA. The Company owns the Acuff-Rose Music Publishing building (and
adjacent real estate) located on "Music Row" near downtown Nashville [SQ. FT.?].
The Company owns the offices and three television studios of TNN and CMT, all of
which are located within the Opryland complex and contain approximately 87,000
square feet of space. These facilities are leased to CBS through September 30,
2002, and the Company has received notice that CBS will not renew the lease.
13
ITEM 3. LEGAL PROCEEDINGS
The Company maintains various insurance policies, including general
liability and property damage insurance, as well as product liability, workers'
compensation, business interruption, and other policies, which it believes
provide adequate coverage for the risks associated with its range of operations.
Various subsidiaries of the Company are involved in lawsuits incidental to the
ordinary course of their businesses, such as personal injury actions by guests
and employees and complaints alleging employee discrimination. The Company
believes that it is adequately insured against these claims by its existing
insurance policies and that the outcome of any pending claims or proceedings
will not have a material adverse effect upon its financial position or results
of operations.
The Company may have potential liability under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA" or "Superfund"), for response costs at two Superfund sites. The
liability relates to properties formerly owned by Gaylord's predecessor. In
1991, OPUBCO assumed these liabilities and agreed to indemnify the Company for
any losses, damages, or other liabilities incurred by it in connection with
these matters. The Company believes that OPUBCO's indemnification will fully
cover the Company's Superfund liabilities, if any, and that, based on the
Company's current estimates of these liabilities, OPUBCO has sufficient
financial resources to fulfill its indemnification obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's common stock is listed on the New York Stock Exchange
under the symbol GET. The following table sets forth the high and low sales
prices for the Company's common stock as reported by the NYSE for the last two
years:
2000 HIGH LOW
---- ------ ------
First Quarter $30.44 $24.50
Second Quarter 27.38 20.25
Third Quarter 28.00 19.50
Fourth Quarter 25.50 19.31
2001 HIGH LOW
---- ------ ------
First Quarter $26.60 $20.00
Second Quarter 29.15 24.95
Third Quarter 29.05 19.60
Fourth Quarter 25.50 18.49
(b) HOLDERS
The approximate number of record holders of the Company's common stock
on March 18, 2002, was 2,498.
14
(c) CASH DIVIDENDS
During 1999, the Company distributed a quarterly cash dividend of $0.20
per share of the Company's common stock. At its quarterly meeting in February
2000, the Company's Board of Directors voted to discontinue the payment of
dividends on its common stock. Accordingly, no dividends were paid during 2000
or 2001 and we do not presently intend to declare any cash dividends. Our Board
of Directors may reevaluate this dividend policy in the future in light of our
results of operations, financial condition, cash requirements, future prospects,
loan agreements and other factors deemed relevant by our Board. Currently, we
are prohibited from paying dividends by the terms of our Term Loan.
15
ITEM 6. SELECTED FINANCIAL DATA.
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
The following selected historical financial data for the five years
ended December 31, 2001 is derived from the Company's audited consolidated
financial statements. The information in the following table should be read in
conjunction with the Company's audited consolidated financial statements and
related notes included herein.
INCOME STATEMENT DATA:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2001 2000 1999 1998 1997(10)
--------- --------- --------- --------- ---------
Revenues:
Hospitality $ 228,712 $ 237,260 $ 239,248 $ 237,076 $ 240,969
Attractions 65,878 63,235 57,760 56,602 114,645
Media 24,157 29,013 62,059 75,412 353,161
Corporate and other 6,412 5,954 10,784 11,512 1,425
--------- --------- --------- --------- ---------
Total revenues 325,159 335,462 369,851 380,602 710,200
--------- --------- --------- --------- ---------
Operating expenses:
Operating costs 218,357 226,126 234,645 230,425 430,761
Selling, general and administrative 71,718 93,958 80,489 72,195 116,971
Preopening costs (1) 15,141 5,278 1,892 -- --
Impairment and other charges 14,262(3) 76,597(3) -- -- 42,006(11)
Restructuring charges 2,182(4) 13,098(4) 2,786(4) -- 13,654(12)
Merger costs -- -- (1,741) -- 22,645(12)
Depreciation and amortization:
Hospitality 25,593 24,447 22,828 21,390 19,910
Attractions 5,810 6,443 6,396 5,525 10,979
Media 2,578 9,650 5,918 3,293 13,330
Corporate and other 7,294 7,040 7,591 5,849 4,430
--------- --------- --------- --------- ---------
Total depreciation and amortization 41,275 47,580 42,733 36,057 48,649
--------- --------- --------- --------- ---------
Total operating expenses 362,935 462,637 360,804 338,677 674,686
--------- --------- --------- --------- ---------
Operating income (loss):
Hospitality 33,915 45,949 43,700 47,031 50,897
Attractions (2,372) (8,025) (6,063) (3,059) 1,048
Media 1,665 (31,500)(6) 2,153 19,834 88,418
Corporate and other (39,399) (38,626) (27,806) (21,881) (26,544)
Preopening costs (1) (15,141) (5,278) (1,892) -- --
Impairment and other charges (14,262)(3) (76,597)(3) -- -- (42,006)(11)
Restructuring charges (2,182)(4) (13,098)(4) (2,786)(4) -- (13,654)(12)
Merger costs -- -- 1,741 -- (22,645)(12)
--------- --------- --------- --------- ---------
Total operating income (loss) (37,776) (127,175) 9,047 41,925 35,514
Interest expense, net of amounts
capitalized (39,365) (30,319) (15,047) (28,942) (24,215)
Interest income 5,625 4,173 6,090 25,253 24,022
Unrealized gain on Viacom stock, net 782 -- -- -- --
Unrealized gain on derivatives 54,282 -- -- -- --
Other gains and losses 5,976 (1,277) 589,882(7)(8) 21,369(8)(9) 145,888(13)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (10,476) (154,598) 589,972 59,605 181,209
Provision (benefit) for income taxes (3,188) (49,867) 222,342 22,315 16,721(14)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (7,288) (104,731) 367,630 37,290 164,488
Loss from discontinued operations,
net of taxes (2) (52,364) (48,739) (17,838) (6,096) (13,052)
Cumulative effect of accounting change,
net of taxes 11,909(5) -- -- -- (7,537)(15)
--------- --------- --------- --------- ---------
Net income (loss) $ (47,743) $(153,470) $ 349,792 $ 31,194 $ 143,899
========= ========= ========= ========= =========
Income (loss) per share:
Income (loss) from continuing operations $ (0.22) $ (3.14) $ 11.17 $ 1.20 $ 5.31
Income (loss) from discontinued
operations (1.55) (1.46) (0.54) (0.25) (0.63)
Cumulative effect of accounting change 0.35 -- -- -- (0.23)
--------- --------- --------- --------- ---------
Net income (loss) $ (1.42) $ (4.60) $ 10.63 $ 0.95 $ 4.45
========= ========= ========= ========= =========
Income (loss) per share - assuming
dilution:
Income (loss) from continuing operations $ (0.22) $ (3.14) $ 11.07 $ 1.18 $ 5.26
Income (loss) from discontinued
operations (1.55) (1.46) (0.54) (0.24) (0.62)
Cumulative effect of accounting change 0.35 -- -- -- (0.23)
--------- --------- --------- --------- ---------
Net income (loss) $ (1.42) $ (4.60) $ 10.53 $ 0.94 $ 4.41
========= ========= ========= ========= =========
Dividends per share $ -- $ -- $ 0.80 $ 0.65 $ 1.05
========= ========= ========= ========= =========
16
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
BALANCE SHEET DATA:
AS OF DECEMBER 31,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Total assets $2,167,822 $1,939,553 $1,732,384(7) $1,011,992 $1,117,562
Total debt 468,997(16) 175,500(7) 297,500 264,078(8) 388,397
Secured forward exchange contract 613,054(7) 613,054(7) -- -- --
Total stockholders' equity 658,479 727,865 961,159(7) 525,160 516,224
(1) Preopening costs are related to the Company's Gaylord Palms Resort and
Convention Center hotel in Kissimmee, Florida and its new Gaylord hotel
under construction in Grapevine, Texas.
(2) In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". In accordance with the
provisions of SFAS No. 144, the Company has presented the operating results
and financial position of the following businesses as discontinued
operations: Word Entertainment; GET Management, the Company's artist
management business; the Company's international cable networks; the
businesses sold to affiliates of The Oklahoma Publishing Company ("OPUBCO")
in 2001 consisting of Pandora Films, Gaylord Films, Gaylord Sports
Management, Gaylord Event Television and Gaylord Production Company; and
the Company's water taxis.
(3) Reflects the divestiture of certain businesses and reduction in the
carrying values of certain assets.
(4) Related primarily to employee severance and contract termination costs.
(5) Reflects the cumulative effect of the change in accounting method related
to recording the derivatives associated with the secured forward exchange
contract at fair value as of January 1, 2001, of $18,322 less a related tax
provision of $6,413.
(6) Includes operating losses of $27,479 related to Gaylord Digital, the
Company's internet initiative, and operating losses of $6,083 related to
country record label development, both of which were closed during 2000.
(7) Includes a pretax gain of $459,307 on the divestiture of television station
KTVT in Dallas-Ft. Worth in exchange for CBS Series B preferred stock
(which was later converted into 11,003,000 shares of Viacom, Inc. Class B
common stock), $4,210 of cash, and other consideration. The CBS Series B
preferred stock was included in total assets at its market value of
$648,434 at December 31, 1999. The Viacom, Inc. Class B common stock was
included in total assets at its market values of $485,782 and $514,391 at
December 31, 2001 and 2000, respectively. During 2000, the Company entered
into a seven-year forward exchange contract with respect to 10,937,900
shares of the Viacom, Inc. Class B common stock. Prepaid interest related
to the secured forward exchange contract of $144,975 and $171,863 was
included in total assets at December 31, 2001 and 2000, respectively.
(8) In 1995, the Company sold its cable television systems. Net proceeds were
$198,800 in cash and a note receivable with a face amount of $165,688,
which was recorded at $150,688, net of a $15,000 discount. As part of the
sale transaction, the Company also received contractual equity
participation rights (the "Rights") equal to 15% of the net distributable
proceeds from future asset sales. During 1998, the Company collected the
full amount of the note receivable and recorded a pretax gain of $15,000
related to the note receivable discount. During 1999, the Company received
cash and recognized a pretax gain of $129,875 representing the value of the
Rights. The proceeds from the note receivable prepayment and the Rights
were used to reduce outstanding bank indebtedness.
(9) Includes a pretax gain of $16,072 on the sale of the Company's investment
in the Texas Rangers Baseball Club, Ltd. and a pretax gain totaling $8,538
primarily related to the settlement of contingencies from the sales of
television stations KHTV in Houston and KSTW in Seattle.
(10) Includes the results of operations of TNN: The Nashville Network and the
U.S. and Canadian operations of CMT: Country Music Television for the first
nine months of 1997. On October 1, 1997, TNN and CMT were acquired by CBS
in a merger (the "Merger"). Also includes the results of the Opryland theme
park which was closed at the end of 1997.
(11) Charge related to the closing of the Opryland theme park at the end of the
1997 operating season.
(12) The merger costs and the 1997 restructuring charge are related to the
Merger.
(13) Includes a pretax gain of $144,259 on the sale of television station KSTW
in Seattle.
(14) Includes a deferred tax benefit of $55,000 related to the revaluation of
certain reserves as a result of the Merger.
(15) Reflects the cumulative effect of the change in accounting method for
deferred preopening costs to expense these costs as incurred, effective
January 1, 1997, of $12,335 less a related tax benefit of $4,798.
(16) Related primarily to the construction of the Company's Gaylord Palms Resort
and Convention Center hotel in Kissimmee, Florida and its new Gaylord hotel
development in Grapevine, Texas.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Gaylord Entertainment Company is a diversified hospitality and entertainment
company operating, through its subsidiaries, principally in four business
segments: hospitality; attractions; media; and corporate and other. During 2001,
the Company restated its reportable segments for all periods presented based
upon new management and an internal realignment of operational responsibilities.
The Company is managed using the four business segments described above. Certain
events that occurred during 2001, 2000 and 1999 affect the comparability of the
Company's results of operations among the periods presented.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. Accounting estimates are an integral part of the preparation of
the consolidated financial statements and the financial reporting process and
are based upon current judgements. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period. Certain
accounting estimates are particularly sensitive because of their complexity and
the possibility that future events affecting them may differ materially from the
Company's current judgements and estimates.
This listing of critical accounting policies is not intended to be a
comprehensive list of all of the Company's accounting policies. In many cases,
the accounting treatment of a particular transaction is specifically dictated
by generally accepted accounting principles, with no need for management's
judgement regarding accounting policy. The Company believes that of its
significant accounting policies, as discussed in Note 1 of the consolidated
financial statements, the following may involve a higher degree of judgement
and complexity.
Revenue Recognition
Revenues are recognized when services are provided or goods are shipped, as
applicable. Provision for returns and other adjustments are provided for in the
same period the revenues are recognized. The Company defers revenues related to
deposits on advance room bookings, advance ticket sales at the Company's tourism
properties and music publishing advances until such amounts are earned.
Impairment Of Long-Lived Assets And Goodwill
In accounting for the Company's long-lived assets other than goodwill, the
Company applies the provisions of Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". The Company adopted the provisions of SFAS No. 144 during 2001 with an
effective date of January 1, 2001. The Company previously accounted for goodwill
using SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". In June 2001, SFAS No. 142, "Goodwill and
Other Intangible Assets" was issued. SFAS No. 142 is effective January 1, 2002.
Under SFAS No. 142, goodwill and other intangible assets with indefinite useful
lives will not be amortized but will be tested for impairment at least annually
and whenever events or circumstances occur indicating that these intangibles may
be impaired. The determination and measurement of an impairment loss under these
accounting standards require the significant use of judgement and estimates. The
determination of fair value of these assets and the timing of an impairment
charge are two critical components of recognizing an asset impairment charge
that are subject to the significant use of judgement and estimation. Future
events may indicate differences from these judgements and estimates.
Restructuring Charges
The Company has recognized restructuring charges in accordance with Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)" in its consolidated financial
statements. Restructuring charges are based
18
upon certain estimates of liability related to costs to exit an activity.
Liability estimates may change as a result of future events, including
negotiation of reductions in contract termination liabilities.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce interest rate
risks and to manage risk exposure to changes in the value of certain owned
marketable securities. The Company records derivatives in accordance with SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
was subsequently amended by SFAS No. 138. SFAS No. 133, as amended, established
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. Changes in the
fair value of those instruments will be reported in earnings or other
comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. The measurement of the derivative's fair value
requires the use of estimates and assumptions. Changes in these estimates or
assumptions could materially impact the determination of the fair value of the
derivatives.
ASSESSMENT OF STRATEGIC ALTERNATIVES
During 2001, the Company named a new chairman, a new chief executive officer,
and had numerous changes in senior management, primarily because of certain 2000
events discussed below. The new management team instituted a corporate
reorganization, re-evaluated the Company's businesses and other investments and
is employing certain cost savings initiatives (the "2001 Strategic Assessment").
As a result of the 2001 Strategic Assessment, the Company recorded impairment
and other charges and restructuring charges as discussed below.
During 2000, the Company experienced a significant number of departures from its
senior management, including the Company's president and chief executive
officer. In addition, the Company continued to produce weaker than anticipated
operating results during 2000 while attempting to fund its capital requirements
related to its hotel construction project in Florida and hotel development
activities in Texas. As a result of these factors, during 2000, the Company
assessed its strategic alternatives related to its operations and capital
requirements and developed a strategic plan designed to refocus the Company's
operations, reduce its operating losses and reduce its negative cash flows (the
"2000 Strategic Assessment"). As a result of the 2000 Strategic Assessment, the
Company sold or ceased operations of several businesses and recorded impairment
and other charges and restructuring charges as discussed below.
TERRORIST ATTACKS
As a result of the September 11, 2001 terrorist attacks and a slowdown in the
U.S. economy, the hospitality industry has experienced occupancy rates that were
significantly lower than those experienced in 2000 due to decreased tourism and
travel activity. Specifically, the Company received over 30 group cancellations
as a result of the terrorist attacks, the majority of which were for bookings in
the months of September and October 2001. These cancellations led to a
significant decrease in hotel occupancy for that period and had a negative
impact on our operations in the third and fourth quarters of 2001. The September
11 terrorist attacks were dramatic in scope and in their impact on the
hospitality industry and it is currently not possible to accurately predict if
and when travel patterns will be restored to pre-September 11 levels. However,
some of the groups that cancelled during 2001 have rescheduled for dates in
2002.
In response to the new economic environment following the September 11, 2001
terrorist attacks, the Company has elected a strategy of capital conservation.
Accordingly, the Company is extending the construction period for a new Gaylord
hotel in Grapevine, Texas for up to nine months and reducing its construction
spending in the short term. The Gaylord hotel in Grapevine, Texas, previously
scheduled to open in August 2003, is now scheduled to open in mid-2004. The
Company has also elected to divest certain non-core assets, with the expected
proceeds to be utilized as a source of capital. In addition, the Company has
implemented certain cost control measures.
DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, which superceded SFAS No. 121 and
the accounting and reporting provisions for the disposal of a segment of a
business of APB Opinion No. 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". SFAS No. 144 retains the
requirements of SFAS No. 121 for the recognition
19
and measurement of an impairment loss and broadens the presentation of
discontinued operations to include a component of an entity (rather than a
segment of a business).
In accordance with the provisions of SFAS No. 144, the Company has presented the
operating results, financial position and cash flows of the following businesses
as discontinued operations in its financial statements as of December 31, 2001
and 2000 and for each of the three years ended December 31, 2001: Word
Entertainment ("Word"), the Company's contemporary Christian music business
which was sold in January 2002; GET Management, the Company's artist management
business which was sold during 2001; the Company's international cable networks;
the businesses sold to affiliates of The Oklahoma Publishing Company ("OPUBCO")
in 2001 consisting of Pandora Films, Gaylord Films, Gaylord Sports Management,
Gaylord Event Television and Gaylord Production Company; and the Company's water
taxis sold in 2001.
DERIVATIVES
The Company utilizes derivative financial instruments to reduce interest rate
risks and to manage risk exposure to changes in the value of certain owned
marketable securities. Effective January 1, 2001, the Company records
derivatives in accordance with SFAS No. 133, as amended. SFAS No. 133, as
amended, established 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. Changes in the fair value of those instruments will be reported in
earnings or other comprehensive income depending on the use of the derivative
and whether it qualifies for hedge accounting. During 2000, the Company entered
into a seven-year secured forward exchange contract with respect to 10,937,900
shares of its Viacom, Inc. ("Viacom") stock investment acquired, indirectly, as
a result of the divestiture of television station KTVT in Dallas-Fort Worth as
discussed below. Under SFAS No. 133, components of the secured forward exchange
contract are considered derivatives. The adoption of SFAS No. 133 has had a
material impact on the Company's results of operations and financial position.
During 2001, the Company entered into three contracts to cap its interest rate
risk exposure on its long-term debt. These contracts cap the Company's exposure
to one-month LIBOR rates on up to $375 million of outstanding indebtedness at
7.5% and cap the Company's exposure on one-month Eurodollar rates on up to $100
million of outstanding indebtedness at 6.625%. These interest rate caps qualify
for hedge accounting and changes in the values of these caps are recorded as
other comprehensive income and losses.
GAYLORD PALMS
The Company's Gaylord Palms Resort and Convention Center hotel ("Gaylord Palms")
in Kissimmee, Florida commenced operations in January 2002. The Company recorded
$12.2 million of preopening expenses related to Gaylord Palms in 2001 that will
not recur in 2002. Gaylord Palms, with 1,406 rooms and approximately 400,000
square feet of meeting and convention space, will have a material impact on the
Company's results of operations during 2002.
DIVESTITURE OF KTVT
In October 1999, CBS Corporation ("CBS") acquired KTVT from the Company in
exchange for $485.0 million of CBS Series B convertible preferred stock, $4.2
million of cash and other consideration. The Company recorded a pretax gain of
$459.3 million, which is included in other gains and losses in the consolidated
statements of operations, based upon the disposal of the net assets of KTVT of
$29.9 million, including related selling costs. CBS merged with Viacom in May
2000, resulting in the conversion of CBS convertible preferred stock into Viacom
stock. The operating results of KTVT reflected in the consolidated statements of
operations through the disposal date of October 12, 1999 include revenues of
$36.0 million, depreciation and amortization of $2.4 million, and operating
income of $8.4 million.
RESULTS OF OPERATIONS
The following table contains selected results of continuing operations data for
each of the three years ended December 31, 2001, 2000 and 1999 (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.
20
2001 % 2000 % 1999 %
--------- ----- --------- ----- --------- -----
REVENUES:
Hospitality $ 228,712 70.3% $ 237,260 70.7% $ 239,248 64.7%
Attractions 65,878 20.3 63,235 18.9 57,760 15.6
Media 24,157 7.4 29,013 8.6 62,059 16.8
Corporate and other 6,412 2.0 5,954 1.8 10,784 2.9
--------- ----- --------- ----- --------- -----
Total revenues 325,159 100.0 335,462 100.0 369,851 100.0
--------- ----- --------- ----- --------- -----
OPERATING EXPENSES:
Operating costs 218,357 67.1 226,126 67.4 234,645 63.4
Selling, general and administrative 71,718 22.0 93,958 28.0 80,489 21.8
Preopening costs 15,141 4.7 5,278 1.6 1,892 0.5
Impairment and other charges 14,262 4.4 76,597 22.8 -- --
Restructuring charges 2,182 0.7 13,098 3.9 2,786 0.8
Merger costs -- -- -- -- (1,741) (0.5)
Depreciation and amortization:
Hospitality 25,593 24,447 22,828
Attractions 5,810 6,443 6,396
Media 2,578 9,650 5,918
Corporate and other 7,294 7,040 7,591
--------- ----- --------- ----- --------- -----
Total depreciation and
amortization 41,275 12.7 47,580 14.2 42,733 11.6
--------- ----- --------- ----- --------- -----
Total operating expenses 362,935 111.6 462,637 137.9 360,804 97.6
--------- ----- --------- ----- --------- -----
OPERATING INCOME (LOSS):
Hospitality 33,915 14.8 45,949 19.4 43,700 18.3
Attractions (2,372) (3.6) (8,025) (12.7) (6,063) (10.5)
Media 1,665 6.9 (31,500) -- 2,153 3.5
Corporate and other (39,399) -- (38,626) -- (27,806) --
Preopening costs (15,141) -- (5,278) -- (1,892) --
Impairment and other charges (14,262) -- (76,597) -- -- --
Restructuring charges (2,182) -- (13,098) -- (2,786) --
Merger costs -- -- -- -- 1,741 --
--------- ----- --------- ----- --------- -----
Total operating income (loss) $ (37,776) (11.6)% $(127,175) (37.9)% $ 9,047 2.4%
========= ===== ========= ===== ========= =====
YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUES
Total revenues decreased $10.3 million, or 3.1%, to $325.2 million in 2001.
Excluding the revenues of businesses divested in 2000, including the
Orlando-area Wildhorse Saloon, KOA Campground, Gaylord Digital and country music
record label development (collectively, the "2000 Divested Businesses") from
2000, total revenues decreased $1.0 million, or 0.3%, in 2001.
Revenues in the hospitality segment decreased $8.5 million, or 3.6%, to $228.7
million in 2001. Revenues of the Gaylord Opryland Resort and Convention Center
hotel decreased $7.9 million to $222.0 million in 2001. Gaylord Opryland's
occupancy rate decreased to 70.3% in 2001 compared to 75.9% in 2000. Revenue per
available room (RevPAR) for Gaylord Opryland decreased 7.1% to $98.65 for 2001
compared to $106.22 for 2000. This decrease was primarily attributable to the
impact of a softer economy and decreased occupancy levels in the weeks following
the September 11 terrorist attacks. In the four month period from November 2001
to February 2002, Gaylord Opryland's occupancy rate was 68.8% compared to 72.4%
in the corresponding year-ago four month period, while average daily room rates
were $141.92 compared to $138.18. The collection of a $2.2 million cancellation
fee in 2000 also adversely affects comparisons with the prior year period.
Gaylord Opryland's average daily rate increased to $140.33 in 2001 from $140.03
in 2000.
21
Revenues in the attractions segment increased $2.6 million, or 4.2%, to $65.9
million in 2001. Excluding the revenues of the Orlando-area Wildhorse Saloon and
the KOA Campground from 2000, revenues in the attractions segment increased $8.0
million, or 13.8% due to increased revenues of $10.1 million at Corporate Magic,
a company specializing in the production of creative events in the corporate
entertainment marketplace that was acquired in March 2000. Revenues of the Grand
Ole Opry increased $1.4 million, or 11.6%, to $13.4 million in 2001. These
increases in revenues were partially offset by decreased revenues of the General
Jackson, which decreased $1.5 million in 2001 as a result of an attendance
decline of 16.3% partially offset by an increase in per capita spending of
16.3%.
Revenues in the media segment decreased $4.9 million, or 16.7%, to $24.2 million
in 2001. Excluding the revenues of Gaylord Digital from 2000, revenues in the
media segment decreased $0.9 million, or 3.7%. Revenues of the Company's radio
stations decreased $1.2 million during 2001 as a result of a weak advertising
market and significant competition within the Nashville-area radio broadcasting
market.
Revenues in the corporate and other segment increased $0.5 million to $6.4
million in 2001. Corporate and other segment revenues consisted primarily of the
Company's ownership interest in a minor league baseball team.
OPERATING EXPENSES
Total operating expenses decreased $99.7 million, or 21.6%, to $362.9 million in
2001. Excluding impairment and other charges and restructuring charges, total
operating expenses decreased $26.5 million, or 7.1%, to $346.5 million in 2001.
Operating costs, as a percentage of revenues, decreased to 67.1% during 2001 as
compared to 67.4% during 2000. Selling, general and administrative expenses, as
a percentage of revenues, decreased to 22.0% during 2001 as compared to 28.0% in
2000.
Operating costs decreased $7.8 million, or 3.4%, to $218.4 million in 2001.
Excluding the operating costs of the 2000 Divested Businesses from 2000,
operating costs decreased $9.8 million, or 4.7%, to $208.6 million in 2001.
Operating costs in the hospitality segment increased $1.5 million in 2001
primarily as a result of increased operating costs at Gaylord Opryland of $2.2
million. During 2000, the Company recorded certain nonrecurring operating costs
associated primarily with the settlement of tax and utility contingencies
related to prior years totaling $5.0 million in the hospitality segment, $4.5
million of which was related to Gaylord Opryland. Excluding these nonrecurring
costs, operating costs at Gaylord Opryland increased $6.7 million, or 5.2% due
primarily to costs associated with various new shows and exhibits at the hotel
in 2001.
Operating costs in the attractions segment increased $1.0 million, or 2.1%, in
2001. Excluding the operating costs of the Orlando-area Wildhorse Saloon and the
KOA Campground from 2000, operating costs in the attractions segment increased
$6.7 million in 2001. The operating costs of Corporate Magic increased $9.8
million in 2001 as compared to 2000 subsequent to its acquisition in March 2000
due to the fact that a large share of its annual business occurs in the first
quarter of each year. This increase was partially offset by a decrease in
operating costs of the Acuff Theater, a venue for concerts and theatrical
performances, which had reduced operating costs in 2001 as compared to 2000 of
$1.2 million due to decreased utilization of this venue.
Operating costs in the media segment declined $11.3 million, or 45.5%, in 2001.
The decline in costs is almost entirely attributable to operating costs of
Gaylord Digital and country music record label development costs in 2000.
Excluding these costs, operating costs in the media segment increased $0.7
million, or 5.2% in 2001.
The operating costs in the corporate and other segment increased $1.0 million in
2001 as compared to 2000 due to increased overhead and administrative costs
related to the management of the Company's hotels.
Selling, general and administrative expenses decreased $22.2 million, or 23.7%,
to $71.7 million in 2001. Excluding the selling, general and administrative
expenses of the 2000 Divested Businesses from 2000, selling, general and
administrative expenses decreased $3.4 million, or 4.5%, in 2001.
Selling, general and administrative expenses in the hospitality segment
increased $0.8 million, or 3.0%, in 2001. Selling, general and administrative
expenses at Gaylord Opryland increased $0.6 million, or 2.1%, in 2001. Selling
and promotion expense at Gaylord Opryland increased $1.9 million due to
increased advertising offset by lower general and administrative costs at
Gaylord Opryland of $1.3 million due to cost controls.
22
Selling, general and administrative expenses in the attractions segment
decreased $3.4 million, or 21.2%, in 2001. Excluding the selling, general and
administrative expenses of the Orlando-area Wildhorse Saloon and the KOA
Campground from 2000, selling, general and administrative expenses in the
attractions segment decreased $3.0 million, or 19.0%, in 2001. The decrease in
2001 is primarily attributable to nonrecurring bad debt expense recognized in
2000 of $2.4 million related to the Company's live entertainment business. In
addition, the selling, general and administrative expenses of the Ryman
Auditorium decreased $1.2 million in 2001 as compared to 2000 due to reductions
in marketing expenses, fewer shows being produced in 2001 compared to 2000 and a
shift to more co-produced shows in 2001 compared to 2000.
Corporate selling, general and administrative expenses, consisting primarily of
senior management salaries and benefits, legal, human resources, accounting, and
other administrative costs remained unchanged at $23.3 million in both 2001 and
2000.
Effective December 31, 2001, the Company amended its retirement plan and its
retirement savings plan whereby the retirement cash balance benefit was frozen
and whereby future Company contributions to the retirement savings plan will
include 2% to 4% of the employee's salary, based upon the Company's financial
performance, in addition to a one-half match of the employee's salary up to a
maximum Company contribution of 3%. As a result of these changes to the
retirement plan, the Company expects to record a pretax charge to operations of
approximately $5.7 million in the first quarter of 2002 related to the write-off
of unamortized prior service cost in accordance with SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and related interpretations.
The Company has amended its postretirement benefit plans effective December 31,
2001 such that only active employees whose age plus years of service total at
least 60 and who have at least 10 years of service as of December 31, 2001
remain eligible. In connection with the amendment and curtailment of the plans
and in accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and related interpretations, the Company measured
a gain of $6.8 million, which will be recognized in future periods.
Preopening costs increased $9.9 million to $15.1 million in 2001 related to the
Company's hotel development activities in Florida and Texas. In accordance with
AICPA SOP 98-5, "Reporting on the Costs of Start-Up Activities", the Company
expenses the costs associated with start-up activities and organization costs as
incurred.
Depreciation and amortization decreased $6.3 million, or 13.3%, to $41.3 million
in 2001. Excluding the depreciation and amortization of the 2000 Divested
Businesses from 2000, depreciation and amortization increased $1.7 million, or
4.3%, in 2001. The increase is primarily attributable to increased depreciation
expense at Gaylord Opryland of $0.9 million related to capital expenditures and
increased software amortization of $0.8 million.
IMPAIRMENT AND OTHER CHARGES
The Company recognized pretax impairment and other charges as a result of the
2001 and 2000 Strategic Assessments. The components of these charges for the
years ended December 31 are as follows (in thousands):
2001 2000
-------- --------
Programming, film and other content $ 6,858 $ 8,295
Gaylord Digital and other technology investments 4,576 48,127
Property and equipment 2,828 3,398
Orlando-area Wildhorse Saloon - 15,854
Other - 923
-------- --------
Total impairment and other charges $ 14,262 $ 76,597
======== ========
Additional impairment and other charges of $28.9 million during 2000 are
included in discontinued operations.
23
2001 Impairment and Other Charges
The Company began production of an IMAX movie during 2000 to portray the history
of country music. As a result of the 2001 Strategic Assessment, the carrying
value of the IMAX film asset was reevaluated on the basis of its estimated
future cash flows resulting in an impairment charge of $6.9 million. At December
31, 2000, the Company held a minority investment in a technology start-up
business. During 2001, the unfavorable environment for technology businesses
created difficulty for this business to obtain adequate capital to execute its
business plan and, subsequently, the Company was notified that this technology
business had been unsuccessful in arranging financing, resulting in an
impairment charge of $4.6 million. The Company also recorded an impairment
charge related to idle real estate of $2.0 million during 2001 based upon an
assessment of the value of the property. In addition, the Company recorded an
impairment charge for other idle property and equipment totaling $0.8 million
during 2001 primarily due to the consolidation of offices resulting from
personnel reductions.
2000 Impairment and Other Charges
The Company's 2000 Strategic Assessment of its programming, film and other
content assets resulted in pretax impairment and other charges of $8.3 million
based upon the projected cash flows for these assets. This charge included
investments of $5.0 million, other receivables of $3.0 million and music and
film catalogs of $0.3 million.
The Company closed Gaylord Digital, its Internet-related business in 2000.
During 1999 and 2000, Gaylord Digital was unable to produce the operating
results initially anticipated and required an extensive amount of capital to
fund its operating losses, investments and technology infrastructure. As a
result of the closing, the Company recorded a pretax charge of $48.1 million in
2000 to reduce the carrying value of Gaylord Digital's assets to their fair
value based upon estimated selling prices. The Gaylord Digital charge included
the write-down of intangible assets of $25.8 million, property and equipment
(including software) of $14.8 million, investments of $7.0 million and other
assets of $0.6 million. The operating results of Gaylord Digital are included in
continuing operations. Excluding the effect of the impairment and other charges,
Gaylord Digital had revenues of $3.9 million and $1.6 million, and operating
losses of $27.5 million and $7.3 million, for the years ended December 31, 2000
and 1999, respectively.
During the course of conducting the 2000 Strategic Assessment, other property
and equipment of the Company was reviewed to determine whether the change in the
Company's strategic direction resulted in additional impaired assets. This
review indicated that certain property and equipment would not be recovered by
projected cash flows. The Company recorded pretax impairment and other charges
related to its property and equipment of $3.4 million. These charges included
property and equipment write-downs in the hospitality segment of $1.4 million,
in the attractions segment of $0.3 million, in the media segment of $0.2
million, and in the corporate and other segment of $1.5 million.
During November 2000, the Company ceased the operations of the Orlando-area
Wildhorse Saloon. Walt Disney World(R) Resort paid the Company approximately
$1.8 million for the net assets of the Orlando-area Wildhorse Saloon and
released the Company from its operating lease for the Wildhorse Saloon location.
As a result of this divestiture, the Company recorded pretax charges of $15.9
million to reflect the impairment and other charges related to the divestiture.
The Orlando-area Wildhorse Saloon charges included the write-off of equipment of
$9.4 million, intangible assets of $8.1 million and other working capital items
of $0.1 million offset by the $1.8 million of proceeds received from Disney. The
operating results of the Orlando-area Wildhorse Saloon are included in
continuing operations. Excluding the effect of the impairment and other charges,
the Orlando-area Wildhorse Saloon had revenues of $4.4 million, and operating
losses of $1.6 million for the year ended December 31, 2000.
RESTRUCTURING CHARGES
During 2001, the Company recognized pretax restructuring charges from continuing
operations of $2.2 million related to streamlining operations and reducing
layers of management. The Company recognized additional pretax restructuring
charges from discontinued operations of $3.0 million in 2001. These
restructuring charges were recorded in accordance with EITF No. 94-3. The
restructuring costs from continuing operations consist of $4.7 million related
to severance and other employee benefits and $1.1 million related to contract
termination costs, offset by the reversal of restructuring charges recorded in
2000 of $3.7 million primarily related to negotiated reductions in certain
contract termination costs. The restructuring costs from discontinued operations
consist of $1.6 million related to severance and other employee benefits and
$1.8 million related to contract termination costs offset by the reversal of
restructuring charges recorded in 2000 of $0.4 million. The 2001 restructuring
charges primarily resulted from the Company's
24
strategic decisions to exit certain businesses and reduce corporate overhead and
administrative costs. The 2001 restructuring plan resulted in the termination or
notification of pending termination of approximately 150 employees. As of
December 31, 2001, the Company has recorded cash charges of $1.7 million against
the 2001 restructuring accrual, all of which related to continuing operations.
The remaining balance of the 2001 restructuring accrual related to continuing
operations at December 31, 2001 of $4.2 million is included in accounts payable
and accrued liabilities in the accompanying consolidated balance sheets. The
remaining balance of the 2001 restructuring accrual related to discontinued
operations at December 31, 2001 of $3.3 million is included in current
liabilities of discontinued operations in the consolidated balance sheets. The
Company expects the remaining balances of the restructuring accruals for both
continuing and discontinued operations to be paid in 2002.
As part of the Company's 2000 Strategic Assessment, the Company recognized
pretax restructuring charges of $13.1 million related to continuing operations
during 2000, in accordance with EITF Issue No. 94-3. Additional restructuring
charges of $3.1 million during 2000 are included in discontinued operations.
Restructuring charges related to continuing operations consist of contract
termination costs of $8.0 million to exit specific activities and employee
severance and related costs of $5.4 million offset by the reversal of the
remaining restructuring accrual from the restructuring charges recorded in 1999
of $0.2 million. The 2000 restructuring charges relate to the Company's
strategic decisions to exit certain lines of business, primarily businesses
included in the Company's former music, media and entertainment segment, and to
implement its 2000 strategic plan. As part of the Company's 2000 restructuring
plan, approximately 375 employees were terminated or were informed of their
pending termination. During 2001, the Company negotiated reductions in certain
contract termination costs, which allowed the reversal of $4.0 million of the
restructuring charges originally recorded during 2000. As of December 31, 2001,
the Company has recorded cash charges of $10.8 million against the 2000
restructuring accrual. The remaining balance of the 2000 restructuring accrual
at December 31, 2001 of $1.6 million is included in accounts payable and accrued
liabilities in the consolidated balance sheets, which the Company expects to be
paid in 2002.
OPERATING INCOME (LOSS)
Total operating loss decreased $89.4 million to an operating loss of $37.8
million during 2001. Excluding the operating losses of the 2000 Divested
Businesses from 2000, as well as impairment and other charges and restructuring
charges from both periods, total operating income decreased $19.0 million to an
operating loss of $21.3 million in 2001.
Hospitality segment operating income decreased $12.0 million to $33.9 million in
2001 as a result of decreased operating income of Gaylord Opryland. Excluding
the operating losses of the Orlando-area Wildhorse Saloon and the KOA Campground
from 2000, the operating loss of the attractions segment decreased $4.0 million
to an operating loss of $2.4 million in 2001 primarily as a result of decreased
operating losses of the Acuff Theater, Corporate Magic and the Ryman Auditorium.
Media segment operating income was $1.7 million in 2001 compared to an operating
loss of $31.5 million in 2000. Excluding the operating losses of Gaylord Digital
and country music record label development costs from 2000, the operating income
of the media segment decreased $0.4 million 2001 primarily as a result of
increased operating losses at the Company's radio stations. The operating loss
of the corporate and other segment increased $0.8 million, or 2.0%, to an
operating loss of $39.4 million in 2001.
INTEREST EXPENSE
Interest expense increased $9.0 million to $39.4 million in 2001, net of
capitalized interest of $18.8 million, including $16.4 million of capitalized
interest related to Gaylord Palms. The Company will no longer capitalize
interest on Gaylord Palms subsequent to its opening date in January 2002. The
increase in 2001 interest expense is primarily attributable to higher average
borrowing levels including construction-related financing related to Gaylord
Palms and the new Gaylord hotel in Grapevine, Texas, the secured forward
exchange contract entered into in May 2000 and the amortization of deferred
costs related to these financing activities. The Company's weighted average
interest rate on its borrowings, including the interest expense associated with
the secured forward exchange contract, was 6.3% in 2001 as compared to 6.6% in
2000.
The Company is negotiating with potential additional financing sources regarding
the Company's future financing arrangements. The Company's future borrowing
levels are expected to be higher than the Company's historical borrowing levels.
25
INTEREST INCOME
Interest income increased $1.5 million to $5.6 million in 2001. The increase in
2001 primarily relates to an increase in interest income from invested cash
balances.
GAIN (LOSS) ON VIACOM STOCK AND DERIVATIVES
The Company adopted the provisions of SFAS No. 133 on January 1, 2001 and
recorded a gain of $11.9 million, net of 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. For the
year ended December 31, 2001, the Company recorded a pretax gain of $54.3
million related to the increase in fair value of the derivatives associated with
the secured forward exchange contract. Additionally, the Company recorded a
nonrecurring pretax gain of $29.4 million 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 year ended December 31, 2001, the Company recorded a
pretax loss of $28.6 million related to the decrease in fair value of the Viacom
stock subsequent to January 1, 2001.
OTHER GAINS AND LOSSES
During 2001, the indemnification period related to the Company's 1999
disposition of television station KTVT in Dallas-Fort Worth ended, resulting in
the recognition of a pretax gain of $4.6 million related to the reversal of
previously recorded contingent liabilities.
During 2000, the Company sold its KOA Campground located near Gaylord Opryland
for $2.0 million in cash. The Company recognized a pretax loss on the sale of
$3.2 million.
INCOME TAXES
The Company's benefit for income taxes was $3.2 million in 2001 compared to an
income tax benefit of $49.9 million in 2000. The Company's effective tax rate on
its loss before benefit for income taxes was 30.4% for 2001 compared to 32.3%
for 2000. The decline in the Company's effective tax rate is primarily due to
nondeductible foreign and state losses during 2001.
DISCONTINUED OPERATIONS
The Company has reflected the following businesses as discontinued operations,
consistent with the provisions of SFAS No. 144. The results of operations, net
of taxes, (prior to their disposal where applicable) and the estimated fair
value of the assets and liabilities of these businesses have been reflected in
the Company's consolidated financial statements as discontinued operations in
accordance with SFAS No. 144 for all periods presented.
Word
During 2001, the Company committed to a plan to sell Word. As a result of the
decision to sell Word, the Company reduced the carrying value of Word to its
estimated fair value by recognizing a pretax charge of $30.4 million in
discontinued operations during 2001. The estimated fair value of Word's net
assets was determined based upon ongoing negotiations with potential buyers.
Related to the decision to sell Word, a pretax restructuring charge of $1.5
million was recorded in 2001. The restructuring charge consists of $0.9 million
related to lease termination costs and $0.6 million related to severance costs.
In addition, the Company recorded a reversal of $0.1 million of restructuring
charges originally recorded during 2000. Subsequent to December 31, 2001, the
Company sold Word's domestic operations to an affiliate of Warner Music Group
for $84.1 million in cash, subject to future purchase price adjustments. The
Company will not recognize a material gain or loss on the divestiture in 2002.
Net proceeds from the sale of $80.0 million were used to reduce the Company's
outstanding indebtedness as further discussed below under Liquidity and Capital
Resources.
International Cable Networks
During the second quarter of 2001, the Company adopted a formal plan to dispose
of its international cable networks. As part of this plan, the Company hired
investment bankers to facilitate the disposition process, and formal
communications with potentially interested parties began in July 2001. In an
attempt to simplify the disposition process, in July 2001, the Company acquired
an additional 25% ownership interest in its
26
music networks in Argentina, bringing its ownership interest from 50% to 75%. In
August 2001, the partnerships in Argentina finalized a pending transaction in
which a third party acquired a 10% ownership interest in the companies in
exchange for satellite, distribution and sales services, bringing the Company's
interest to 67.5%.
In December 2001, the Company made the decision to cease funding of its cable
networks in Asia and Brazil as well as its partnerships in Argentina if a sale
had not been completed by February 28, 2002. At that time the Company recorded
pretax restructuring charges of $1.9 million consisting of $1.0 million of
severance and $0.9 million of contract termination costs related to the
networks. Also during 2001, the Company negotiated reduced contract termination
costs with several vendors that resulted in a reversal of $0.3 million of
restructuring charges originally recorded during 2000. Based on the status of
its efforts to sell its international cable networks at the end of 2001, the
Company recorded pretax impairment and other charges of $23.3 million during
2001. Included in this charge are the impairment of an investment in the two
Argentina-based music channels totaling $10.9 million, the impairment of fixed
assets, including capital leases associated with certain transponders leased by
the Company, of $7.0 million, the impairment of a receivable of $3.0 million
from the Argentina-based channels, current assets of $1.5 million, and
intangible assets of $1.0 million.
In the first quarter of 2002, the Company finalized a transaction to sell
certain assets of its international cable networks as further discussed under
"Recent Developments."
Businesses Sold to OPUBCO
During 2001, the Company sold five businesses (Pandora Films, Gaylord Films,
Gaylord Sports Management, Gaylord Event Television and Gaylord Production
Company) to affiliates of OPUBCO for $22.0 million in cash and the assumption of
debt of $19.3 million. The Company recognized a pretax loss of $1.7 million
related to the sale in discontinued operations in the 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 following table reflects the results of operations of businesses accounted
for as discontinued operations for the years ended December 31 (amounts in
thousands):
2001 2000
--------- ---------
REVENUES:
Word Entertainment $ 115,677 $ 130,706
International cable networks 5,025 6,606
Businesses sold to OPUBCO 2,195 39,706
Other 609 1,900
--------- ---------
Total revenues $ 123,506 $ 178,918
========= =========
OPERATING INCOME (LOSS):
Word Entertainment $ (5,710) $ (15,741)
International cable networks (6,375) (9,655)
Businesses sold to OPUBCO (1,459) (9,370)
Other (383) (144)
Impairment and other charges (53,716) (28,941)
Restructuring charges (2,959) (3,095)
--------- ---------
Total operating loss (70,602) (66,946)
27
INTEREST EXPENSE (797) (1,310)
INTEREST INCOME 128 556
OTHER GAINS AND LOSSES (3,986) (4,245)
-------- --------
Loss before benefit for income taxes (75,257) (71,945)
BENEFIT FOR INCOME TAXES (22,893) (23,206)
-------- --------
Net loss from discontinued operations $(52,364) $(48,739)
======== ========
During 2000, the Company settled contingencies remaining from the 1997
acquisition of Word, which resulted in a pretax charge of $3.3 million.
The assets and liabilities of the discontinued operations presented in the
consolidated balance sheets are comprised of:
2001 2000
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 2,237 $ 8,005
Trade receivables, less allowance of $2,785 and $5,003, respectively 24,814 43,567
Inventories 6,359 12,321
Prepaid expenses 8,779 12,592
Other current assets 691 5,052
-------- --------
Total current assets 42,880 81,537
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 10,357 22,423
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 29,628 81,954
MUSIC AND FILM CATALOGS 10,696 26,237
OTHER LONG-TERM ASSETS 3,512 11,965
-------- --------
Total long-term assets 54,193 142,579
-------- --------
Total assets $ 97,073 $224,116
======== ========
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,515 $ 1,378
Accounts payable and accrued liabilities 18,120 39,652
-------- --------
Total current liabilities 23,635 41,030
LONG-TERM DEBT, NET OF CURRENT PORTION -- 20,551
OTHER LONG-TERM LIABILITIES 7 --
-------- --------
Total long-term liabilities 7 20,551
-------- --------
Total liabilities $ 23,642 $ 61,581
======== ========
YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Total revenues decreased $34.4 million, or 9.3%, to $335.5 million in 2000
primarily due to the divestiture of KTVT, which was divested in 1999, partially
offset by revenues of Corporate Magic which was acquired in 2000. Excluding the
revenues of significant divested businesses, primarily KTVT and the 2000
Divested Businesses, from both periods, total revenues increased $0.3 million,
or 0.1%, in 2000.
Revenues in the hospitality segment decreased $2.0 million, or 0.8%, to $237.3
million in 2000. Revenues of Gaylord Opryland decreased $3.8 million to $230.6
million in 2000. Gaylord Opryland's occupancy rate decreased to 75.9% in 2000
compared to 78.0% in 1999. Gaylord Opryland's average daily rate increased to
$140.03 in 2000 from $135.48 in 1999. The decrease in revenues from Gaylord
Opryland was partially offset by increased revenues from the Radisson Hotel at
Opryland of $1.6 million, or 31.7%, in 2000. The occupancy rate of the Radisson
Hotel
28
at Opryland increased to 59.3% in 2000 from 48.8% in 1999. The increase in
revenues for the Radisson Hotel at Opryland is primarily attributable to a
renovation project during 1999, which caused a portion of the rooms to be
unavailable during 1999.
Revenues in the attractions segment increased $5.5 million, or 9.5%, to $63.2
million in 2000. Excluding the revenues of the Orlando-area Wildhorse Saloon and
the KOA Campground from both periods, revenues of the attractions segment
increased $6.5 million, or 12.6%, to $57.9 million. Corporate Magic had revenues
subsequent to its acquisition in March 2000 of $4.2 million.
Revenues in the media segment decreased $33.0 million, or 53.2%, to $29.0
million in 2000. Excluding the revenues of KTVT and Gaylord Digital from both
periods, revenues in the media segment increased $0.7 million, or 2.8%, to $25.1
million in 2000.
Revenues in the corporate and other segment decreased $4.8 million to $6.0
million in 2000 related primarily to consulting and other services revenues
related to the Opry Mills partnership in 1999, which did not continue beyond
1999.
OPERATING EXPENSES
Total operating expenses increased $101.8 million, or 28.2%, to $462.6 million
in 2000. Excluding the impairment and other charges, restructuring charges and
merger costs, total operating expenses increased $13.2 million, or 3.7%, to
$372.9 million in 2000. Operating costs, as a percentage of revenues, increased
to 67.4% during 2000 as compared to 63.4% during 1999. Selling, general and
administrative expenses, as a percentage of revenues, increased to 28.0% during
2000 as compared to 21.8% in 1999.
Operating costs decreased $8.5 million, or 3.6%, to $226.1 million in 2000.
Excluding the operating costs of KTVT and the 2000 Divested Businesses from both
periods, operating costs decreased $1.5 million, or 0.7%, to $208.6 million in
2000.
Operating costs in the hospitality segment decreased $3.7 million, or 2.6%, in
2000 primarily as a result of lower operating costs at Gaylord Opryland of $4.4
million related to lower revenues and stringent cost controls. Included in
hospitality operating costs for 2000 are certain nonrecurring items associated
primarily with the settlement of tax and utility contingencies related to prior
years totaling $5.0 million. Excluding these items, operating costs in the
hospitality segment declined by $8.7 million in 2000.
Operating costs in the attractions segment increased $2.3 million, or 4.9%, in
2000. Excluding the operating costs of the Orlando-area Wildhorse Saloon and the
KOA Campground from both periods, operating costs in the attractions segment
increased $3.2 million in 2000, primarily due to the operating costs of
Corporate Magic subsequent to its March 2000 acquisition.
Operating costs in the media segment declined $8.2 million, or 24.9%, in 2000.
Excluding the operating costs of KTVT, Gaylord Digital and country music record
label development costs from both periods, operating costs in the media segment
increased $1.0 million in 2000 due primarily to increased operating costs at
Acuff-Rose Music Publishing of $0.6 million.
The operating costs in the corporate and other segment increased $1.1 million,
or 8.1%, to $14.2 million in 2000 due to increased operating costs of the
Oklahoma Redhawks, a minor league baseball team based in Oklahoma City, and
increased costs related to the management of the Company's hotels.
Selling, general and administrative expenses increased $13.5 million, or 16.7%,
to $94.0 million in 2000. Excluding the selling, general and administrative
expenses of KTVT and the 2000 Divested Businesses from both periods, selling,
general and administrative expenses increased $7.3 million, or 10.8%, to $75.1
million in 2000.
Selling, general and administrative expenses in the hospitality segment
decreased $2.2 million in 2000 primarily related to stringent cost controls at
Gaylord Opryland.
29
Selling, general and administrative expenses in the attractions segment
increased $5.1 million, or 46.4%, in 2000. Excluding the selling, general and
administrative expenses of the Orlando-area Wildhorse Saloon and the KOA
Campground from both periods, selling, general and administrative expenses in
the attractions segment increased $6.1 million in 2000. The increase is
primarily attributable to a $5.6 million increase in the selling, general and
administrative expenses of the Company's live entertainment businesses in 2000
related to the acquisition of Corporate Magic in March 2000 and nonrecurring bad
debt expense recognized in 2000 of $2.4 million.
Selling, general and administrative expenses in the media segment increased $5.1
million, or 24.2%, in 2000. Excluding the selling, general and administrative
expenses of KTVT, Gaylord Digital and country music record label development
costs from both periods, selling, general and administrative expenses in the
media segment decreased $2.1 million in 2000 due to certain media-related
overhead and development costs in 1999 that did not recur in 2000.
Corporate selling, general and administrative expenses increased $5.5 million,
or 30.7%, in 2000. The components of the increase in 2000 over 1999 include the
following: $2.2 million related to the naming rights for Gaylord Entertainment
Center, $1.0 million related to severance of the Company's former CEO, $0.9
million related to additional human resources and training personnel and related
costs, and $0.4 million related to increased property and franchise taxes.
Preopening costs increased $3.4 million to $5.3 million in 2000 related to the
Company's hotel development activities in Florida and Texas.
Depreciation and amortization increased $4.8 million, or 11.3%, to $47.6 million
in 2000. Excluding the depreciation and amortization of KTVT and the 2000
Divested Businesses from both periods, depreciation and amortization increased
$2.7 million, or 7.4%, in 2000. The increase 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 income decreased $136.2 million to an operating loss of $127.2
million during 2000. Excluding the operating income (loss) of KTVT and the 2000
Divested Businesses, as well as the impairment, restructuring and merger charges
from both periods, total operating income decreased $17.2 million to an
operating loss of $2.3 million in 2000.
Hospitality segment operating income increased $2.2 million to $45.9 million in
2000 primarily related to increased profit margins of Gaylord Opryland.
Excluding the operating loss of the Orlando-area Wildhorse Saloon and the KOA
Campground from both periods, the operating loss of the attractions segment
increased $3.3 million to $6.4 million in 2000 primarily as a result of the
operating losses of the Company's live entertainment businesses. Excluding the
operating income (loss) of KTVT, Gaylord Digital and country music record label
development costs from both periods, the operating income of the media segment
increased $1.9 million to an operating income of $2.1 million in 2000. The
operating loss of the corporate and other segment increased $10.8 million to an
operating loss of $38.6 million in 2000 due in part to consulting and other
services revenues related to the Opry Mills partnership in 1999, which did not
continue beyond 1999, and increased administrative costs, including certain
overhead and administrative costs related to the management of the Company's
hotels.
INTEREST EXPENSE
Interest expense increased $15.3 million to $30.3 million, net of capitalized
interest, in 2000. Capitalized interest related to the Florida and Texas hotel
developments totaled $6.8 million in 2000 compared to $0.5 million in 1999. The
increase in 2000 interest expense is primarily attributable to higher average
borrowing levels, including the secured forward exchange contract, and the
amortization of deferred costs related to these financing activities. The
Company's weighted average interest rate on its borrowings, including the
interest expense associated with the secured forward exchange contract, was 6.6%
in 2000 as compared to 6.4% in 1999.
30
INTEREST INCOME
Interest income decreased $1.9 million to $4.2 million in 2000. The decrease in
2000 primarily relates to nonrecurring interest income in 1999 of $2.0 million
related to the settlement of contingencies between the Company and CBS/Viacom as
well as a $1.8 million prepayment penalty from Bass Pro recorded as interest
income during 1999. These 1999 transactions are partially offset by an increase
in interest income from invested cash balances during 2000.
OTHER GAINS AND LOSSES
Other gains and (losses) during 2000 and 1999 were comprised of the following
pretax amounts, in thousands:
2000 1999
-------- --------
Loss on disposal of KOA Campground $(3,247) $ --
Gain on divestiture of KTVT - 459,307
Gain on equity participation rights - 129,875
Other gains and losses, net 1,970 700
------- --------
$(1,277) $589,882
======= ========
In October 1999, CBS acquired the Company's television station KTVT in
Dallas-Ft. Worth in exchange for $485 million of CBS Series B convertible
preferred stock, $4.2 million of cash and other consideration, resulting in a
pretax gain of $459.3 million.
During 1999, the Company received cash and recognized a pretax gain of $129.9
million representing the value of contractual equity participation rights
related to the sale of certain cable television systems (the "Systems") formerly
owned by the Company. During 1995, the Company sold the Systems to CCT Holdings
Corporation. As part of the 1995 sale transaction, the Company received
contractual equity participation rights equal to 15% of the net distributable
proceeds, as defined, from certain future asset sales. The proceeds from the
equity participation rights were used to reduce outstanding bank indebtedness.
INCOME TAXES
The Company's benefit for income taxes was $49.9 million in 2000 compared to an
income tax provision of $222.3 million in 1999. The Company's effective tax rate
on its income (loss) before provision (benefit) for income taxes was 32.3% for
2000 compared to 37.7% for 1999.
DISCONTINUED OPERATIONS
As previously discussed, the Company adopted the provisions of SFAS No. 144
during the third quarter of 2001. Accordingly, SFAS No. 144 required the Company
to restate the Company's results of operations and cash flows related to
discontinued operations for the years ended December 31, 2000 and 1999.
31
The results of operations of businesses accounted for as discontinued operations
are as follows (in thousands):
2000 1999
--------- ---------
REVENUES:
Word Entertainment $ 130,706 $ 137,873
International cable networks 6,606 4,407
Businesses sold to OPUBCO 39,706 17,797
Other 1,900 2,712
--------- ---------
Total revenues $ 178,918 $ 162,789
========= =========
OPERATING INCOME (LOSS):
Word Entertainment $ (15,741) $ (5,542)
International cable networks (9,655) (8,375)
Businesses sold to OPUBCO (9,370) (1,553)
Other (144) 714
Impairment and other charges (28,941) (12,201)
Restructuring charges (3,095) (316)
--------- ---------
Total operating loss (66,946) (27,273)
INTEREST EXPENSE (1,310) (1,054)
INTEREST INCOME 556 185
OTHER GAINS AND LOSSES (4,245) (308)
--------- ---------
Loss before benefit for income taxes (71,945) (28,450)
BENEFIT FOR INCOME TAXES (23,206) (10,612)
--------- ---------
Net loss from discontinued operations $ (48,739) $ (17,838)
========= =========
LIQUIDITY AND CAPITAL RESOURCES
Term Loan
During 2001, the Company entered into a three-year delayed-draw senior term loan
("Term Loan") of up to $210.0 million with Deutsche Banc Alex. Brown Inc.,
Salomon Smith Barney, Inc. and CIBC World Markets Corp. (collectively the
"Banks"). Proceeds of the Term Loan were used to finance the construction of
Gaylord Palms and a new Gaylord hotel in Grapevine, Texas, as well as for
general operating purposes. The Term Loan is primarily secured by the Company's
ground lease interest in Gaylord Palms. At the Company's option, amounts
outstanding under the Term Loan bear interest at the prime interest rate plus
2.125% or the one-month Eurodollar rate plus 3.375%. The terms of the Term Loan
required the purchase of interest rate hedges in notional amounts equal to
$100.0 million in order to protect against adverse changes in the one-month
Eurodollar rate. Pursuant to these agreements, the Company has purchased
instruments that cap its exposure to the one-month Eurodollar rate at 6.625%.
The Term Loan contains provisions that allow the Banks to syndicate the Term
Loan, which could result in a change to the terms and structure of the Term
Loan, including an increase in interest rates. In addition, the Company is
required to pay a commitment fee equal to 0.375% per year of the average unused
portion of the Term Loan. As of December 31, 2001, the Company had outstanding
borrowings of $100.0 million under the Term Loan and was required to escrow
certain amounts in a completion reserve account for Gaylord Palms.
The Term Loan requires that the net proceeds from all asset sales by the Company
must be used to reduce outstanding borrowings until the borrowing capacity under
the Term Loan has been reduced to $60.0 million. The Company sold Word in
January 2002. The sale of Word required the prepayment of the Term Loan in the
amount of $80.0 million and, accordingly, this amount was classified as due
within one year in the December 31, 2001
32
consolidated balance sheet, resulting in a negative working capital balance at
December 31, 2001 of $26.7 million. Subsequent to the prepayment of the Term
Loan related to Word, the maximum amount available under the Term Loan reduces
to $100.0 million in October 2003, and to $50.0 million in April 2004, with full
repayment due in October 2004. Excess cash flows, as defined, generated by
Gaylord Palms must be used to reduce any amounts borrowed under the Term Loan
until its borrowing capacity is reduced to $85.0 million. Debt repayments under
the Term Loan reduce its borrowing capacity and are not eligible to be
re-borrowed. The Term Loan requires the Company to maintain certain escrowed
cash balances, comply with certain financial covenants, and imposes limitations
related to the payment of dividends, the incurrence of debt, the guaranty of
liens, and the sale of assets, as well as other customary covenants and
restrictions. At December 31, 2001, the unamortized balance of the deferred
financing costs related to the Term Loan was $5.6 million. The weighted average
interest rate, including amortization of deferred financing costs, under the
Term Loan for 2001 was 8.3%. As of March 19, 2002, the Company had $50 million
of outstanding borrowings and $70 million of future borrowing capacity under the
Term Loan.
Nashville Hotel Loans
In 2001, the Company, through wholly owned subsidiaries, entered into two loan
agreements, a $275.0 million senior loan (the "Senior Loan") and a $100.0
million mezzanine loan (the "Mezzanine Loan") (collectively, the "Nashville
Hotel Loans") with affiliates of Merrill Lynch & Company acting as principal.
The Senior Loan is secured by a first mortgage lien on the assets of Gaylord
Opryland and is due in 2004. Amounts outstanding under the Senior Loan bear
interest at one-month LIBOR plus approximately 0.9%. The Mezzanine Loan, secured
by the equity interest in the wholly-owned subsidiary that owns Gaylord
Opryland, is due in 2004 and bears interest at one-month LIBOR plus 6.0%. At the
Company's option, the Nashville Hotel Loans may be extended for two additional
one-year terms beyond their scheduled maturities, subject to Gaylord Opryland
meeting certain financial ratios and other criteria. The Nashville Hotel Loans
require monthly principal payments of $667,000 during their three-year terms in
addition to monthly interest payments. The terms of the Senior Loan and the
Mezzanine Loan required 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 that cap its exposure to
one-month LIBOR at 7.50%. The Company used $235.0 million of the proceeds from
the Nashville Hotel Loans to refinance a $250.0 million interim loan that was
scheduled to mature in April 2001. At closing, the Company was required to
escrow certain amounts, including $20.0 million related to future renovations
and related capital expenditures at Gaylord Opryland. The net proceeds from the
Nashville Hotel Loans after refinancing of the interim loan, required escrows
and fees were approximately $97.6 million. At December 31, 2001, the unamortized
balance of the deferred financing costs related to the Nashville Hotel Loans was
$13.8 million. The weighted average interest rates for the Senior Loan and the
Mezzanine Loan for 2001, including amortization of deferred financing costs,
were 6.2% and 12.0%, respectively.
The terms of the Nashville Hotel Loans require that the Company maintain certain
escrowed cash balances and comply with certain financial covenants, and impose
limits on transactions with affiliates and indebtedness. The financial covenants
under the Nashville Hotel Loans are structured such that noncompliance at one
level triggers certain cash management restrictions and noncompliance at a
second level results in an event of default. Based upon the financial covenant
calculations at December 31, 2001, the cash management restrictions are in
effect which requires that all excess cash flows, as defined, be escrowed and
may be used to repay principal amounts owed on the Senior Loan. As of March 19,
2002, approximately $16 million of escrowed excess cash flows have been utilized
to repay principal amounts owed on the Senior Loan. Based upon recent operating
results of Gaylord Opryland, the Company expects the cash management
restrictions to remain in effect for the foreseeable future.
The Company negotiated certain revisions to the financial covenants under the
Nashville Hotel Loans and the Term Loan subsequent to December 31, 2001. After
these revisions, the Company was in compliance with the covenants under the
Nashville Hotel Loans and the covenants under the Term Loan in which the failure
to comply would result in an event of default. There can be no assurance that
the Company will remain in compliance with the covenants that would result in an
event of default under the Nashville Hotel Loans or the Term Loan. Management's
projections and related operating plans indicate the Company will remain in
compliance with the revised financial covenants under the Nashville Hotel Loans
and the Term Loan during the first and second quarters of 2002, albeit by a
narrow margin. As with all projections, there can be no assurance that they will
be achieved. In addition, the Company is attempting to sell certain non-core
assets that would provide additional sources of capital. Any event of
noncompliance that results in an event of default under the Nashville Hotel
Loans or the Term Loan would enable the lenders to demand payment of all
outstanding amounts, which would have a material adverse effect on the Company's
financial position, results of operations and cash flows.
33
Capital Requirements
During 2001, the Company's capital expenditures were approximately $281 million,
including approximately $256 million related to construction of Gaylord Palms,
which opened in January 2002 and the new Gaylord hotel in Grapevine, Texas,
which is scheduled to open in mid-2004. The Company currently projects capital
expenditures for 2002 of approximately $150 million, which includes
approximately $62 million related to the completion of Gaylord Palms, continuing
construction at the new Gaylord hotel in Grapevine, Texas of $54 million and
approximately $19 million related to Gaylord Opryland.
Commitments
Future minimum cash lease commitments under all noncancelable operating leases
in effect for continuing operations at December 31, 2001 are as follows: 2002 -
$5.0 million, 2003 - $5.0 million, 2004 - $4.8 million, 2005 - $4.4 million,
2006 - $4.3 million, and 2007 and thereafter - $689.2 million.
The Company entered into a 75-year operating lease agreement during 1999 for
65.3 acres of land located in Osceola County, Florida for the development of
Gaylord Palms. The lease required annual lease payments of approximately $0.9
million until the completion of construction in 2002, at which point the annual
lease payments increased to approximately $3.2 million. The lease agreement
provides for a 3% escalation of base rent each year beginning five years after
the opening of Gaylord Palms.
During 1999, the Company entered into a construction contract for the
development of the Gaylord Palms. The Company expects payments of approximately
$300 million related to the construction contract during the construction
period. Gaylord Palms opened in January 2002. As of December 31, 2001, the
Company has paid approximately $272.9 million related to this construction
contract, which is included as construction in progress in property and
equipment in the Company's consolidated balance sheets.
During 2001 and 2002, the Company entered into certain agreements related to the
construction of the new Gaylord hotel in Grapevine, Texas. The Company expects
payments of approximately $190 million related to these agreements. At December
31, 2001, the Company has paid approximately $53.5 million related to these
agreements, which is included as construction in progress in property and
equipment in the Company's consolidated balance sheets.
During 1999, the Company entered into a 20-year naming rights agreement related
to the Nashville Arena with the Nashville Predators. The Nashville Arena has
been renamed the Gaylord Entertainment Center as a result of the agreement. A
director of the Company owns a majority equity interest in the Nashville
Predators. The contractual commitment required the Company to pay $2.1 million
during the first year of the contract, with a 5% escalation each year for the
remaining term of the agreement.
Future Financing
The Company's cash flow is largely dependent upon the success and profitability
of its hotel operations. The key financial drivers of the Company's hotels are
occupancy rates and average room rates. Gaylord Opryland has experienced
declining occupancy rates over each of the previous five years, and occupancy
has declined approximately 15 percentage points over that five-year period,
while average room rates have increased at a compounded rate of approximately
1.8% over that period. As discussed above, all excess cash flows from Gaylord
Opryland are currently being retained by the lenders under the Nashville Hotel
Loans and will continue to be retained unless and until the operating
performance of Gaylord Opryland improves. In addition, all excess cash flows
from Gaylord Palms will be used to pay down the Term Loan until the maximum
borrowing amount under the Term Loan is reduced to $85 million.
34
While the Company has available the balance of the net proceeds from the Term
Loan, its unrestricted cash, 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 its hotel construction projects
and to fund its anticipated operating losses. While there is no assurance that
any further financing will be secured, the Company believes it will secure
acceptable funding. However, if the Company is unable to obtain any part of the
additional 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. As
previously discussed, the Company is extending the construction period for the
new Gaylord hotel in Grapevine, Texas for up to nine months and reducing its
construction spending in the short term. The Gaylord hotel in Grapevine, Texas,
originally scheduled to open in August 2003, is now scheduled to open in
mid-2004.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 supercedes 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 at least annually and whenever events or circumstances
occur indicating that these intangible assets may be impaired. The Company
adopted the provisions of SFAS No. 141 in June of 2001. The Company will adopt
the provisions of SFAS No. 142 on January 1, 2002 and anticipates that a
substantial amount of its intangible assets will no longer be amortized
beginning January 1, 2002 with the adoption of the new standard.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 amends accounting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 requires companies to record the fair value of the liability
for an asset retirement obligation in the period in which the liability is
incurred. The Company will adopt the provisions of SFAS No. 143 on January 1,
2003 and is currently assessing the impact of SFAS No. 143 on its financial
statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". As discussed previously, the Company adopted the
provisions of SFAS No. 144 during 2001, with an effective date of January 1,
2001.
RECENT DEVELOPMENTS
On February 20, 2002, the Company disclosed that it intended to dispose of its
ownership interests in the Oklahoma Redhawks and certain real estate, as well as
its investments in the Nashville Predators and Opry Mills. In addition, the
Company stated that it was evaluating strategic alternatives with regard to
Acuff-Rose Music Publishing and its investment in Bass Pro.
The Job Creation and Worker Assistance Act of 2002 was enacted on March 9, 2002.
This legislation allows a five-year carryback for losses incurred in 2001. This
change in tax law will allow the Company to recover during 2002 approximately
$15.6 million of federal income taxes previously paid related to losses incurred
in 2001.
In the first quarter of 2002 the Company finalized a transaction to sell certain
assets of its Asia and Brazil networks, including the assignment of certain
transponder leases. The transponder lease assignment required the Company to
guarantee lease payments in 2002 from the acquirer of these networks. As a
result of the transponder lease assignment, the Company may reduce its recorded
transponder lease liabilities in 2002.
FORWARD-LOOKING STATEMENTS
This report contains statements with respect to the Company's beliefs and
expectations of the outcomes of future events that are forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties,
including, without limitation, the factors set forth under the caption "Risk
Factors." Forward-looking statements include discussions regarding the Company's
35
operating strategy, strategic plan, hotel development strategy, industry and
economic conditions, financial condition, liquidity and capital resources, and
results of operations. You can identify these statements by forward-looking
words such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates," "projects," and similar expressions. Although we believe that the
plans, objectives, expectations and prospects reflected in or suggested by our
forward-looking statements are reasonable, those statements involve
uncertainties and risks, and we cannot assure you that our plans, objectives,
expectations and prospects will be achieved. Our actual results could differ
materially from the results anticipated by the forward-looking statements as a
result of many known and unknown factors, including, but not limited to, those
contained in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, and elsewhere in this report. All written or oral
forward-looking statements attributable to us are expressly qualified in their
entirety by these cautionary statements. The Company does not undertake any
obligation to update or to release publicly any revisions to forward-looking
statements contained in this report to reflect events or circumstances occurring
after the date of this report or to reflect the occurrence of unanticipated
events.
MARKET RISK
The following discusses the Company's exposure to market risk related to changes
in stock prices, interest rates and foreign currency exchange rates.
Investments - At December 31, 2001, the Company held an investment of 11 million
shares of Viacom Class B common stock, which was received as the result of the
acquisition of television station KTVT by CBS in 1999 and the subsequent
acquisition of CBS by Viacom in 2000. The Company entered into a secured forward
exchange contract related to 10.9 million shares of the Viacom stock in 2000.
The secured forward exchange contract protects the Company against decreases in
the fair market value of the Viacom stock, while providing for participation in
increases in the fair market value. At December 31, 2001, the fair market value
of the Company's investment in the 11 million shares of Viacom stock was $485.8
million, or $44.15 per share. The secured forward exchange contract protects the
Company for market decreases below $56.04 per share, thereby limiting the
Company's market risk exposure related to the Viacom stock. At per share prices
greater than $56.04, the Company retains 100% of the per-share appreciation to a
maximum per-share price of $75.66. For per-share appreciation above $75.66, the
Company participates in 25.9% of the appreciation.
Outstanding Debt - The Company has exposure to interest rate changes primarily
relating to outstanding indebtedness under the Term Loan, the Nashville Hotel
Loans and potentially, with future financing arrangements. The Term Loan bears
interest, at the Company's option, at the prime interest rate plus 2.125% or the
Eurodollar rate plus 3.375%. The terms of the Term Loan require the purchase of
interest rate hedges in notional amounts equal to $100 million in order to
protect against adverse changes in the one-month Eurodollar rate. Pursuant to
these agreements, the Company has purchased instruments that cap its exposure to
the one-month Eurodollar rate at 6.625%. The terms of the Nashville Hotel Loans
require the purchase of interest rate hedges in notional amounts equal to the
outstanding balances of the Nashville Hotel Loans in order to protect against
adverse changes in one-month LIBOR. Pursuant to these agreements, the Company
has purchased instruments that cap its exposure to one-month LIBOR at 7.50%. The
Company is currently negotiating with its lenders and others regarding the
Company's future financing arrangements. If LIBOR and Eurodollar rates were to
increase by 100 basis points each, the estimated impact on the Company's
consolidated financial statements would be to reduce net income by approximately
$1.8 million after taxes based on debt amounts outstanding at January 4, 2002
(subsequent to the repayment of debt related to the Word transaction).
Cash Balances - Certain of the Company's outstanding cash balances are
occasionally invested overnight with high credit quality financial institutions.
The Company does not have significant exposure to changing interest rates on
invested cash at December 31, 2001. As a result, the interest rate market risk
implicit in these investments at December 31, 2001, if any, is low.
Foreign Currency Exchange Rates - Substantially all of the Company's revenues
are realized in U.S. dollars and are from customers in the United States.
Although the Company owns certain subsidiaries who conduct business in foreign
markets and whose transactions are settled in foreign currencies, these
operations are not material to the overall operations of the Company. Therefore,
the Company does not believe it has any significant foreign currency exchange
rate risk. The Company does not hedge against foreign currency exchange rate
changes and does not speculate on the future direction of foreign currencies.
36
Summary - Based upon the Company's overall market risk exposures at December 31,
2001, the Company believes that the effects of changes in the stock price of its
Viacom stock or interest rates could be material to the Company's consolidated
financial position, results of operations or cash flows. However, the Company
believes that the effects of fluctuations in foreign currency exchange rates on
the Company's consolidated financial position, results of operations or cash
flows would not be material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information called for by this Item is provided under the caption
"Market Risk" under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item is contained in the Company's
consolidated financial statements indicated in the Index on page F-1 of this
annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about our Directors is incorporated herein by reference to
the discussion under the heading "Item 1 - Election of Directors" in our Proxy
Statement for the 2002 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission.
Information required by Item 405 of Regulation S-K is incorporated
herein by reference to the discussion under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance" in our Proxy Statement for the 2002
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission.
Certain other information concerning executive officers and certain
other officers of the Company is included in Part I of this Form 10-K under the
caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference to the discussion under the heading "Executive Compensation" in our
Proxy Statement for the 2002 Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference to the discussion under the heading "Beneficial Ownership" in our
Proxy Statement for the 2002 Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by
reference to the discussion under the heading "Certain Relationships and Related
Transactions" in our Proxy Statement for the 2002 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
14(A)(1) FINANCIAL STATEMENTS
The accompanying index to financial statements on page F-1 of this
annual report on Form 10-K is provided in response to this Item.
14(A)(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed as a part of this
report, with reference to the applicable pages of this annual report on Form
10-K:
Schedule II - Valuation and Qualifying Accounts for the Year Ended
December 31, 2001........................................................ S-2
Schedule II - Valuation and Qualifying Accounts for the Year Ended
December 31, 2000........................................................ S-3
Schedule II - Valuation and Qualifying Accounts for the Year Ended
December 31, 1999........................................................ S-4
All other financial statement schedules for which provision is made in
the applicable accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and,
therefore, have been omitted.
14(A)(3) EXHIBITS
See Index to Exhibits, pages 40 through 43.
14(B) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed with the Securities and
Exchange Commission during the fourth quarter of 2001.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Colin V. Reed
------------------------------------------
Colin V. Reed
March 29, 2002 President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Michael D. Rose Chairman of the Board March 29, 2002
- -------------------------------------------
Michael D. Rose
/s/ Martin C. Dickinson Director March 29, 2002
- -------------------------------------------
Martin C. Dickinson
/s/ Christine Gaylord Everest Director March 29, 2002
- -------------------------------------------
Christine Gaylord Everest
/s/ Edward L. Gaylord Chairman Emeritus March 29, 2002
- -------------------------------------------
Edward L. Gaylord
/s/ E. K. Gaylord, II Director March 29, 2002
- -------------------------------------------
E. K. Gaylord, II
/s/ Craig L. Leipold Director March 29, 2002
- -------------------------------------------
Craig L. Leipold
/s/ Joe M. Rodgers Director March 29, 2002
- -------------------------------------------
Joe M. Rodgers
/s/ Laurence S. Geller Director March 29, 2002
- -------------------------------------------
Laurence S. Geller
/s/ E. Gordon Gee Director March 29, 2002
- -------------------------------------------
E. Gordon Gee
/s/ Mary Agnes Wilderotter Director March 29, 2002
- -------------------------------------------
Mary Agnes Wilderotter
/s/ Ralph Horn Director March 29, 2002
- -------------------------------------------
Ralph Horn
/s/ Colin V. Reed Director, President and March 29, 2002
- ------------------------------------------- Chief Executive Officer
Colin V. Reed
Executive Vice President and
/s/ David C. Kloeppel Chief Financial Officer March 29, 2002
- ------------------------------------------- (Principal Financial Officer
David C. Kloeppel and Accounting Officer)
39
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1+ Asset Purchase Agreement, dated as of November 21, 1996 by and among
Thomas Nelson, Inc., Word Incorporated and Word Direct Partners, L.P.
as Sellers and Old Gaylord as Buyer (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K, dated January 6, 1997,
of Thomas Nelson, Inc. (File No. 1-13788)).
2.2+ Amendment No. 1 to the Asset Purchase Agreement dated as of January 6,
1997, by and among Thomas Nelson, Inc., Word Incorporated and Word
Direct Partners, L.P. as Sellers and Old Gaylord as Buyer
(incorporated by reference to Exhibit 2.2 to the Current Report on
Form 8-K, dated January 6, 1997, of Thomas Nelson, Inc. (File No.
1-13788)).
2.3+ Asset Purchase Agreement, dated as of January 6, 1997, by and between
Nelson Word Limited and Word Entertainment Limited (incorporated by
reference to Exhibit 2.3 to the Current Report on Form 8-K, dated
January 6, 1997, of Thomas Nelson, Inc. (File No. 1-13788)).
2.4+ Subsidiary Asset Purchase Agreement executed on January 6, 1997 and
dated as of November 21, 1996 between Word Communications, Ltd. and
Word Entertainment (Canada), Inc. (incorporated by reference to
Exhibit 2.4 to the Current Report on Form 8-K, dated January 6, 1997,
of Thomas Nelson, Inc. (File No. 1-13788)).
2.5+ Agreement and Plan of Merger dated February 9, 1997 by and among
Westinghouse Electric Corporation ("Westinghouse"), G Acquisition
Corp. and Old Gaylord (incorporated by reference to Exhibit 2.1 to Old
Gaylord's Current Report on Form 8-K dated February 9, 1997 (File No.
1-10881)).
2.6+ Agreement and Plan of Merger, dated as of April 9, 1999, by and among
the Registrant, Gaylord Television Company, Gaylord Communications,
Inc., CBS Corporation, CBS Dallas Ventures, Inc. and CBS Dallas Media,
Inc. (incorporated by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K dated April 19, 1999 (File No. 1-13079)).
2.7+ First Amendment to the Agreement and Plan of Merger, dated as of
October 8, 1999, by and among the Registrant, Gaylord Television
Company, Gaylord Communications, Inc., CBS Corporation, CBS Dallas
Ventures, Inc. and CBS Dallas Media, Inc. (incorporated by reference
to Exhibit 2.3 to the Registration Statement on Form S-3 of CBS
Corporation, as filed with the Securities and Exchange Commission on
October 12, 1999 (File No. 333-88775)).
2.8+ Securities Purchase Agreement, dated as of March 9, 2001, by and among
the Registrant, Gaylord Creative Group, Inc., PaperBoy Productions,
Inc., and Gaylord Sports, Inc. (incorporated by reference to Exhibit
2.8 to Gaylord's Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 1-13079)).
2.9 Purchase Agreement among WMGA, LLC and Registrant, and Registrant's
subsidiary, Gaylord Creative Group, Inc. (incorporated by reference to
Exhibit 2.1 to Registrant's Current Report on Form 8-K dated January
16, 2002).
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 (File No. 1-13079)).
3.2 Amendment to Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001).
3.3 Restated Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form 10, as
amended (File No. 1-13079)).
40
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form 10, as
amended (File No. 1-13079)).
10.1 Tax Disaffiliation Agreement by and among Old Gaylord, the Registrant
and Westinghouse, dated September 30, 1997 (incorporated by reference
to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, dated
October 7, 1997 (File No. 1-13079)).
10.2 Agreement and Plan of Distribution, dated September 30, 1997, between
Old Gaylord and the Registrant (incorporated by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K dated October 7,
1997 (File No. 1-13079)).
10.3 Opry Mills Limited Partnership Agreement, executed as of March 31,
1998, by and among Opry Mills, L.L.C., The Mills Limited Partnership,
and Opryland Attractions, Inc. (incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 (File No. 1-13079)).
10.4 Tax Matters Agreement, dated as of April 9, 1999, by and among the
Registrant, Gaylord Television Company, Gaylord Communications, Inc.
and CBS Corporation (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated April 19, 1999).
10.5 Amended and Restated Tax Matters Agreement, dated as of October 8,
1999, by and among the Registrant, Gaylord Television Company, Gaylord
Communications, Inc. and CBS Corporation (incorporated by reference to
Exhibit 2.4 to the Registration Statement on Form S-3 of CBS
Corporation, as filed with the Securities and Exchange Commission on
October 12, 1999).
10.6 First Amendment to Post-Closing Covenants Agreement and
Non-Competition Agreements, dated as of April 9, 1999, by and among
the Registrant, CBS Corporation, Edward L. Gaylord and E. K. Gaylord,
II (incorporated by reference to Exhibit 10.2 to the Registrant's
Current Report on Form 8-K dated April 19, 1999).
10.7 Opryland Hotel - Florida Ground Lease, dated as of March 3, 1999, by
and between Xentury City Development Company, L.C., and Opryland Hotel
- Florida Limited Partnership (incorporated by reference to Exhibit
10.11 to Gaylord's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.8 Guaranteed Maximum Price (GMP) Construction Agreement dated as of
November 8, 1999, by and among Opryland Hotel - Florida, L.P. Opryland
Hospitality Group, and Perini/Suitt (incorporated by reference to
Exhibit 10.8 to Gaylord's Annual Report on Form 10-K for the year
ended December 31, 2000).
10.9 First Amendment to Guaranteed Maximum Price (GMP) Construction
Agreement dated as of September 5, 2000 by and among Opryland Hotel -
Florida, L.P., Opryland Hospitality Group d/b/a OLH, G.P., and
Perini/Suitt (incorporated by reference to Exhibit 10.9 to Gaylord's
Annual Report on Form 10-K for the year ended December 31, 2000).
10.10 Naming Rights Agreement dated as of November 24, 1999, by and between
Registrant and Nashville Hockey Club Limited Partnership (incorporated
by reference to Exhibit 10.24 to Gaylord's Annual Report on Form 10-K
for the year ended December 31, 1999).
10.11 SAILS Mandatorily Exchangeable Securities Contract dated as of May 22,
2000, among the Registrant, OLH G.P., Credit Suisse First Boston
International, and Credit Suisse First Boston Corporation, as agent
(incorporated by reference to Exhibit 10.1 to the registrant's Current
Report on Form 8-K dated May 23, 2000).
41
10.12 SAILS Pledge Agreement dated as of May 22, 2000, among the Registrant,
Credit Suisse First Boston International, and Credit Suisse First
Boston Corporation, as agent (incorporated by reference to Exhibit
10.2 to the registrant's Current Report on Form 8-K dated May 23,
2000).
10.13 Amended and Restated Loan and Security Agreement dated as of March 27,
2001, by and between Opryland Hotel Nashville, LLC, and Merrill Lynch
Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13 to
Gaylord's Annual Report on Form 10-K for the year ended December 31,
2000).
10.14 Mezzanine Loan Agreement dated as of March 27, 2001, by and between
Merrill Lynch Mortgage Capital Inc. and OHN Holdings, LLC
(incorporated by reference to Exhibit 10.14 to Gaylord's Annual Report
on Form 10-K for the year ended December 31, 2000).
10.15+* Credit Agreement, dated as of October 9, 2001 by and among Registrant,
Opryland Hotel-Florida, L.P., Banker's Trust Company, Deutsche Banc,
Alex. Brown, Inc. and Salomon Smith Barney, Inc.
EXECUTIVE COMPENSATION PLANS AND
MANAGEMENT CONTRACTS
10.16 Gaylord Entertainment Company 1997 Omnibus Stock Option and Incentive
Plan (incorporated by reference to Exhibit 10.15 to Gaylord's Annual
Report on Form 10-K for the year ended December 31, 2000).
10.17 The Opryland USA Inc. Supplemental Deferred Compensation Plan
(incorporated by reference to Exhibit 10.11 to Old Gaylord's
Registration Statement on Form S-1 (Registration No. 33-42329)).
10.18 Gaylord Entertainment Company Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.31 to Old Gaylord's Annual
Report on Form 10-K for the year ended December 31, 1994 (File No.
1-10881)).
10.19 Amended and Restated Gaylord Entertainment Company Directors' Unfunded
Deferred Compensation Plan (incorporated by reference to Exhibit 10.17
to Gaylord's Annual Report on Form 10-K for the year ended December
31, 1999).
10.20 Gaylord Entertainment Company Retirement Benefit Restoration Plan
(incorporated by reference to Exhibit 10.19 to Gaylord's Annual Report
on Form 10-K for the year ended December 31, 2000).
10.21 Form of Severance Agreement between the Registrant and certain of its
executive officers (incorporated by reference to Exhibit 10.23 to Old
Gaylord's Annual Report on Form 10-K for the year ended December 31,
1996 (File No. 1-10881)).
10.22* Consulting Agreement, dated October 31, 2001, between the Registrant
and Dave Jones.
10.23 Letter agreement dated August 10, 2000 between the Registrant and
Terry E. London (incorporated by reference to Exhibit 10.23 to
Gaylord's Annual Report on Form 10-K for the year ended December 31,
2000).
10.24 Employment Agreement dated September 14, 2000 between the Registrant
and Dennis J. Sullivan, Jr. (incorporated by reference to Exhibit
10.24 to Gaylord's Annual Report on Form 10-K for the year ended
December 31, 2000).
42
10.25 Letter agreement dated September 15, 2000 between the Registrant and
James "Tim" DuBois (incorporated by reference to Exhibit 10.25 to
Gaylord's Annual Report on Form 10-K for the year ended December 31,
2000).
10.26 Letter Agreement dated February 14, 2001 between the Registrant and
Carl W. Kornmeyer (incorporated by reference to Exhibit 10.26 to
Gaylord's Annual Report on Form 10-K for the year ended December 31,
2000).
10.27 Executive Employment Agreement of David C. Kloeppel, dated September
4, 2001, with Registrant (incorporated by reference to Exhibit 10.1 to
Gaylord's Quarterly Report on Form 10-Q for quarter ended September
30, 2001).
10.28 Executive Employment Agreement of Colin V. Reed, dated April 23, 2001,
with Registrant (incorporated by reference to Exhibit 10.1 to
Gaylord's Quarterly Report on Form 10-Q for quarter ended June 30,
2001).
10.29 Executive Employment Agreement of Michael D. Rose, dated April 23,
2001, with Registrant (incorporated by reference to Exhibit 10.2 to
Gaylord's Quarterly Report on Form 10-Q for quarter ended June 30,
2001).
10.30* Indemnification Agreement, dated as of April 23, 2001, by and between
the Registrant and Colin V. Reed.
10.31* Indemnification Agreement, dated as of April 23, 2001, by and between
the Registrant and Michael D. Rose.
10.32* Gaylord Entertainment Company Director Compensation Policy.
21* Subsidiaries of Gaylord Entertainment Company.
23* Consent of Independent Public Accountants.
99* Letter to Commission regarding Temporary Rule 3T.
- -----------
+ As directed by Item 601(b)(2) of Regulation S-K, certain schedules and
exhibits to this exhibit are omitted from this filing. The Registrant
agrees to furnish supplementally a copy of any omitted schedule or exhibit
to the Commission upon request.
* Filed herewith.
43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of GAYLORD ENTERTAINMENT
COMPANY as of December 31, 2001 and 2000 and for each of the three years in the
period ended December 31, 2001 included in this Annual Report on Form 10-K and
have issued our report thereon dated February 8, 2002 (except with respect to
the matters discussed in Note 18 to the financial statements, as to which the
date is March 9, 2002). Our report on the financial statements includes an
explanatory paragraph with respect to the change in the method of accounting for
derivative financial instruments (as discussed in Notes 1 and 10 to the
financial statements) and accounting for the disposition of long-lived assets
(as discussed in Notes 1 and 4 to the financial statements). Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The financial statement schedules listed in response to Item 14(a)(2)
of this Annual Report on Form 10-K are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and regulations under the Securities and Exchange
Act of 1934 and are not otherwise a required part of the basic financial
statements. The financial statement schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state, in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 8, 2002
S-1
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
ADDITIONS CHARGED TO
BALANCE AT ----------------------- BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- --------- -------- ---------- ---------
2000 restructuring charges - continuing
operations $10,887 $(3,666) $ -- $ 5,652 $ 1,569
2001 restructuring charges - continuing
operations -- 5,848 -- 1,680 4,168
------- ------- ------- ------- -------
Total continuing operations 10,887 2,182 -- 7,332 5,737
------- ------- ------- ------- -------
2000 restructuring charges - discontinued
operations 2,222 (382) -- 1,840 --
2001 restructuring charges - discontinued
operations -- 3,341 -- -- 3,341
------- ------- ------- ------- -------
Total discontinued operations 2,222 2,959 -- 1,840 3,341
------- ------- ------- ------- -------
Total $13,109 $ 5,141 $ -- $ 9,172 $ 9,078
======= ======= ======= ======= =======
S-2
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
ADDITIONS CHARGED TO
BALANCE AT ------------------------ BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- --------- -------- ---------- ---------
1999 restructuring charges - continuing
operations $ 469 $ (233) $ -- $ 236 $ --
2000 restructuring charges - continuing
operations -- 13,331 -- 2,444 10,887
-------- -------- -------- -------- --------
Total continuing operations 469 13,098 -- 2,680 10,887
-------- -------- -------- -------- --------
1999 restructuring charges - discontinued
operations 30 -- -- 30 --
2000 restructuring charges - discontinued
operations -- 3,095 -- 873 2,222
-------- -------- -------- -------- --------
Total discontinued operations 30 3,095 -- 903 2,222
-------- -------- -------- -------- --------
Total $ 499 $ 16,193 $ -- $ 3,583 $ 13,109
======== ======== ======== ======== ========
S-3
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
ADDITIONS CHARGED TO
BALANCE AT -------------------- BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- --------- -------- ---------- ---------
1997 restructuring charges - continuing
operations $2,294 $ -- $ -- $2,294 $ --
1999 restructuring charges - continuing
operations -- 2,786 -- 2,317 469
------ ------ ------ ------ ------
Total continuing operations 2,294 2,786 -- 4,611 469
------ ------ ------ ------ ------
1999 restructuring charges - discontinued
operations -- 316 -- 286 30
------ ------ ------ ------ ------
Total $2,294 $3,102 $ -- $4,897 $ 499
====== ====== ====== ====== ======
S-4
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors............................................. F-2
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999.................................. F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000............... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999.................................. F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gaylord Entertainment Company:
We have audited the accompanying consolidated balance sheets of GAYLORD
ENTERTAINMENT COMPANY (a Delaware corporation) and its subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gaylord
Entertainment Company and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
As explained in Notes 1 and 10, upon adoption of a new accounting pronouncement
effective January 1, 2001, the Company changed its method of accounting for
derivative financial instruments. In addition, as discussed in Notes 1 and 4,
upon early adoption of a separate new accounting pronouncement effective January
1, 2001, the Company changed its method of accounting for the disposition of
long-lived assets.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 8, 2002
(except with respect to the matters discussed in Note 18,
as to which the date is March 9, 2002)
F-2
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Amounts in thousands, except per share data)
2001 2000 1999
--------- --------- ---------
REVENUES $ 325,159 $ 335,462 $ 369,851
OPERATING EXPENSES:
Operating costs 218,357 226,126 234,645
Selling, general and administrative 71,718 93,958 80,489
Preopening costs 15,141 5,278 1,892
Impairment and other charges 14,262 76,597 --
Restructuring charges 2,182 13,098 2,786
Merger costs -- -- (1,741)
Depreciation and amortization 41,275 47,580 42,733
--------- --------- ---------
Operating income (loss) (37,776) (127,175) 9,047
INTEREST EXPENSE, NET OF AMOUNTS CAPITALIZED (39,365) (30,319) (15,047)
INTEREST INCOME 5,625 4,173 6,090
UNREALIZED GAIN ON VIACOM STOCK, NET 782 -- --
UNREALIZED GAIN ON DERIVATIVES, NET 54,282 -- --
OTHER GAINS AND LOSSES 5,976 (1,277) 589,882
--------- --------- ---------
Income (loss) before cumulative effect of accounting change
and provision (benefit) for income taxes (10,476) (154,598) 589,972
PROVISION (BENEFIT) FOR INCOME TAXES (3,188) (49,867) 222,342
--------- --------- ---------
Income (loss) from continuing operations before cumulative
effect of accounting change (7,288) (104,731) 367,630
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES (52,364) (48,739) (17,838)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAXES 11,909 -- --
--------- --------- ---------
Net income (loss) $ (47,743) $(153,470) $ 349,792
========= ========= =========
INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations $ (0.22) $ (3.14) $ 11.17
Loss from discontinued operations, net of taxes (1.55) (1.46) (0.54)
Cumulative effect of accounting change, net of taxes 0.35 -- --
--------- --------- ---------
Net income (loss) $ (1.42) $ (4.60) $ 10.63
========= ========= =========
INCOME (LOSS) PER SHARE - ASSUMING DILUTION:
Income (loss) from continuing operations $ (0.22) $ (3.14) $ 11.07
Loss from discontinued operations, net of taxes (1.55) (1.46) (0.54)
Cumulative effect of accounting change, net of taxes 0.35 -- --
--------- --------- ---------
Net income (loss) $ (1.42) $ (4.60) $ 10.53
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(Amounts in thousands, except per share data)
2001 2000
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents - unrestricted $ 10,846 $ 27,847
Cash and cash equivalents - restricted 64,993 12,667
Trade receivables, less allowance of $3,185 and $3,449, respectively 19,264 23,302
Deferred financing costs 26,865 29,674
Other current assets 18,462 40,626
Current assets of discontinued operations 42,880 81,537
----------- -----------
Total current assets 183,310 215,653
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 1,000,332 756,537
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 25,335 21,838
INVESTMENTS 561,409 597,213
ESTIMATED FAIR VALUE OF DERIVATIVE ASSETS 158,028 --
LONG-TERM DEFERRED FINANCING COSTS 137,513 144,998
OTHER ASSETS 47,702 60,735
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS 54,193 142,579
----------- -----------
Total assets $ 2,167,822 $ 1,939,553
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 88,004 $ 175,500
Accounts payable and accrued liabilities 98,419 112,193
Current liabilities of discontinued operations 23,635 41,030
----------- -----------
Total current liabilities 210,058 328,723
SECURED FORWARD EXCHANGE CONTRACT 613,054 613,054
LONG-TERM DEBT, NET OF CURRENT PORTION 380,993 --
DEFERRED INCOME TAXES, NET 165,824 204,805
ESTIMATED FAIR VALUE OF DERIVATIVE LIABILITIES 85,424 --
OTHER LIABILITIES 52,304 43,009
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS 7 20,551
MINORITY INTERESTS 1,679 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, 150,000 shares authorized, 33,736
and 33,411 shares issued and outstanding, respectively 337 334
Additional paid-in capital 519,515 513,599
Retained earnings 149,815 197,558
Unrealized gain on investments, net -- 17,957
Other stockholders' equity (11,188) (1,583)
----------- -----------
Total stockholders' equity 658,479 727,865
----------- -----------
Total liabilities and stockholders' equity $ 2,167,822 $ 1,939,553
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Amounts in thousands)
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (47,743) $(153,470) $ 349,792
Amounts to reconcile net income (loss) to net cash flows
provided by operating activities:
Loss on discontinued operations, net of taxes 52,364 48,739 17,838
Impairment and other charges 14,262 76,597 --
Cumulative effect of accounting change, net of taxes (11,909) -- --
Unrealized gain on Viacom stock and related derivatives (55,064) -- --
Depreciation and amortization 41,275 47,580 42,733
(Gain) loss on divestiture of businesses -- 3,250 (459,307)
Provision (benefit) for deferred income taxes (3,229) (24,580) 185,497
Gain on equity participation rights -- -- (129,875)
Amortization of deferred financing costs 35,987 20,780 --
Changes in (net of acquisitions and divestitures):
Trade receivables 4,038 9,159 4,219
Accounts payable and accrued liabilities 8,657 20,842 13,276
Other assets and liabilities (5,254) (15,103) 1,607
--------- --------- ---------
Net cash flows provided by operating activities - continuing
operations 33,384 33,794 25,780
Net cash flows used in operating activities - discontinued
operations (9,879) (18,492) (19,623)
--------- --------- ---------
Net cash flows provided by operating activities 23,505 15,302 6,157
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (281,138) (230,493) (79,706)
Acquisition of businesses, net of cash acquired -- (11,620) (26,437)
Proceeds from equity participation rights -- -- 130,000
Other investing activities (1,486) (25,828) (30,462)
--------- --------- ---------
Net cash flows used in investing activities - continuing
operations (282,624) (267,941) (6,605)
Net cash flows provided by (used in) investing activities -
discontinued operations 15,633 (24,582) (10,594)
--------- --------- ---------
Net cash flows used in investing activities (266,991) (292,523) (17,199)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 535,000 175,500 500
Repayment of long-term debt (241,503) (3,500) (8,250)
Cash proceeds from secured forward exchange contract -- 613,054 --
Deferred financing costs paid (25,906) (195,452) --
Net borrowings (payments) under revolving credit agreements -- (294,000) 41,172
Increase in restricted cash and cash equivalents (52,326) (12,667) --
Dividends paid -- -- (26,355)
Proceeds from exercise of stock option and purchase plans 2,548 2,136 10,205
--------- --------- ---------
Net cash flows provided by financing activities - continuing
operations 217,813 285,071 17,272
Net cash flows provided by (used in) financing activities -
discontinued operations 2,904 9,306 (6,280)
--------- --------- ---------
Net cash flows provided by financing activities 220,717 294,377 10,992
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (22,769) 17,156 (50)
CHANGE IN CASH AND CASH EQUIVALENTS, DISCONTINUED OPERATIONS 5,768 (254) 2,991
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 27,847 10,945 8,004
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,846 $ 27,847 $ 10,945
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Amounts in thousands)
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED UNEARNED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS COMPENSATION INCOME (LOSS) EQUITY
--------- --------- --------- ------------ ------------- ------------
BALANCE, DECEMBER 31, 1998 $ 328 $500,434 $ 26,699 $(1,862) $ (439) $ 525,160
COMPREHENSIVE INCOME:
Net income -- -- 349,792 -- -- 349,792
Unrealized gain on
investments, net -- -- -- -- 99,858 99,858
Foreign currency translation -- -- -- -- (359) (359)
---------
Comprehensive income 449,291
Cash dividends ($0.80 per share) -- -- (26,355) -- -- (26,355)
CBS Merger arbitration
settlement -- -- 892 -- -- 892
Exercise of stock options 5 10,125 -- -- -- 10,130
Tax benefit on stock options -- 1,443 -- -- -- 1,443
Employee stock plan purchases -- 75 -- -- -- 75
Issuance of restricted stock -- 231 -- (231) -- --
Compensation expense -- -- -- 523 -- 523
--------- --------- --------- ------- --------- ---------
BALANCE, DECEMBER 31, 1999 333 512,308 351,028 (1,570) 99,060 961,159
COMPREHENSIVE LOSS:
Net loss -- -- (153,470) -- -- (153,470)
Unrealized loss on
investments, net -- -- -- -- (81,901) (81,901)
Foreign currency translation -- -- -- -- (705) (705)
---------
Comprehensive loss (236,076)
Exercise of stock options 2 1,845 -- -- -- 1,847
Tax benefit on stock options -- 1,000 -- -- -- 1,000
Employee stock plan purchases -- 289 -- -- -- 289
Issuance of restricted stock 1 2,776 -- (2,777) -- --
Cancellation of restricted stock (2) (4,705) -- 4,707 -- --
Compensation expense -- 86 -- (440) -- (354)
--------- --------- --------- ------- --------- ---------
BALANCE, DECEMBER 31, 2000 334 513,599 197,558 (80) 16,454 727,865
COMPREHENSIVE LOSS:
Net loss -- -- (47,743) -- -- (47,743)
Reclassification of gain on
marketable securities -- -- -- -- (17,957) (17,957)
Unrealized loss on interest
rate caps -- -- -- -- (213) (213)
Minimum pension liability -- -- -- -- (8,162) (8,162)
Foreign currency translation -- -- -- -- 711 711
---------
Comprehensive loss (73,364)
Exercise of stock options 2 2,327 -- -- -- 2,329
Tax benefit on stock options -- 720 -- -- -- 720
Employee stock plan purchases -- 219 -- -- -- 219
Issuance of restricted stock 1 3,664 -- (3,665) -- --
Cancellation of restricted stock -- (928) -- 928 -- --
Compensation expense -- (86) -- 796 -- 710
--------- --------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 2001 $ 337 $519,515 $149,815 $(2,021) $(9,167) $ 658,479
========= ========= ======== ======== ======== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Gaylord Entertainment Company (the "Company") is a diversified hospitality
and entertainment company operating, through its subsidiaries, principally
in four business segments: hospitality; attractions; media and corporate
and other. The Company has restated its reportable segments during 2001 for
all periods presented based upon internal realignment of operational
responsibilities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise
and Related Information". Certain businesses owned during 2001 have been
reclassified as discontinued operations as described in more detail below
and in Note 4.
BUSINESS SEGMENTS
Hospitality
The hospitality segment includes the operations of Gaylord Hotels(TM)
branded hotels and the Radisson Hotel at Opryland. At December 31, 2001,
the Company owns and operates the Gaylord Opryland Resort Hotel and
Convention Center ("Gaylord Opryland") (formerly known as the Opryland
Hotel Nashville) and the Radisson Hotel at Opryland, both located in
Nashville, Tennessee. Gaylord Opryland is owned and operated by Opryland
Hotel Nashville, LLC, a consolidated wholly-owned separate legal entity
incorporated in Delaware. During 1999, the Company began developing hotel
projects near Orlando, Florida and Dallas, Texas. The Gaylord Palms Resort
Hotel and Convention Center ("Gaylord Palms") (formerly known as the
Opryland Hotel Florida) in Kissimmee, Florida opened in January 2002 and a
Gaylord hotel in Grapevine, Texas is expected to open in 2004.
Attractions
The attractions segment includes all of the Company's Nashville-based
tourist attractions. At December 31, 2001, these include the Grand Ole
Opry, the General Jackson Showboat, the Wildhorse Saloon, the Ryman
Auditorium and the Springhouse Golf Club, among others. The attractions
segment also includes Corporate Magic, which specializes in the production
of creative events in the corporate entertainment marketplace.
Media
At December 31, 2001, the Company's media segment includes the operations
of Acuff-Rose Music Publishing and three radio stations in Nashville,
Tennessee. During 1999, the Company created a new division, Gaylord
Digital, formed to initiate a focused Internet strategy as further
discussed in Note 5. During 2000, the Company closed Gaylord Digital, as
further discussed in Note 2.
Corporate and Other
The Company owns a majority interest in the Oklahoma Redhawks, a minor
league baseball team based in Oklahoma City, Oklahoma. The Company owns a
minority interest in a partnership with The Mills Corporation that
developed Opry Mills, an entertainment and retail complex, which opened in
May 2000 in Nashville. The Company also owns minority interests in Bass
Pro, Inc. ("Bass Pro"), a leading retailer of premium outdoor sporting
goods and fishing products, and the Nashville Predators, a National Hockey
League professional team. Corporate and other also includes salaries and
benefits of the Company's executive and administrative personnel and
various other overhead costs. Subsequent to December 31, 2001, the Company
announced plans for these investments as further discussed in Note 18.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and all of its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS - UNRESTRICTED
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
CASH AND CASH EQUIVALENTS - RESTRICTED
Restricted cash and cash equivalents represent cash held in escrow for
completion of Gaylord Palms, required capital expenditures, property taxes,
insurance payments and other reserves required pursuant to the terms of the
Company's outstanding debt, as further described in Note 11. The Company
also has restricted cash balances which collateralize certain outstanding
letters of credit.
DEFERRED FINANCING COSTS
Deferred financing costs consist of prepaid interest, loan fees and other
costs of financing that are amortized over the term of the related
financing, using the effective interest method. For the years ended
December 31, 2001, 2000 and 1999, deferred financing costs of $35,987,
$20,780 and $0, respectively, were amortized and recorded as interest
expense in the accompanying consolidated statements of operations. The
current portion of deferred financing costs at December 31, 2001 represents
the amount of prepaid deferred financing costs related to the secured
forward exchange contract discussed in Note 9 that will be amortized in the
coming year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Improvements and significant
renovations that extend the life of existing assets are capitalized.
Interest on funds borrowed to finance the construction of major capital
additions is included in the cost of each capital addition. Maintenance and
repairs are charged to expense as incurred. Property and equipment are
depreciated using straight-line methods over the following estimated useful
lives:
Buildings 40 years
Land improvements 20 years
Attractions-related equipment 16 years
Furniture, fixtures and equipment 3-8 years
Leasehold improvements Life of lease
LEASES
The Company is leasing a 65.3-acre site in Osceola County, Florida on which
Gaylord Palms is located and has various other leasing arrangements,
including leases for office space and office equipment. The Company
accounts for lease obligations in accordance with SFAS No. 13, "Accounting
for Leases", and recognizes lease expense on a straight-line basis for
certain operating leases as required by SFAS No. 13.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which, through December
31, 2001, has been amortized using the straight-line method over its
estimated useful life not exceeding 40 years. The Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining balance of goodwill may not be recoverable. In
evaluating possible impairment, the Company uses the most appropriate
method of evaluation given the circumstances surrounding the particular
acquisition, which generally has been an estimate of the related business
unit's undiscounted operating income before interest and taxes as compared
to the remaining life of the goodwill.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 is effective
January 1, 2002. Under SFAS No. 142, goodwill and other intangible assets
with indefinite useful lives will not be amortized but will be tested for
impairment at least annually and whenever events or circumstances occur
indicating that these intangibles may be impaired. Amortization expense of
intangible assets related to continuing operations for the years ended
December 31, 2001, 2000 and 1999 was $1,256, $7,674 and $3,059,
respectively. At December 31, 2001 and 2000, accumulated amortization
related to intangible assets was $4,661 and $3,470, respectively.
INVESTMENTS
The Company owns investments in marketable securities and has minority
interest investments in certain businesses. Marketable securities are
carried at fair value in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Generally,
non-marketable investments in which the Company owns less than 20 percent
are accounted for using the cost method of accounting and investments in
which the Company owns between 20 percent and 50 percent are accounted for
using the equity method of accounting.
OTHER ASSETS
Other current and long-term assets of continuing operations at December 31
consist of:
2001 2000
------- -------
Other current assets:
Other current receivables $ 6,667 $ 5,402
Federal income tax receivable -- 23,868
Inventories 3,577 4,572
Prepaid expenses 7,525 6,088
Other current assets 693 696
------- -------
Total other current assets $18,462 $40,626
======= =======
Other long-term assets:
Notes receivable $18,770 $18,830
Music catalogs 15,578 16,787
Deferred software costs, net 9,008 10,047
IMAX film -- 5,301
Prepaid pension cost -- 4,814
Other long-term assets 4,346 4,956
------- -------
Total other long-term assets $47,702 $60,735
======= =======
Other current receivables result primarily from non-operating income and
are due within one year. Music catalogs consist of the costs to acquire
music rights and are amortized over their estimated useful lives.
Inventories consist primarily of merchandise for resale and are carried at
the lower of cost or market. Cost is computed on an average cost basis.
Long-term notes receivable relate primarily to Bass Pro, which has two
unsecured notes outstanding with the Company at December 31, 2001 and 2000.
One of the Bass Pro notes has an outstanding balance of $10,000 in each
period, bears interest at a fixed annual rate of 8% which is payable
annually, and matures in 2003. The other Bass Pro note has an outstanding
balance of $7,500 in each period, bears interest at a variable rate which
is payable quarterly, and matures in 2009.
The Company capitalizes the costs of computer software for internal use in
accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". Accordingly, the
Company capitalized the external
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
costs to acquire and develop computer software and certain internal payroll
costs during 2001 and 2000. Deferred software costs are amortized on a
straight-line basis over their estimated useful lives of 3 to 5 years.
PREOPENING COSTS
In accordance with AICPA SOP 98-5, "Reporting on the Costs of Start-Up
Activities", the Company expenses the costs associated with start-up
activities and organization costs as incurred.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities of continuing operations at
December 31 consist of:
2001 2000
-------- --------
Trade accounts payable $ 6,965 $ 21,334
Accrued construction in progress 26,825 19,894
Property and other taxes payable 15,465 14,835
Deferred revenues 11,047 10,065
Accrued salaries and benefits 6,625 4,482
Restructuring accruals 5,737 13,109
Accrued self-insurance reserves 5,497 4,914
Accrued royalties 2,767 2,629
Accrued interest payable 1,099 3,176
Other accrued liabilities 16,392 17,755
-------- --------
Total accounts payable and accrued liabilities $ 98,419 $112,193
======== ========
Accrued royalties consist primarily of music royalties and licensing fees.
Deferred revenues consist primarily of deposits on advance room bookings,
advance ticket sales at the Company's tourism properties and music
publishing advances. The Company is self-insured for certain losses
relating to workers' compensation claims, employee medical benefits and
general liability claims. The Company recognizes self-insured losses based
upon estimates of the aggregate liability for uninsured claims incurred
using certain actuarial assumptions followed in the insurance industry or
the Company's historical experience.
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
establishes deferred tax assets and liabilities based on the difference
between the financial statement and income tax carrying amounts of assets
and liabilities using existing tax laws and tax rates.
MINORITY INTERESTS
Minority interests relate to the interests in consolidated companies that
the Company does not wholly own. The Company allocates income to the
minority interests based on the percentage ownership throughout the year.
REVENUE RECOGNITION
Revenues are recognized when services are provided or goods are shipped, as
applicable. Provision for returns and other adjustments are provided for in
the same period the revenues are recognized.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but
does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for employee stock-based compensation using the
intrinsic value method as prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interpretations, under which no compensation cost related to employee stock
options has been recognized as further described in Note 14.
DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and the accounting and reporting
provisions for the disposal of a segment of a business of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions". SFAS No. 144 retains the
requirements of SFAS No. 121 for the recognition and measurement of an
impairment loss and broadens the presentation of discontinued operations to
include a component of an entity (rather than a segment of a business). The
Company adopted the provisions of SFAS No. 144 during 2001 with an
effective date of January 1, 2001.
In accordance with the provisions of SFAS No. 144, the Company has
presented the operating results, financial position and cash flows of the
following businesses as discontinued operations in the accompanying
financial statements as of December 31, 2001 and 2000 and for each of the
three years ended December 31, 2001: Word Entertainment ("Word"), the
Company's contemporary Christian music business; GET Management, the
Company's artist management business which was sold during 2001; the
Company's international cable networks; the businesses sold to affiliates
of The Oklahoma Publishing Company ("OPUBCO") in 2001 consisting of Pandora
Films, Gaylord Films, Gaylord Sports Management, Gaylord Event Television
and Gaylord Production Company; and the Company's water taxis sold in 2001.
The results of operations of these businesses, including impairment and
other charges, restructuring charges and any gain or loss on disposal, have
been reflected as discontinued operations, net of taxes, in the
accompanying consolidated statements of operations and the assets and
liabilities of these businesses are reflected as discontinued operations in
the accompanying consolidated balance sheets, as further described in Note
4.
INCOME (LOSS) PER SHARE
SFAS No. 128, "Earnings Per Share", established standards for computing and
presenting 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 year. 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
outstanding stock options, calculated using the treasury stock method.
Income per share amounts are calculated as follows for the years ended
December 31 (income and share amounts in thousands):
2001
--------------------------------------
LOSS SHARES PER SHARE
-------- ------ ---------
Net loss $(47,743) 33,562 $ (1.42)
Effect of dilutive stock options --
-------- ------ --------
Net loss - assuming dilution $(47,743) 33,562 $ (1.42)
======== ====== ========
2000
--------------------------------------
LOSS SHARES PER SHARE
--------- ------ ---------
Net loss $(153,470) 33,389 $ (4.60)
Effect of dilutive stock options --
--------- ------ --------
Net loss - assuming dilution $(153,470) 33,389 $ (4.60)
========= ====== ========
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999
--------------------------------------
INCOME SHARES PER SHARE
--------- ------ ---------
Net income $349,792 32,908 $ 10.63
Effect of dilutive stock options 305
-------- ------ --------
Net income - assuming dilution $349,792 33,213 $ 10.53
======== ====== ========
For the years ended December 31, 2001 and 2000, the effect of dilutive
stock options was the equivalent of 99,000 shares and 120,000 shares,
respectively, of common stock outstanding. Because the Company had a net
loss for the years ended December 31, 2001 and 2000, these incremental
shares were excluded from the computation of diluted earnings per share for
those years as the effect of their inclusion would be anti-dilutive.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" requires that changes in the
amounts of certain items, including gains and losses on certain securities,
be shown in the financial statements as a component of comprehensive
income. The Company's comprehensive income (loss) is presented in the
accompanying consolidated statements of stockholders' equity.
FINANCIAL INSTRUMENTS
The Company's carrying value of its debt and long-term notes receivable
approximates fair value based upon the variable nature of these financial
instruments' interest rates. Certain of the Company's investments are
carried at fair value determined using quoted market prices as discussed
further in Note 8. The carrying amount of short-term financial instruments
(cash, trade receivables, accounts payable and accrued liabilities)
approximates fair value due to the short maturity of those instruments. The
concentration of credit risk on trade receivables is minimized by the large
and diverse nature of the Company's customer base.
DERIVATIVES AND HEDGING ACTIVITIES
The Company utilizes derivative financial instruments to reduce interest
rate risks and to manage risk exposure to changes in the value of certain
owned marketable securities. Effective January 1, 2001, the Company records
derivatives in accordance with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was subsequently amended by SFAS
No. 138. SFAS No. 133, as amended, established 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. Changes in the fair value of
those instruments will be reported in earnings or other comprehensive
income depending on the use of the derivative and whether it qualifies for
hedge accounting.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
supersedes 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 at least
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
annually and whenever events or circumstances occur indicating that these
intangible assets may be impaired. The Company adopted the provisions of
SFAS No. 141 in June of 2001. The Company will adopt the provisions of SFAS
No. 142 on January 1, 2002 and anticipates that a substantial amount of its
intangible assets will no longer be amortized beginning January 1, 2002
with the adoption of the new standard.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 amends accounting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 requires companies to
record the fair value of the liability for an asset retirement obligation
in the period in which the liability is incurred. The Company will adopt
the provisions of SFAS No. 143 on January 1, 2003 and is currently
assessing the impact of SFAS No. 143 on its financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The Company adopted the
provisions of SFAS No. 144 during 2001, with an effective date of January
1, 2001, as further discussed in Note 4.
RECLASSIFICATIONS
Certain reclassifications of 2000 and 1999 amounts have been made to
conform to the 2001 presentation.
2. IMPAIRMENT AND OTHER CHARGES
During 2001, the Company named a new chairman, a new chief executive
officer, and had numerous changes in senior management, primarily because
of certain 2000 events discussed below. The new management team instituted
a corporate reorganization and the reevaluation of the Company's businesses
and other investments (the "2001 Strategic Assessment"). As a result of the
2001 Strategic Assessment, the Company recorded pretax impairment and other
charges from continuing operations in accordance with SFAS No. 144.
During 2000, the Company experienced a significant number of departures
from its senior management, including the Company's president and chief
executive officer. In addition, the Company continued to produce weaker
than anticipated operating results during 2000 while attempting to fund its
capital requirements related to its hotel construction project in Florida
and hotel development activities in Texas. As a result of these factors,
during 2000, the Company completed an assessment of its strategic
alternatives related to its operations and capital requirements and
developed a strategic plan designed to refocus the Company's operations,
reduce its operating losses and reduce its negative cash flows (the "2000
Strategic Assessment").
As a result of the 2000 Strategic Assessment, the Company adopted a plan to
divest a number of its under-performing businesses through sale or closure
and to curtail certain projects and business lines that were no longer
projected to produce a positive return. As a result of the completion of
the 2000 Strategic Assessment, the Company recognized pretax impairment and
other charges in accordance with the provisions of SFAS No. 121 and other
relevant authoritative literature.
The components of the impairment and other charges related to continuing
operations for the years ended December 31 are as follows:
2001 2000
------- -------
Programming, film and other content $ 6,858 $ 8,295
Gaylord Digital and other technology investments 4,576 48,127
Property and equipment 2,828 3,398
Orlando-area Wildhorse Saloon -- 15,854
Other -- 923
------- -------
Total impairment and other charges $14,262 $76,597
======= =======
Additional impairment and other charges of $28,941 and $12,201 during 2000
and 1999, respectively, are included in discontinued operations.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2001 Impairment and Other Charges
The Company began production of an IMAX movie during 2000 to portray the
history of country music. As a result of the 2001 Strategic Assessment, the
carrying value of the IMAX film asset was reevaluated on the basis of its
estimated future cash flows resulting in an impairment charge of $6,858. At
December 31, 2000, the Company held a minority investment in a technology
start-up business. During 2001, the unfavorable environment for technology
businesses created difficulty for this business to obtain adequate capital
to execute its business plan and, subsequently, the Company was notified
that this technology business had been unsuccessful in arranging financing,
resulting in an impairment charge of $4,576. The Company also recorded an
impairment charge related to idle real estate of $1,983 during 2001 based
upon an assessment of the value of the property. In addition, the Company
recorded an impairment charge for other idle property and equipment
totaling $845 during 2001 primarily due to the consolidation of offices
resulting from personnel reductions as discussed in Note 3.
2000 Impairment and Other Charges
The Company's 2000 Strategic Assessment of its programming, film and other
content assets resulted in pretax impairment and other charges of $8,295
based upon the projected cash flows for these assets. This charge included
investments of $5,050, other receivables of $2,995 and music and film
catalogs of $250.
The Company closed Gaylord Digital, its Internet-related business in 2000.
During 1999 and 2000, Gaylord Digital was unable to produce the operating
results initially anticipated and required an extensive amount of capital
to fund its operating losses, investments and technology infrastructure. As
a result of the closing, the Company recorded a pretax charge of $48,127 in
2000 to reduce the carrying value of Gaylord Digital's assets to their fair
value based upon estimated selling prices. The Gaylord Digital charge
included the write-down of intangible assets of $25,761, property and
equipment (including software) of $14,792, investments of $7,014 and other
assets of $560. The operating results of Gaylord Digital are included in
continuing operations. Excluding the effect of the impairment and other
charges, Gaylord Digital had revenues of $3,938 and $1,562, and operating
losses of $27,479 and $7,294, for the years ended December 31, 2000 and
1999, respectively.
During the course of conducting the 2000 Strategic Assessment, other
property and equipment of the Company was reviewed to determine whether the
change in the Company's strategic direction resulted in additional impaired
assets. This review indicated that certain property and equipment would not
be recovered by projected cash flows. The Company recorded pretax
impairment and other charges related to its property and equipment of
$3,398. These charges included property and equipment write-downs in the
hospitality segment of $1,393, in the attractions segment of $281, in the
media segment of $157, and in the corporate and other segment of $1,567.
During November 2000, the Company ceased the operations of the Orlando-area
Wildhorse Saloon. Walt Disney World(R) Resort paid the Company
approximately $1,800 for the net assets of the Orlando-area Wildhorse
Saloon and released the Company from its operating lease for the Wildhorse
Saloon location. As a result of this divestiture, the Company recorded
pretax charges of $15,854 to reflect the impairment and other charges
related to the divestiture. The Orlando-area Wildhorse Saloon charges
included the write-off of equipment of $9,437, intangible assets of $8,124
and other working capital items of $93 offset by the $1,800 of proceeds
received from Disney. The operating results of the Orlando-area Wildhorse
Saloon are included in continuing operations. Excluding the effect of the
impairment and other charges, the Orlando-area Wildhorse Saloon had
revenues of $4,359 and $5,362, and operating losses of $1,572 and $2,846,
for the years ended December 31, 2000 and 1999, respectively.
3. RESTRUCTURING CHARGES
During 2001, the Company recognized pretax restructuring charges from
continuing operations of $2,182 related to streamlining operations and
reducing layers of management. The Company recognized additional pretax
restructuring charges from discontinued operations of $2,959 in 2001. These
restructuring charges were recorded in accordance with Emerging Issues Task
Force Issue ("EITF") No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". The restructuring costs from
continuing operations consist of $4,704 related to severance and other
employee benefits and $1,144 related to contract termination costs, offset
by the reversal of restructuring charges recorded in 2000 of $3,666
primarily related to negotiated reductions in certain contract termination
costs. The restructuring costs from discontinued operations consist of
$1,563 related to severance and other employee benefits and $1,778 related
to contract termination costs offset by the reversal of restructuring
charges recorded in 2000 of $382. The 2001 restructuring charges primarily
resulted from the Company's strategic decisions to exit certain businesses
and
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reduce corporate overhead and administrative costs. The 2001 restructuring
plan resulted in the termination or notification of pending termination of
approximately 150 employees. As of December 31, 2001, the Company has
recorded cash charges of $1,680 against the 2001 restructuring accrual, all
of which related to continuing operations. The remaining balance of the
2001 restructuring accrual related to continuing operations at December 31,
2001 of $4,168 is included in accounts payable and accrued liabilities in
the accompanying consolidated balance sheets. The remaining balance of the
2001 restructuring accrual related to discontinued operations at December
31, 2001 of $3,341 is included in current liabilities of discontinued
operations in the accompanying consolidated balance sheets. The Company
expects the remaining balances of the restructuring accruals for both
continuing and discontinued operations to be paid in 2002.
As part of the Company's 2000 Strategic Assessment, the Company recognized
pretax restructuring charges of $13,098 related to continuing operations
during 2000, in accordance with EITF Issue No. 94-3. Additional
restructuring charges of $3,095 during 2000 are included in discontinued
operations. Restructuring charges related to continuing operations consist
of contract termination costs of $7,952 to exit specific activities and
employee severance and related costs of $5,379 offset by the reversal of
the remaining restructuring accrual from the restructuring charges recorded
in 1999 of $233. The 2000 restructuring charges relate to the Company's
strategic decisions to exit certain lines of business, primarily businesses
included in the Company's former music, media and entertainment segment,
and to implement its 2000 strategic plan. As part of the Company's 2000
restructuring plan, approximately 375 employees were terminated or were
informed of their pending termination. During 2001, the Company negotiated
reductions in certain contract termination costs, which allowed the
reversal of $4,049 of the restructuring charges originally recorded during
2000. As of December 31, 2001, the Company has recorded cash charges of
$10,808 against the 2000 restructuring accrual. The remaining balance of
the 2000 restructuring accrual at December 31, 2001 of $1,569 is included
in accounts payable and accrued liabilities in the accompanying
consolidated balance sheets, which the Company expects to be paid in 2002.
During 1999, the Company recognized pretax restructuring charges of $2,786
related to streamlining the Company's operations, primarily Gaylord
Opryland. The 1999 restructuring charges included estimated costs for
employee severance and termination benefits of $2,056 and other
restructuring costs of $730. At December 31, 2000, no accrual remained.
4. DISCONTINUED OPERATIONS
As discussed in Note 1, the Company has reflected the following businesses
as discontinued operations, consistent with the provisions of SFAS No. 144.
The results of operations, net of taxes, (prior to their disposal where
applicable) and the estimated fair value of the assets and liabilities of
these businesses have been reflected in the accompanying consolidated
financial statements as discontinued operations in accordance with SFAS No.
144 for all periods presented.
Word
During 2001, the Company committed to a plan to sell Word. As a result of
the decision to sell Word, the Company reduced the carrying value of Word
to its estimated fair value by recognizing a pretax charge of $30,403 in
discontinued operations during 2001. The estimated fair value of Word's net
assets was determined based upon ongoing negotiations with potential
buyers. Related to the decision to sell Word, a pretax restructuring charge
of $1,461 was recorded in 2001. The restructuring charge consisted of $854
related to lease termination costs and $607 related to severance costs. In
addition, the Company recorded a reversal of $114 of restructuring charges
originally recorded during 2000. Subsequent to December 31, 2001, the
Company sold Word's domestic operations to an affiliate of Warner Music
Group for $84,100 in cash, subject to future purchase price adjustments.
The Company did not recognize a material gain or loss on the divestiture in
2002. Proceeds from the sale of $80,000 were used to reduce the Company's
outstanding indebtedness as further discussed in Note 11.
International Cable Networks
During the second quarter of 2001, the Company adopted a formal plan to
dispose of its international cable networks. As part of this plan, the
Company hired investment bankers to facilitate the disposition process, and
formal communications with potentially interested parties began in July
2001. In an attempt to simplify the disposition process, in July 2001, the
Company acquired an additional 25% ownership interest in its music networks
in Argentina, bringing its ownership interest from 50% to 75%. In August
2001, the partnerships in Argentina
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
finalized a pending transaction in which a third party acquired a 10%
ownership interest in the companies in exchange for satellite, distribution
and sales services, bringing the Company's interest to 67.5%.
In December 2001, the Company made the decision to cease funding of its
cable networks in Asia and Brazil as well as its partnerships in Argentina
if a sale had not been completed by February 28, 2002. At that time the
Company recorded pretax restructuring charges of $1,880 consisting of $956
of severance and $924 of contract termination costs related to the
networks. Also during 2001, the Company negotiated reduced contract
termination costs with several vendors that resulted in a reversal of $268
of restructuring charges originally recorded during 2000. Based on the
status of its efforts to sell its international cable networks at the end
of 2001, the Company recorded pretax impairment and other charges of
$23,312 during 2001. Included in this charge are the impairment of an
investment in the two Argentina-based music channels totaling $10,894, the
impairment of fixed assets, including capital leases associated with
certain transponders leased by the Company, of $6,922, the impairment of a
receivable of $3,007 from the Argentina-based channels, current assets of
$1,483, and intangible assets of $1,006.
Subsequent to December 31, 2001, the Company finalized a transaction to
sell certain assets of its international cable networks as further
discussed in Note 18.
Businesses Sold to OPUBCO
During 2001, the Company sold five businesses (Pandora Films, Gaylord
Films, Gaylord Sports Management, Gaylord Event Television and Gaylord
Production Company) to affiliates of OPUBCO for $22,000 in cash and the
assumption of debt of $19,318. The Company recognized a pretax loss of
$1,673 related to the sale in discontinued operations in the accompanying
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 following table reflects the results of operations of businesses
accounted for as discontinued operations for the years ended December 31
(amounts in thousands):
2001 2000 1999
--------- --------- ---------
REVENUES:
Word Entertainment $ 115,677 $ 130,706 $ 137,873
International cable networks 5,025 6,606 4,407
Businesses sold to OPUBCO 2,195 39,706 17,797
Other 609 1,900 2,712
--------- --------- ---------
Total revenues $ 123,506 $ 178,918 $ 162,789
========= ========= =========
OPERATING INCOME (LOSS):
Word Entertainment $ (5,710) $ (15,741) $ (5,542)
International cable networks (6,375) (9,655) (8,375)
Businesses sold to OPUBCO (1,459) (9,370) (1,553)
Other (383) (144) 714
Impairment and other charges (53,716) (28,941) (12,201)
Restructuring charges (2,959) (3,095) (316)
--------- --------- ---------
Total operating loss (70,602) (66,946) (27,273)
INTEREST EXPENSE (797) (1,310) (1,054)
INTEREST INCOME 128 556 185
OTHER GAINS AND LOSSES (3,986) (4,245) (308)
--------- --------- ---------
Loss before benefit for income taxes (75,257) (71,945) (28,450)
BENEFIT FOR INCOME TAXES (22,893) (23,206) (10,612)
--------- --------- ---------
Net loss from discontinued operations $ (52,364) $ (48,739) $ (17,838)
========= ========= =========
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assets and liabilities of the discontinued operations presented in the
accompanying consolidated balance sheets are comprised of:
2001 2000
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 2,237 $ 8,005
Trade receivables, less allowance of $2,785 and $5,003, respectively 24,814 43,567
Inventories 6,359 12,321
Prepaid expenses 8,779 12,592
Other current assets 691 5,052
-------- --------
Total current assets 42,880 81,537
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 10,357 22,423
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 29,628 81,954
MUSIC AND FILM CATALOGS 10,696 26,237
OTHER LONG-TERM ASSETS 3,512 11,965
-------- --------
Total long-term assets 54,193 142,579
-------- --------
Total assets $ 97,073 $224,116
======== ========
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,515 $ 1,378
Accounts payable and accrued liabilities 18,120 39,652
-------- --------
Total current liabilities 23,635 41,030
LONG-TERM DEBT, NET OF CURRENT PORTION -- 20,551
OTHER LONG-TERM LIABILITIES 7 --
-------- --------
Total long-term liabilities 7 20,551
-------- --------
Total liabilities $ 23,642 $ 61,581
======== ========
5. ACQUISITIONS
During 2000, the Company acquired Corporate Magic, a company specializing
in the production of creative events in the corporate entertainment
marketplace, for $7,500 in cash and a $1,500 note payable. The acquisition
was financed through borrowings under the Company's revolving credit
agreement and has been accounted for using the purchase method of
accounting. The operating results of Corporate Magic have been included in
the accompanying consolidated financial statements from the date of the
acquisition.
During 1999, the Company formed Gaylord Digital, its Internet initiative,
and acquired 84% of two online operations, Musicforce.com and
Lightsource.com, for approximately $23,400 in cash. During 2000, the
Company acquired the remaining 16% of Musicforce.com and Lightsource.com
for approximately $6,500 in cash. The acquisition was financed through
borrowings under the Company's revolving credit agreement and has been
accounted for using the purchase method of accounting. The operating
results of the online operations have been included in the accompanying
consolidated financial statements from the date of acquisition of a
controlling interest. During 2000, the Company announced the closing of
Gaylord Digital, as further discussed in Note 2.
6. DIVESTITURES
During 2001, the indemnification period related to the Company's 1999
disposition of television station KTVT in Dallas-Fort Worth ended,
resulting in the recognition of a pretax gain of $4,629 related to the
reversal of previously recorded contingent liabilities. The gain is
included in other gains and losses in the accompanying consolidated
statements of operations.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2000, the Company sold its KOA Campground located near Gaylord
Opryland for $2,032 in cash. The Company recognized a pretax loss on the
sale of $3,247, which is included in other gains and losses in the
accompanying consolidated statements of operations. Also during 2000, the
Company divested its Orlando-area Wildhorse Saloon and Gaylord Digital, as
further discussed in Note 2.
In October 1999, CBS Corporation ("CBS") acquired KTVT from the Company in
exchange for $485,000 of CBS Series B convertible preferred stock, $4,210
of cash and other consideration. The Company recorded a pretax gain of
$459,307, which is included in other gains and losses in the accompanying
consolidated statements of operations, based upon the disposal of the net
assets of KTVT of $29,903, including related selling costs. CBS merged with
Viacom, Inc. ("Viacom") in May 2000, resulting in the conversion of CBS
convertible preferred stock into Viacom common stock, as further discussed
in Note 8. The operating results of KTVT reflected in the accompanying
consolidated statements of operations through the disposal date of October
12, 1999 include revenues of $36,072, depreciation and amortization of
$2,419, and operating income of $8,372.
During 1999, the Company received cash and recognized a pretax gain of
$129,875 representing the value of contractual equity participation rights
related to the sale of certain cable television systems (the "Systems")
formerly owned by the Company. During 1995, the Company sold the Systems to
CCT Holdings Corporation. As part of the 1995 sale transaction, the Company
received contractual equity participation rights equal to 15% of the net
distributable proceeds, as defined, from certain future asset sales. The
proceeds from the equity participation rights were used to reduce
outstanding bank indebtedness.
On October 1, 1997, the Company consummated a transaction (the "Merger")
with CBS, pursuant to which substantially all of the assets of the
Company's North American cable networks business, and certain other related
businesses (collectively, the "Cable Networks Business") and their
liabilities, to the extent that they arose out of or related to the Cable
Networks Business, were acquired by CBS. During 1999, the Company settled
certain remaining contingencies associated with the Merger and received a
cash payment of $15,109 from CBS, including nonrecurring interest income of
$1,954. In addition, the Company recorded an adjustment to the net assets
of the Cable Networks Business of $892 related to the settlement of
Merger-related contingencies between the Company and CBS during 1999. The
Company reversed $1,741 of the accrued merger costs based upon the
settlement of the remaining contingencies associated with the Merger during
1999.
7. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations at December 31 is recorded
at cost and summarized as follows:
2001 2000
----------- -----------
Land and land improvements $ 97,103 $ 94,637
Buildings 500,829 486,820
Furniture, fixtures and equipment 241,791 228,493
Construction in progress 474,701 225,850
----------- -----------
1,314,424 1,035,800
Accumulated depreciation (314,092) (279,263)
----------- -----------
Property and equipment, net $ 1,000,332 $ 756,537
=========== ===========
The increase in construction in progress during 2001 primarily relates to
the costs of the Florida and Texas hotel construction projects.
Depreciation expense of continuing operations for the years ended December
31, 2001, 2000 and 1999 was $35,579, $36,030 and $36,434, respectively.
Capitalized interest for the years ended December 31, 2001, 2000 and 1999
was $18,781, $6,775 and $472, respectively.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INVESTMENTS
Investments related to continuing operations at December 31 are summarized
as follows:
2001 2000
-------- --------
Viacom Class B non-voting common stock $485,782 $514,391
Bass Pro 60,598 60,598
Other investments 15,029 22,224
-------- --------
Total investments $561,409 $597,213
======== ========
The Company acquired CBS Series B convertible preferred stock ("CBS Stock")
during 1999 as consideration in the divestiture of television station KTVT
as discussed in Note 6. CBS merged with Viacom in May 2000. As a result of
the merger of CBS and Viacom, the Company received 11,003,000 shares of
Viacom Class B non-voting common stock ("Viacom Stock"). The original
carrying value of the CBS Stock was $485,000.
At December 31, 2000, the Viacom Stock was classified as available-for-sale
as defined by SFAS No. 115, and accordingly, the Viacom Stock was recorded
at market value, based upon the quoted market price, with the difference
between cost and market value recorded as a component of other
comprehensive income, net of deferred income taxes. Effective January 1,
2001, the Company recorded a nonrecurring pretax gain of $29,391, related
to reclassifying its investment in the Viacom Stock from available-for-sale
to trading as defined by SFAS No. 115. This gain, net of taxes of $11,434,
had been previously recorded as a component of stockholders' equity. As
trading securities, the Viacom Stock continues to be recorded at market
value, but changes in market value are included as gains and losses in the
consolidated statements of operations. For the year ended December 31,
2001, the Company recorded a pretax loss of $28,609 related to the decrease
in fair value of the Viacom Stock subsequent to January 1, 2001.
During 2000 and 1999, the Company purchased minority equity investments of
$5,010 and $6,579, respectively, in technology-based businesses related to
the Company's Internet strategy, which investments the Company accounted
for using the cost method of accounting. During 2001 and 2000, the Company
evaluated the realizability of its technology-based investments as part of
its assessment of strategic alternatives resulting in impairment charges as
discussed in Note 2.
Bass Pro completed a restructuring at the end of 1999 whereby certain
assets, including a resort hotel in Southern Missouri and an interest in a
manufacturer of fishing boats, are no longer owned by Bass Pro. Subsequent
to the Bass Pro restructuring, the Company's ownership interest in Bass Pro
equaled 19% and, accordingly, the Company accounts for the investment using
the cost method of accounting. Prior to the restructuring, the Company
accounted for the Bass Pro investment using the equity method of accounting
through December 31, 1999.
The Opry Mills entertainment and retail complex opened in May 2000 on land
owned by the Company. The Company holds a one-third interest in the
partnership through a non-cash capital contribution of $2,049 reflecting
the book value of the land on which Opry Mills is located. During 1999, the
Company's investment in Opry Mills increased to $5,272 at December 31, 1999
related to certain costs incurred on behalf of the Opry Mills partnership.
During 2001, the Company received distribution payments from The Mills
Corporation totaling $2,814 related to its equity in the partnership's
earnings. At December 31, 2001, the Company's investment in Opry Mills
equaled $2,231. The Company accounts for its investment in the Opry Mills
partnership using the equity method of accounting. The Company recognized
revenues for consulting and other services related to the Opry Mills
partnership in 1999 of $5,000.
The Company holds a preferred minority interest investment in the Nashville
Predators, a National Hockey League professional team, of $12,732 and
$12,000 at December 31, 2001 and 2000, respectively. The Nashville
Predators investment provides an annual 8% cumulative preferred return. A
director of the Company owns a majority equity interest in the Nashville
Predators.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to December 31, 2001, the Company announced plans for certain of
these investments as further discussed in Note 18.
9. SECURED FORWARD EXCHANGE CONTRACT
During May 2000, the Company entered into a seven-year secured forward
exchange contract ("SFEC") with an affiliate of Credit Suisse First Boston
with respect to 10,937,900 shares of Viacom Stock. The seven-year SFEC has
a face amount of $613,054 and required contract payments based upon a
stated 5% rate. The SFEC protects the Company against decreases in the fair
market value of the Viacom Stock while providing for participation in
increases in the fair market value, as discussed below. The Company
realized cash proceeds from the SFEC of $506,337, net of discounted prepaid
contract payments related to the first 3.25 years of the contract and
transaction costs totaling $106,717. In October 2000, the Company prepaid
the remaining 3.75 years of contract payments required by the SFEC of
$83,161. As a result of the prepayment, the Company will not be required to
make any further contract payments during the seven-year term of the SFEC.
Additionally, as a result of the prepayment, the Company was released from
certain covenants of the SFEC, which related to sales of assets, additional
indebtedness and liens. The unamortized balances of these deferred
financing costs are classified as current assets of $26,865 as of December
31, 2001 and 2000 and long-term assets of $118,110 and $144,998 in the
accompanying consolidated balance sheets as of December 31, 2001 and 2000,
respectively. The Company is recognizing the contract payments associated
with the SFEC as interest expense over the seven-year contract period using
the effective interest method. The Company utilized $394,142 of the net
proceeds from the SFEC to repay all outstanding indebtedness under its 1997
revolving credit facility. As a result of the SFEC, the 1997 revolving
credit facility was terminated.
During the seven-year term of the SFEC, the Company retains ownership of
the Viacom Stock. The Company's obligation under the SFEC is collateralized
by a security interest in the Viacom Stock. At the end of the seven-year
contract term, the Company may, at its option, elect to pay in cash rather
than by delivery of all or a portion of the Viacom Stock. The SFEC
eliminates the Company's exposure to any decline in Viacom's share price
below $56.05. During the seven-year term of the SFEC, if the Viacom Stock
appreciates by 35% or less, the Company will retain the increase in value
of the Viacom Stock. If the Viacom Stock appreciates by more than 35%, the
Company will retain the first 35% increase in value of the Viacom Stock and
approximately 25.9% of any appreciation in excess of 35%.
Under SFAS No. 133, certain components of the secured forward exchange
contract are considered derivatives, as discussed in Note 10. During 2001,
an increase in the fair market value of the derivatives was recorded as a
pretax gain.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to reduce interest
rate risks and to manage risk exposure to changes in the value of its
Viacom Stock. The Company recorded a gain of $11,909, net of taxes of
$6,413, as a cumulative effect of an accounting change on January 1, 2001,
the date of initial adoption of SFAS No. 133, to record the derivatives
associated with the SFEC at fair value. For the year ended December 31,
2001, the Company recorded a pretax gain in the Company's consolidated
statement of operations of $54,282 related to the increase in fair value of
the derivatives associated with the SFEC subsequent to January 1, 2001.
During 2001, the Company entered into three contracts to cap its interest
rate risk exposure on its long-term debt. These contracts cap the Company's
exposure to one-month LIBOR rates on up to $375,000 of outstanding
indebtedness at 7.5% and cap the Company's exposure on one-month Eurodollar
rates on up to $100,000 of outstanding indebtedness at 6.625%. These
interest rate caps qualify for hedge accounting and changes in the values
of these caps are recorded as other comprehensive income and losses in the
accompanying consolidated statements of stockholders' equity.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. DEBT
The Company's debt outstanding related to continuing operations at December
31 consists of:
2001 2000
--------- ---------
Senior Loan $ 268,997 $ --
Mezzanine Loan 100,000 --
Term Loan 100,000 --
Interim Loan -- 175,000
Other -- 500
--------- ---------
Total debt 468,997 175,500
Less amounts due within one year (88,004) (175,500)
--------- ---------
Total long-term debt $ 380,993 $ --
========= =========
Annual maturities of debt are as follows:
2002 $ 88,004
2003 8,004
2004 372,989
2005 --
2006 --
Years thereafter --
--------
Total $468,997
========
During 2001, the Company entered into a three-year delayed-draw senior term
loan ("Term Loan") of up to $210,000 with Deutsche Banc Alex. Brown Inc.,
Salomon Smith Barney, Inc. and CIBC World Markets Corp. (collectively the
"Banks"). Proceeds of the Term Loan were used to finance the construction
of Gaylord Palms and a Gaylord hotel in Grapevine, Texas as well as for
general operating purposes. The Term Loan is primarily secured by the
Company's ground lease interest in Gaylord Palms. At the Company's option,
amounts outstanding under the Term Loan bear interest at the prime interest
rate plus 2.125% or the one-month Eurodollar rate plus 3.375%. The terms of
the Term Loan required the purchase of interest rate hedges in notional
amounts equal to $100,000 in order to protect against adverse changes in
the one-month Eurodollar rate. Pursuant to these agreements, the Company
has purchased instruments that cap its exposure to the one-month Eurodollar
rate at 6.625% as discussed in Note 10. The Term Loan contains provisions
that allow the Banks to syndicate the Term Loan, which could result in a
change to the terms and structure of the Term Loan, including an increase
in interest rates. In addition, the Company is required to pay a commitment
fee equal to 0.375% per year of the average unused portion of the Term
Loan. As of December 31, 2001, the Company had outstanding borrowings of
$100,000 under the Term Loan and was required to escrow certain amounts in
a completion reserve account for Gaylord Palms.
The Term Loan requires that the net proceeds from all asset sales by the
Company must be used to reduce outstanding borrowings until the borrowing
capacity under the Term Loan has been reduced to $60,000. The Company sold
Word in January 2002 as further discussed in Note 4. The sale of Word
required the prepayment of the Term Loan in the amount of $80,000 and,
accordingly, this amount was classified as due within one year in the
December 31, 2001 consolidated balance sheet, resulting in a negative
consolidated working capital balance at December 31, 2001 of $26,748.
Subsequent to the prepayment of the Term Loan related to Word, the maximum
amount available under the Term Loan reduces to $100,000 in October 2003,
and to $50,000 in April 2004, with full repayment due in October 2004.
Excess cash flows, as defined, generated by Gaylord Palms must be used to
reduce any amounts borrowed under the Term Loan until its borrowing
capacity is reduced to $85,000. Debt repayments under the Term Loan reduce
its borrowing capacity and are not eligible to be re-borrowed. The Term
Loan requires the Company to maintain certain escrowed cash balances,
comply with certain financial covenants, and imposes limitations related to
the payment of dividends, the incurrence of debt, the guaranty of liens,
and the sale of assets, as well as other customary covenants and
restrictions. At December 31, 2001, the unamortized balance of the deferred
financing
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
costs related to the Term Loan was $5,628. The weighted average interest
rate, including amortization of deferred financing costs, under the Term
Loan for 2001 was 8.3%.
In 2001, the Company, through wholly owned subsidiaries, entered into two
loan agreements, a $275,000 senior loan (the "Senior Loan") and a $100,000
mezzanine loan (the "Mezzanine Loan") (collectively, the "Nashville Hotel
Loans") with affiliates of Merrill Lynch & Company acting as principal. The
Senior Loan is secured by a first mortgage lien on the assets of Gaylord
Opryland and is due in 2004. Amounts outstanding under the Senior Loan bear
interest at one-month LIBOR plus approximately 0.9%. The Mezzanine Loan,
secured by the equity interest in the wholly-owned subsidiary that owns
Gaylord Opryland, is due in 2004 and bears interest at one-month LIBOR plus
6.0%. At the Company's option, the Nashville Hotel Loans may be extended
for two additional one-year terms beyond their scheduled maturities,
subject to Gaylord Opryland meeting certain financial ratios and other
criteria. The Nashville Hotel Loans require monthly principal payments of
$667 during their three-year terms in addition to monthly interest
payments. The terms of the Senior Loan and the Mezzanine Loan required 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 that cap its exposure to
one-month LIBOR at 7.5% as discussed in Note 10. The Company used $235,000
of the proceeds from the Nashville Hotel Loans to refinance the Interim
Loan discussed below. At closing, the Company was required to escrow
certain amounts, including $20,000 related to future renovations and
related capital expenditures at Gaylord Opryland. The net proceeds from the
Nashville Hotel Loans after refinancing of the Interim Loan, required
escrows and fees were approximately $97,600. At December 31, 2001, the
unamortized balance of the deferred financing costs related to the
Nashville Hotel Loans was $13,775. The weighted average interest rates for
the Senior Loan and the Mezzanine Loan for 2001, including amortization of
deferred financing costs, were 6.2% and 12.0%, respectively.
The terms of the Nashville Hotel Loans require that the Company maintain
certain escrowed cash balances and comply with certain financial covenants,
and impose limits on transactions with affiliates and indebtedness. The
financial covenants under the Nashville Hotel Loans are structured such
that noncompliance at one level triggers certain cash management
restrictions and noncompliance at a second level results in an event of
default. Based upon the financial covenant calculations at December 31,
2001, the cash management restrictions are in effect which requires that
all excess cash flows, as defined, be escrowed and may be used to repay
principal amounts owed on the Senior Loan. As of December 31, 2001, $13,946
related to the cash management restrictions is included in restricted cash
in the accompanying consolidated balance sheets.
The Company negotiated certain revisions to the financial covenants under
the Nashville Hotel Loans and the Term Loan subsequent to December 31,
2001. After these revisions, the Company was in compliance with the
covenants under the Nashville Hotel Loans and the covenants under the Term
Loan in which the failure to comply would result in an event of default.
There can be no assurance that the Company will remain in compliance with
the covenants that would result in an event of default under the Nashville
Hotel Loans or the Term Loan. Management's projections and related
operating plans indicate the Company will remain in compliance with the
revised financial covenants under the Nashville Hotel Loans and the Term
Loan during the first and second quarters of 2002, albeit by a narrow
margin. As with all projections, there can be no assurance that they will
be achieved. In addition, the Company is attempting to sell certain
non-core assets that would provide additional sources of capital. Any event
of noncompliance that results in an event of default under the Nashville
Hotel Loans or the Term Loan would enable the lenders to demand payment of
all outstanding amounts, which would have a material adverse effect on the
Company's financial position, results of operations and cash flows.
During 2000, the Company entered into a six-month $200,000 interim loan
agreement (the "Interim Loan") with Merrill Lynch Mortgage Capital, Inc. As
of December 31, 2000, $175,000 was outstanding under the Interim Loan.
During 2000, the Company utilized $83,161 of the proceeds from the Interim
Loan to prepay the remaining contract payments required by the SFEC
discussed in Note 9. During 2001, the Company increased the borrowing
capacity under the Interim Loan to $250,000. The Company used $235,000 of
the proceeds from the Nashville Hotel Loans discussed previously to
refinance the Interim Loan during March 2001. The Interim Loan was secured
by the assets of Gaylord Opryland and had a maturity date in April 2001.
Amounts outstanding under the Interim Loan carried an interest rate of
LIBOR plus an amount that increased monthly from 1.75% at inception to 3.5%
by April 2001. In addition, the Interim Loan required a commitment fee of
0.375% per year on the average unused portion of the Interim Loan and a
contingent exit fee of up to $4,000, depending upon Merrill Lynch's
involvement in the refinancing of the Interim Loan. The Company recognized
a portion of the exit fee as interest expense in the
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accompanying 2000 consolidated statement of operations. Pursuant to the
terms of the Nashville Hotel Loans discussed previously, the contingencies
related to the exit fee were removed and no payment of these fees was
required. The weighted average interest rate, including amortization of
deferred financing costs, under the Interim Loan for 2000 was 21.0%. The
unamortized balance of the deferred financing costs related to the Interim
Loan was classified as current assets of $2,809 at December 31, 2000.
In August 1997, the Company entered into a revolving credit facility (the
"1997 Credit Facility") and utilized the proceeds to retire outstanding
indebtedness. The lenders under the 1997 Credit Facility were a syndicate
of banks with Bank of America, N.A. acting as agent. The Company utilized
$394,142 of the net proceeds from the SFEC in 2000 to repay all outstanding
indebtedness under the 1997 Credit Facility as discussed in Note 9. As a
result of the SFEC, the 1997 Credit Facility was terminated. The weighted
average interest rates for borrowings under the 1997 Credit Facility for
2000 and 1999 were 7.3% and 6.2%, respectively.
Accrued interest payable at December 31, 2001 and 2000 was $1,099 and
$3,176 respectively, and is included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheets. Cash paid for
interest for the years ended December 31 was comprised of:
2001 2000 1999
--------- --------- ---------
Debt interest paid $ 23,217 $ 14,599 $ 16,392
Deferred financing costs paid 25,906 195,452 --
Capitalized interest (18,781) (6,775) (472)
--------- --------- ---------
Cash interest paid $ 30,342 $ 203,276 $ 15,920
========= ========= =========
12. INCOME TAXES
The provision (benefit) for income taxes from continuing operations for the
years ended December 31 consists of:
2001 2000 1999
--------- --------- ---------
CURRENT:
Federal $ -- $ (25,492) $ 39,219
State 41 205 (2,374)
--------- --------- ---------
Total current provision (benefit) 41 (25,287) 36,845
--------- --------- ---------
DEFERRED:
Federal (3,292) (24,329) 156,056
State 63 (251) 29,441
--------- --------- ---------
Total deferred provision (benefit) (3,229) (24,580) 185,497
--------- --------- ---------
Total provision (benefit) for income taxes $ (3,188) $ (49,867) $ 222,342
========= ========= =========
Provision is made for deferred federal and state income taxes in
recognition of certain temporary differences in reporting items of income
and expense for financial statement purposes and income tax purposes. The
effective tax rate as applied to pretax income (loss) from continuing
operations for the years ended December 31 differed from the statutory
federal rate due to the following:
2001 2000 1999
--------- --------- ---------
Statutory federal rate 35% 35% 35%
State taxes (1) -- 3
Foreign losses (3) (2) --
Non-deductible losses (1) (1) --
--------- --------- ---------
30% 32% 38%
========= ========= =========
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax liability at December 31 are:
2001 2000
-------- --------
DEFERRED TAX ASSETS:
Amortization $ 11,175 $ 7,710
Accounting reserves and accruals 15,656 29,828
Net operating loss carryforward 39,309 21,640
Investments in stock 7,785 3,171
Other, net 14,033 10,829
-------- --------
Total deferred tax assets 87,958 73,178
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation 25,018 40,460
Accounting reserves and accruals 228,764 237,523
-------- --------
Total deferred tax liabilities 253,782 277,983
-------- --------
Net deferred tax liability $165,824 $204,805
======== ========
Under the provisions of SFAS No. 109, "Accounting for Income Taxes", the
Company evaluated the need for a valuation allowance related to its
deferred tax assets. Based upon the expectation of future taxable income,
the Company concluded that a valuation allowance is not required. At
December 31, 2001, the Company had a net operating loss carryforward of
$110,827 of which $66,660 will expire in 2020 and $44,167 will expire in
2021. The Company provides reserves for various income tax contingencies,
which reserves are included in deferred tax liabilities.
The tax benefits associated with the exercise of stock options were $720,
$1,000 and $1,443 in 2001, 2000 and 1999, respectively, and are reflected
as an increase in additional paid-in capital in the accompanying
consolidated statements of stockholders' equity. In 2001, the Company
recorded a deferred tax asset of $4,395 resulting from the recognition of
the Company's minimum pension liability as required by SFAS No. 87
"Employers' Accounting for Pensions", as further discussed in Note 16.
The deferred income taxes resulting from the unrealized gain on the
investment in the Viacom Stock was $11,434 at December 31, 2000 and was
reflected as a reduction in stockholders' equity. Effective January 1,
2001, the Company reclassified its investment in the Viacom Stock from
available-for-sale to trading as defined by SFAS No. 115, which required
the recognition of a deferred tax provision of $11,434 in the accompanying
consolidated statement of operations for the year ended December 31, 2001.
The Company reached a $2,034 partial settlement of routine Internal Revenue
Service audits of the Company's 1996-1997 tax returns during 2001. Net cash
payments (refunds) for income taxes were approximately ($21,700),
($18,500), and $30,400 in 2001, 2000 and 1999, respectively.
13. STOCKHOLDERS' EQUITY
Holders of common stock are entitled to one vote per share. During 2000,
the Company's Board of Directors voted to discontinue the payment of
dividends on its common stock. The Company paid common stock dividends of
$26,355 during the year ended December 31, 1999.
14. STOCK PLANS
At December 31, 2001 and 2000, 3,053,737 and 2,352,712 shares,
respectively, of the Company's common stock were reserved for future
issuance pursuant to the exercise of stock options under stock option and
incentive plans. Under the terms of these plans, stock options are granted
with an exercise price equal to the fair market value at the date of grant
and generally expire ten years after the date of grant. Generally, stock
options granted to non-employee
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
directors are exercisable immediately, while options granted to employees
are exercisable two to five years from the date of grant. The Company
accounts for these plans under APB Opinion No. 25 and related
interpretations, under which no compensation expense for employee and
non-employee director stock options has been recognized. If compensation
cost for these plans had been determined consistent with SFAS No. 123, the
Company's net income (loss) and income (loss) per share for the years ended
December 31 would have been reduced (increased) to the following pro forma
amounts:
2001 2000 1999
--------- --------- ----------
NET INCOME (LOSS):
As reported $ (47,743) $(153,470) $ 349,792
========= ========= ==========
Pro forma $ (49,447) $(154,827) $ 347,756
========= ========= ==========
INCOME (LOSS) PER SHARE:
As reported $ (1.42) $ (4.60) $ 10.63
========= ========= ==========
Pro forma $ (1.47) $ (4.64) $ 10.57
========= ========= ==========
INCOME (LOSS) PER SHARE - ASSUMING DILUTION:
As reported $ (1.42) $ (4.60) $ 10.53
========= ========= ==========
Pro forma $ (1.47) $ (4.64) $ 10.47
========= ========= ==========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: risk-free
interest rates of 4.9%, 5.5% and 6.5%; expected volatility of 32.3%, 38.3%
and 31.0%; expected lives of 5.4, 7.3 and 7.5 years; expected dividend
rates of 0%, 0% and 2.7%. The weighted average fair value of options
granted was $9.85, $13.52 and $10.02 in 2001, 2000 and 1999, respectively.
The plans also provide for the award of restricted stock. At December 31,
2001 and 2000, awards of restricted stock of 109,867 and 3,000 shares,
respectively, of common stock were outstanding. The market value at the
date of grant of these restricted shares was recorded as unearned
compensation as a component of stockholders' equity. Unearned compensation
is amortized and expensed over the vesting period of the restricted stock.
Stock option awards available for future grant under the stock plans at
December 31, 2001 and 2000 were 1,177,345 and 2,188,780 shares of common
stock, respectively. Stock option transactions under the plans are
summarized as follows:
2001
--------------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
Outstanding at beginning of year 2,352,712 $ 26.38
Granted 1,544,600 25.35
Exercised (203,543) 11.44
Canceled (640,032) 27.59
--------- ---------
Outstanding at end of year 3,053,737 $ 26.60
========= =========
Exercisable at end of year 1,235,324 $ 27.39
========= =========
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000
--------------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
Outstanding at beginning of year 2,604,213 $ 25.74
Granted 749,700 26.65
Exercised (178,335) 10.36
Canceled (822,866) 28.10
--------- ---------
Outstanding at end of year 2,352,712 $ 26.38
========= =========
Exercisable at end of year 1,138,681 $ 24.18
========= =========
1999
--------------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
Outstanding at beginning of year 2,491,081 $ 24.42
Granted 730,847 28.76
Exercised (461,995) 21.92
Canceled (155,720) 30.03
--------- ---------
Outstanding at end of year 2,604,213 $ 25.74
========= =========
Exercisable at end of year 1,123,698 $ 21.43
========= =========
A summary of stock options outstanding at December 31, 2001 is as follows:
WEIGHTED
WEIGHTED AVERAGE
OPTION AVERAGE NUMBER OF REMAINING
EXERCISE EXERCISE NUMBER OF SHARES CONTRACTUAL
PRICE RANGE PRICE SHARES EXERCISABLE LIFE
-------------- -------- --------- ----------- -----------
$19.91 - 26.00 $ 24.01 1,370,405 327,355 8.1 YEARS
26.01 - 30.00 27.99 1,419,832 767,299 7.2 YEARS
30.01 - 34.00 32.54 263,500 140,670 6.4 YEARS
-------------- -------- --------- --------- ---------
$19.91 - 34.00 $ 26.60 3,053,737 1,235,324 7.6 YEARS
============== ======== ========= ========= =========
The Company has an employee stock purchase plan whereby substantially all
employees are eligible to participate in the purchase of designated shares
of the Company's common stock at a price equal to the lower of 85% of the
closing price at the beginning or end of each quarterly stock purchase
period. The Company issued 11,965, 13,666 and 3,007 shares of common stock
at an average price of $18.27, $21.19 and $25.08 pursuant to this plan
during 2001, 2000 and 1999, respectively.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. COMMITMENTS AND CONTINGENCIES
Rental expense related to continuing operations for operating leases was
$2,797, $2,703 and $3,203 for 2001, 2000 and 1999, respectively. Future
minimum cash lease commitments under all noncancelable operating leases in
effect for continuing operations at December 31, 2001 are as follows:
2002 $ 5,024
2003 4,960
2004 4,836
2005 4,428
2006 4,287
Years thereafter 689,165
---------
Total $ 712,700
=========
The Company entered into a 75-year operating lease agreement during 1999
for 65.3 acres of land located in Osceola County, Florida for the
development of Gaylord Palms. The lease requires annual lease payments of
approximately $873 until the completion of construction in 2002, at which
point the annual lease payments increase to approximately $3,200. The lease
agreement provides for a 3% escalation of base rent each year beginning
five years after the opening of Gaylord Palms. As required by SFAS No. 13,
the terms of this lease require that the Company recognize the lease
expense on a straight-line basis, which will result in an annual lease
expense of approximately $9,750, resulting in approximately $6,550 of
annual non-cash expenses during the early years of the lease. The Company
is currently attempting to renegotiate certain terms of the lease in an
attempt to more closely align the economic cost of the lease with the
impact on the Company's results of operations. At the end of the 75-year
lease term, the Company may extend the operating lease to January 31, 2101,
at which point the buildings and fixtures will be transferred to the
lessor.
During 1999, the Company entered into a construction contract for the
development of Gaylord Palms. The Company expects total payments to
approximate $300,000 related to the construction contract. Gaylord Palms
opened in January 2002. As of December 31, 2001, the Company has paid
approximately $272,900 related to this construction contract, which is
included as construction in progress in property and equipment in the
accompanying consolidated balance sheets.
During 2001 and 2002, the Company entered into certain agreements related
to the construction of a new Gaylord hotel in Grapevine, Texas. The Company
expects payments of approximately $190,000 related to these agreements. At
December 31, 2001, the Company has paid approximately $53,500 related to
these agreements, which is included as construction in progress in property
and equipment in the accompanying consolidated balance sheets.
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 a long-term basis. While the Company is
negotiating various alternatives for its financing needs, there is no
assurance that financing will be secured or that it will be on terms that
are acceptable to the Company. Management currently anticipates securing
long-term financing for its hotel development and construction projects
including the new Gaylord hotel in Grapevine, Texas; 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 current and future financing arrangements and
expected proceeds from the sale of non-core assets, will be sufficient to
satisfy anticipated future cash requirements, including its projected
capital expenditures, on both a short-term and long-term basis.
During 2000, the Company was notified by the utility company that provides
water and sewer services to Gaylord Opryland of an assessment dating back
to 1995 for unbilled services. The Company contested the assessment and
settled the dispute by agreeing to pay $2,600, which was charged to
operations for the year ended December 31, 2000 in the accompanying
consolidated statements of operations.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company was notified during 1997 by Nashville governmental authorities
of an increase in appraised value and property tax rates related to Gaylord
Opryland resulting in an increased tax assessment. The Company contested
the increases and was awarded a partial reduction in the assessed values.
During the year ended December 31, 2000, the Company recognized a pretax
charge to operations of $1,149 for the resolution of the property tax
dispute.
During 1999, the Company entered into a 20-year naming rights agreement
related to the Nashville Arena with the Nashville Predators. The Nashville
Arena has been renamed the Gaylord Entertainment Center as a result of the
agreement. A director of the Company owns a majority equity interest in the
Nashville Predators. The contractual commitment required the Company to pay
$2,050 during the first year of the contract, with a 5% escalation each
year for the remaining term of the agreement. The Company is accounting for
the naming rights agreement expense on a straight-line basis over the
20-year contract period. The Company recognized naming rights expense of
$3,389 for the years ended December 31, 2001 and 2000, and $1,412 during
the period of 1999 subsequent to entering into the agreement, which is
included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
The Company has purchased stop-loss coverage in order to limit its exposure
to any significant levels of claims relating to workers' compensation,
employee medical benefits and general liability for which it is
self-insured.
The Company is involved in a class action lawsuit related to Gaylord
Opryland related to the manner in which the hotel distributes service and
delivery charges to certain employees. The Company intends to vigorously
contest this matter and at December 31, 2001, has not accrued any
liabilities related to it. If the Company is unsuccessful in its defense of
this matter, it could have a material adverse effect on its future results
of operations.
The Company is involved in certain legal actions and claims on a variety of
other matters. It is the opinion of management that such legal actions will
not have a material effect on the results of operations, financial
condition or liquidity of the Company.
16. RETIREMENT PLANS
Prior to January 1, 2001, the Company maintained a noncontributory defined
benefit pension plan in which substantially all of its employees were
eligible to participate upon meeting the pension plan's participation
requirements. The benefits were based on years of service and compensation
levels. On January 1, 2001 the Company amended its defined benefit pension
plan to determine future benefits using a cash balance formula. On December
31, 2000, benefits credited under the plan's previous formula were frozen.
Under the cash formula, each participant had an account which was credited
monthly with 3% of qualified earnings and the interest earned on their
previous month-end cash balance. In addition, the Company included a
"grandfather" clause which assures that the participant will receive the
greater of the benefit calculated under the cash balance plan and the
benefit that would have been payable if the defined benefit plan had
remained in existence. The benefit payable to a vested participant upon
retirement at age 65, or age 55 with 15 years of service, is equal to the
participant's account balance, which increases based upon length of service
and compensation levels. At retirement, the employee generally receives the
balance in the account as a lump sum. The funding policy of the Company is
to contribute annually an amount which equals or exceeds the minimum
required by applicable law.
The following table sets forth the funded status at December 31:
2001 2000
-------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 57,609 $ 56,262
Service cost 2,592 2,564
Interest cost 4,288 3,911
Amendments 1,866 --
Actuarial gain (2,763) (627)
Benefits paid (4,880) (4,501)
-------- --------
Benefit obligation at end of year 58,712 57,609
-------- --------
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2001 2000
-------- --------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 52,538 49,890
Actual return on plan assets (6,030) 3,908
Employer contributions 2,574 3,241
Benefits paid (4,880) (4,501)
-------- --------
Fair value of plan assets at end of year 44,202 52,538
-------- --------
Funded status (14,510) (5,071)
Unrecognized net actuarial loss 14,829 7,600
Unrecognized prior service cost 3,750 2,285
Adjustment for minimum liability (14,779) --
-------- --------
Prepaid (accrued) pension cost $(10,710) $ 4,814
======== ========
Net periodic pension expense reflected in the accompanying consolidated
statements of operations included the following components for the years
ended December 31:
2001 2000 1999
------- ------- -------
Service cost $ 2,592 $ 2,564 $ 3,188
Interest cost 4,288 3,911 3,999
Expected return on plan assets (4,131) (3,963) (3,862)
Recognized net actuarial loss 169 107 709
Amortization of prior service cost 402 211 211
------- ------- -------
Total net periodic pension expense $ 3,320 $ 2,830 $ 4,245
======= ======= =======
For both 2001 and 2000, the weighted-average discount rate used in
determining the actuarial present value of the projected benefit obligation
was 7.5%, the rate of increase in future compensation levels was 4% and the
expected long-term rate of return on plan assets was 8%. Plan assets are
invested in a diverse portfolio that primarily consists of equity and debt
securities.
The Company also maintains non-qualified retirement plans (the
"Non-Qualified Plans") to provide benefits to certain key employees. The
Non-Qualified Plans are not funded and the beneficiaries' rights to receive
distributions under these plans constitute unsecured claims to be paid from
the Company's general assets. At December 31, 2001, the Non-Qualified
Plans' projected benefit obligations were $10,368 and its accumulated
benefit obligations were $10,042.
The Company's accrued cost related to its qualified and non-qualified
retirement plans of $20,752 at December 31, 2001 is included in other
long-term liabilities in the accompanying consolidated balance sheets. The
increase in the minimum liability related to the Company's retirement plans
resulted in a 2001 charge to equity, net of taxes, of $8,162 which is
included in other comprehensive loss in the accompanying consolidated
statement of stockholders' equity.
The Company also has contributory retirement savings plans in which
substantially all employees are eligible to participate. The Company
contributes an amount equal to the lesser of one-half of the amount of the
employee's contribution or 3% of the employee's salary. Company
contributions under the retirement savings plans were $1,498, $1,615 and
$1,892 for 2001, 2000 and 1999, respectively.
Effective December 31, 2001, the Company amended its retirement plans and
its retirement savings plan whereby the retirement cash balance benefit was
frozen and whereby future Company contributions to the retirement savings
plan will include 2% to 4% of the employee's salary, based upon the
Company's financial performance, in addition to the one-half match of the
employee's salary up to a maximum of 3% as described above. As a result of
these changes to the retirement plans, the Company expects to record a
pretax charge to operations of approximately $5,700 in the first quarter of
2002 related to the write-off of unamortized prior service cost in
accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits", and related interpretations.
F-29
17. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors unfunded defined benefit postretirement health care
and life insurance plans for certain employees. The Company contributes
toward the cost of health insurance benefits and contributes the full cost
of providing life insurance benefits. In order to be eligible for these
postretirement benefits, an employee must retire after attainment of age 55
and completion of 15 years of service, or attainment of age 65 and
completion of 10 years of service. The Company's Benefits Trust Committee
determines retiree premiums.
The following table reconciles the change in benefit obligation of the
postretirement plans to the accrued postretirement liability as reflected
in other liabilities in the accompanying consolidated balance sheets at
December 31:
2001 2000
-------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 12,918 $ 15,432
Service cost 688 736
Interest cost 946 923
Actuarial gain -- (3,441)
Contributions by plan participants 101 90
Benefits paid (988) (822)
-------- --------
Benefit obligation at end of year 13,665 12,918
Unrecognized net actuarial gain 13,038 13,864
-------- --------
Accrued postretirement liability $ 26,703 $ 26,782
======== ========
Net postretirement benefit expense reflected in the accompanying
consolidated statements of operations included the following components for
the years ended December 31:
2001 2000 1999
------- ------- -------
Service cost $ 688 $ 736 $ 1,815
Interest cost 946 923 1,518
Recognized net actuarial gain (826) (811) (207)
------- ------- -------
Net postretirement benefit expense $ 808 $ 848 $ 3,126
======= ======= =======
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered health care claims was assumed for 2001. The health care
cost trend is projected to be 8% in 2002 and then decline 0.5% each year
thereafter to an ultimate level trend rate of 5.5% per year for 2007 and
beyond. The health care cost trend rates are not applicable to the life
insurance benefit plan. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, a 1% increase in
the assumed health care cost trend rate each year would increase the
accumulated postretirement benefit obligation as of December 31, 2001 by
approximately 12% and the aggregate of the service and interest cost
components of net postretirement benefit expense would increase
approximately 16%. Conversely, a 1% decrease in the assumed health care
cost trend rate each year would decrease the accumulated postretirement
benefit obligation as of December 31, 2001 by approximately 10% and the
aggregate of the service and interest cost components of net postretirement
benefit expense would decrease approximately 13%. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% for 2001 and 2000.
The Company amended the plans effective December 31, 2001 such that only
active employees whose age plus years of service total at least 60 and who
have at least 10 years of service as of December 31, 2001 remain eligible.
In connection with the amendment and curtailment of the plans and in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and related interpretations, the Company
measured a gain of $6,779, which will be recognized in future periods.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SUBSEQUENT EVENTS
Subsequent to December 31, 2001, the Company disclosed that it intended to
dispose of its ownership interests in the Oklahoma Redhawks and certain
real estate, as well as its investments in the Nashville Predators and Opry
Mills. In addition, the Company stated that it was evaluating strategic
alternatives with regard to Acuff-Rose Music Publishing and its investment
in Bass Pro.
The Job Creation and Worker Assistance Act of 2002 was enacted on March 9,
2002. This legislation allows a five-year carryback for losses incurred in
2001. This change in tax law will allow the Company to recover during 2002
approximately $15,600 of federal income taxes previously paid related to
losses incurred in 2001.
Subsequent to December 31, 2001, the Company finalized a transaction to
sell certain assets of its Asia and Brazil networks, including the
assignment of certain transponder leases. The transponder lease assignment
requires the Company to guarantee lease payments in 2002 from the acquirer
of these networks. As a result of the transponder lease assignment, the
Company may reduce its recorded transponder lease liabilities in 2002.
19. FINANCIAL REPORTING BY BUSINESS SEGMENTS
The Company's continuing operations are organized and managed based upon
its products and services. The following information from continuing
operations is derived directly from the segments' internal financial
reports used for corporate management purposes.
2001 2000 1999
----------- ----------- -----------
REVENUES:
Hospitality $ 228,712 $ 237,260 $ 239,248
Attractions 65,878 63,235 57,760
Media 24,157 29,013 62,059
Corporate and other 6,412 5,954 10,784
----------- ----------- -----------
Total $ 325,159 $ 335,462 $ 369,851
=========== =========== ===========
DEPRECIATION AND AMORTIZATION:
Hospitality $ 25,593 $ 24,447 $ 22,828
Attractions 5,810 6,443 6,396
Media 2,578 9,650 5,918
Corporate and other 7,294 7,040 7,591
----------- ----------- -----------
Total $ 41,275 $ 47,580 $ 42,733
=========== =========== ===========
OPERATING INCOME (LOSS):
Hospitality $ 33,915 $ 45,949 $ 43,700
Attractions (2,372) (8,025) (6,063)
Media 1,665 (31,500) 2,153
Corporate and other (39,399) (38,626) (27,806)
Preopening costs (15,141) (5,278) (1,892)
Impairment and other charges (14,262) (76,597) --
Restructuring charges (2,182) (13,098) (2,786)
Merger costs -- -- 1,741
----------- ----------- -----------
Total $ (37,776) $ (127,175) $ 9,047
=========== =========== ===========
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2001 2000 1999
----------- ----------- -----------
IDENTIFIABLE ASSETS:
Hospitality $ 948,284 $ 660,604 $ 462,949
Attractions 88,620 89,065 104,722
Media 35,342 46,805 84,940
Corporate and other 998,503 918,963 845,694
----------- ----------- -----------
Total $ 2,070,749 $ 1,715,437 $ 1,498,305
=========== =========== ===========
CAPITAL EXPENDITURES:
Hospitality $ 277,643 $ 211,000 $ 56,140
Attractions 2,471 6,279 7,138
Media 151 8,152 10,789
Corporate and other 873 5,062 5,639
----------- ----------- -----------
Total $ 281,138 $ 230,493 $ 79,706
=========== =========== ===========
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2001
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues $ 83,404 $ 78,596 $ 74,873 $ 88,286
Depreciation and amortization 10,254 10,432 10,317 10,272
Operating loss (2,562) (14,418) (7,082) (13,714)
Loss from discontinued operations, net of taxes (6,895) (3,927) (20,697) (20,845)
Net income (loss) 24,124 (3,558) (45,161) (23,148)
Net income (loss) per share 0.72 (0.11) (1.35) (0.69)
Net income (loss) per share - assuming dilution 0.72 (0.11) (1.35) (0.69)
2000
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues $ 73,923 $ 91,261 $ 82,954 $ 87,324
Depreciation and amortization 10,925 11,882 11,552 13,221
Operating loss (11,788) (7,248) (11,129) (97,010)
Loss from discontinued operations, net of taxes (4,481) (5,134) (7,801) (31,323)
Net loss (15,041) (14,243) (19,050) (105,136)
Net loss per share (0.45) (0.43) (0.57) (3.14)
Net loss per share - assuming dilution (0.45) (0.43) (0.57) (3.14)
The sum of the quarterly per share amounts may not equal the annual totals
due to rounding.
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the fourth quarter of 2001, the Company recognized a pretax loss of
$2,874 from continuing operations representing impairment and other charges
and pretax restructuring charges from continuing operations of $5,849
offset by a pretax reversal of restructuring charges of $1,363 originally
recorded during the fourth quarter of 2000.
During the third quarter of 2001, the Company adopted the provisions of
SFAS No. 144, with an effective date of January 1, 2001. As a result of the
adoption of SFAS No. 144, the Company has reflected certain business as
described in Note 4 as discontinued operations. The adoption of SFAS No.
144 resulted in a change in the Company's net loss for the second quarter
of 2001 due to the Company's international cable networks, which, effective
June 1, 2001, had been accounted for as discontinued operations under APB
Opinion No. 30.
During the second quarter of 2001, the Company recognized pretax impairment
and other charges of $11,388. Also during the second quarter of 2001, the
company recorded a reversal of $2,304 of the restructuring charges
originally recorded during the fourth quarter of 2000.
During the fourth quarter of 2000, the Company recognized a pretax loss of
$76,597 from continuing operations representing impairment and other
charges and pretax restructuring charges from continuing operations of
$13,098.
F-33