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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, 2002
[ ] 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
incorporation or organization) Identification No.)
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). [X] Yes [ ] No
As of March 17, 2003, there were 33,789,575 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 June 30, 2002 was approximately $503,662,550.
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 8, 2003 are incorporated by reference
into Part III of this Form 10-K.
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GAYLORD ENTERTAINMENT COMPANY
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 14
Item 3. Legal Proceedings....................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders..................................... 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 16
Item 6. Selected Financial Data................................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................. 21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.............................. 49
Item 8. Financial Statements and Supplementary Data............................................. 49
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 50
Item 11. Executive Compensation.................................................................. 50
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters............................................................. 50
Item 13. Certain Relationships and Related Transactions.......................................... 50
Item 14. Controls and Procedures................................................................. 50
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 51
SIGNATURES................................................................................................ 52
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 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 81.9%, 15.3%, 2.7%, and 0.1%, respectively of
total revenues in the calendar year ended December 31, 2002. Financial
information by industry segment and geographic area for each of the three years
in the period ended as of December 31, 2002, 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.
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 "All in One
Place," 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 ("Gaylord Opryland") 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 ("Gaylord Palms") in Kissimmee,
Florida in January 2002, are scheduled to open our new Gaylord hotel in
Grapevine, Texas in April of 2004, and have the option to purchase land for the
development of a 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 gardens and
magnificent charm of a glorious Southern mansion, the resort is situated on
approximately 172 acres in the Opryland
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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 2002, 2001, and 2000. 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, $54 million renovation and
capital improvement program to refurbish the hotel, and as of December 31, 2002
this renovation program was substantially complete.
The following table sets forth information concerning Gaylord Opryland
in Nashville for each of the five years in the period ended December 31, 2002.
YEARS ENDED DECEMBER 31,
------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Average number of guest rooms............... 2,881 2,883 2,883 2,884 2,884
Occupancy rate.............................. 68.6% 70.3% 75.9% 78.0% 79.1%
Average daily rate ("ADR").................. $ 142.58 $ 140.33 $ 140.03 $ 135.48 $ 137.02
Revenue per available room ("RevPAR")....... $ 97.80 $ 98.65 $ 106.22 $ 105.66 $ 108.33
Food and beverage revenues (in thousands)... $ 66,312 $ 72,800 $ 81,093 $ 85,686 $ 81,518
Total revenues (in thousands)............... $ 206,132 $ 221,953 $ 229,859 $ 234,435 $ 233,645
Gaylord Opryland has 2,881 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 similarly to Gaylord Opryland, with rooms overlooking large
glass-covered atriums. The three atriums at Gaylord Palms are modeled after
notable 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.
The following table sets forth information concerning Gaylord Palms in
Kissimmee for the period subsequent to its January 2002 opening.
2002
----
Average number of guest rooms............... 1,406
Occupancy rate.............................. 64.9%
Average daily rate ("ADR").................. $ 168.65
Revenue per available room ("RevPAR")....... $ 109.37
Food and beverage revenues (in thousands)... $ 54,411
Total revenues (in thousands)............... $ 126,473
Gaylord Opryland Texas. We began construction on our new Gaylord hotel
in Grapevine, Texas in June of 2000, and the hotel is scheduled to open in April
of 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
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under one roof. The property will also include a number of themed restaurants
with an additional restaurant located on the point overlooking Lake Grapevine.
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 $515 million. As of December 31, 2002, the
Company has incurred approximately $213 million of these costs.
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.
ATTRACTIONS
The Grand Ole Opry. The Grand Ole Opry, which celebrated its 75th
anniversary in 2000, is one of the most widely known platforms for country music
in the world. The Opry features a live country music show with performances
every Friday and Saturday night, as well as Tuesday Night Opry's on a seasonal
basis. 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 most famous
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 Alan Jackson, Vince Gill, and Martina
McBride.
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 Ricky Skaggs, Bruce Springsteen, Coldplay, The
Pretenders, Dixie Chicks, Willie Nelson, Alison Krauss and Elvis
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Costello. 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.
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, Bye Bye Love - The Everly Brothers Musical, and
Stand By Your Man: The Tammy Wynette Story. The Grand Ole Opry returns to the
Ryman Auditorium periodically, most recently from November 2002 to February
2003. 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
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 of which the Company owns a minority interest.
On March 25, 2003, the Company, through its wholly-owned subsidiary
Gaylord Investments, Inc., entered into an agreement to sell the assets
primarily used in the operations of WSM-FM and WWTN(FM) to Cumulus Broadcasting,
Inc. ("Cumulus"), and the Company entered into a joint sales agreement with
Cumulus for WSM-AM
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in exchange for approximately $65 million in cash. Consummation of the sale of
assets is subject to customary closing conditions, including regulatory
approvals, and is expected to take place in the third quarter of 2003. In
connection with this agreement, we also entered into a local marketing agreement
with Cumulus pursuant to which, from the second business day after the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Improvements Act of 1976 until the closing of the sale of the assets, we will,
for a fee, make available to Cumulus substantially all of the broadcast time on
WSM-FM and WWTN(FM). In turn, Cumulus will provide programming to be broadcast
during such broadcast time and will collect revenues from the advertising that
it sells for broadcast during this programming time. The Company will continue
to own and operate WSM-AM and under the joint sales agreement with Cumulus,
Cumulus will sell all of the commercial advertising on WSM-AM and provide
certain sales promotion and billing and collection services relating to WSM-AM,
all for a specified fee. The joint sales agreement has a term of five years.
CORPORATE AND OTHER
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 12.84% interest in the
Nashville Hockey Club Limited Partnership, a limited partnership that owns the
Nashville Predators, a National Hockey League franchise which began its fifth
season in the fall of 2002. In July of 2002, we exercised the first of our three
put options, each of which gives us the right to require that the Predators
repurchase one-third (1/3) of our interest in the partnership. To date, the
Predators have not completed this repurchase. We are engaged in continuing
discussions with the Predators' partnership regarding our right to have our
interest repurchased. In our accompanying financial statements, the value of our
investment in the Predators' partnership has been reduced to zero. 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
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.
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-AM radio,
and the Ryman Auditorium.
It was thus determined that Acuff-Rose Music Publishing, Word
Entertainment, Music Country/CMT International, Opry Mills 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 and the Oklahoma Redhawks, and certain
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miscellaneous real estate holdings. Management has yet to make a final decision
as to whether to sell its minority interest in Bass Pro Shops, which it has
determined to be a non-core asset. 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
combined with 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 Acuff-Rose Music Publishing to Sony/ATV Music Publishing. On
August 27, 2002, the Company completed the sale of its Acuff-Rose Music
Publishing operations through the sale of substantially all of the assets (with
certain exceptions) and the assumption of certain liabilities and obligations of
Acuff-Rose Music Publishing, LLC, Acuff-Rose Music, LLC, Milene Music, LLC,
Springhouse Music, LLC and Hickory Records, LLC (collectively, the "Sellers"),
to Sony/ATV Music Publishing LLC. The Sellers engaged in the business of
acquiring, publishing and exploiting musical compositions and producing,
distributing and exploiting sound recordings. The proceeds from the sale totaled
approximately $157 million in cash, before royalties payable to Sony for the
period beginning July 1, 2002. The net proceeds were used to pay down amounts
outstanding under the Company's credit facility with Deutsche Bank, Citibank and
CIBC and to continue to build its core hospitality brand, Gaylord Hotels.
Sale of Opry Mills Partnership Interest to The Mills Corporation.
During 1998, the Company entered into a partnership with The Mills Corporation
to develop the Opry Mills Shopping Center in Nashville, Tennessee. The Company
held a one-third interest in the partnership as well as the title to the land on
which the shopping center was constructed, which was being leased to the
partnership. During the second quarter of 2002, the Company sold its partnership
share to The Mills Corporation for approximately $30.8 million in cash.
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 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. In January of 2003, the Company completed its exit from the
international cable business by selling its minority investment in Video Rola in
Mexico for $650,000.
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. Three of the Company's directors, who are the
beneficial owners of an additional 13.6% 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.
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Shortly after the closing, the Company received notification from
OPUBCO asserting that the Company breached certain representations and
warranties in the purchase agreement and OPUBCO demanded indemnification from
the Company in the amount of $3.1 million. The Company's board of directors
referred this matter to a special committee of independent directors for its
consideration, and the special committee retained independent counsel to advise
it on the merits of OPUBCO's indemnification request. After (i) reviewing the
matters related to the indemnification request with counsel, (ii) considering
the costs and uncertainties associated with litigation and (iii) considering the
results of settlement negotiations with OPUBCO, the special committee authorized
the Company to enter into a settlement pursuant to which the Company paid OPUBCO
an aggregate of $825,000 and OPUBCO released the Company from any claims
associated with the Company's indemnification obligations.
Financing Activities. In February 2003, the Company received a
commitment for a $225 million credit facility from Deutsche Bank, Bank of
America and CIBC. The facility will consist of a $200 million term loan and a
$25 million revolving credit facility. The Company expects definitive agreements
with respect to this credit facility will be executed in the second quarter of
2003. Funding of the credit facility is subject to customary closing conditions
and the lenders have the right to revise the credit facility structure and/or
decline to perform under the commitment if the lenders determine that certain
conditions exist within the Company's operations or if certain changes occur
within the financial markets. Proceeds of the new credit facility will be used
to pay off the Company's existing $60 million Term Loan, described below, and to
complete the construction of Gaylord Opryland Texas.
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. The amounts outstanding under
the term loan at March 21, 2003 were $60 million.
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.
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 notional 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 more complete description of the Company's
financing activities.
EMPLOYEES
As of December 31, 2002, the Company had approximately 4,215 full-time
and 513 part-time and temporary employees. Of these, approximately 3,535
full-time and 176 part-time employees were employed in Hospitality;
approximately 360 full-time and 305 part-time employees were employed in
Attractions; approximately 83 full-time and 23 part-time employees were employed
in Media; and approximately 237 full-time and 9 part-time employees were
employed in Corporate and Other. The Company believes its relations with its
employees are good.
7
COMPETITION
Hospitality. The Gaylord Hotel properties compete with numerous other
hotels throughout the United States and abroad, particularly the approximately
84 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 radio stations compete with numerous other types
of entertainment businesses, and success is often dependent on taste and
fashion, which may fluctuate from time to time. 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.
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
8
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.
ADDITIONAL INFORMATION
Our web site address is www.gaylordentertainment.com. Please note that
our web site address is provided as an inactive textual reference only. We make
available free of charge through our web site, the annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC. The information provided on
our web site is not part of this report, and is therefore not incorporated by
reference unless such information is otherwise specifically referenced elsewhere
in this report.
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."
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:
- 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.
- Our ability to generate cash flows from existing operations.
- Our ability to hire and retain hotel management, catering and
convention-related staff for our hotels.
- Our ability to capitalize on the strong brand recognition of
certain of our media assets.
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:
- The desirability and perceived attractiveness of Nashville,
Tennessee, Kissimmee, Florida and Grapevine, Texas as tourist
and convention destinations.
9
- Adverse changes in the national economy and in the levels of
tourism and convention business that would affect our hotels.
- Increased competition for convention and tourism business in
Nashville, Tennessee and Kissimmee, Florida.
- Gaylord Palms is operating and our new Texas hotel will
operate in highly competitive markets for convention and
tourism business.
- 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 has been limited by our existing level of
indebtedness and limitations on our ability to grant liens on unencumbered
assets. Although we have received a commitment for a new credit facility which
we expect will be sufficient to fund completion of the construction of Gaylord
Opryland Texas, the closing of the new credit facility is subject to the
fulfillment of certain conditions, which we believe are customary; but there can
be no assurance that the facility, which is expected to close in the second
quarter of 2003, will ultimately close and be funded. 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 and 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, 2003, the total amount of our long-term debt,
including the current portion, was approximately $339.3 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 amount of our indebtedness will likely increase,
perhaps substantially. The amount of our indebtedness could have important
consequences to investors, including the following:
- Our ability to obtain additional financing in the future may
be impaired;
10
- 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;
- 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;
- We may be further constrained by financial covenants and other
restrictive provisions contained in credit agreements and
other financing documents;
- We may be substantially more leveraged than some of our
competitors, which may place us at a competitive disadvantage;
and
- 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 affected by adverse economic, weather or
business conditions in the Southeast.
11
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 CERTAIN OTHER MINORITY EQUITY INTERESTS OVER WHICH WE HAVE NO
SIGNIFICANT CONTROL.
We have certain 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 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.
RISKS RELATING TO ACTS OF GOD, TERRORIST ACTIVITY AND WAR.
Our financial and operating performance may be adversely affected by
acts of God, such as natural disasters, in locations where we own and/or operate
significant properties and areas of the world from which we draw a large number
of customers. Some types of losses, such as from earthquake, hurricane,
terrorism and environmental hazards may be either uninsurable or too expensive
to justify insuring against. Should an uninsured loss or a loss in excess of
insured limits occur, we could lose all or a portion of the capital we have
invested in a hotel, as well as the anticipated future revenue from the hotel.
In that event, we might nevertheless remain obligated for any mortgage debt or
other financial obligations related to the property. Similarly, wars (including
the potential for war), terrorist activity (including threats of terrorist
activity), political unrest and other forms of civil strife as well as
geopolitical uncertainty have caused in the past, and may cause in the future,
our results to differ materially from anticipated results.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company as of December 31, 2002. All officers serve at
the discretion of the Board of Directors.
NAME AGE POSITION
---- --- --------
Michael D. Rose............. 61 Chairman of the Board
Colin V. Reed............... 55 President and Chief Executive Officer
David C. Kloeppel........... 33 Executive Vice President and Chief Financial Officer
Jay D. Sevigny.............. 43 President, Gaylord Opryland Resort and Convention Center
Karen L. Spacek............. 43 Senior Vice President, Communications and Human Resources
John P. Caparella........... 45 Senior Vice President; General Manager, Gaylord Palms Resort and
Convention Center
Carter R. Todd.............. 45 Senior Vice President, General Counsel and Secretary
- -----------------
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. Mr.
Reed is a director of Rite Aid Corporation.
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 named President of the Company's Gaylord Opryland Resort
13
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
Operations for 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
and Human Resources. Prior to joining Gaylord in August of 2001, Ms. Spacek
worked for more than five years in different positions with 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 Dehli.
Mr. Todd joined Gaylord Entertainment Company 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.
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 owns the land
and improvements that comprise the Opryland complex in Nashville, Tennessee
which are composed of the following properties and the properties listed below.
The Company also owns the former 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 were previously
leased to CBS through September 30, 2002. The Company believes that its present
facilities for each of its business segments are generally well maintained.
Hospitality. The Opryland complex includes the site of Gaylord Opryland
(approximately 172 acres). 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 owns the General Jackson showboat's docking
facility and the Opry House, both are located within the Opryland complex. The
Company also 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 and the Wildhorse Saloon dance hall and
production facility.
Media. The Company owns WSM Radio's offices and studios, which are also
located within the Opryland complex.
14
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 2002.
15
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:
HIGH LOW
---- ---
2001
First Quarter.......................................................... $ 26.60 $ 20.00
Second Quarter......................................................... 29.15 24.95
Third Quarter.......................................................... 29.05 19.60
Fourth Quarter......................................................... 25.50 18.49
HIGH LOW
---- ---
2002
First Quarter.......................................................... $ 26.98 $ 22.10
Second Quarter......................................................... 29.26 21.76
Third Quarter.......................................................... 23.05 17.90
Fourth Quarter......................................................... 21.35 16.16
(b) HOLDERS
The approximate number of record holders of the Company's common stock
on March 17, 2003 was 2,430.
(c) CASH DIVIDENDS
No cash dividends were paid during 2001 or 2002 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.
16
ITEM 6. SELECTED FINANCIAL DATA.
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following selected historical financial data for the three years
ended December 31, 2002 is derived from the Company's audited consolidated
financial statements. The selected financial data for the two years ended
December 31, 1999 is derived from previously issued financial statements
adjusted for unaudited revisions for discontinued operations and restatements of
income tax, partnership investments and other less significant items. The
information in the following table should be read in conjunction with the
Company's audited consolidated financial statements and related notes included
herein.
The Company has restated its results for the four year period from
1998-2001. This restatement resulted from items noted during a required re-audit
based on applicable auditing standards which require a re-audit of prior year
financial statements if a company's prior auditors have ceased operations and
the historical financial statements include reclassifications to separately
reflect the impact of discontinued operations. During 2002, the Company
committed to plans of disposal for Acuff-Rose Music Publishing and the Oklahoma
City Redhawks resulting in the reclassification of balances and operating
results of those two businesses as discontinued operations in the Company's
historical financial statements. Based on the requirements of applicable
auditing standards, the Company engaged Ernst & Young LLP ("Ernst & Young"), the
Company's current auditors, to perform the required re-audits of the Company's
2001 and 2000 consolidated financial statements since the Company's prior
auditors, Arthur Andersen LLP, had ceased operations. The specific principles
and accounts affected are discussed in more detail in Note 3 in the Company's
consolidated financial statements.
17
INCOME STATEMENT DATA:
YEARS ENDED DECEMBER 31,
------------------------
(Restated) (Restated) (Restated) (Restated)
(in thousands, except per share data) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Revenues:
Hospitality............................... $ 339,380 $228,712 $ 237,260 $ 239,248 $ 237,076
Attractions............................... 63,512 65,878 63,235 57,760 56,602
Media..................................... 11,194 9,393 14,913 48,814 61,480
Corporate and other....................... 272 290 64 5,318 5,797
--------- -------- --------- --------- ---------
Total revenues......................... 414,358 304,273 315,472 351,140 360,955
--------- -------- --------- --------- ---------
Operating expenses:
Operating costs........................... 260,357 205,421 213,725 223,627 219,547
Selling, general and administrative....... 110,619 68,913 90,806 76,977 69,560
Preopening costs (1)...................... 8,913 15,927 5,278 1,892 --
Gain on sale of assets (2)................ (30,529) -- -- -- --
Impairment and other charges.............. -- 14,262(6) 75,712(6) -- --
Restructuring charges..................... 3(4) 2,182(4) 12,952(4) 2,786(4) --
Merger costs.............................. -- -- -- (1,741)(9) --
Depreciation and amortization:
Hospitality............................ 44,924 25,593 24,447 22,828 21,390
Attractions............................ 5,295 5,810 6,443 6,396 5,525
Media.................................. 623 660 7,716 4,945 2,675
Corporate and other.................... 5,778 6,542 6,257 6,870 5,262
--------- -------- --------- --------- ---------
Total depreciation and amortization.... 56,620 38,605 44,863 41,039 34,852
--------- -------- --------- --------- ---------
Total operating expenses............... 405,983 345,310 443,336 344,580 323,959
--------- -------- --------- --------- ---------
Operating income (loss):
Hospitality............................... 25,972 34,270 45,478 43,859 47,031
Attractions............................... 3,094 (2,372) (8,025) (6,063) (3,059)
Media..................................... (193) (454) (33,188)(8) (79) 16,480
Corporate and other....................... (42,111) (40,110) (38,187) (30,112) (23,456)
Preopening costs (1)...................... (8,913) (15,927) (5,278) -- --
Gain on sale of assets (2)................ 30,529 -- -- -- --
Impairment and other charges.............. -- (14,262)(6) (75,712)(6) -- --
Restructuring charges..................... (3)(4) (2,182)(4) (12,952)(4) (2,786)(4) --
Merger costs.............................. -- -- -- 1,741(9) --
--------- -------- --------- --------- ---------
Total operating income (loss)............. 8,375 (41,037) (127,864) 6,560 36,996
Interest expense, net of amounts capitalized. (46,960) (39,365) (30,319) (15,047) (28,742)
Interest income.............................. 2,808 5,554 4,046 5,922 25,067
Unrealized gain (loss) on Viacom stock, net.. (37,300) 782 -- -- --
Unrealized gain on derivatives............... 86,476 54,282 -- -- --
Other gains and losses....................... 1,163 2,661 (3,514) 586,371(10)(11) 19,351(11)(12)
--------- -------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes....................... 14,562 (17,123) (157,651) 583,806 52,672
Provision (benefit) for income taxes......... 1,806 (8,313) (51,140) 173,437 20,580
--------- -------- --------- --------- ---------
Income (loss) from continuing operations..... 12,756 (8,810) (106,511) 410,369 32,092
Gain (loss) from discontinued operations, net
of taxes (3).............................. 84,960 (50,188) (49,545) (16,715) (2,471)
Cumulative effect of accounting change,
net of taxes.............................. (2,572)(5) 11,202(7) -- -- --
--------- -------- --------- --------- ---------
Net income (loss)......................... $ 95,144 $(47,796) $(156,056) $ 393,654 $ 29,621
========= ======== ========= ========= =========
18
YEARS ENDED DECEMBER 31,
------------------------
(Restated) (Restated) (Restated) (Restated)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Income (loss) per share:
Income (loss) from continuing operations.... $ 0.38 $ (0.26) $ (3.19) $ 12.47 $ 0.98
Income (loss) from discontinued
operations............................... 2.52 (1.49) (1.48) (0.51) (0.08)
Cumulative effect of accounting change...... (0.08) 0.33 -- -- --
---------- --------- --------- ---------- ----------
Net income (loss)..................... $ 2.82 $ (1.42) $ (4.67) $ 11.96 $ 0.90
========== ========= ========= ========== ==========
Income (loss) per share - assuming dilution:
Income (loss) from continuing operations.... $ 0.38 $ (0.26) $ (3.19) $ 12.35 $ 0.96
Income (loss) from discontinued operations.. 2.52 (1.49) (1.48) (0.50) (0.07)
Cumulative effect of accounting change...... (0.08) 0.33 -- -- --
----------- --------- --------- ---------- ----------
Net income (loss)..................... $ 2.82 $ (1.42) $ (4.67) $ 11.85 $ 0.89
========== ========= ========= ========== ==========
Dividends per share......................... $ -- $ -- $ -- $ 0.80 $ 0.65
========== ========= ========= ========== ==========
BALANCE SHEET DATA:
(IN THOUSANDS)
AS OF DECEMBER 31,
------------------
(Restated) (Restated) (Restated) (Restated)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total assets............................ $2,192,196(10) $2,177,644(10) $1,930,805(10) $1,741,215 $1,012,624
Total debt.............................. 340,638(13) 468,997(13) 175,500 297,500(8) 261,328
Secured forward exchange contract....... 613,034(10) 613,054(10) 613,054(10) -- --
Total stockholders' equity.............. 787,579 696,988 765,937(7) 1,007,149(7) 523,587
- ---------------
(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. Gaylord Palms opened in January
2002 and the Texas hotel is anticipated to open in April 2004.
(2) During 2002, the Company sold its one-third interest in the Opry Mills
Shopping Center in Nashville, Tennessee and the related land lease
interest between the Company and the Mills Corporation.
(3) 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: Acuff-Rose Music; OKC Redhawks; 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.
(4) Related primarily to employee severance and contract termination costs.
(5) Reflects the cumulative effect of the change in accounting method
related to adopting the provisions of SFAS No. 142. The Company
recorded an impairment loss related to impairment of the goodwill of
the Radisson Hotel at Opryland. The impairment loss was $4.2 million,
less taxes of $1.6 million.
19
(6) Reflects the divestiture of certain businesses and reduction in the
carrying values of certain assets.
(7) 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 $18.3
million less a related tax provision of $7.1 million.
(8) Includes operating losses of $27.5 million related to Gaylord Digital,
the Company's internet initiative, and operating losses of $6.1 million
related to country record label development, both of which were closed
during 2000.
(9) The merger costs relate to the reversal of merger costs associated with
the October 1, 1997 merger when TNN and CMT were acquired by CBS.
(10) Includes a pretax gain of $459.3 million 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), $4.2 million of cash, and other
consideration. The CBS Series B preferred stock was included in total
assets at its market value of $648.4 million at December 31, 1999. The
Viacom, Inc. Class B common stock was included in total assets at its
market values of $448.5 million, $485.8 million and $514.4 million at
December 31, 2002, 2001 and 2000, respectively. During 2000, the
Company entered into a seven-year forward exchange contract for a
notional amount of $613.1 million 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 $118.1 million, $145.0 million and
$171.9 million was included in total assets at December 31, 2002, 2001
and 2000, respectively.
(11) In 1995, the Company sold its cable television systems. Net proceeds
were $198.8 million in cash and a note receivable with a face amount of
$165.7 million, which was recorded at $150.7 million, net of a $15.0
million 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 $15.0 million related to the
note receivable discount. During 1999, the Company received cash and
recognized a pretax gain of $129.9 million representing the value of
the Rights. The proceeds from the note receivable prepayment and the
Rights were used to reduce outstanding bank indebtedness.
(12) Includes a pretax gain of $16.1 million on the sale of the Company's
investment in the Texas Rangers Baseball Club, Ltd. and a pretax gain
totaling $8.5 million primarily related to the settlement of
contingencies from the sales of television stations KHTV in Houston and
KSTW in Seattle.
(13) 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.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
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.
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. Due to management's decision during 2002 to pursue plans to
dispose of certain businesses, those businesses have been presented as
discontinued operations as described in more detail below.
CONSTRUCTION COMMITMENTS
Additional long-term financing is required to fund the Company's construction
commitments related to its hotel development projects and to fund its overall
anticipated operating losses in 2003. As of December 31, 2002, the Company had
$98.6 million in unrestricted cash in addition to the net cash flows from
certain operations to fund its cash requirements including the Company's 2003
construction commitments related to its hotel construction projects. These
resources are not adequate to fund all of the Company's 2003 construction
commitments. As a result of these required future financing requirements, the
Company is currently negotiating with its lenders and others regarding the
Company's future financing arrangements.
In February 2003, the Company received a commitment for a $225 million credit
facility arranged by Deutsche Bank Trust Company Americas, Bank of America,
N.A., and CIBC Inc. (collectively, the "Lenders"). However, the commitment is
subject to the completion of certain remaining due diligence by the Lenders and
the Lenders have the right to revise the credit facility structure and/or
decline to perform under the commitment if certain conditions are not fulfilled
or if certain changes occur within the financial markets. The proceeds of this
financing will be used to repay the Company's existing $60 million Term Loan, to
complete the construction of the Texas hotel and fund any operating losses in
2003.
Management currently anticipates securing the long-term financing under the
existing commitment from the Lenders and expects to close the financing in the
second quarter of 2003. If the Company is unable to secure a portion of the
additional financing it is seeking, or if the timing of such financing is
significantly delayed, the Company will be required to curtail certain of its
development expenditures on current and future construction projects to ensure
adequate liquidity to fund the Company's operations.
RE-AUDIT AND RESTATEMENT OF FINANCIAL STATEMENTS
During 2002, the Company committed to plans of disposal for Acuff-Rose Music
Publishing and the Oklahoma City Redhawks resulting in the reclassification of
balances and operating results of those two businesses as discontinued
operations in the Company's historical financial statements. Based on the
requirements of applicable auditing standards, the Company engaged Ernst & Young
LLP ("Ernst & Young"), the Company's current auditors, to perform the required
re-audits of the Company's 2001 and 2000 consolidated financial statements since
the Company's prior auditors, Arthur Andersen LLP, had ceased operations.
As a part of the re-audit process, Ernst & Young raised certain issues for the
Company's consideration and after review of the relevant information, the
Company determined that certain changes were necessary to the Company's
historical consolidated financial statements. The revisions, which result
primarily from a change to the Company's income tax accrual and to accounting
for its investment in the Nashville Predators limited partnership ("Predators"),
as well as certain other less significant items, increased retained earnings at
January 1, 2000 by approximately $40.5 million, increased net loss for the year
ended December 31, 2000 by approximately $2.6 million, increased the net loss
for the year ended December 31, 2001 by approximately $53,000, and decreased
unaudited net income for the first six months of 2002 by approximately $13.0
million. Information related to the Company's unaudited quarterly financial
information for the years 2002 and 2001 is contained in Note 23 in the Company's
consolidated financial
21
statements. These restatements did not impact cash flows from operating,
investing or financing activities.
The first principal issue relates to income tax reserves maintained for certain
tax related items as a result of a corporate reorganization in 1999. Upon
further consideration of the facts and circumstances existing at the time of the
reorganization, the Company has determined that the income tax reserves should
not have been maintained. As a result of these changes, retained earnings at
January 1, 2000 has increased by approximately $47.0 million. In addition,
because $14.0 million of the income tax reserve was reversed during 2002 due to
the expiration of the applicable statute of limitations, as a result of the
restatement management was required to decrease previously reported unaudited
net income for the first six months of 2002 by approximately $14.0 million to
reflect the elimination of the income tax reserve.
The second principal issue relates to the Company's accounting for its
investment in the Predators. The Company purchased a limited partnership
interest in the Predators during 1997. The Company's limited partnership
interest includes an 8% preferred return and the right to put the investment
back to the Predators over three annual installments beginning in 2002, but does
not provide the Company with any right to receive any distributions in excess of
its stated return and does not require the Company to fund any capital or
operating shortfalls in the partnership. The Company had not previously recorded
its pro-rata share of losses of the Predators in its historical statement of
operations. However, after consultation with Ernst & Young concerning the
accounting for the Company's investment in the Predators, the Company determined
that it would be appropriate to recognize its pro-rata share of the Predators'
operating results, which have been primarily losses. The revisions associated
with the Company's investment in the Predators decreased retained earnings at
January 1, 2000 by approximately $4.0 million, increased net loss by
approximately $1.0 million and $2.0 million for the years ended December 31,
2000 and 2001, respectively, and decreased unaudited net income for the first
six months of 2002 by approximately $1.0 million. During 2002, the investment
in the Predators reached zero. The Company has not reduced the investment below
zero as the Company is under no obligation to fund additional amounts to the
Predators.
The Company also revised its historical financial statements for other, less
significant items by decreasing retained earnings by approximately $2.0 million
at January 1, 2000, by increasing the net loss for the year ended December 31,
2000 by approximately $2.0 million, by reducing the net loss for the year ended
December 31, 2001 by approximately $2.0 million, and by increasing unaudited net
income for the first six months of 2002 as previously reported by approximately
$3.0 million.
The restated consolidated financial statements include both the impact of
reclassifying discontinued operations as required by SFAS No. 144 (as discussed
in Note 6 to the consolidated financial statements) and the restatement changes
discussed above. Please refer to Note 3 to the consolidated financial statements
for schedules reconciling the restatement related changes and the
reclassification of discontinued operations with previously released financial
data for 2001 and 2000.
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 judgments. 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 judgments 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
22
generally accepted accounting principles, with no need for management's judgment
regarding accounting policy. The Company believes that of its significant
accounting policies, as discussed in Note 1 to the consolidated financial
statements, the following may involve a higher degree of judgment and
complexity.
REVENUE RECOGNITION
The Company recognizes revenue from its rooms as earned on the close of business
each day. Revenues from concessions and food and beverage sales are recognized
at the time of the sale. The Company recognizes revenues from the attractions
and media segment 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 and advance ticket sales at the Company's
tourism properties 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 judgment 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 judgment and estimation. Future
events may indicate differences from these judgments 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 upon certain estimates of
liabilities 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 and expiration of outplacement agreements.
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
As part of the Company's ongoing assessment and streamlining of operations, the
Company identified certain duplication of duties during 2002 within divisions
and realized the need to streamline those tasks and duties. Related to this
assessment, the Company adopted a plan of restructuring during 2002 as discussed
in Results of Operations.
In 2001, the Company named a new chairman and a new chief executive officer, and
had numerous changes in senior
23
management, primarily because of certain 2000 events discussed below. During
2001, the new management team instituted a corporate reorganization,
re-evaluated the Company's businesses and other investments and employed 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 in Results of Operations.
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 in Results of
Operations.
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 the first eight months of 2001 and
during 2000 due to decreased tourism and travel activity. Although the Company
experienced a slight increase of occupancy, average daily rate and revenue per
available room in the fourth quarter of 2002 over fourth quarter of 2001, there
is no guarantee that this increase will continue. 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.
DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, which superseded 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 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 the accompanying financial statements as of
December 31, 2002 and 2001 and for each of the three years ended December 31,
2002: Word Entertainment ("Word"), the Company's contemporary Christian music
business; the Acuff-Rose Music Publishing catalog entity; GET Management, the
Company's artist management business which was sold during 2001; the Company's
ownership interest in the Redhawks, a minor league baseball team based in
Oklahoma City, Oklahoma; 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 treatment as cash flow hedges in accordance with
the provisions of SFAS No. 133. During
24
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. Two of the contracts cap the Company's
exposure to one-month LIBOR rates on up to $375.0 million of outstanding
indebtedness at 7.5%. Another interest rate cap, which caps the Company's
exposure on one-month Eurodollar rates on up to $100.0 million of outstanding
indebtedness at 6.625%, expired in October 2002. 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 consolidated statements
of stockholders' equity.
GAYLORD PALMS
The Company's Gaylord Palms Resort and Convention Center ("Gaylord Palms") in
Kissimmee, Florida commenced operations in January 2002. The Company recorded
$4.5 million and $12.2 million of preopening expenses during 2002 and 2001,
respectively.
GAYLORD OPRYLAND TEXAS
The Company's hotel in Texas, which is currently under construction and is
expected to open in April of 2004, recorded $4.0 million and $3.1 million of
preopening expenses during 2002 and 2001, respectively. The Company expects
increases in preopening costs related to the Texas hotel until its completion.
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.
SUBSEQUENT EVENT
On March 25, 2003, the Company, through its wholly-owned subsidiary Gaylord
Investments, Inc., entered into an agreement to sell the assets primarily used
in the operations of WSM-FM and WWTN(FM) to Cumulus Broadcasting, Inc.
("Cumulus") and the Company entered into a joint sales agreement with Cumulus
for WSM-AM in exchange for approximately $65 million in cash. Consummation of
the sale of assets is subject to customary closing conditions, including
regulatory approvals, and is expected to take place in the third quarter of
2003. In connection with this agreement, the Company also entered into a local
marketing agreement with Cumulus pursuant to which, from the second business day
after the expiration or termination of the waiting period under the
Hart-Scott-Rodino Improvements Act of 1976 until the closing of the sale of the
stations, the Company will, for a fee, make available to Cumulus substantially
all of the broadcast time on WSM-FM and WWTN(FM). In turn, Cumulus will provide
programming to be broadcast during such broadcast time and will collect revenues
from the advertising that it sells for broadcast during this programming time.
The Company will continue to own and operate WSM-AM, and under the terms of the
joint sales agreement with Cumulus, Cumulus will sell all of the commercial
advertising on WSM-AM and provide certain sales promotion and billing and
collection services relating to WSM-AM, all for a specified fee. The joint sales
agreement has a term of five years.
25
RESULTS OF OPERATIONS
The following table contains selected results of operations data for each of the
three years ended December 31, 2002, 2001 and 2000. The table also shows the
percentage relationships to total revenues and, in the case of segment operating
income, its relationship to segment revenues.
(Restated) (Restated)
(in thousands) 2002 % 2001 % 2000 %
---------- ----- ---------- ----- --------- -----
REVENUES:
Hospitality $ 339,380 81.9 $ 228,712 75.2 $ 237,260 75.2
Attractions 63,512 15.3 65,878 21.6 63,235 20.1
Media 11,194 2.7 9,393 3.1 14,913 4.7
Corporate and other 272 0.1 290 0.1 64 -
---------- ----- ---------- ----- --------- -----
Total revenues 414,358 100.0 304,273 100.0 315,472 100.0
---------- ----- ---------- ----- --------- -----
OPERATING EXPENSES:
Operating costs 260,357 62.8 205,421 67.5 213,725 67.7
Selling, general and administrative 110,619 26.7 68,913 22.7 90,806 28.8
Preopening costs 8,913 2.2 15,927 5.2 5,278 1.7
Gain on sale of assets (30,529) (7.4) - - - -
Impairment and other charges - - 14,262 4.7 75,712 24.0
Restructuring charges 3 - 2,182 0.7 12,952 4.1
Depreciation and amortization:
Hospitality 44,924 25,593 24,447
Attractions 5,295 5,810 6,443
Media 623 660 7,716
Corporate and other 5,778 6,542 6,257
---------- ----- ---------- ----- --------- -----
Total depreciation and amortization 56,620 13.7 38,605 12.7 44,863 14.2
---------- ----- ---------- ----- --------- -----
Total operating expenses 405,983 98.0 345,310 113.5 443,336 140.5
---------- ----- ---------- ----- --------- -----
OPERATING INCOME (LOSS):
Hospitality 25,972 7.7 34,270 15.0 45,478 19.2
Attractions 3,094 4.9 (2,372) (3.6) (8,025) (12.7)
Media (193) (1.7) (454) (4.8) (33,188) -
Corporate and other (42,111) - (40,110) - (38,187) -
Preopening costs (8,913) - (15,927) - (5,278) -
Gain on sale of assets 30,529 - - - - -
Impairment and other charges - - (14,262) - (75,712) -
Restructuring charges (3) - (2,182) - (12,952) -
---------- ----- ---------- ----- --------- -----
Total operating income (loss) 8,375 2.0 (41,037) (13.5) (127,864) (40.5)
Interest expense, net of amounts capitalized (46,960) - (39,365) - (30,319) -
Interest income 2,808 - 5,554 - 4,046 -
Gain on Viacom stock and derivatives 49,176 - 55,064 - - -
Other gains and losses 1,163 - 2,661 - (3,514) -
(Provision) benefit for income taxes (1,806) - 8,313 - 51,140 -
Gain (loss) on discontinued operations, net 84,960 - (50,188) - (49,545) -
Cumulative effect of accounting change, net (2,572) - 11,202 - - -
---------- ----- ---------- ----- --------- -----
Net income (loss) $ 95,144 - $ (47,796) - $(156,056) -
========== ===== ========== ===== ========= =====
26
The Company considers Revenue per Available Room (RevPAR) to be a meaningful
indicator of our hospitality segment performance because it measures the period
over period change in room revenues. The Company calculates RevPAR by dividing
room sales for comparable properties by room nights available to guests for the
period. RevPAR is not comparable to similarly titled measures such as revenues.
Occupancy, average daily rate and RevPAR for the Gaylord Opryland Resort and
Convention Center ("Gaylord Opryland") and the Gaylord Palms Resort and
Convention Center ("Gaylord Palms"), subsequent to its January 2002 opening, are
shown in the following table.
2002 2001 2000
----------- --------- ---------
Gaylord Opryland Resort
Occupancy 68.59% 70.30% 75.85%
Average Daily Rate $ 142.58 $ 140.33 $ 140.03
RevPAR $ 97.80 $ 98.65 $ 106.22
Gaylord Palms
Occupancy 64.85% - -
Average Daily Rate $ 168.65 - -
RevPAR $ 109.37 - -
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
REVENUES
Total revenues increased $110.1 million, or 36.2%, to $414.4 million in 2002. As
discussed below, the increase is primarily due to the opening of Gaylord Palms
in January 2002.
Revenues in the hospitality segment increased $110.7 million, or 48.4%, to
$339.4 million in 2002. Revenues of the Gaylord Palms, subsequent to the January
2002 opening, were $126.5 million. The increase in revenues of the Gaylord Palms
was partially offset by a decrease in revenues of Gaylord Opryland of $15.8
million, to $206.1 million, in 2002. This decrease was primarily attributable to
the impact of a softer economy and decreased occupancy levels in the weeks
following the September 11, 2001 terrorist attacks. The decrease in revenue of
the Gaylord Opryland was also partially attributable to the annual rotation of
convention business among different markets that is common in the meeting and
convention industry.
Revenues in the attractions segment decreased $2.4 million, or 3.6%, to $63.5
million in 2002. Revenues from Corporate Magic, a company specializing in the
production of creative events in the corporate entertainment marketplace,
decreased $5.1 million, to $18.7 million, primarily due to reduced spending by
corporate customers as a result of the downturn in the economy. The decrease in
revenue of Corporate Magic was partially offset by an increase in revenues of
the Grand Ole Opry of $2.5 million, to $15.9 million in 2002. The Grand Ole Opry
revenue increase is due to an increase in popular performers appearing on the
Grand Ole Opry.
Revenues in the media segment, which consists of the Company's three radio
stations, increased $1.8 million, or 19.2%, to $11.2 million in 2002. Revenues
of the Company's radio stations increased due to more effective selling of the
Company's radio inventory.
Revenues in the corporate and other segment remained constant at $0.3 million.
27
OPERATING EXPENSES
Total operating expenses increased $60.7 million, or 17.6%, to $406.0 million in
2002. Operating costs, as a percentage of revenues, decreased to 62.8% during
2002 as compared to 67.5% during 2001. Selling, general and administrative
expenses, as a percentage of revenues, increased to 26.7% during 2002 as
compared to 22.7% in 2001. Excluding the gain on sale of assets, the impairment
and other charges and restructuring charges from both periods, total operating
expenses increased $107.6 million, or 32.7%, to $436.5 million in 2002.
Total operating costs consist of direct costs associated with the daily
operations of the Company's core assets, primarily the room, food and beverage
and convention costs in the hospitality segment. Operating costs also include
the direct costs associated with the operations of all of the Company's business
units. Total operating costs increased $54.9 million, or 26.7%, to $260.4
million in 2002.
Operating costs in the hospitality segment increased $68.6 million, or 49.0%, to
$208.5 million in 2002 primarily as a result of the opening of the Gaylord
Palms. Operating costs of the Gaylord Palms, subsequent to the January 2002
opening, was $79.0 million. The increase of operating costs generated by the
opening of the Gaylord Palms was partially offset by a decrease in operating
costs of the Gaylord Opryland of $7.3 million, to $135.7 million, in 2002. The
decrease in operating costs at Gaylord Opryland is associated with lower
revenues and reduced occupancy.
Operating costs in the attractions segment decreased $10.1 million, or 20.3%, to
$39.7 million in 2002. The operating costs of Corporate Magic decreased $7.6
million, to $13.2 million in 2002 as compared to 2001 primarily due to the lower
revenue and certain cost saving measures taken by the Company during 2002. The
operating costs of the Grand Ole Opry and the General Jackson, the Company's
entertainment showboat, decreased $1.0 million in 2002 due to cost saving
measures.
Operating costs in the media segment increased slightly by $0.6 million, or
11.4%, to $5.6 million in 2002. The increase in operating costs is attributable
to the increased revenue in the media segment for 2002 compared to 2001.
The operating costs in the corporate and other segment decreased $4.1 million,
or 38.4%, to $6.6 million in 2002 as compared to 2001 due to the elimination of
unnecessary management levels and overhead at the hotels identified in the 2001
reorganization.
Selling, general and administrative expenses consist of administrative and
overhead costs. Selling, general and administrative expenses increased $41.7
million, or 60.5%, to $110.6 million in 2002.
Selling, general and administrative expenses in the hospitality segment
increased $31.1 million, or 107.2%, to $60.0 million in 2002. The increase is
primarily attributable to the opening of Gaylord Palms in January 2002. Selling,
general and administrative expenses for Gaylord Palms subsequent to its January
2002 opening was $29.3 million. Selling, general and administrative expenses at
Gaylord Opryland increased $2.3 million, to $29.9 million in 2002 primarily due
to an increase in advertising to promote the special events held at the resort.
Selling, general and administrative expenses in the attractions segment
increased $2.8 million, or 21.8%, to $15.4 million in 2002. Selling, general and
administrative expenses increased $1.4 million, to $1.9 million, at the General
Jackson due to increased labor costs associated with additional revenue and
increased management support during 2002. Also, selling, general and
administrative expenses increased $1.3 million, to $5.5 million, at the Grand
Ole Opry associated with the increase in revenue.
Selling, general and administrative expenses in the media segment increased $1.0
million, or 24.2%, to $5.2 million in 2002. Selling, general and administrative
expenses in the media segment increased primarily due to increased costs
associated with higher revenues.
Corporate selling, general and administrative expenses, consisting primarily of
the naming rights agreement, senior
28
management salaries and benefits, legal, human resources, accounting, pension
and other administrative costs increased $6.9 million, or 29.8%, to $30.0
million during 2002. Effective December 31, 2001, the Company amended its
retirement plans and its retirement savings plan. As a result of these
amendments, the retirement cash balance benefit was frozen and the policy
related to future Company contributions to the retirement savings plan was
changed. The Company recorded a pretax charge of $5.7 million in 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, which
is included in selling, general and administrative expenses. In addition, the
Company amended the eligibility requirements of its postretirement benefit plans
effective December 31, 2001. 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 recorded a gain of $2.1 million which is reflected as a reduction in
corporate and other selling, general and administrative expenses in 2002. These
nonrecurring gains and losses were recorded in the corporate and other segment
and were not allocated to the Company's other operating segments. Other
increases in corporate, selling, general and administrative expenses can be
attributed to increased personnel costs related to new corporate departments
that did not exist last year, new management personnel in other corporate
departments, and increased corporate marketing expenses as compared to the same
period in 2001.
Preopening costs decreased $7.0 million, or 44.0%, to $8.9 million in 2002
related to the Company's hotel development activities. The decrease in
preopening costs is due to the opening of the Gaylord Palms in January of 2002.
Gaylord Palms preopening costs decreased $8.4 million, to $4.5 million in 2002
as compared to 2001. This decrease was partially offset by an increase in
preopening costs related to the hotel development in Texas. Preopening costs
related to the Texas hotel was $4.0 million in 2002, as compared to $3.1 million
in 2001. The Texas hotel is scheduled to open in April, 2004. 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.
GAIN ON SALE OF ASSETS
During 1998, the Company entered into a partnership with The Mills Corporation
to develop the Opry Mills Shopping Center in Nashville, Tennessee. The Company
held a one-third interest in the partnership as well as the title to the land on
which the shopping center was constructed, which was being leased to the
partnership. During the second quarter of 2002, the Company sold its partnership
share to certain affiliates of The Mills Corporation for approximately $30.8
million in cash proceeds. In accordance with the provisions of SFAS No. 66,
"Accounting for Sales of Real Estate", and other applicable pronouncements, the
Company deferred approximately $20.0 million of the gain representing the
estimated fair value of the continuing land lease interest between the Company
and the Opry Mills partnership at June 30, 2002. The Company recognized the
remainder of the proceeds, net of certain transaction costs, as a gain of
approximately $10.6 million during the second quarter of 2002. During the third
quarter of 2002, the Company sold its interest in the land lease to an affiliate
of the Mills Corporation and recognized the remaining $20.0 million deferred
gain, less certain transaction costs.
IMPAIRMENT AND OTHER CHARGES
The Company recognized pretax impairment and other charges as a result of the
2001 Strategic Assessment. The components of these charges for the year ended
December 31 are as follows:
(in thousands) 2001
----------
Programming, film and other content $ 6,858
Technology investments 4,576
Property and equipment 2,828
----------
Total impairment and other charges $ 14,262
==========
29
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. The Company sold this idle real estate
during the second quarter of 2002. Proceeds from the sale approximated the
carrying 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.
RESTRUCTURING CHARGES
2002 Restructuring Charge
As part of the Company's ongoing assessment of operations, the Company
identified certain duplication of duties within divisions and realized the need
to streamline those tasks and duties. Related to this assessment, during the
second quarter of 2002, the Company adopted a plan of restructuring resulting in
a pretax restructuring charge of $1.1 million related to employee severance
costs and other employee benefits unrelated to discontinued operations. Also
during 2002, the Company reversed approximately $1.1 million of the 2001
restructuring charge. The 2002 restructuring charges were recorded in accordance
with EITF No. 94-3. As of December 31, 2002, the Company has recorded cash
payments of $1.08 million against the 2002 restructuring accrual. During the
fourth quarter of 2002, the outplacement agreements expired related to the 2002
restructuring charge. Therefore, the Company reversed the remaining $67,000.
There was no remaining balance of the 2002 restructuring accrual at December 31,
2002.
2001 Restructuring Charge
During 2001, the Company recognized pretax restructuring charges from continuing
operations of $5.8 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 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, 2002, the Company
has recorded cash payments of $4.4 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,
2002 of $0.4 million is included in accounts payable and accrued liabilities 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 2003.
DEPRECIATION EXPENSE
Depreciation expense increased $18.0 million, or 51.5%, to $52.8 million in
2002. The increase during 2002 is primarily attributable to the opening of
Gaylord Palms in January 2002. Depreciation expense of Gaylord Palms was $18.6
million subsequent to the January 2002 opening.
AMORTIZATION EXPENSE
Amortization expense increased slightly, by $0.1 million in 2002. Amortization
of software increased $0.9 million during 2002 primarily at Gaylord Opryland,
Gaylord Palms and the corporate and other segment. This increase was
30
partially offset by the adoption of SFAS No. 142 on January 1, 2002, under the
provisions of which the Company no longer amortizes goodwill. Amortization of
goodwill for continuing operations for 2002 was $0.8 million.
OPERATING INCOME (LOSS)
Total operating loss decreased $49.4 million to an operating income of $8.4
million during 2002. Hospitality segment operating income decreased $8.3 million
to $26.0 million in 2002 primarily as a result of decreased operating income of
Gaylord Opryland. The operating loss of the attractions segment decreased $5.5
million to an operating income of $3.1 million in 2002 primarily as a result of
increased operating income of Corporate Magic and the Grand Ole Opry. Media
segment operating loss decreased $0.3 million to an operating loss of $0.2
million in 2002 as a result of increased operating income related to the radio
stations. The operating loss of the corporate and other segment increased $2.0
million to an operating loss of $42.1 million in 2002 primarily because of the
net change in the Company's pension plans.
INTEREST EXPENSE
Interest expense increased $7.6 million, or 19.3%, to $47.0 million in 2002, net
of capitalized interest of $6.8 million. The increase in interest expense is
primarily due to ceasing of interest capitalization in January 2002 because of
the opening of the Gaylord Palms. Capitalized interest related to the Gaylord
Palms hotel was $0.4 million during 2002 before its opening and was $16.4
million during 2001. The absence of capitalized interest related to Gaylord
Palms was partially offset by an increase of $4.0 million of capitalized
interest related to the Texas hotel. Interest expense related to the
amortization of prepaid costs and interest of the secured forward exchange
contract was $26.9 million during 2002 and 2001.
Excluding capitalized interest from each period, interest expense decreased $4.4
million in 2002 due to the lower average borrowing levels and lower weighted
average interest rates during 2002. The Company's weighted average interest rate
on its borrowings, including the interest expense associated with the secured
forward exchange contract, was 5.3% in 2002 as compared to 6.3% in 2001 as
compared to 6.6% in 2000.
As discussed previously, 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 which would increase the Company's interest expense.
In addition, the interest rates on any additional borrowings may be higher than
the current interest rates, which would also increase interest expense.
INTEREST INCOME
Interest income decreased $2.7 million, or 49.4%, to $2.8 million in 2002. The
decrease in 2002 primarily relates to a decrease in average invested cash
balances in 2002 as compared to 2001.
GAIN (LOSS) ON VIACOM STOCK AND DERIVATIVES
During 2000, the Company entered into a seven-year secured forward exchange
contract with respect to 10.9 million shares of its Viacom stock investment.
Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133,
as amended. Components of the secured forward exchange contract are considered
derivatives as defined by SFAS No. 133.
In connection with the adoption of SFAS No. 133, the Company recorded 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,
as discussed below. For the year ended December 31, 2002, the Company recorded
net pretax gains of $86.5 million related to the increase in fair value of the
derivatives associated with the secured forward exchange contract. For the
31
year ended December 31, 2002, the Company recorded net pretax losses of $37.3
million related to the decrease in fair value of the Viacom Stock. For the year
ended December 31, 2001, the Company recorded net pretax gains 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 permitted by SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". For the year ended December 31, 2001, the Company recorded
net pretax losses of $28.6 million related to the decrease in fair value of the
Viacom stock subsequent to January 1, 2001.
OTHER GAINS AND LOSSES
Other gains and losses decreased $1.5 million, or 56.3%, to $1.2 million in
2002. During 2001, the indemnification period ended related to the sale of KTVT
and the Company recognized a $4.1 million gain.
INCOME TAXES
The Company's provision for income taxes was $1.8 million in 2002 compared to an
income tax benefit of $8.3 million in 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.
Acuff-Rose Music Publishing
During the second quarter of 2002, the Company committed to a plan of disposal
of its Acuff-Rose Music Publishing entity. During the third quarter of 2002, the
Company finalized the sale of the Acuff-Rose Music Publishing entity to Sony/ATV
Music Publishing for approximately $157.0 million in cash. The Company
recognized a pretax gain of $130.6 million during the third quarter of 2002
related to the sale in discontinued operations. The gain on the sale of
Acuff-Rose Music Publishing is recorded in income from discontinued operations
in the consolidated statement of operations. Proceeds of $25.0 million were used
to reduce the Company's outstanding indebtedness.
OKC Redhawks
During 2002, the Company committed to a plan of disposal of its ownership
interests in the Redhawks, a minor league baseball team based in Oklahoma City,
Oklahoma.
Word Entertainment
During 2001, the Company committed to a plan to sell Word Entertainment. As a
result of the decision to sell Word Entertainment, the Company reduced the
carrying value of Word Entertainment 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 Entertainment's net assets was determined based
upon ongoing negotiations with potential buyers. Related to the decision to sell
Word Entertainment, a pretax restructuring charge of $1.5 million was recorded
in discontinued operations in 2001. The restructuring charge consisted 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. During the first quarter
of 2002, the Company sold Word Entertainment's domestic operations to an
affiliate of Warner Music Group for $84.1 million in cash, subject to future
purchase price adjustments. The Company recognized a pretax gain of $0.5 million
in discontinued operations during the first quarter of 2002 related to the sale
of Word Entertainment. Proceeds from the sale of $80.0 million were used to
reduce the Company's outstanding indebtedness.
International Cable Networks
32
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,
increasing 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 reductions in the 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 the Company's 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 $6.9 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.
During 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. Also during the first quarter of 2002, the Company
ceased operations based in Argentina. The transponder lease assignment requires
the Company to guarantee lease payments in 2002 from the acquirer of these
networks. As such, the Company recorded a lease liability for the amount of the
assignee's portion of the transponder lease.
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 accompanying consolidated
statement of operations. OPUBCO owns a minority interest in the Company. Three
of the Company's directors are also directors of OPUBCO and voting trustees of a
voting trust that controls OPUBCO. Additionally, those three directors
collectively own a significant ownership interest in the Company.
33
The following table reflects the results of operations of businesses accounted
for as discontinued operations for the years ended December 31:
(in thousands) 2002 2001
--------- ---------
REVENUES:
Acuff-Rose Music Publishing $ 7,654 $ 14,764
Redhawks 6,289 6,122
Word Entertainment 2,594 115,677
International cable networks 744 5,025
Businesses sold to OPUBCO - 2,195
Other - 609
--------- ---------
Total revenues $ 17,281 $ 144,392
========= =========
OPERATING INCOME (LOSS):
Acuff-Rose Music Publishing $ 933 $ 2,119
Redhawks 841 363
Word Entertainment (917) (5,710)
International cable networks (1,576) (6,375)
Businesses sold to OPUBCO - (1,816)
Other - (383)
Impairment and other charges - (53,716)
Restructuring charges - (2,959)
--------- ---------
Total operating loss (719) (68,477)
INTEREST EXPENSE (81) (797)
INTEREST INCOME 81 199
OTHER GAINS AND LOSSES 135,442 (4,131)
--------- ---------
Income (loss) before provision (benefit) for income taxes 134,723 (73,206)
PROVISION (BENEFIT) FOR INCOME TAXES 49,763 (23,018)
--------- ---------
Net income (loss) from discontinued operations $ 84,960 $ (50,188)
========= =========
34
The assets and liabilities of the discontinued operations presented in the
accompanying consolidated balance sheets are comprised of:
(in thousands) 2002 2001
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 1,812 $ 3,889
Trade receivables, less allowance of $2,785 and $5,003, respectively 456 28,999
Inventories 163 6,486
Prepaid expenses 97 10,333
Other current assets - 823
-------- --------
Total current assets 2,528 50,530
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION 3,242 17,342
GOODWILL 1,162 28,688
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 3,942 6,125
MUSIC AND FILM CATALOGS - 26,274
OTHER LONG-TERM ASSETS 673 5,587
-------- --------
Total long-term assets 9,019 84,016
-------- --------
Total assets $ 11,547 $134,546
-------- --------
CURRENT LIABILITIES:
Current portion of long-term debt $ 94 $ 5,515
Accounts payable and accrued liabilities 6,284 25,495
-------- --------
Total current liabilities 6,378 31,010
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION - -
OTHER LONG-TERM LIABILITIES 781 836
-------- --------
Total long-term liabilities 781 836
-------- --------
Total liabilities 7,159 31,846
MINORITY INTEREST OF DISCONTINUED OPERATIONS 1,885 1,679
-------- --------
TOTAL LIABILITIES AND MINORITY INTEREST OF
DISCONTINUED OPERATIONS $ 9,044 $ 33,525
======== ========
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
During the second quarter of 2002, the Company completed its goodwill impairment
test as required by SFAS No. 142. In accordance with the provisions of SFAS No.
142, the Company has reflected the pretax $4.2 million impairment charge as a
cumulative effect of a change in accounting principle in the amount of $2.6
million, net of tax benefit of $1.6 million, as of January 1, 2002 in the
consolidated statements of operations.
On January 1, 2001, the Company recorded a gain of $11.9 million, net of taxes
of $7.1 million, as a cumulative effect of an accounting change to record the
derivatives associated with the secured forward exchange contract on its Viacom
stock at fair value as of January 1, 2001, in accordance with the provisions of
SFAS No. 133.
35
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUES
Total revenues decreased $11.2 million, or 3.6%, to $304.3 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 $1.9 million, or 0.6% 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 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 the
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. 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.
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, 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 $5.5 million, or 37.0%, to $9.4 million
in 2001. Excluding the revenues of Gaylord Digital from 2000, revenues in the
media segment decreased $1.6 million, or 14.4%. 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 $0.2 million to $0.3
million in 2001.
OPERATING EXPENSES
Total operating expenses decreased $98.0 million, or 22.1%, to $345.3 million in
2001. Excluding impairment and other charges and restructuring charges, total
operating expenses decreased $25.8 million, or 7.3%, to $328.9 million in 2001.
Operating costs, as a percentage of revenues, decreased slightly to 67.5% during
2001 as compared to 67.7% during 2000. Selling, general and administrative
expenses, as a percentage of revenues, decreased to 22.7% during 2001 as
compared to 28.8% in 2000.
Operating costs decreased $8.3 million, or 3.9%, to $205.4 million in 2001.
Excluding the operating costs of the 2000 Divested Businesses from 2000,
operating costs increased $9.3 million, or 4.7% in 2001.
Operating costs in the hospitality segment increased $1.5 million, or 1.1%, to
$139.9 million in 2001 primarily as a result of increased operating costs at
Gaylord Opryland of $1.7 million. During 2000, the Company recorded certain
unusual 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%, to
$49.8 million 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, or 15.4%, in 2001. The operating
costs of Corporate Magic increased
36
$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 $11.8 million, or 70.0%, to $5.0
million 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 slightly by $0.1 million, or 4.1% in 2001.
The operating costs in the corporate and other segment increased $0.9 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 $21.9 million, or 24.1%,
to $68.9 million in 2001. Excluding the selling, general and administrative
expenses of the 2000 Divested Businesses from 2000, selling, general and
administrative expenses decreased $3.0 million, or 4.2%, in 2001.
Selling, general and administrative expenses in the hospitality segment remained
constant at $29.0 million for 2001 and 2000. Selling, general and administrative
expenses at the Gaylord Opryland increased $0.1 million, to $27.6 million in
2001. Selling and promotion expense at the Gaylord Opryland increased $1.9
million due to increased advertising offset by lower general and administrative
costs at the Gaylord Opryland of $1.8 million due to cost controls.
Selling, general and administrative expenses in the attractions segment
decreased $3.4 million, or 21.2%, to $12.7 million 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.
Selling, general and administrative expenses in the media segment decreased
$19.4 million, or 82.4%, to $4.2 million 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 of Gaylord Digital
and country music record label development costs, selling, general and
administrative expenses in the media segment decreased by $1.0 million, or 19.6%
in 2001. This decrease is attributable to cost saving measures instituted by the
2000 Strategic Assessment.
Corporate selling, general and administrative expenses, consisting primarily of
senior management salaries and benefits, legal, human resources, accounting, and
other administrative costs increased $0.9 million, or 4.3%, to $23.1 million in
2002. The increase is primarily related to attracting new key management
personnel needed as a result of the 2000 Strategic Assessment.
Preopening costs increased $10.6 million to $15.9 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.
37
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 $ 7,410
Gaylord Digital and other technology investments 4,576 48,127
Property and equipment 2,828 3,397
Orlando-area Wildhorse Saloon - 15,854
Other - 924
----------- -----------
Total impairment and other charges $ 14,262 $ 75,712
=========== ===========
Additional impairment and other charges of $28.9 million during 2000 are
included in discontinued operations.
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. The Company sold this idle real estate
during the second quarter of 2002. Proceeds from the sale approximated the
carrying 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 $7.4 million
based upon the projected cash flows for these assets. This charge included
investments of $5.1 million, other receivables of $2.1 million and music and
film catalogs of $0.2 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 operating losses of $27.5
million for the year ended December 31, 2000.
During the course of conducting the 2000 Strategic Assessment, other property
and equipment of the Company were 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,
38
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 $5.8 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 consisted 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 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, 2002, the Company
has recorded cash payments of $4.4 million against the 2001 restructuring
accrual, all of which relate to continuing operations. The remaining balance of
the 2001 restructuring accrual related to continuing operations at December 31,
2002 of $0.5 million is included in accounts payable and accrued liabilities 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 2003.
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 No. 94-3. Additional restructuring charges
of $3.2 million during 2000 were 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 the second quarter of 2002, the Company entered into
a sublease that reduced the liability the Company was originally required to pay
and the Company reversed $0.1 million of the 2000 restructuring charge related
to the reduction in required payments. During 2001, the Company negotiated
reductions in certain contract termination costs, which allowed the reversal of
$3.7 million of the restructuring charges originally recorded during 2000. As of
December 31, 2002, the Company has recorded cash payments of $9.3 million
against the 2000 restructuring accrual related to continuing operations. The
remaining balance of the 2000 restructuring accrual at December 31, 2002 of $0.3
million, from continuing operations, is included in accounts payable and accrued
liabilities in the consolidated balance sheets, which the Company expects to be
paid during 2003.
DEPRECIATION EXPENSE
Depreciation expense decreased $0.6 million, or 1.8%, to $34.9 million in 2001.
Excluding the depreciation of the 2000 Divested Businesses from 2000,
depreciation expense increased $0.8 million, or 2.3%, in 2001. The increase is
primarily attributable to increased depreciation expense at Gaylord Opryland of
$0.9 million related to capital expenditures.
AMORTIZATION EXPENSE
39
Amortization expense decreased $5.6 million in 2001 primarily due to the
divestiture of Gaylord Digital. Amortization expense of Gaylord Digital was zero
and $6.1 million during 2001 and 2000, respectively. Amortization of software
increased $0.6 million during 2001 primarily at Gaylord Opryland and the
corporate and other segment.
OPERATING INCOME (LOSS)
Total operating loss decreased $86.8 million to an operating loss of $41.0
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 loss increased $20.6 million to an
operating loss of $24.6 million in 2001.
Hospitality segment operating income decreased $11.2 million to $34.3 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 loss was $0.5 million in 2001 compared to an operating
loss of $33.2 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 $0.8 million in 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 $1.9 million to an operating loss
of $40.1 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 no longer capitalized 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.
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. In
connection with the adoption of SFAS No. 133, as amended, the Company 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 effective January 1, 2001. For the year
ended December 31, 2001, the Company recorded net pretax gains 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
net pretax losses of $28.6 million related to the decrease in fair value of the
Viacom stock subsequent to January 1, 2001.
OTHER GAINS AND LOSSES
40
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 2001 and 2000, the Company recorded its share of equity losses of $3.9
million and $2.0 million, respectively, in the Nashville Predators. 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 $8.3 million in 2001 compared to an
income tax benefit of $51.1 million in 2000.
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.
Acuff-Rose Music Publishing
During the second quarter of 2002, the Company committed to a plan of disposal
of its Acuff-Rose Music Publishing entity.
OKC Redhawks
During 2002, the Company committed to a plan of disposal of its ownership
interests in the Redhawks, a minor league baseball team based in Oklahoma City,
Oklahoma.
Word Entertainment
During 2001, the Company committed to a plan to sell Word Entertainment. As a
result of the decision to sell Word Entertainment, the Company reduced the
carrying value of Word Entertainment 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 Entertainment's net assets was determined based
upon ongoing negotiations with potential buyers. Related to the decision to sell
Word Entertainment, a pretax restructuring charge of $1.5 million was recorded
in discontinued operations in 2001. The restructuring charge consisted 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. During the first quarter
of 2002, the Company sold Word Entertainment's domestic operations to an
affiliate of Warner Music Group for $84.1 million in cash, subject to future
purchase price adjustments.
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,
increasing 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 reductions in the
41
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 the Company's 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 $6.9 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.
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 accompanying consolidated
statement of operations. OPUBCO owns a minority interest in the Company. Three
of the Company's directors are also directors of OPUBCO and voting trustees of a
voting trust that controls OPUBCO. Additionally, those three 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:
(in thousands) 2001 2000
--------- ---------
REVENUES:
Acuff-Rose Music Publishing $ 14,764 $ 14,100
Redhawks 6,122 5,890
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 $ 144,392 $ 198,908
========= =========
OPERATING INCOME (LOSS):
Acuff-Rose Music Publishing $ 2,119 $ 1,688
Redhawks 363 169
Word Entertainment (5,710) (15,241)
International cable networks (6,375) (9,655)
Businesses sold to OPUBCO (1,816) (8,240)
Other (383) (144)
Impairment and other charges (53,716) (29,826)
Restructuring charges (2,959) (3,241)
--------- ---------
Total operating loss (68,477) (64,490)
INTEREST EXPENSE (797) (1,310)
INTEREST INCOME 199 683
OTHER GAINS AND LOSSES (4,131) (4,419)
--------- ---------
Income (loss) before benefit for income taxes (73,206) (69,536)
PROVISION (BENEFIT) FOR INCOME TAXES (23,018) (19,991)
--------- ---------
Net income (loss) from discontinued operations $ (50,188) $ (49,545)
========= =========
42
On January 1, 2001, the Company recorded a gain of $11.9 million, net of taxes
of $7.1 million, as a cumulative effect of an accounting change to record the
derivatives associated with the secured forward exchange contract on its Viacom
stock at fair value as of January 1, 2001, in accordance with the provisions of
SFAS No. 133.
43
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon several different sources of capital to fund its
operations and capital commitments, including the operating cash flow of its
hospitality and attractions companies, its unrestricted cash balance of $98.6
million as of December 31, 2002 and the proceeds from the sale of non-core
assets.
FUTURE FINANCING
Additional long-term financing is required to fund the Company's construction
commitments related to its hotel development projects and to fund its overall
anticipated operating losses in 2003. As of December 31, 2002, the Company had
$98.6 million in unrestricted cash in addition to the net cash flows from
certain operations to fund its cash requirements including the Company's 2003
construction commitments related to its hotel construction projects. These
resources are not adequate to fund all of the Company's 2003 construction
commitments. As a result of these required future financing requirements, the
Company is currently negotiating with its lenders and others regarding the
Company's future financing arrangements.
In February 2003, the Company received a commitment for a $225 million credit
facility arranged by Deutsche Bank Trust Company Americas, Bank of America,
N.A., and CIBC Inc. (collectively, the "Lenders"). However, the commitment is
subject to the completion of certain remaining due diligence by the Lenders and
the Lenders have the right to revise the credit facility structure and/or
decline to perform under the commitment if certain conditions are not fulfilled
or if certain changes occur within the financial markets. The proceeds of this
financing will be used to repay the Company's existing $60 million Term Loan, to
complete the construction of the Texas hotel and fund any operating losses in
2003.
Management currently anticipates securing the long-term financing under the
existing commitment from the Lenders and expects to close the financing in the
second quarter of 2003. If the Company is unable to secure a portion of the
additional financing it is seeking, or if the timing of such financing is
significantly delayed, the Company will be required to curtail certain of its
development expenditures on current and future construction projects to ensure
adequate liquidity to fund the Company's operations.
TERM LOAN
During 2001, the Company entered into a three-year delayed-draw senior term loan
(the "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 the initial construction phases of the Gaylord hotel in Texas
as well as for general corporate 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 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.
During the first three months of 2002, the Company sold Word's domestic
operations, which 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 at December 31, 2001. As required by the Term Loan, the Company used $15.9
million of the net cash proceeds, as defined under the Term Loan agreement,
received from the sale of the Opry Mills investment to reduce the outstanding
balance of the Term Loan. In addition, the Company used $25.0 million of the net
cash proceeds, as defined under the Term Loan agreement, received from the sale
of Acuff-Rose Music Publishing to reduce the outstanding balance of the Term
Loan. Also during 2002, the Company made a principal payment of approximately
$4.1 million under the Term Loan. Net borrowings under the Term Loan for 2002
and 2001 were $85.0 million and $100.0 million, respectively. As of December 31,
2002 and 2001, the Company had outstanding borrowings of $60.0 million and
$100.0 million, respectively, under the Term Loan and was required to escrow
certain amounts in a
44
completion reserve account for Gaylord Palms. The Company's ability to borrow
additional funds under the Term Loan expired during 2002. However, the lenders
could reinstate the Company's ability to borrow additional funds at a future
date.
The terms of the Term Loan required the Company to purchase an interest rate
instrument which caps the interest rate paid by the Company. This instrument
expired in the fourth quarter of 2002. Due to the expiration of the interest
rate instrument, the Company was out of compliance with the terms of the Term
Loan. Subsequent to December 31, 2002, the Company obtained a waiver from the
lenders whereby they waived this event of non-compliance as of December 31, 2002
and also removed the requirement to maintain such instruments for the remainder
of the term of the loan. The maximum amount available under the Term Loan
reduces to $50.0 million in April 2004, with full repayment due in October 2004.
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, 2002 and 2001, the unamortized
balance of the deferred financing costs related to the Term Loan was $2.4
million and $5.6 million, respectively. The weighted average interest rate,
including amortization of deferred financing costs, under the Term Loan for 2002
and 2001 was 9.6% and 8.3%, respectively. The weighted average interest rate of
9.6% for 2002 includes 4.5% related to commitment fees and the amortization of
deferred financing costs.
SENIOR AND MEZZANINE 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 1.02%. 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 and paying required
escrows and fees were approximately $97.6 million. At December 31, 2002 and
2001, the unamortized balance of the deferred financing costs related to the
Nashville Hotel Loans was $7.3 million and $13.8 million, respectively. The
weighted average interest rates for the Senior Loan for 2002 and 2001, including
amortization of deferred financing costs, were 4.5% and 6.2%, respectively. The
weighted average interest rates for the Mezzanine Loan for 2002 and 2001,
including amortization of deferred financing costs, were 10.5% 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, 2002, the cash management restrictions are in
effect which require that all excess cash flows, as defined, be escrowed and may
be used to repay principal amounts owed on the Senior Loan. During 2002, $47.8
million of restricted cash was utilized to repay principal amounts outstanding
under the Senior Loan.
45
The Company negotiated certain revisions to the financial covenants under the
Nashville Hotel Loans and the Term Loan during the first and second quarters of
2002. After these revisions, the Company was in compliance with the covenants
under the Nashville Hotel Loans and the covenants under the Term Loan with 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. The Company believes it has certain other possible alternatives to reduce
borrowings outstanding under the Nashville Hotel Loans, including application of
unrestricted cash on hand, which would allow the Company to remedy any event of
default. 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 the second quarter of 2002, like other companies in the hospitality
industry, the Company was notified by the insurers providing its property and
casualty insurance that policies issued upon renewal would no longer include
coverage for terrorist acts. As a result, the servicer for the Senior Loan
notified the Company in May of 2002 that it believed the lack of insurance
covering terrorist acts and certain related matters did constitute a default
under that credit facility. Although coverage for terrorist acts was never
specifically required as part of the required property and casualty coverage,
the Company determined to resolve this issue by obtaining coverage for terrorist
acts. The Company has obtained coverage in an amount equal to the outstanding
balance of the Senior Loan. During the third quarter of 2002, the Company
received notice from the servicer that any previous existing defaults were cured
and coverage in an amount equal to the outstanding balance of the loan satisfied
the requirements of the Senior Loan. The servicer has reserved the right to
impose additional insurance requirements if there is a change in, among other
things, the availability or cost of terrorism insurance coverage, the risk of
terrorist activity, or legislation affecting the rights of lenders to require
borrowers to maintain terrorism insurance.
CASH FLOW FROM OPERATING ACTIVITIES
Cash flow from operating activities is the principal source of cash used to fund
the Company's operating expenses, interest payments on debt, and maintenance
capital expenditures. During 2002, the Company's net cash flows provided by
operating activities were $88.9 million, reflecting primarily the Company's
income from continuing operations; depreciation and amortization; and the
provision for deferred income taxes.
CASH FLOW FROM INVESTING ACTIVITIES
During 2002, the Company's primary uses of funds and investing activities
included the purchases of property and equipment for the Gaylord Palms and
Gaylord Opryland Texas which totaled $175.6 million. The Company received
proceeds from the sale of assets and the sale of discontinued operations
totaling approximately $263.4 million.
CASH FLOW FROM FINANCING ACTIVITIES
The Company's cash flows from financing activities reflect primarily the
issuance of debt and the repayment of long-term debt. During 2002, the Company's
net cash flows used in financing activities were approximately $83.6 million,
reflecting the issuance of $85.0 million in debt and the repayment of $214.8
million in debt. The Company also experienced a decrease in restricted cash and
cash equivalents of $45.7 million which was used to repay debt.
CAPITAL REQUIREMENTS
The Company currently projects capital expenditures for 2003 of approximately
$230.0 million, which includes continuing construction at the new Gaylord hotel
in Grapevine, Texas of $204.0 million and approximately $12.0 million related to
improvements to Gaylord Opryland. The Company has obtained a commitment for a
new credit facility to fund these expenditures. If the Company does not obtain
this financing, or a suitable alternative, capital expenditures will need to be
reduced to continue to fund ongoing operations.
COMMITMENTS
Future minimum cash lease commitments under all noncancelable operating leases
in effect for continuing operations
46
at December 31, 2002 are as follows: 2003 - $6.2 million, 2004 - $5.7 million,
2005 - $4.7 million, 2006 - $3.4 million, 2007 - $3.5 million, and 2008 and
thereafter - $683.2 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 2001 and 2002, the Company entered into certain agreements related to the
construction of the new Gaylord hotel in Grapevine, Texas. At December 31, 2002,
the Company has paid approximately $201.1 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. 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, and to purchase a minimum number of tickets to Predators games
each year.
The following table summarizes our significant contractual obligations as of
December 31, 2002, including long-term debt and operating and capital lease
commitments:
(in thousands)
Total amounts Less than 1-2 3-4 After 4
Contractual obligations committed 1 year years years years
- ----------------------- --------- ------ ----- ----- -----
Long-term debt $ 339,185 $ 8,004 $ 331,181 $ - $ -
Capital leases 1,453 522 844 87 -
Construction commitments 275,000 204,000 71,000 - -
Arena naming rights 61,323 2,373 5,108 5,632 48,210
Operating leases 706,794 6,242 10,410 6,940 683,202
Other 5,525 325 650 650 3,900
---------- ---------- ---------- ---------- ----------
Total contractual obligations $1,389,280 $ 221,466 $ 419,193 $ 13,309 $ 735,312
========== ========== ========== ========== ==========
The total operating lease amount of $706.8 million above includes the 75-year
operating lease agreement the Company entered into during 1999 for 65.3 acres of
land located in Osceola County, Florida where Gaylord Palms is located.
NEWLY ISSUED ACCOUNTING STANDARDS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 replaces EITF No. 94-3. SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereas EITF No. 94-3 had
recognized the liability at the commitment date to an exit plan. The Company is
required to adopt the provisions of SFAS No. 146 effective for exit or disposal
activities initiated after December 31, 2002. The adoption of SFAS No. 146 is
not expected to have any significant impact on previously reported costs.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". SFAS No. 148 amends SFAS No. 123 to provide two
47
additional methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. This statement also
amends the disclosure requirements of SFAS No. 123 to require certain
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company adopted the amended provisions of SFAS No.
148 on December 31, 2002 and the information contained in this report reflects
the disclosure requirements of the new pronouncement. The Company will continue
to account for employee stock-based compensation in accordance with APB Opinion
No. 25.
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
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 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.
48
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, 2002, the Company held an investment of 11.0
million shares of Viacom Class B common stock, which was received as the result
of the sale of television station KTVT to 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, 2002, the fair market value
of the Company's investment in the 11.0 million shares of Viacom stock was
$448.5 million, or $40.76 per share. The secured forward exchange contract
protects the Company from 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.
Interest Rate Swaps - The Company enters into interest rate swap agreements to
manage its exposure to interest rate changes. The swaps involve the exchange of
fixed and variable interest rate payments without changing the principal
payments. The fair market value of these interest rate swap agreements
represents the estimated receipts or payments that would be made to terminate
the agreements. The fair market value of the interest rate swap agreements is
determined by the lender. Changes in certain market conditions could materially
affect the Company's consolidated financial position.
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 required 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 purchased instruments that cap its exposure to the
one-month Eurodollar rate at 6.625%. During the third quarter of 2002, the
instruments expired and the Company was not required to purchase any additional
coverage. 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 $2.4 million after
taxes based on debt amounts outstanding at December 31, 2002.
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, 2002. As a result, the interest rate market risk
implicit in these investments at December 31, 2002, 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.
Summary - Based upon the Company's overall market risk exposures at December 31,
2002, 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
49
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 included 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.
Effective June 14, 2002, the Company dismissed Arthur Andersen LLP
("Arthur Andersen") as the Company's independent public accountants. On that
date, the Company appointed Ernst & Young LLP ("Ernst & Young") as its
independent auditors for the fiscal year ending December 31, 2002. These actions
were recommended by the Company's Audit Committee and approved by the Board of
Directors of the Company.
Arthur Andersen's reports on the Company's consolidated financial
statements for the Company's fiscal years ended 2001 and 2000 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles.
During the Company's two most recent fiscal years and any interim
periods preceding the dismissal of Arthur Andersen, there were no disagreements
between the Company and Arthur Andersen on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement(s), if not resolved to the satisfaction of Arthur Andersen,
would have caused it to make a reference to the subject matter of the
disagreement(s) in connection with its report.
During the Company's two most recent fiscal years and any interim
periods preceding the dismissal of Arthur Andersen, there have been no
reportable events of the type required to be disclosed by Item 304(a)(1)(v) of
Regulation S-K.
The Company provided Arthur Andersen with a copy of the foregoing
disclosure and Arthur Andersen stated its agreement with such statements.
During the fiscal years ended December 31, 2001 and 2000 and the
subsequent interim period through June 14, 2002, the Company did not consult
with Ernst & Young regarding any of the matters or events set fourth in Item
304(a)(2)(i) and (ii) of Regulation S-K. Notwithstanding the forgoing, during
the fiscal year ended December 31, 2001 and during the first and second quarters
of 2002, Ernst & Young and/or an affiliate thereof provided the Company with
certain management and tax consulting services.
50
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 2003 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 2003
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."
Our Board of Directors has determined that Robert P. Bowen is an "audit
committee financial expert" as defined by the SEC and is independent, as that
term is defined by the listing requirements of the New York Stock Exchange.
The Company has adopted a Code of Business Conduct and Ethics that
applies to all of our directors and employees, including our President and Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer, a copy
of which has been posted on the Company's website at
www.gaylordentertainment.com. The Company will make any legally required
disclosures regarding amendments to, or waivers of, provisions of the Code of
Business Conduct and Ethics on its website.
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 2003 Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is incorporated herein by
reference to the discussions under the headings "Beneficial Ownership" and
"Equity Compensation Plan Information" in our Proxy Statement for the 2003
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 2003 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission.
ITEM 14. CONTROLS AND PROCEDURES.
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the Chief Executive Officer and Chief Financial Officer of the Company
concluded that the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
51
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
15(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.
15(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, 2002........................................................ S-2
Schedule II - Valuation and Qualifying Accounts for the Year Ended
December 31, 2001........................................................ S-3
Schedule II - Valuation and Qualifying Accounts for the Year Ended
December 31, 2000........................................................ 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.
15(A)(3) EXHIBITS
See Index to Exhibits, pages 55 through 59.
15(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 2002.
52
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 28, 2003 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 28, 2003
- -----------------------------
Michael D. Rose
/s/ MARTIN C. DICKINSON Director March 28, 2003
- -----------------------------
Martin C. Dickinson
/s/ CHRISTINE GAYLORD EVEREST Director March 28, 2003
- ------------------------------
Christine Gaylord Everest
/s/ E. K. GAYLORD II Director March 28, 2003
- ------------------------------
E. K. Gaylord II
/s/ ROBERT P. BOWEN Director March 28, 2003
- ------------------------------
Robert P. Bowen
/s/ LAURENCE S. GELLER Director March 28, 2003
- ------------------------------
Laurence S. Geller
/s/ E. GORDON GEE Director March 28, 2003
- ------------------------------
E. Gordon Gee
/s/ RALPH HORN Director March 28, 2003
- ------------------------------
Ralph Horn
/s/ COLIN V. REED Director, President and March 28 2003
- ------------------------------ Chief Executive Officer
Colin V. Reed (Principal Executive Officer)
/s/ DAVID C. KLOEPPEL Executive Vice President and March 28, 2003
- ------------------------------ Chief Financial Officer
David C. Kloeppel (Principal Financial Officer)
/s/ KENNETH A. CONWAY Vice President and March 28, 2003
- ------------------------------ Chief Accounting Officer
Kenneth A. Conway (Principal Accounting Officer)
53
CERTIFICATION
I, Colin V. Reed, certify that:
1. I have reviewed this annual report on Form 10-K of Gaylord
Entertainment Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
By: /s/ COLIN V. REED
-------------------------------------
Colin V. Reed
President and Chief Executive Officer
54
CERTIFICATION
I, David C. Kloeppel, certify that:
1. I have reviewed this annual report of Form 10-K of Gaylord
Entertainment Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
By: /s/ DAVID C. KLOEPPEL
-----------------------------------
David C. Kloeppel
Executive Vice President and
Chief Financial Officer
55
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1+ 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)).
2.2+ 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)).
2.3+ 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)).
2.4+ 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)).
2.5+ 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).
2.6+ Asset Purchase Agreement, dated as of July 1, 2002, by and between
Acuff-Rose Music Publishing, Inc., Acuff-Rose Music, Inc., Milene
Music, Inc., Springhouse Music, Inc., and Hickory Records, Inc. and
Sony/ATV Music Publishing LLC (incorporated by reference to Exhibit
10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
2.7+ Purchase and Sale Agreement, dated as of June 28, 2002, by and
between The Mills Limited Partnership (as Purchaser) and Opryland
Attractions, Inc. (as Seller) (incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 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)).
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)).
56
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
57
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.14 First Amendment dated January 18, 2002 to Mezzanine Loan Agreement,
dated as of March 27, 2001 by and between Opryland Mezzanine Trust
2001-1, a Delaware business trust, and OHN Holdings, LLC
(incorporated by reference to Exhibit 10.5 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002).
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.
(incorporated by reference to Exhibit 10.15 to Registrants's Annual
Report on Form 10-K for the year ended December 31, 2001).
10.16 First Amendment dated November 30, 2001 to Credit Agreement, dated
as of October 9, 2001 by and among Registrant, Opryland
Hotel-Florida, L.P., Bankers Trust Company, Citicorp Real Estate,
Inc. and CIBC Inc. (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002).
10.17 Second Amendment dated December 31, 2001 to Credit Agreement, dated
as of October 9, 2001 by and among Registrant, Opryland
Hotel-Florida, L.P., Bankers Trust Company, Citicorp Real Estate,
Inc. and CIBC Inc. (incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002).
10.18 Third Amendment dated February 28, 2002 to Credit Agreement, dated
as of October 9, 2001 by and among Registrant, Opryland
Hotel-Florida, L.P., Bankers Trust Company, Citicorp Real Estate,
Inc. and CIBC Inc. (incorporated by reference to Exhibit 10.3 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002).
10.19 Fourth Amendment dated May 1, 2002 to Credit Agreement, dated as of
October 9, 2001 by and among Registrant, Opryland Hotel-Florida,
L.P., Bankers Trust Company, Citicorp Real Estate, Inc. and CIBC
Inc. (incorporated by reference to Exhibit 10.4 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).
10.20 Fifth Amendment dated June 28, 2002 to Credit Agreement, dated as of
October 9, 2001 by and among Registrant, Opryland Hotel-Florida,
L.P., Bankers Trust Company, Citicorp Real Estate, Inc. and CIBC
Inc. (incorporated by reference to Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).
10.21* Hotel/Convention Center Sublease Agreement, dated as of May 16,
2000, by and between the City of Grapevine, Texas and Opryland Hotel
- Texas Limited Partnership.
10.22* Sublease Addendum Number 1, dated July 28, 2000, by and between the
City of Grapevine, Texas and Opryland Hotel - Texas Limited
Partnership.
10.23*+ Guaranteed Maximum Price Construction Agreement, dated November 15,
2002, by and between Gaylord Entertainment Company and Centex
Construction Company, Inc.
EXECUTIVE COMPENSATION PLANS AND
MANAGEMENT CONTRACTS
10.24 Gaylord Entertainment Company 1997 Omnibus Stock Option and
Incentive Plan (as amended at May 2002 Stockholders Meeting)
(incorporated by reference to Exhibit 10.4 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002).
58
10.25 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)).
10.26 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).
10.27 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)).
10.28 Consulting Agreement, dated October 31, 2001, between the Registrant
and Dave Jones (incorporated by reference to Exhibit 10.22 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 2001).
10.29 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).
10.30 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).
10.31 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).
10.32 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).
10.33* Letter Agreement, dated October 17, 2001, between the Registrant and
Jay Sevigny.
10.34 Indemnification Agreement, dated as of April 23, 2001, by and
between the Registrant and Colin V. Reed (incorporated by reference
to Exhibit 10.30 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 2001).
10.35 Indemnification Agreement, dated as of April 23, 2001, by and
between the Registrant and Michael D. Rose (incorporated by
reference to Exhibit 10.31 to Registrant's Annual Report on Form
10-K for the year ended December 31, 2001).
10.36* Form of Indemnification Agreement between the Registrant and each of
its non-employee directors.
10.37* Gaylord Entertainment Company Director Compensation Policy.
14* Gaylord Entertainment Company Code of Business Conduct and Ethics.
16 Letter from Arthur Andersen LLP regarding change in independent
auditor (incorporated by reference to Exhibit 16.1 to Registrant's
Current Report on Form 8-K dated June 19, 2002).
21* Subsidiaries of Gaylord Entertainment Company.
23* Consent of Independent Public Accountants.
99.1* Gaylord Entertainment Company Audit Committee Charter.
59
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
99.2* Gaylord Entertainment Company Corporate Governance Guidelines.
99.3* Gaylord Entertainment Company Nominating Committee Charter.
99.4* Certification of Colin V. Reed pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.5* Certification of David C. Kloeppel pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
- -------------------------
+ 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.
60
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, 2002, 2001 and 2000..................................... F-3
Consolidated Balance Sheets as of December 31, 2002 and 2001............. F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000..................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2002, 2001 and 2000..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Gaylord Entertainment Company
We have audited the accompanying consolidated balance sheets of Gaylord
Entertainment Company and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, cash flows, and stockholders'
equity for each of the three years in the period ended December 31, 2002. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gaylord
Entertainment Company and subsidiaries as of December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 3 to the consolidated financial statements, the
accompanying consolidated balance sheet as of December 31, 2001 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years ended December 31, 2001 and 2000 have been restated.
As discussed in Note 1 and elsewhere in the consolidated financial statements,
the Company changed its method of accounting for goodwill and intangible assets
in 2002, derivative financial instruments and the disposition of long-lived
assets in 2001.
Ernst & Young LLP
Nashville, Tennessee
February 5, 2003 (except for Notes 2 and 22, as to which the date is March 25,
2003)
F-2
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(in thousands, except per share data)
(Restated) (Restated)
2002 2001 2000
--------- ---------- ----------
REVENUES $ 414,358 $ 304,273 $ 315,472
OPERATING EXPENSES:
Operating costs 260,357 205,421 213,725
Selling, general and administrative 110,619 68,913 90,806
Preopening costs 8,913 15,927 5,278
Gain on sale of assets (30,529) - -
Impairment and other charges - 14,262 75,712
Restructuring charges 3 2,182 12,952
Depreciation 52,834 34,867 35,511
Amortization 3,786 3,738 9,352
--------- --------- ---------
Operating income (loss) 8,375 (41,037) (127,864)
INTEREST EXPENSE, NET OF AMOUNTS CAPITALIZED (46,960) (39,365) (30,319)
INTEREST INCOME 2,808 5,554 4,046
UNREALIZED GAIN (LOSS) ON VIACOM STOCK (37,300) 782 -
UNREALIZED GAIN ON DERIVATIVES 86,476 54,282 -
OTHER GAINS AND LOSSES 1,163 2,661 (3,514)
--------- --------- ---------
Income (loss) before provision (benefit) for income taxes, discontinued
operations and cumulative effect of accounting change 14,562 (17,123) (157,651)
PROVISION (BENEFIT) FOR INCOME TAXES 1,806 (8,313) (51,140)
--------- --------- ---------
Income (loss) from continuing operations before cumulative
effect of accounting change 12,756 (8,810) (106,511)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES 84,960 (50,188) (49,545)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAXES (2,572) 11,202 -
--------- --------- ---------
Net income (loss) $ 95,144 $ (47,796) $(156,056)
========= ========= =========
INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.38 $ (0.26) $ (3.19)
Gain (loss) from discontinued operations, net of taxes 2.52 (1.49) (1.48)
Cumulative effect of accounting change, net of taxes (0.08) 0.33 -
--------- --------- ---------
Net income (loss) $ 2.82 $ (1.42) $ (4.67)
========= ========= =========
INCOME (LOSS) PER SHARE - ASSUMING DILUTION:
Income (loss) from continuing operations $ 0.38 $ (0.26) $ (3.19)
Gain (loss) from discontinued operations, net of taxes 2.52 (1.49) (1.48)
Cumulative effect of accounting change, net of taxes (0.08) 0.33 -
--------- --------- ---------
Net income (loss) $ 2.82 $ (1.42) $ (4.67)
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(in thousands, except per share data)
(Restated)
2002 2001
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents - unrestricted $ 98,632 $ 9,194
Cash and cash equivalents - restricted 19,323 64,993
Trade receivables, less allowance of $620 and $3,185, respectively 23,872 14,441
Deferred financing costs 26,865 26,865
Deferred income taxes 20,553 23,438
Other current assets 25,958 15,209
Current assets of discontinued operations 2,528 50,530
----------- -----------
Total current assets 217,731 204,670
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 1,112,078 993,347
GOODWILL 9,280 13,501
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 1,996 6,299
INVESTMENTS 509,080 550,172
ESTIMATED FAIR VALUE OF DERIVATIVE ASSETS 207,727 158,028
LONG-TERM DEFERRED FINANCING COSTS 100,933 137,513
OTHER ASSETS 24,352 30,098
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS 9,019 84,016
----------- -----------
Total assets $ 2,192,196 $ 2,177,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,526 $ 88,004
Accounts payable and accrued liabilities 80,959 88,261
Current liabilities of discontinued operations 6,378 31,010
----------- -----------
Total current liabilities 95,863 207,275
SECURED FORWARD EXCHANGE CONTRACT 613,054 613,054
NON-CURRENT LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION 332,112 380,993
DEFERRED INCOME TAXES 244,372 138,599
ESTIMATED FAIR VALUE OF DERIVATIVE LIABILITIES 48,647 85,424
OTHER LIABILITIES 67,903 52,796
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS 781 836
MINORITY INTEREST OF DISCONTINUED OPERATIONS 1,885 1,679
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, 33,780
and 33,736 shares issued and outstanding, respectively 338 337
Additional paid-in capital 520,796 519,695
Retained earnings 282,798 187,654
Unearned compensation (1,018) (2,021)
Accumulated other comprehensive loss (15,335) (8,677)
----------- -----------
Total stockholders' equity 787,579 696,988
----------- -----------
Total liabilities and stockholders' equity $ 2,192,196 $ 2,177,644
=========== ===========
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, 2002, 2001 AND 2000
(in thousands)
(Restated) (Restated)
2002 2001 2000
--------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 95,144 $ (47,796) $(156,056)
Amounts to reconcile net income (loss) to net cash flows provided
by operating activities:
(Gain) loss on discontinued operations, net of taxes (84,960) 50,188 49,545
Impairment and other charges - 14,262 75,712
Cumulative effect of accounting change, net of taxes 2,572 (11,202) -
Unrealized gain on Viacom stock and related derivatives (49,176) (55,064) -
Depreciation and amortization 56,620 38,605 44,863
Gain on sale of assets (30,529) - -
Provision (benefit) for deferred income taxes 65,070 (10,599) (51,118)
Amortization of deferred financing costs 36,164 35,987 20,780
Changes in (net of acquisitions and divestitures):
Trade receivables (9,431) 5,893 7,987
Accounts payable and accrued liabilities (280) (16,650) 40,083
Other assets and liabilities 3,628 14,630 5,555
--------- --------- ---------
Net cash flows provided operating activities - continuing
operations 84,822 18,254 37,351
Net cash flows provided by (used in) operating activities - discontinued
operations 2,458 (2,764) (26,117)
--------- --------- ---------
Net cash flows provided by operating activities 87,280 15,490 11,234
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (185,649) (281,080) (223,037)
Proceeds from sale of assets 30,875 - -
Other investing activities 9,406 3,033 (27,226)
--------- --------- ---------
Net cash flows used in investing activities - continuing operations (145,368) (278,047) (250,263)
Net cash flows provided by (used in) investing activities - discontinued
operations 232,454 17,953 (38,677)
--------- --------- ---------
Net cash flows provided by (used in) investing activities 87,086 (260,094) (288,940)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 85,000 535,000 175,500
Repayment of long-term debt (214,846) (241,503) (3,500)
Cash proceeds from secured forward exchange contract - - 613,054
Deferred financing costs paid - (19,582) (195,452)
Net payments under revolving credit agreements - - (294,000)
Decrease (increase) in cash and cash equivalents - restricted 45,670 (52,326) (12,667)
Proceeds from exercise of stock options and stock purchase plans 919 2,548 2,136
--------- --------- ---------
Net cash flows provided by (used in) financing activities - continuing
operations (83,257) 224,137 285,071
Net cash flows provided by (used in) financing activities - discontinued
operations (1,671) 2,904 9,306
--------- --------- ---------
Net cash flows provided by (used in) financing activities (84,928) 227,041 294,377
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS - UNRESTRICTED 89,438 (17,563) 16,671
CASH AND CASH EQUIVALENTS - UNRESTRICTED, BEGINNING OF YEAR 9,194 26,757 10,086
--------- --------- ---------
CASH AND CASH EQUIVALENTS - UNRESTRICTED, END OF YEAR $ 98,632 $ 9,194 $ 26,757
========= ========= =========
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, 2002, 2001 AND 2000
(in thousands)
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED UNEARNED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS COMPENSATION INCOME (LOSS) EQUITY
----------- ----------- ----------- ------------ ------------- -------------
BALANCE, DECEMBER 31, 1999
(AS PREVIOUSLY REPORTED) $ 333 $ 512,308 $ 351,028 $ (1,570) $ 99,060 $ 961,159
RESTATEMENT ADJUSTMENTS - 93 40,478 - - 40,571
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999
(RESTATED) 333 512,401 391,506 (1,570) 99,060 1,001,730
COMPREHENSIVE LOSS:
Net loss - - (156,056) - - (156,056)
Unrealized loss on investments, net
- - - - (81,901) (81,901)
Foreign currency translation - - - - (705) (705)
-----------
Comprehensive loss (238,662)
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 - 173 - (440) - (267)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000
(Restated) 334 513,779 235,450 (80) 16,454 765,937
COMPREHENSIVE LOSS:
Net loss - - (47,796) - - (47,796)
Reclassification of gain on
marketable securities - - - - (17,957) (17,957)
Unrealized loss on interest
rate caps - - - - (213) (213)
Minimum pension liability, net of
deferred income taxes - - - - (7,672) (7,672)
Foreign currency translation - - - - 711 711
-----------
Comprehensive loss (72,927)
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
(RESTATED) 337 519,695 187,654 (2,021) (8,677) 696,988
COMPREHENSIVE INCOME:
NET INCOME - - 95,144 - - 95,144
UNREALIZED LOSS ON INTEREST
RATE CAPS - - - - (161) (161)
MINIMUM PENSION LIABILITY, NET OF
DEFERRED INCOME TAXES - - - - (7,252) (7,252)
FOREIGN CURRENCY TRANSLATION - - - - 755 755
-----------
COMPREHENSIVE INCOME 88,486
EXERCISE OF STOCK OPTIONS 1 660 - - - 661
TAX BENEFIT ON STOCK OPTIONS - 28 - - - 28
EMPLOYEE STOCK PLAN PURCHASES - 206 - - - 206
MODIFICATION OF STOCK PLAN - 52 - - - 52
ISSUANCE OF RESTRICTED STOCK - 115 - (115) - -
ISSUANCE OF STOCK WARRANTS - 40 - - - 40
CANCELLATION OF RESTRICTED STOCK - (32) - 32 - -
COMPENSATION EXPENSE - 32 - 1,086 - 1,118
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2002 $ 338 $ 520,796 $ 282,798 $ (1,018) $ (15,335) $ 787,579
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Due to management's
decision during 2002 to pursue plans to dispose of certain businesses,
those businesses have been presented as discontinued operations as
described in more detail below and in Note 6.
BUSINESS SEGMENTS
HOSPITALITY
The hospitality segment includes the operations of Gaylord
Hotels(TM) branded hotels and the Radisson Hotel at Opryland.
At December 31, 2002, the Company owns and operates the
Gaylord Opryland Resort Hotel and Convention Center ("Gaylord
Opryland") (formerly known as the Opryland Hotel Nashville),
the Gaylord Palms Resort Hotel and Convention Center ("Gaylord
Palms") (formerly known as the Opryland Hotel Florida) and the
Radisson Hotel at Opryland. Gaylord Opryland and the Radisson
Hotel at Opryland are 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. The Gaylord Palms in
Kissimmee, Florida opened in January 2002. The Company is
developing a Gaylord hotel in Grapevine, Texas, which is
expected to open in 2004. The Company has the option to
purchase land for the development of a hotel in the
Washington, D.C. area. This project is subject to the
availability of financing and final approval of the Company's
Board of Directors.
ATTRACTIONS
The attractions segment includes all of the Company's
Nashville-based tourist attractions. At December 31, 2002,
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, 2002, the Company's media segment includes the
operations of 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 7. During 2000, the Company closed
Gaylord Digital, as further discussed in Note 4.
CORPORATE AND OTHER
Corporate includes salaries and benefits of the Company's
executive and administrative personnel and various other
overhead costs. This segment also includes the expenses
associated with the Company's ownership of various
investments, including Bass Pro, the Nashville Predators, the
naming rights agreement and Opry Mills. The Company 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. Until the second quarter of 2002,
the Company owned a minority interest in a partnership with
The Mills Corporation that developed Opry Mills, a Nashville
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
entertainment and retail complex, which opened in May 2000.
The Company sold its interest in Opry Mills during 2002 to
certain affiliates of The Mills Corporation as further
discussed in Note 8. During the first quarter of 2002, the
Company disclosed that it intended to dispose of its
investment in the Nashville Predators.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and all of its majority-owned subsidiaries. Investments
in less than 50% owned limited partnerships are accounted for utilizing
the equity method. 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
required capital expenditures, property taxes, insurance payments and
other reserves required pursuant to the terms of the Company's debt
agreements, as further described in Note 13. The Company also has
restricted cash balances of $0.6 million which collateralize certain
outstanding letters of credit.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest for the years ended December 31 was comprised
of:
(in thousands) 2002 2001 2000
--------- --------- ---------
Debt interest paid $ 17,749 $ 23,405 $ 13,043
Deferred financing costs paid - 19,582 195,452
Capitalized interest (6,825) (18,781) (6,775)
--------- --------- ---------
Cash interest paid, net of capitalized interest $ 10,924 $ 24,206 $ 201,720
========= ========= =========
Income taxes refunds received were $64.6 million, $23.9 million and
$18.5 million for the years ended December 31, 2002, 2001 and 2000,
respectively.
ACCOUNTS RECEIVABLE
The Company's accounts receivable are primarily generated by meetings
and convention attendees room nights. Receivables arising from these
sales are not collateralized. Credit risk associated with the accounts
receivables is minimized due to the large and diverse nature of the
customer base. No customer accounted for more than 10% of the Company's
trade receivables at December 31, 2002.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides allowances for doubtful accounts based upon a
percentage of revenue and periodic evaluations of the aging of accounts
receivable. At December 31, 2001, the Company had fully reserved a
$2.4 million trade receivable from a customer. During 2002, the
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company learned the customer would not be able to pay the Company for
the receivable and therefore, wrote the trade receivable off against
the related reserve.
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 agreements, using the effective interest method. For
the years ended December 31, 2002, 2001 and 2000, deferred financing
costs of $36.2 million, $36.0 million and $20.8 million, 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, 2002 represents the amount of prepaid
contract payments related to the secured forward exchange contract
discussed in Note 11 that will be amortized in the coming year.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Improvements and significant
renovations that extend the lives of existing assets are capitalized.
Interest on funds borrowed to finance the construction of major capital
additions is included in the cost of the applicable capital addition.
Maintenance and repairs are charged to expense as incurred. Property
and equipment are depreciated using straight-line method 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 The shorter of the lease
term or useful life
IMPAIRMENT OF LONG-LIVED ASSETS
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.
GOODWILL AND INTANGIBLES
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 141 supersedes Accounting Principles
Board ("APB") Opinion No. 16, "Business Combinations" and requires the
use of the purchase method of accounting for all business combinations
prospectively. SFAS No. 141 also provides guidance on recognition of
intangible assets apart from goodwill. The Company adopted the
provisions of SFAS No. 141 in June of 2001. 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 are no longer amortized
but are 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. 142 effective
January 1, 2002, and as a result, the Company ceased the amortization
of goodwill on that date. In accordance with the provisions of SFAS
142, the Company performs its annual review of impairment of goodwill
by comparing the carrying value of the applicable reporting unit to the
fair value of the reporting unit. If the fair value is less than the
carrying value, then the Company measures potential impairment by
assigning the assets and liabilities of the Company to the reporting
unit in a manner similar to a purchase transaction, in accordance with
the provisions of SFAS 141, and comparing the implied value of goodwill
to its carrying value. The Company's goodwill and intangibles are
discussed further in Note 20.
LEASES
The Company is leasing a 65.3 acre site in Osceola County, Florida on
which the 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 related interpretations. The Company's
leases are discussed further in Note 17.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS
The Company owns investments in marketable securities and has minority
interest investments in certain businesses. Marketable securities are
accounted for in accordance with the provisions of 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:
(in thousands) 2002 2001
------- -------
Other current assets:
Other current receivables $ 5,916 $ 5,097
Note receivable - current portion 10,000 -
Inventories 3,900 3,450
Prepaid expenses 3,880 5,971
Current income tax receivable 1,478 -
Other current assets 784 691
------- -------
Total other current assets $25,958 $15,209
======= =======
Other long-term assets:
Note receivable $ 7,500 $17,791
Deferred software costs, net 11,130 8,025
Other long-term assets 5,722 4,282
------- -------
Total other long-term assets $24,352 $30,098
======= =======
Other current assets
Other current receivables result primarily from non-operating income
and are due within one year. The current note receivable at December
31, 2002, is an unsecured note receivable from Bass Pro, which bears
interest at a fixed annual rate of 8% which is payable annually. This
note matures in October 2003. 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. Prepaid expenses consist of
prepaid insurance and contracts that will be expensed during the
subsequent year.
Other long-term assets
Long-term note receivable relates to an separate unsecured note
receivable from Bass Pro. This long-term note receivable 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 costs to
acquire and develop computer software and certain internal payroll
costs during 2002 and 2001. Deferred software costs are amortized on a
straight-line basis over their estimated useful lives of 3 to 5 years.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PREOPENING COSTS
In accordance with AICPA SOP 98-5, "Reporting on the Costs of Start-Up
Activities", the Company expenses the costs associated with preopening
expenses related to the construction of new hotels, 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:
(in thousands) 2002 2001
------- -------
Trade accounts payable $ 7,547 $ 6,797
Accrued construction in progress 17,484 27,011
Property and other taxes payable 15,884 15,352
Deferred revenues 11,910 7,357
Accrued salaries and benefits 7,787 7,049
Restructuring accruals 701 5,737
Accrued self-insurance reserves 3,755 4,848
Accrued interest payable 554 1,099
Accrued advertising and promotion 4,206 1,728
Other accrued liabilities 11,131 11,283
------- -------
Total accounts payable and accrued liabilities $80,959 $88,261
======= =======
Deferred revenues consist primarily of deposits on advance room
bookings and advance ticket sales at the Company's tourism properties.
The Company is self-insured up to a stop loss 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. See Note 14 for more detail on the Company's income taxes.
MINORITY INTERESTS OF DISCONTINUED OPERATIONS
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.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were
$23.9 million, $26.6 million and $41.6 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The decrease in
advertising expense during 2002 and 2001 compared to 2000 was the
closing of Gaylord Digital as discussed in Note 4.
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 APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
Interpretations, under which no compensation cost related to employee
stock options has been recognized. In December 2002, the FASB issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of SFAS No. 123". SFAS No. 148 amends SFAS No.
123 to provide two additional methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. This statement also amends the disclosure
requirements of SFAS No. 123 to require certain disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. The Company adopted the amended disclosure
provisions of SFAS No. 148 on December 31, 2002 and the information
contained in this report reflect the disclosure requirements of the new
pronouncement. The Company will continue to account for employee
stock-based compensation in accordance with APB Opinion No. 25.
If compensation cost for these plans had been determined consistent
with the provisions of 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:
(net income (loss) in thousands)
(per share data in dollars) 2002 2001 2000
--------- ---------- ----------
NET INCOME (LOSS):
As reported $ 95,144 $ (47,796) $ (156,056)
Stock-based employee compensation, net of tax effect $ 3,190 $ 2,412 $ 1,233
--------- ---------- ----------
Pro forma $ 91,954 $ (50,208) $ (157,289)
========= ========== ==========
INCOME (LOSS) PER SHARE:
As reported $ 2.82 $ (1.42) $ (4.67)
========= ========== ==========
Pro forma $ 2.72 $ (1.50) $ (4.71)
========= ========== ==========
INCOME (LOSS) PER SHARE - ASSUMING DILUTION:
As reported $ 2.82 $ (1.42) $ (4.67)
========= ========== ==========
Pro forma $ 2.72 $ (1.50) $ (4.71)
========= ========== ==========
The Company's stock-based compensation is further described in Note 16.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 superseded
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 retained the requirements of SFAS No. 121 for the recognition and
measurement of an impairment loss and broadened 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.
All dispositions or commitments to dispose of assets or businesses
occuring prior to January 1, 2001 have been accounted for and presented
in accordance with the provisions of APB Opinion No. 30.
In accordance with the provisions of SFAS No. 144 and APB Opinion No.
30, 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, 2002 and
2001 and for each of the three years ended December 31, 2002: Word
Entertainment ("Word"), the Company's contemporary Christian music
business; the Acuff-Rose Music Publishing entity; GET Management, the
Company's artist management business which was sold during 2001; the
Company's ownership interest in the Redhawks, a minor league baseball
team based in Oklahoma City, Oklahoma; 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 that were
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 6.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 effect of conversion
of dilutive instruments, calculated using the treasury stock method.
Income per share amounts are calculated as follows for the years ended
December 31:
2002
-----------------------------------------------
(income and share amounts in thousands) INCOME SHARES PER SHARE
------------- --------- -----------
Net income $ 95,144 33,763 $ 2.82
Effect of dilutive stock options - 31 -
------------ -------- ----------
Net income - assuming dilution $ 95,144 33,794 $ 2.82
============ ======== ==========
2001
-----------------------------------------------
Loss Shares Per Share
------------- --------- -----------
Net loss $ (47,796) 33,562 $ (1.42)
Effect of dilutive stock options - - -
------------ -------- ----------
Net loss - assuming dilution $ (47,796) 33,562 $ (1.42)
============ ======== ==========
2000
-----------------------------------------------
Loss Shares Per Share
------------- --------- -----------
Net loss $ (156,056) 33,389 $ (4.67)
Effect of dilutive stock options - - -
------------ -------- ----------
Net loss - assuming dilution $ (156,056) 33,389 $ (4.67)
============ ======== ==========
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 in each of 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 10. The carrying amount of
short-term financial instruments (cash, trade receivables, accounts
payable and accrued liabilities) approximates fair value due to the
short
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 as discussed in Note 12.
Effective January 1, 2001, the Company records derivatives in
accordance with the provisions of 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 are 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 July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 replaces
Emerging Issues Task Force ("EITF") No. 94-3. SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereas EITF No.
94-3 had recognized the liability at the commitment date to an exit
plan. The Company is required to adopt the provisions of SFAS No. 146
effective for exit or disposal activities initiated after December 31,
2002. The adoption of SFAS No. 146 is not expected to have any
significant impact on previously reported costs.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of
SFAS No. 123". SFAS No. 148 amends SFAS No. 123 to provide two
additional methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
This statement also amends the disclosure requirements of SFAS No. 123
to require certain disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company adopted the amended disclosure provisions of SFAS No. 148 on
December 31, 2002 and the information contained in this report reflect
the disclosure requirements of the new pronouncement. The Company will
continue to account for employee stock-based compensation in accordance
with APB Opinion No. 25.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CONSTRUCTION FUNDING REQUIREMENTS
Additional long-term financing is required to fund the Company's
construction commitments related to its hotel development projects and
to fund its overall anticipated operating losses in 2003. As of
December 31, 2002, the Company had $98.6 million in unrestricted cash
in addition to the net cash flows from certain operations to fund its
cash requirements including the Company's 2003 construction commitments
related to its hotel construction projects. These resources are not
adequate to fund all of the Company's 2003 construction commitments. As
a result of these required future financing requirements, the Company
is currently negotiating with its lenders and others regarding the
Company's future financing arrangements.
In February 2003, the Company received a commitment for a $225 million
credit facility arranged by Deutsche Bank Trust Company Americas, Bank
of America, N.A., and CIBC Inc. (collectively, the "Lenders"). However,
the commitment is subject to the completion of certain remaining due
diligence by the Lenders and the Lenders have the right to revise the
credit facility structure and/or decline to perform under the
commitment if certain conditions are not fulfilled or if certain
changes occur within the financial markets. The proceeds of this
financing will be used to repay the Company's existing $60 million Term
Loan, to compete the construction of the Texas hotel and fund any
operating losses of the Company in 2003.
Management currently anticipates securing the long-term financing under
the existing commitment from the Lenders and expects to close the
financing in the second quarter of 2003. If the Company is unable to
secure a portion of the additional financing it is seeking, or if the
timing of such financing is significantly delayed, the Company will be
required to curtail certain of its development expenditures on current
and future construction projects to ensure adequate liquidity to fund
the Company's operations.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RE-AUDIT AND RESTATEMENT OF FINANCIAL STATEMENTS
During 2002, the Company committed to plans of disposal for Acuff-Rose
Music Publishing and the Oklahoma City Redhawks resulting in the
reclassification of balances and operating results of those two
businesses as discontinued operations in the Company's historical
financial statements. Based on the requirements of applicable auditing
standards, the Company engaged Ernst & Young LLP ("Ernst & Young"), the
Company's current auditors, to perform the required re-audits of the
Company's 2001 and 2000 consolidated financial statements since the
Company's prior auditors, Arthur Andersen LLP, had ceased operations.
As a part of the re-audit process, Ernst & Young raised certain issues
for the Company's consideration and after review of the relevant
information, the Company determined that certain revisions were
necessary to the Company's historical consolidated financial
statements. The revisions, which result primarily from a change to the
Company's income tax accrual and to accounting for its investment in
the Nashville Predators limited partnership ("Predators"), as well as
certain other items, increased retained earnings at January 1, 2000 by
approximately $40.5 million, increased net loss for the year ended
December 31, 2000 by approximately $2.6 million, increased the net loss
for the year ended December 31, 2001 by approximately $53,000, and
decreased unaudited net income for the first six months of 2002 by
approximately $13.0 million. Restated information related to the
Company's unaudited quarterly financial information for the years 2002
and 2001 is contained in Note 23. These restatements did not impact
cash flows from operating, investing or financing activities.
The first principal issue identified relates to income tax reserves
maintained for certain tax related items as a result of a corporate
reorganization in 1999. Upon further consideration of the facts and
circumstances existing at the time of the reorganization, the Company
has determined that the income tax reserves should not have been
established. As a result of these changes, retained earnings at January
1, 2000 has increased by approximately $47 million. In addition,
because some other elements of the restated income tax reserve were
reversed during 2002 due to the expiration of the applicable statute of
limitations, previously reported unaudited net income for the first six
months of 2002 decreased by approximately $14.0 million to reflect the
elimination of the income tax reserve should not have been established
in 1999.
The second principal issue relates to the Company's accounting for its
investment in the Predators. The Company purchased a limited
partnership interest in the Predators during 1997. The Company's
limited partnership interest includes an 8% preferred return and the
right to put the investment back to the Predators over three annual
installments beginning in 2002. Moreover, it does not provide the
Company with any right to receive any distributions in excess of its
stated return and does not require the Company to fund any capital or
operating shortfalls in the partnership. The Company had not previously
recorded its pro-rata share of losses of the Predators in its
historical statements of operations. However, after consultation with
Ernst & Young concerning the accounting for the Company's investment in
the Predators, the Company determined that it would be appropriate to
recognize its pro-rata share of the Predators' operating results, which
have been primarily losses. The revisions associated with the Company's
investment, net of taxes, in the Predators decreased retained earnings
at January 1, 2000 by approximately $4.0 million, increased net loss by
approximately $1.0 million and $2.0 million for the years ended
December 31, 2001 and 2000, respectively, and decreased unaudited net
income for the first six months of 2002 by approximately $1.0 million.
During 2002, the investment in the Predators reached zero. The Company
has not reduced the investment below zero as the Company is under no
obligation to fund additional amounts to the Predators.
The Company also revised its historical financial statements for other,
less significant items by decreasing retained earnings by approximately
$2.0 million at January 1, 2000, by increasing the net loss for the
year ended December 31, 2000 by approximately $2.0 million, by reducing
the net loss for the year ended December 31, 2001 by approximately $2.0
million, and by increasing
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unaudited net income for the first nine months of 2002 as previously
reported by approximately $3.0 million.
The restated consolidated financial statements include both the impact
of reclassifying discontinued operations as required by SFAS No. 144
(as discussed in Note 6) and the restatement changes discussed above.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated statements of operations and balance sheets
reconcile previously reported and restated financial information.
Year ended As reported Year ended
December 31, with Restatement December 31,
2001 Discontinued discontinued related 2001
(in thousands) As reported operations operations adjustments Restated
-------------- -------------- -------------- ------------- --------------
REVENUES $ 325,159 $ (20,886) $ 304,273 $ - $ 304,273
OPERATING EXPENSES:
Operating costs 218,357 (12,936) 205,421 - 205,421
Selling, general and
administrative 71,718 (2,798) 68,920 (7) 68,913
Preopening costs 15,141 - 15,141 786 15,927
Impairment and other charges 14,262 - 14,262 - 14,262
Restructuring charges 2,182 - 2,182 - 2,182
Depreciation 35,579 (712) 34,867 - 34,867
Amortization 5,696 (1,958) 3,738 - 3,738
-------------- ------------- ------------- ------------ -------------
Operating income (loss) (37,776) (2,482) (40,258) 779 (41,037)
INTEREST EXPENSE, NET OF
AMOUNTS CAPITALIZED (39,365) - (39,365) - (39,365)
INTEREST INCOME 5,625 (71) 5,554 - 5,554
UNREALIZED GAIN (LOSS) ON
VIACOM STOCK 782 - 782 - 782
UNREALIZED GAIN ON
DERIVATIVES 54,282 - 54,282 - 54,282
OTHER GAINS AND LOSSES 5,976 145 6,121 (3,460) 2,661
-------------- ------------- ------------- ------------ -------------
Income (loss) before cumulative
effect of accounting change (10,476) (2,408) (12,884) (4,239) (17,123)
PROVISION (BENEFIT) FOR
INCOME TAXES (3,188) (324) (3,512) (4,801) (8,313)
-------------- ------------- ------------- ------------ -------------
Income (loss) from continuing
operations before cumulative
effect of accounting change (7,288) (2,084) (9,372) 562 (8,810)
GAIN (LOSS) FROM
DISCONTINUED OPERATIONS,
NET OF TAXES (52,364) 2,084 (50,280) 92 (50,188)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE,
NETOF TAXES 11,909 - 11,909 (707) 11,202
-------------- ------------- ------------- ------------ -------------
Net income (loss) $ (47,743) $ - $ (47,743) $ (53) $ (47,796)
============== ============= ============= ============ =============
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended As reported Year ended
December 31, with Restatement December 31,
2001 Discontinued discontinued related 2001
(Per share data in dollars) As reported operations operations adjustments Restated
-------------- -------------- -------------- ------------- --------------
INCOME (LOSS) PER SHARE:
Income (loss) from continuing
operations $ (0.22) $ (0.05) $ (0.27) $ 0.01 $ (0.26)
Gain (loss) from discontinued
operations, net of taxes (1.55) 0.05 (1.50) 0.01 (1.49)
Cumulative effect of accounting
change, net of taxes 0.35 - 0.35 (0.02) 0.33
-------------- ------------- ------------- ------------ -------------
Net income (loss) $ (1.42) $ - $ (1.42) $ (0.00) $ (1.42)
============== ============= ============= ============ =============
INCOME (LOSS) PER SHARE -
ASSUMING DILUTION:
Income (loss) from continuing
operations $ (0.22) $ (0.05) $ (0.27) $ 0.01 $ (0.26)
Gain (loss) from discontinued
operations, net of taxes (1.55) 0.05 (1.50) 0.01 (1.49)
Cumulative effect of accounting
change, net of taxes 0.35 - 0.35 (0.02) 0.33
-------------- ------------- ------------- ------------ -------------
Net income (loss) $ (1.42) $ - $ (1.42) $ (0.00) $ (1.42)
============== ============= ============= ============ =============
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As reported
December 31, with Restatement December 31,
2001 Discontinued discontinued related 2001
(in thousands) As reported operations operations adjustments Restated
-------------- -------------- -------------- ------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,846 $ (1,652) $ 9,194 $ - $ 9,194
- unrestricted
Cash and cash equivalents
- restricted 64,993 - 64,993 - 64,993
Trade receivables, less 19,264 (4,185) 15,079 (638) 14,441
allowance
Deferred financing costs 26,865 - 26,865 - 26,865
Deferred income taxes - - - 23,438 23,438
Other current assets 18,462 (1,813) 16,649 (1,440) 15,209
Current assets of
discontinued operations 42,880 7,650 50,530 - 50,530
-------------- ------------- ------------- ------------ -------------
Total current assets 183,310 - 183,310 21,360 204,670
Property and equipment, net of
accumulated depreciation
1,000,332 (6,985) 993,347 - 993,347
GOODWILL 15,013 (1,162) 13,851 (350) 13,501
INTANGIBLE ASSETS, NET
OF ACCUMULATED
AMORTIZATION 10,322 (4,023) 6,299 - 6,299
INVESTMENTS 561,409 (49) 561,360 (11,188) 550,172
ESTIMATED FAIR VALUE OF
DERIVATIVE ASSETS 158,028 - 158,028 - 158,028
LONG-TERM DEFERRED
FINANCING COSTS 137,513 - 137,513 - 137,513
OTHER ASSETS 47,702 (17,604) 30,098 - 30,098
LONG-TERM ASSETS OF
DISCONTINUED
OPERATIONS 54,193 29,823 84,016 - 84,016
-------------- ------------- ------------- ------------ -------------
Total assets $ 2,167,822 $ - $ 2,167,822 $ 9,822 $ 2,177,644
============== ============= ============= ============ =============
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As reported
December 31, with Restatement December 31,
2001 As Discontinued discontinued related 2001
(in thousands) reported operations operations adjustments Restated
-------------- -------------- -------------- ------------- --------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt $ 88,004 $ - $ 88,004 $ - $ 88,004
Accounts payable and
accrued liabilities 98,419 (7,375) 91,044 (2,783) 88,261
Current liabilities of
discontinued operations 23,635 7,375 31,010 - 31,010
-------------- ------------- ------------- ------------ -------------
Total current
liabilities 210,058 - 210,058 (2,783) 207,275
Secured forward exchange
contract 613,054 - 613,054 - 613,054
LONG-TERM DEBT, NET OF
CURRENT PORTION 380,993 - 380,993 - 380,993
DEFERRED INCOME TAXES,
NET 165,824 - 165,824 (27,225) 138,599
ESTIMATED FAIR VALUE OF
DERIVATIVE LIABILITIES 85,424 - 85,424 - 85,424
OTHER LIABILITIES 52,304 - 52,304 492 52,796
LONG-TERM LIABILITIES OF
DISCONTINUED
OPERATIONS 7 - 7 829 836
MINORITY INTEREST 1,679 (1,679) - - -
MINORITY INTEREST OF
DISCONTINUED
OPERATIONS - 1,679 1,679 - 1,679
Commitments and
contingencies
STOCKHOLDERS' EQUITY:
Preferred stock - - - - -
Common stock 337 - 337 - 337
Additional paid-in capital 519,515 - 519,515 180 519,695
Retained earnings 149,815 - 149,815 37,839 187,654
Unearned compensation (2,021) - (2,021) - (2,021)
Other comprehensive loss (9,167) - (9,167) 490 (8,677)
-------------- ------------- ------------- ------------ -------------
Total stockholders' -
equity 658,479 658,479 38,509 696,988
Total liabilities and
stockholders' equity $ 2,167,822 $ - $ 2,167,822 $ 9,822 $ 2,177,644
============== ============= ============= ============ =============
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended As reported Year ended
December 31, with Restatement December 31,
2000 Discontinued discontinued related 2000
(in thousands) As reported operations operations adjustments Restated
-------------- -------------- -------------- ------------- --------------
REVENUES $ 335,462 $ (19,990) $ 315,472 $ - $ 315,472
OPERATING EXPENSES:
Operating costs 226,126 (12,401) 213,725 - 213,725
Selling, general and
administrative 93,958 (3,015) 90,943 (137) 90,806
Preopening costs 5,278 - 5,278 - 5,278
Impairment and other charges 76,597 (885) 75,712 - 75,712
Restructuring charges 13,098 (146) 12,952 - 12,952
Depreciation 36,030 (519) 35,511 - 35,511
Amortization 11,550 (2,198) 9,352 - 9,352
-------------- ------------- ------------- ------------ -------------
Operating income (loss) (127,175) (826) (128,001) (137) (127,864)
INTEREST EXPENSE, NET OF
AMOUNTS CAPITALIZED (30,319) - (30,319) - (30,319)
INTEREST INCOME 4,173 (127) 4,046 - 4,046
UNREALIZED GAIN (LOSS) ON -
VIACOM STOCK - - - -
UNREALIZED GAIN ON
DERIVATIVES - - - - -
OTHER GAINS AND LOSSES (1,277) 174 (1,103) (2,411) (3,514)
-------------- ------------- ------------- ------------ -------------
Income (loss) before cumulative
effect of accounting change (154,598) (779) (155,377) (2,274) (157,651)
PROVISION (BENEFIT) FOR
INCOME TAXES (49,867) 151 (49,716) (1,424) (51,140)
-------------- ------------- ------------- ------------ -------------
Income (loss) from continuing
operations before cumulative
effect of accounting change (104,731) (930) (105,661) (850) (106,511)
GAIN (LOSS) FROM
DISCONTINUED OPERATIONS,
NET OF TAXES (48,739) 930 (47,809) (1,736) (49,545)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE, NET
OF TAXES - - - - -
-------------- ------------- ------------- ------------ -------------
Net income (loss) $ (153,470) $ - $ (153,470) $ (2,586) $ (156,056)
============== ============= ============= ============ =============
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended As reported Year ended
December 31, with Restatement December 31,
2000 As Discontinued discontinued related 2000
(Per share data in dollars) reported operations operations adjustments Restated
-------------- -------------- -------------- ------------- --------------
INCOME (LOSS) PER SHARE:
Income (loss) from continuing
operations $ (3.14) $ (0.03) $ (3.17) $ (0.02) $ (3.19)
Gain (loss) from discontinued
operations, net of taxes (1.46) 0.03 (1.43) (0.05) (1.48)
Cumulative effect of accounting
change, net of taxes - - - - -
-------------- ------------- ------------- ------------ -------------
Net income (loss) $ (4.60) $ - $ (4.60) $ (0.07) $ (4.67)
============== ============= ============= ============ =============
INCOME (LOSS) PER SHARE -
ASSUMING DILUTION:
Income (loss) from continuing
operations $ (3.14) $ (0.03) $ (3.17) $ (0.02) $ (3.19)
Gain (loss) from discontinued
operations, net of taxes (1.46) 0.03 (1.43) (0.05) (1.48)
Cumulative effect of accounting
change, net of taxes - - - - -
-------------- ------------- ------------- ------------ -------------
Net income (loss) $ (4.60) $ - $ (4.60) $ (0.07) $ (4.67)
============== ============= ============= ============ =============
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. IMPAIRMENT AND OTHER CHARGES
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.
During 2001, the Company named a new chairman and 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
determined that the carrying value of certain long-lived assets were
not fully recoverable and recorded further pretax impairment and other
charges to continuing operations in accordance with the provisions of
SFAS No. 144.
The components of the impairment and other charges related to
continuing operations for the years ended December 31 are as follows:
(in thousands) 2001 2000
--------- ---------
Programming, film and other content $ 6,858 $ 7,410
Gaylord Digital and other technology investments 4,576 48,127
Property and equipment 2,828 3,397
Orlando-area Wildhorse Saloon - 15,854
Other - 924
--------- ---------
Total impairment and other charges $ 14,262 $ 75,712
========= =========
Additional impairment and other charges of $53.7 million and $29.8
million during 2001 and 2000, respectively, are included in
discontinued operations.
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. The Company sold this idle real estate during the second
quarter of 2002. Proceeds from the sale approximated the carrying value
of the property. In addition, the Company recorded an impairment charge
for other idle property and equipment
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
totaling $0.8 million during 2001 primarily due to the consolidation of
offices resulting from personnel reductions as discussed in Note 4.
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
$7.4 million based upon the projected cash flows for these assets. This
charge included investments of $5.1 million, other receivables of $2.1
million and music and film catalogs of $0.2 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 operating losses of $27.5 million for the
year ended December 31, 2000.
During the course of conducting the 2000 Strategic Assessment, other
property and equipment of the Company were 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.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RESTRUCTURING CHARGES
The following table summarizes the activities of the restructuring
charges included in continuing operations for the years ended December
31, 2002, 2001 and 2000:
BALANCE AT RESTRUCTURING CHARGES BALANCE AT
(in thousands) DECEMBER 31, 2001 AND ADJUSTMENTS PAYMENTS DECEMBER 31, 2002
------------------- --------------------- ------------ -------------------
2002 restructuring charge $ - $ 1,082 $ 1,082 $ -
2001 restructuring charges 4,168 (1,079) 2,658 431
2000 restructuring charge 1,569 - 1,299 270
------------------- --------------------- ------------ -------------------
$ 5,737 $ 3 $ 5,039 $ 701
=================== ===================== ============ ===================
BALANCE AT RESTRUCTURING CHARGES BALANCE AT
DECEMBER 31, 2000 AND ADJUSTMENTS PAYMENTS DECEMBER 31, 2001
------------------- --------------------- ------------ -------------------
2001 restructuring charges $ - $ 5,848 $ 1,680 $ 4,168
2000 restructuring charge 10,825 (3,666) 5,590 1,569
------------------- --------------------- ------------ -------------------
$ 10,825 $ 2,182 $ 7,270 $ 5,737
=================== ===================== ============ ===================
BALANCE AT RESTRUCTURING CHARGES BALANCE AT
DECEMBER 31, 1999 AND ADJUSTMENTS PAYMENTS DECEMBER 31, 2000
------------------- --------------------- ------------ -------------------
2000 restructuring charge $ - $ 13,186 $ 2,361 $ 10,825
1999 restructuring charge 469 (234) 235 -
------------------- --------------------- ------------ -------------------
$ 469 $ 12,952 $ 2,596 $ 10,825
=================== ===================== ============ ===================
2002 Restructuring Charge
As part of the Company's ongoing assessment of operations, the Company
identified certain duplication of duties within divisions and realized
the need to streamline those tasks and duties. Related to this
assessment, during the second quarter of 2002 the Company adopted a
plan of restructuring resulting in a pretax restructuring charge of
$1.1 million related to employee severance costs and other employee
benefits unrelated to the discontinued operations. These restructuring
charges were recorded in accordance with EITF No. 94-3. As of December
31, 2002, the Company has recorded cash payments of $1.08 million
against the 2002 restructuring accrual. During the fourth quarter of
2002, the outplacement agreements expired related to the 2002
restructuring charge. Therefore, the Company reversed the remaining
$67,000. There was no remaining balance of the 2002 restructuring
accrual at December 31, 2002.
2001 Restructuring Charges
During 2001, the Company recognized net pretax restructuring charges
from continuing operations of $5.8 million related to streamlining
operations and reducing layers of management. These restructuring
charges were recorded in accordance with EITF No. 94-3. During the
second quarter of 2002, the Company entered into two subleases to lease
certain office space the Company previously had recorded in the 2001
restructuring charges. As a result, the Company reversed $0.9 million
of the 2001 restructuring charges during 2002 related to continuing
operations based upon the occurrence of certain triggering events. Also
during the second
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
quarter of 2002, the Company evaluated the 2001 restructuring accrual
and determined certain severance benefits and outplacement agreements
had expired and adjusted the previously recorded amounts by $0.2
million. As of December 31, 2002, the Company has recorded cash
payments of $4.4 million against the 2001 restructuring accrual. The
remaining balance of the 2001 restructuring accrual at December 31,
2002 of $0.4 million is included in accounts payable and accrued
liabilities in the consolidated balance sheets. The Company expects the
remaining balances of the 2001 restructuring accrual to be paid during
2003.
2000 Restructuring Charge
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 $3.2 million during 2000 were
included in discontinued operations. During the second quarter of 2002,
the Company entered into a sublease that reduced the liability the
Company was originally required to pay and the Company reversed $0.1
million of the 2000 restructuring charge related to the reduction in
required payments. During 2001, the Company negotiated reductions in
certain contract termination costs, which allowed the reversal of $3.7
million of the restructuring charges originally recorded during 2000.
As of December 31, 2002, the Company has recorded cash payments of $9.3
million against the 2000 restructuring accrual related to continuing
operations. The remaining balance of the 2000 restructuring accrual at
December 31, 2002 of $0.3 million, from continuing operations, is
included in accounts payable and accrued liabilities in the
consolidated balance sheets, which the Company expects to be paid
during 2003.
6. 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 and APB No. 30. The results of operations, net of
taxes, (prior to their disposal where applicable) and the carrying
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. These restatements did not impact cash flows from
operating, investing or financing activities.
Acuff-Rose Music Publishing
During the second quarter of 2002, the Company committed to a plan of
disposal of its Acuff-Rose Music Publishing catalog entity. During the
third quarter of 2002, the Company finalized the sale of the Acuff-Rose
Music Publishing entity to Sony/ATV Music Publishing for approximately
$157.0 million in cash. The Company recognized a pretax gain of $130.6
million during the third quarter of 2002 related to the sale in
discontinued operations. The gain on the sale of Acuff-Rose Music
Publishing is recorded in income from discontinued operations in the
consolidated statement of operations. Proceeds of $25.0 million were
used to reduce the Company's outstanding indebtedness as further
discussed in Note 13.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OKC Redhawks
During 2002, the Company committed to a plan of disposal of its
ownership interests in the Redhawks, a minor league baseball team based
in Oklahoma City, Oklahoma.
Word Entertainment
During 2001, the Company committed to a plan to sell Word
Entertainment. As a result of the decision to sell Word Entertainment,
the Company reduced the carrying value of Word Entertainment 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
Entertainment's net assets was determined based upon ongoing
negotiations with potential buyers. Related to the decision to sell
Word Entertainment, a pretax restructuring charge of $1.5 million was
recorded in discontinued operations in 2001. The restructuring charge
consisted 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. During the first quarter of 2002, the Company sold Word
Entertainment's domestic operations to an affiliate of Warner Music
Group for $84.1 million in cash, subject to future purchase price
adjustments. The Company recognized a pretax gain of $0.5 million in
discontinued operations during the first quarter of 2002 related to the
sale of Word Entertainment. Proceeds from the sale of $80.0 million
were used to reduce the Company's outstanding indebtedness as further
discussed in Note 13.
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, increasing 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 reductions in the 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 the Company's 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 $6.9 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.
During 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. Also during the first quarter
of 2002, the Company ceased operations based in Argentina. The
transponder lease assignment requires the Company to guarantee lease
payments in 2002 from the acquirer of these networks. As such, the
Company recorded a lease liability for the amount of the assignee's
portion of the transponder lease.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 accompanying consolidated statements of operations.
OPUBCO owns a minority interest in the Company. During 2002, three of
the Company's directors are also directors of OPUBCO and voting
trustees of a voting trust that controls OPUBCO. Additionally, these
three 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 (in thousands):
2002 2001 2000
--------- --------- ----------
REVENUES:
Acuff-Rose Music Publishing $ 7,654 $ 14,764 $ 14,100
Redhawks 6,289 6,122 5,890
Word Entertainment 2,594 115,677 130,706
International cable networks 744 5,025 6,606
Businesses sold to OPUBCO - 2,195 39,706
Other - 609 1,900
--------- --------- ----------
Total revenues $ 17,281 $ 144,392 $ 198,908
========= ========= ==========
OPERATING INCOME (LOSS):
Acuff-Rose Music Publishing $ 933 $ 2,119 $ 1,688
Redhawks 841 363 169
Word Entertainment (917) (5,710) (15,241)
International cable networks (1,576) (6,375) (9,655)
Businesses sold to OPUBCO - (1,816) (8,240)
Other - (383) (144)
Impairment and other charges - (53,716) (29,826)
Restructuring charges - (2,959) (3,241)
--------- --------- ----------
Total operating loss (719) (68,477) (64,490)
INTEREST EXPENSE (81) (797) (1,310)
INTEREST INCOME 81 199 683
OTHER GAINS AND LOSSES 135,442 (4,131) (4,419)
--------- --------- ----------
Income (loss) before benefit for income taxes 134,723 (73,206) (69,536)
PROVISION (BENEFIT) FOR INCOME TAXES 49,763 (23,018) (19,991)
--------- --------- ----------
Net income (loss) from discontinued operations $ 84,960 $ (50,188) $ (49,545)
========= ========= ==========
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assets and liabilities of the discontinued operations presented in
the accompanying consolidated balance sheets are comprised of:
2002 2001
--------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,812 $ 3,889
Trade receivables, less allowance of $2,785 and $5,003, respectively 456 28,999
Inventories 163 6,486
Prepaid expenses 97 10,333
Other current assets - 823
--------- ----------
Total current assets 2,528 50,530
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION 3,242 17,342
GOODWILL 1,162 28,688
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 3,942 6,125
MUSIC AND FILM CATALOGS - 26,274
OTHER LONG-TERM ASSETS 673 5,587
--------- ----------
Total long-term assets 9,019 84,016
--------- ----------
Total assets $ 11,547 $ 134,546
========= ==========
CURRENT LIABILITIES:
Current portion of long-term debt $ 94 $ 5,515
Accounts payable and accrued liabilities 6,284 25,495
--------- ----------
Total current liabilities 6,378 31,010
LONG-TERM DEBT, NET OF CURRENT PORTION - -
OTHER LONG-TERM LIABILITIES 781 836
--------- ----------
Total long-term liabilities 781 836
--------- ----------
Total liabilities 7,159 31,846
MINORITY INTEREST OF DISCONTINUED OPERATIONS 1,885 1,679
--------- ----------
TOTAL LIABILITIES AND MINORITY INTEREST OF
DISCONTINUED OPERATIONS $ 9,044 $ 33,525
========= ==========
7. ACQUISITIONS
During 2000, the Company acquired Corporate Magic, a company
specializing in the production of creative events in the corporate
entertainment marketplace, for $7.5 million in cash and a $1.5 million
note payable. The acquisition was financed through borrowings under the
Company's revolving credit agreement and was 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 $23.4 million in cash. During
2000, the Company acquired the remaining 16% of Musicforce.com and
Lightsource.com for approximately $6.5 million 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
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
4.
8. DIVESTITURES
During 1998, the Company entered into a partnership with The Mills
Corporation to develop the Opry Mills Shopping Center in Nashville,
Tennessee. The Company held a one-third interest in the partnership as
well as the title to the land on which the shopping center was
constructed, which was being leased to the partnership. During the
second quarter of 2002, the Company sold its partnership share to
certain affiliates of The Mills Corporation for approximately $30.8
million in cash proceeds. In accordance with the provisions of SFAS No.
66, "Accounting for Sales of Real Estate", and other applicable
pronouncements, the Company recognized a gain of $10.6 million during
the second quarter of 2002 and deferred approximately $20.0 million of
the gain representing the estimated fair value of the continuing land
lease interest between the Company and the Opry Mills partnership at
June 30, 2002. During the third quarter of 2002, the Company sold its
interest in the land lease to an affiliate of the Mills Corporation and
recognized the remaining $20.0 million deferred gain, less certain
transaction costs.
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 indemnification liabilities. The
gain is included in other gains and losses in the accompanying
consolidated statements of operations.
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, 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 4.
9. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations at December 31 is
recorded at cost and summarized as follows:
(in thousands) 2002 2001
----------- ----------
Land and land improvements $ 129,355 $ 95,496
Buildings 820,038 498,478
Furniture, fixtures and equipment 316,914 235,160
Construction in progress 207,223 474,697
----------- ----------
1,473,530 1,303,831
Accumulated depreciation (361,452) (310,484)
----------- ----------
Property and equipment, net $ 1,112,078 $ 993,347
=========== ==========
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concurrent with the sale of the Opry Mills partnership, the Company
purchased $5.0 million of land from The Mills Corporation.
The decrease in construction in progress during 2002 primarily relates
to the opening of the Gaylord Palms which resulted in the transfer of
assets previously recorded in construction in progress into the
appropriate property and equipment categories as the assets were placed
into service. The decrease in construction in progress was partially
offset by an increase in the costs of the Texas hotel construction
project. Buildings and furniture, fixtures and equipment also increased
due to renovations at Gaylord Opryland. Depreciation expense of
continuing operations for the years ended December 31, 2002, 2001 and
2000 was $52.8 million, $34.9 million and $35.5 million, respectively.
Capitalized interest for the years ended December 31, 2002, 2001 and
2000 was $6.8 million, $18.8 million and $6.8 million, respectively.
10. INVESTMENTS
Investments related to continuing operations at December 31 are
summarized as follows:
(in thousands) 2002 2001
-------- --------
Viacom Class B non-voting common stock $448,482 $485,782
Bass Pro 60,598 60,598
Other investments - 3,792
-------- --------
Total investments $509,080 $550,172
======== ========
The Company acquired CBS Series B convertible preferred stock ("CBS
Stock") during 1999 as consideration in the divestiture of television
station KTVT. 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 $485.0 million.
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.
In connection with the Company's adoption of SFAS No. 133, effective
January 1, 2001, the Company recorded a nonrecurring pretax gain of
$29.4 million, 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 $11.4 million, 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, 2002, the
Company recorded net pretax losses of $37.3 million related to the
decrease in fair value of the Viacom Stock. For the year ended December
31, 2001, the Company recorded net pretax losses of $28.6 million
related to the decrease in fair value of the Viacom Stock subsequent to
January 1, 2001.
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.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1997, the Company purchased a 19.9% limited partnership interest
in the Nashville Predators for $12.0 million. The Company accounts for
its investment using the equity method as required by EITF No. 02-14
"Whether the Equity Method of Accounting Applies When an Investor Does
Not Have an Investment in Voting Stock of an Investee but Exercises
Significant Influence through Other Means". The Company recorded its
share of losses of $1.4 million, $3.9 million and $2.0 million during
2002, 2001 and 2000, respectively, resulting from the Nashville
Predators' net losses. The carrying value of the investment in the
Predators was zero at December 31, 2002 and $1.4 million at December
31, 2001. The Company has not reduced its investment below zero as the
Company is not obligated to make future contributions to the Nashville
Predators.
11. 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 notional amount of $613.1 million 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 $506.5 million, net of discounted prepaid contract payments and
prepaid interest related to the first 3.25 years of the contract and
transaction costs totaling $106.6 million. In October 2000, the Company
prepaid the remaining 3.75 years of contract interest payments required
by the SFEC of $83.2 million. 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 the prepaid contract interest are
classified as current assets of $26.9 million as of December 31, 2002
and 2001 and long-term assets of $91.2 million and $118.1 million in
the accompanying consolidated balance sheets as of December 31, 2002
and 2001, respectively. The Company is recognizing the prepaid contract
payments and deferred financing charges associated with the SFEC as
interest expense over the seven-year contract period using the
effective interest method. The Company utilized $394.1 million 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.
The Company's obligation under the SFEC is collateralized by a security
interest in the Company's 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%.
In accordance with the provisions of SFAS No. 133, as amended, certain
components of the secured forward exchange contract are considered
derivatives, as discussed in Note 12.
12. 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. In accordance with the provisions of SFAS No. 133,
the Company recorded a gain of $11.2 million, net of taxes of $7.1
million, as a cumulative effect of an accounting change effective
January 1, 2001 to record the derivatives
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
associated with the SFEC at fair value. For the year ended December 31,
2002, the Company recorded net pretax gains in the Company's
consolidated statement of operations of $86.5 million related to the
increase in the fair value of the derivatives associated with the SFEC.
For the year ended December 31, 2001, the Company recorded net pretax
gains in the Company's consolidated statement of operations of $54.3
million 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. Two of the contracts
cap the Company's exposure to one-month LIBOR rates on up to $375.0
million of outstanding indebtedness at 7.5%. Another interest rate cap,
which caps the Company's exposure on one-month Eurodollar rates on up
to $100.0 million of outstanding indebtedness at 6.625%, expired in
October 2002. These interest rate caps qualify for treatment as cash
flow hedges in accordance with the provisions of SFAS No. 133, as
amended. As such, the effective portion of the gain or loss on the
derivative instrument is initially recorded in accumulated other
comprehensive income as a separate component of stockholder's equity
and subsequently reclassified into earnings in the period during which
the hedged transaction is recognized in earnings. The ineffective
portion of the gain or loss, if any, is reported in income (expense)
immediately.
13. DEBT
The Company's debt and capital lease obligations related to continuing
operations at December 31 consists of:
(in thousands) 2002 2001
--------- ---------
Senior Loan $ 213,185 $ 268,997
Mezzanine Loan 66,000 100,000
Term Loan 60,000 100,000
Capital lease obligations 1,453 -
--------- ---------
Total debt 340,638 468,997
Less amounts due within one year (8,526) (88,004)
--------- ---------
Total long-term debt $ 332,112 $ 380,993
========= =========
Annual maturities of long-term debt, excluding capital lease
obligations, are as follows. Note 17 discusses the capital lease
obligations in more detail, including annual maturities.
(in thousands) Debt
--------
2003 $ 8,004
2004 331,181
2005 -
2006 -
2007 -
Years thereafter -
--------
Total $339,185
========
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loan
During 2001, the Company entered into a three-year delayed-draw senior
term loan (the "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 the initial
construction phases of the Gaylord hotel in 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 purchased instruments that
cap its exposure to the one-month Eurodollar rate at 6.625% as
discussed in Note 12. 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.
During the first three months of 2002, the Company sold Word's domestic
operations as described in Note 6, which 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 at December 31, 2001. As required
by the Term Loan, the Company used $15.9 million of the net cash
proceeds, as defined under the Term Loan agreement, received from the
sale of the Opry Mills investment described in Note 8 to reduce the
outstanding balance of the Term Loan. In addition, the Company used
$25.0 million of the net cash proceeds, as defined under the Term Loan
agreement, received from the sale of Acuff-Rose Music Publishing to
reduce the outstanding balance of the Term Loan. Also during 2002, the
Company made a principal payment of approximately $4.1 million under
the Term Loan. Net borrowings under the Term Loan for 2002 and 2001
were $85.0 million and $100.0 million, respectively. As of December 31,
2002 and 2001, the Company had outstanding borrowings of $60.0 million
and $100.0 million, respectively, under the Term Loan and was required
to escrow certain amounts in a completion reserve account for Gaylord
Palms. The Company's ability to borrow additional funds under the Term
Loan expired during 2002. However, the lenders could reinstate the
Company's ability to borrow additional funds at a future date.
The terms of the Term Loan required the Company to purchase an interest
rate instrument which caps the interest rate paid by the Company. This
instrument expired in the fourth quarter of 2002. Due to the expiration
of the interest rate instrument, the Company was out of compliance with
the terms of the Term Loan. Subsequent to December 31, 2002, the
Company obtained a waiver from the lenders whereby they waived this
event of non-compliance as of December 31, 2002 and also removed the
requirement to maintain such instruments for the remaining term of the
loan. The maximum amount available under the Term Loan is reduced to
$50.0 million in April 2004, with full repayment due in October 2004.
Debt repayments under the Term Loan reduce the 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, 2002 and 2001, the unamortized balance of the deferred
financing costs related to the Term Loan was $2.4 million and $5.6
million, respectively. The weighted average interest rate, including
amortization of deferred financing costs, under the Term Loan for 2002
and 2001 was 9.6% and 8.3%, respectively. The weighted average interest
rate of 9.6% for 2002 includes 4.5% related to commitment fees and the
amortization of deferred financing costs.
Senior Loan and Mezzanine Loan
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 &
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1.02%. 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 $0.7 million 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 12. The Company used $235.0 million 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 $20.0 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 and
paying required escrows and fees were approximately $97.6 million. At
December 31, 2002 and 2001, the unamortized balance of the deferred
financing costs related to the Nashville Hotel Loans was $7.3 million
and $13.8 million, respectively. The weighted average interest rates
for the Senior Loan for 2002 and 2001, including amortization of
deferred financing costs, were 4.5% and 6.2%, respectively. The
weighted average interest rates for the Mezzanine Loan for 2002 and
2001, including amortization of deferred financing costs, were 10.5%
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, 2002 and 2001, the cash management
restrictions were 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. At December 31, 2002 and December 31, 2001, $0 and
$13.9 million, respectively, related to the cash management
restrictions is included in restricted cash in the accompanying
consolidated balance sheets. During 2002, the Company negotiated
certain revisions to the financial covenants under the Nashville Hotel
Loans and the Term Loan. 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 at December 31, 2002 and 2001. 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. The Company believes it has certain other
possible alternatives to reduce borrowings outstanding under the
Nashville Hotel Loans which would allow the Company to remedy any event
of default. 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 the second quarter of 2002, like other companies in the
hospitality industry, the Company was notified by the insurers
providing its property and casualty insurance that policies issued upon
renewal would no longer include coverage for terrorist acts. As a
result, the servicer for the Senior Loan notified the Company in May of
2002 that it believed the lack of insurance covering terrorist acts and
certain related matters did constitute an event of default under the
terms of that credit facility. Although coverage for terrorist acts was
never specifically required as part of the required property and
casualty coverage, the Company determined to resolve this issue by
obtaining coverage for terrorist acts. The Company has obtained
coverage in an amount equal to the outstanding balance of the Senior
Loan. During the third quarter of 2002, the Company received notice
from the servicer that any previous existing defaults were cured and
coverage in
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
an amount equal to the outstanding balance of the loan satisfied the
requirements of the Senior Loan. The servicer has reserved the right to
impose additional insurance requirements if there is a change in, among
other things, the availability or cost of terrorism insurance coverage,
the risk of terrorist activity, or legislation affecting the rights of
lenders to require borrowers to maintain terrorism insurance. Based
upon the Company's curing any default which may have existed, this debt
continues to be classified as long-term in the accompanying
consolidated balance sheets.
Interim Loan
During 2000, the Company entered into a six-month $200.0 million
interim loan agreement (the "Interim Loan") with Merrill Lynch Mortgage
Capital, Inc. During 2000, the Company utilized $83.2 million of the
proceeds from the Interim Loan to prepay the remaining contract
payments required by the SFEC discussed in Note 10. During 2001, the
Company increased the borrowing capacity under the Interim Loan to
$250.0 million. The Company used $235.0 million of the proceeds from
the Nashville Hotel Loans discussed previously to refinance the Interim
Loan during March 2001. 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 $4.0 million, 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
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.
1997 Credit Facility
In August 1997, the Company entered into a revolving credit facility
(the "1997 Credit Facility") and utilized the proceeds to retire
outstanding indebtedness. The Company utilized $394.1 million of the
net proceeds from the SFEC in 2000 to repay all outstanding
indebtedness under the 1997 Credit Facility as discussed in Note 10. As
a result of the SFEC, the 1997 Credit Facility was terminated.
Accrued interest payable at December 31, 2002 and 2001 was $0.6 million
and $1.1 million, respectively, and is included in accounts payble and
accrued liabilities in the accompanying consolidated balance sheets.
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INCOME TAXES
The provision (benefit) for income taxes from continuing operations
consists of the following:
(in thousands) 2002 2001 2000
-------- -------- --------
CURRENT:
Federal $ - $ - $ (326)
State 1,336 (32) 304
-------- -------- --------
Total current provision (benefit) $ 1,336 $ (32) $ (22)
-------- -------- --------
DEFERRED:
Federal 461 (7,928) (50,748)
State (1,334) (353) (370)
-------- -------- --------
Total deferred provision (benefit) (873) (8,281) (51,118)
-------- -------- --------
Effect of tax law change 1,343 - -
-------- -------- --------
Total provision (benefit) for income taxes $ 1,806 $ (8,313) $(51,140)
======== ======== ========
The tax benefits associated with the exercise of stock options during
the years ended 2002, 2001, and 2000 were $27,000, $0.7 million and
$1.0 million respectively, and are reflected as an increase in
additional paid-in capital in the accompanying consolidated statements
of stockholders' equity.
During 2002, the Tennessee legislature increased the corporate income
tax rate from 6% to 6.5%. As a result, the Company increased the
deferred tax liability by $1.3 million and increased 2002 tax expense
by $1.3 million.
The effective tax rate as applied to pretax income (loss) from
continuing operations differed from the statutory federal rate due to
the following:
2002 2001 2000
---- ---- ----
U.S. federal statutory rate 35% 35% 35%
State taxes, (net of federal tax benefit and change in
valuation allowance) - 1 -
Effective tax law change 6 - -
Previously accrued income taxes (34) 19 (1)
Other 5 (6) (2)
--- --- ---
12% 49% 32%
=== === ===
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Significant components of the Company's deferred tax assets
and liabilities are as follows:
(in thousands) 2002 2001
--------- ---------
DEFERRED TAX ASSETS:
Accounting reserves and accruals $ 20,553 $ 23,438
Defined benefit plan 8,360 2,704
Goodwill and other intangibles 5,149 4,082
Investments in stock & partnerships 4,681 11,944
Forward exchange contract 28,111 17,524
Net operating loss carryforwards 15,296 107,236
Tax credits & other carryforwards 7,085 6,417
Other assets 540 2,415
--------- ---------
Total deferred tax assets 89,775 175,760
Valuation allowance (11,403) (10,703)
--------- ---------
Total deferred tax assets, net of allowance 78,372 165,057
--------- ---------
DEFERRED TAX LIABILITIES:
Property, plant, & equipment, net 72,085 65,425
Investments in stock & derivatives 227,379 207,156
Other liabilities 2,727 7,637
--------- ---------
Total deferred tax liabilities 302,191 280,218
--------- ---------
Net deferred tax liabilities $ 223,819 $ 115,161
========= =========
At December 31, 2002, the Company had federal net operating loss
carryforwards of $4.8 million which will begin to expire in 2020. In
addition, the Company had federal minimum tax credits of $5.4 million
that will not expire and other federal tax credits of $0.3 million that
will begin to expire in 2018. State net operating loss carryforwards at
December 31, 2002 totaled $306.8 million and will expire between 2003
and 2017. Foreign net operating loss carryforwards at December 31, 2002
totaled $2.5 million and will expire between 2010 and 2012. The use of
certain state and foreign net operating losses and other state and
foreign deferred tax assets are limited to the future taxable earnings
of separate legal entities. As a result, a valuation allowance has been
provided for certain state and foreign deferred tax assets, including
loss carryforwards. The change in the valuation allowance was $(0.7)
million, $(0.7) million and $(5.7) million in 2002, 2001 and 2000
respectively. Based on the expectation of future taxable income,
management believes that it is more likely than not that the results of
operations will generate sufficient taxable income to realize the
deferred tax assets after giving consideration to the valuation
allowance.
Deferred income taxes resulting from the unrealized gain on the
investment in the Viacom Stock were $11.4 million at December 31, 2000
and were 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 $11.4
million for the year ended December 31, 2001. These amounts are
reflected in the accompanying consolidated statement of operations for
the year ended December 31, 2002.
During the years ended 2002, 2001 and 2000 the Company recognized
provision (benefits) of $(4.9) million, $(3.2) million and $1.1 million
related to the settlement of certain federal income tax issues with the
Internal Revenue Service as well as the closing of open tax years for
federal and state tax purposes. The Company reached a $2.0 million
partial settlement of Internal Revenue
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Service audits of the Company's 1996-1997 tax returns during 2001. The
Company reached a final settlement for the 1996 through 1998 years in
2002 with a net cash payment of $0.1 million. During the second quarter
of 2002, the Company received an income tax refund of $64.6 million in
cash from the U.S. Department of Treasury as a result of the net
operating losses carry-back provisions of the Job Creation and Worker
Assistance Act of 2002. Net cash refunds for income taxes were
approximately $63.2 million, $21.7 million and $18.5 million in 2002,
2001 and 2000, respectively.
15. 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.
16. STOCK PLANS
At December 31, 2002 and 2001, 3,241,037 and 3,053,737 shares,
respectively, of the Company's common stock were reserved for future
issuance pursuant to the exercise of stock options under the stock
option and incentive plan. Under the terms of this plan, 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 directors are
exercisable immediately, while options granted to employees are
exercisable two to five years from the date of grant. The Company
accounts for this plan under APB Opinion No. 25 and related
interpretations, under which no compensation expense for employee and
non-employee director stock options has been recognized.
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 2002, 2001 and 2000,
respectively: risk-free interest rates of 4.1%, 4.7% and 6.4%; expected
volatility of 33.1%, 34.2% and 30.2%; expected lives of 4.3, 5.4 and
7.3 years; expected dividend rates of 0% for all years. The weighted
average fair value of options granted was $8.16, $10.10 and $12.83 in
2002, 2001 and 2000, respectively.
The plan also provides for the award of restricted stock. At December
31, 2002 and 2001, awards of restricted stock of 86,025 and 109,867
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 plan at
December 31, 2002 and 2001 were 956,181 and 1,177,345 shares of common
stock, respectively. Stock option transactions under the plans are
summarized as follows:
2002 2001 2000
------------------------ ----------------------- -----------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
NUMBER OF EXERCISE Number of Exercise Number of Exercise
SHARES PRICE Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at beginning of year 3,053,737 26.60 2,352,712 $ 26.38 2,604,213 $ 25.74
Granted 635,475 24.26 1,544,600 25.35 749,700 26.65
Exercised (29,198) 22.63 (203,543) 11.44 (178,335) 10.36
Canceled (418,977) 26.33 (640,032) 27.59 (822,866) 28.10
--------- ----- --------- ------- --------- -------
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Outstanding at end of year 3,241,037 $ 26.21 3,053,737 $ 26.60 2,352,712 $ 26.38
========= ========== ========= ========== ========= ==========
Exercisable at end
of year 1,569,697 $ 27.27 1,235,324 $ 27.39 1,138,681 $ 24.18
========= ========== ========= ========== ========= ==========
A summary of stock options outstanding at December 31, 2002 is as
follows:
WEIGHTED
WEIGHTED AVERAGE
OPTION AVERAGE NUMBER OF REMAINING
EXERCISE EXERCISE NUMBER OF SHARES CONTRACTUAL
PRICE RANGE PRICE SHARES EXERCISABLE LIFE
- -------------- -------- --------- ----------- -----------
$18.55 - 22.00 $20.64 258,545 110,420 6.4 YEARS
22.01 - 26.00 24.39 1,271,230 392,330 7.6 YEARS
26.01 - 30.00 27.67 1,456,096 854,446 6.8 YEARS
30.01 - 34.00 32.51 255,166 212,501 5.4 YEARS
- -------------- ------ --------- --------- ---------
$18.55 - 34.00 $27.27 3,241,037 1,569,697 7.0 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 14,753, 11,965 and 13,666
shares of common stock at an average price of $17.47, $18.27 and $21.19
pursuant to this plan during 2002, 2001 and 2000, respectively.
17. COMMITMENTS AND CONTINGENCIES
Capital leases
During 2002, the Company entered into three capital leases. There were
no capital leases in effect at December 31, 2001. In the accompanying
consolidated balance sheet, the following amounts of assets under
capitalized lease agreements are included in property and equipment and
other long-term assets and the related obligations are included in
debt:
(in thousands) 2002
-----------
Property and equipment $ 1,965
Other long-term assets 412
Accumulated depreciation (144)
-----------
Net assets under capital leases in property and
equipment $ 2,233
===========
Current lease obligations $ 522
Long-term lease obligations 931
-----------
Capital lease obligations $ 1,453
===========
Operating leases
Rental expense related to continuing operations for operating leases
was $13.2 million, $2.8 million and $2.7 million for 2002, 2001 and
2000, respectively. The increase in 2002 is related to
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the operating land lease for Gaylord Palms as discussed below. Of the
$13.2 million of rental expense for 2002, $6.5 million relates to
non-cash lease expense as discussed below.
Future minimum cash lease commitments under all noncancelable leases in
effect for continuing operations at December 31, 2002 are as follows:
(in thousands) Capital Leases Operating Leases
-------------- ----------------
2003 $ 560 $ 6,242
2004 741 5,697
2005 178 4,713
2006 89 3,422
2007 - 3,518
Years thereafter - 683,202
------ ---------
Total minimum lease payments $1,568 $ 706,794
====== =========
Less amount representing interest (115)
Total present value of minimum payments 1,453
Less current portion of obligations 522
------
Long-term obligations $ 931
======
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 $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. As required by SFAS No. 13, and related
interpretations, the terms of this lease require that the Company
recognize lease expense on a straight-line basis, which resulted in an
annual lease expense of approximately $9.8 million for 2002, including
approximately $6.5 million of non-cash expenses during 2002. The
Company is currently attempting to renegotiate certain terms of the
lease in an attempt to more closely align the cash requirements under
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. The Company also records contingent
rentals based upon net revenues associated with the Gaylord Palms
operations. The Company recorded $0.6 million of contingent rentals
related to the Gaylord Palms subsequent to its January 2002 opening.
Other commitments
The Company was notified during 1997 by Nashville governmental
authorities of an increase in the 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 $1.1 million 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. 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. 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 $3.4 million for the years ended
December 31, 2002, 2001 and 2000, which is included in selling, general
and administrative expenses in the accompanying consolidated statements
of operations.
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 has entered into employment agreements with certain
officers, which provides for severance payments upon certain events,
including a change in control.
The Company, in the ordinary course of business, 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.
18. 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:
(in thousands) 2002 2001
-------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 58,712 $ 57,608
Service cost - 2,592
Interest cost 3,964 4,288
Amendments - 1,867
Actuarial loss (gain) 5,359 (2,763)
Benefits paid (5,021) (4,880)
Curtailment (3,800) -
-------- --------
Benefit obligation at end of year 59,214 58,712
-------- --------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 44,202 52,538
Actual loss on plan assets (3,870) (6,030)
Employer contributions 1,794 2,574
Benefits paid (5,021) (4,880)
-------- --------
Fair value of plan assets at end of year 37,105 44,202
-------- --------
Funded status (22,109) (14,510)
Unrecognized net actuarial loss 22,944 14,829
Unrecognized prior service cost - 3,750
Adjustment for minimum liability (22,944) (14,779)
-------- --------
Accrued pension cost $(22,109) $(10,710)
======== ========
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net periodic pension expense reflected in the accompanying consolidated
statements of operations included the following components for the
years ended December 31:
(in thousands) 2002 2001 2000
------- ------- -------
Service cost $ - $ 2,592 $ 2,564
Interest cost 3,964 4,288 3,911
Expected return on plan assets (3,395) (4,131) (3,963)
Recognized net actuarial loss 710 169 107
Amortization of prior service cost - 402 211
Curtailment loss 3,750 - -
------- ------- -------
Total net periodic pension expense $ 5,029 $ 3,320 $ 2,830
======= ======= =======
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% for 2002,
and 7.5% for 2001. The rate of increase in future compensation levels
used was 4% and the assumed 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, 2002, the
Non-Qualified Plans' projected benefit obligations and accumulated
benefit obligations were $10.3 million.
The Company's accrued cost related to its qualified and non-qualified
retirement plans of $32.4 million and $20.8 million at December 31,
2002 and 2001, respectively, is included in other long-term liabilities
in the accompanying consolidated balance sheets. The 2002 increase in
the minimum liability related to the Company's retirement plans
resulted in a charge to equity of $7.2 million, net of taxes of $4.7
million. The 2001 increase in the minimum liability related to the
Company's retirement plans resulted in a charge to equity of $7.7
million, net of taxes of $4.9 million. The 2002 and 2001 charges to
equity due to the increase in the minimum liability 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. In
addition, effective January 1, 2002, the Company contributes 2% to 4%
of the employee's salary, based upon the Company's financial
performance. Company contributions under the retirement savings plans
were $3.8 million, $1.5 million and $1.6 million for 2002, 2001 and
2000, 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 recorded a pretax charge to operations of $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.
19. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
(in thousands) 2002 2001
-------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 13,665 $ 12,918
Service cost 306 688
Interest cost 1,353 946
Actuarial loss 862 -
Contributions by plan participants 142 101
Benefits paid (987) (988)
Remeasurements 9,054 -
Amendments (4,673) -
-------- --------
Benefit obligation at end of year 19,722 13,665
Unrecognized net actuarial gain 4,406 13,038
-------- --------
Accrued postretirement liability $ 24,128 $ 26,703
======== ========
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net postretirement benefit expense reflected in the accompanying
consolidated statements of operations included the following components
for the years ended December 31:
(in thousands) 2002 2001 2000
------- ------- -------
Service cost $ 306 $ 688 $ 736
Interest cost 1,353 946 923
Curtailment gain (2,105) - -
------- ------- -------
Recognized net actuarial gain (1,284) (826) (811)
------- ------- -------
Net postretirement benefit expense $(1,730) $ 808 $ 848
======= ======= =======
The health care cost trend is projected to be 10.75% in 2003, declining
each year thereafter to an ultimate level trend rate of 5.5% per year
for 2009 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, 2002 by approximately 9% and the
aggregate of the service and interest cost components of net
postretirement benefit expense would increase approximately 10%.
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, 2002 by approximately 8% and the
aggregate of the service and interest cost components of net
postretirement benefit expense would decrease approximately 10%. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% for 2002 and 7.5% for 2001.
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. The amendment and curtailment of the plans were
recorded in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and related
interpretations.
20. GOODWILL AND INTANGIBLES
The transitional provisions of SFAS No. 142 require the Company to
perform an assessment of whether goodwill is impaired as of the
beginning of the fiscal year in which the statement is adopted. Under
the transitional provisions of SFAS No. 142, the first step is for the
Company to evaluate whether the reporting unit's carrying amount
exceeds its fair value. If the reporting unit's carrying amount exceeds
it fair value, the second step of the impairment test must be
completed. During the second step, the Company must compare the implied
fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of its assets and liabilities in
a manner similar to a purchase price allocation in accordance with SFAS
No. 141, to its carrying amount.
The Company completed the transitional goodwill impairment reviews
required by SFAS No. 142 during the second quarter of 2002. In
performing the impairment reviews, the Company estimated the fair
values of the reporting units using a present value method that
discounted estimated future cash flows. Such valuations are sensitive
to assumptions associated with cash flow growth, discount rates and
capital rates. In performing the impairment reviews, the Company
determined one reporting unit's goodwill to be impaired. Based on the
estimated fair value of the reporting unit, the Company impaired the
recorded goodwill amount of $4.2 million associated with the Radisson
Hotel at Opryland in the hospitality segment. The circumstances leading
to the goodwill impairment assessment for the Radisson Hotel at
Opryland primarily relate to the effect of the September 11, 2001
terrorist attacks on the hospitality and tourism industries. In
accordance with
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the provisions of SFAS No. 142, the Company has reflected the
impairment charge as a cumulative effect of a change in accounting
principle in the amount of $2.6 million, net of tax benefit of $1.6
million, as of January 1, 2002 in the accompanying condensed
consolidated statements of operations.
The Company performed the annual impairment review on all goodwill at
December 31, 2002 and determined that no further impairment, other than
the goodwill impairment of the Radisson Hotel at Opryland as discussed
above, would be required during 2002.
The changes in the carrying amounts of goodwill by business segment for
the twelve months ended December 31, 2002 are as follows:
Balance as of Transitional Balance as of
December 31, Impairment December 31,
(in thousands) 2001 Losses 2002
------------- ------------ -------------
Hospitality $ 4,221 $ (4,221) $ -
Attractions 6,915 - 6,915
Media 2,365 - 2,365
Corporate - - -
------- -------- -------
Total $13,501 $ (4,221) $ 9,280
======= ======== =======
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a reconciliation of net income and income
per share assuming the nonamortization provisions of SFAS No. 142 were
applied during 2001:
(in thousands) 2002 2001 2000
---------- ---------- -----------
Reported net income (loss) $ 95,144 $ (47,796) $ (156,056)
Add back: Goodwill amortization, net of tax - 1,360 4,556
---------- ---------- -----------
Adjusted net income (loss) $ 95,144 $ (46,436) $ (151,500)
========== ========== ===========
Basic earnings (loss) per share
- -------------------------------
Reported net income (loss) $ 2.82 $ (1.42) $ (4.67)
Add back: Goodwill amortization, net of tax - 0.04 0.14
---------- ---------- -----------
Adjusted net income (loss) $ 2.82 $ (1.38) $ (4.53)
========== ========== ===========
Diluted earnings (loss) per share
- ---------------------------------
Reported net income (loss) $ 2.82 $ (1.42) $ (4.67)
Add back: Goodwill amortization, net of tax - 0.04 0.14
---------- ---------- -----------
Adjusted net income (loss) $ 2.82 $ (1.38) $ (4.53)
========== ========== ===========
The above goodwill amortization during 2000 includes $4.1 million of
amortization related to the acquisitions for Gaylord Digital as
discussed in Note 7.
The Company also reassessed the useful lives and classification of
identifiable finite-lived intangible assets and determined the lives of
these intangible assets to be appropriate. The carrying amount of
amortized intangible assets in continuing operations, including the
intangible assets related to benefit plans, was $2.4 million and $6.7
million at December 31, 2002 and 2001, respectively. The decrease in
intangible assets during 2002 is primarily related to the
reclassification of the intangible asset related to the benefit plan as
discussed in Note 17. The related accumulated amortization of
intangible assets in continuing operations was $445,000 and $387,000 at
December 31, 2002 and 2001, respectively. The amortization expense
related to intangibles from continuing operations during the twelve
months ended December 31, 2002 and 2001 was $58,000 and $59,000,
respectively. The estimated amounts of amortization expense for the
next five years are equivalent to $58,000 per year.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. FINANCIAL REPORTING BY BUSINESS SEGMENTS
The following information from continuing operations is derived
directly from the segments' internal financial reports used for
corporate management purposes. The 2001 and 2000 amounts represent the
Company's reported amounts in the Company's 2001 Form 10-K as filed
with the Securities and Exchange Commission. The 2001 and 2000 amount
also present a reconciliation to adjust for Acuff-Rose and the OKC
Redhawks reclassified from continuing operations to discontinued
operations, the restatement amounts as a result of the re-audit and the
restated amounts. Acuff-Rose was previously recorded in the media
segment and OKC Redhawks was recorded in the corporate and other
segment.
(Restated) (Restated)
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(in thousands) 2002 2001 2000
------------ ------------ ------------
REVENUES:
Hospitality $ 339,380 $ 228,712 $ 237,260
Attractions 63,512 65,878 63,235
Media 11,194 9,393 14,913
Corporate and other 272 290 64
------------ ------------ ------------
Total $ 414,358 $ 304,273 $ 315,472
============ ============ ============
DEPRECIATION AND AMORTIZATION:
Hospitality $ 44,924 $ 25,593 $ 24,447
Attractions 5,295 5,810 6,443
Media 623 660 7,716
Corporate and other 5,778 6,542 6,257
------------ ------------ ------------
Total $ 56,620 $ 38,605 $ 44,863
============ ============ ============
OPERATING INCOME (LOSS):
Hospitality $ 25,972 $ 34,270 $ 45,478
Attractions 3,094 (2,372) (8,025)
Media (193) (454) (33,188)
Corporate and other (42,111) (40,110) (38,187)
Preopening costs (8,913) (15,927) (5,278)
Gain on sale of assets 30,529 - -
Impairment and other charges - (14,262) (75,712)
Restructuring charges (3) (2,182)) (12,952)
------------ ------------ ------------
Total $ 8,375 $ (41,037) $ (127,864)
============ ============ ============
IDENTIFIABLE ASSETS:
Hospitality $ 1,056,434 $ 947,646 $ 660,289
Attractions 82,600 88,270 88,715
Media 8,806 8,266 18,669
Corporate and other 1,032,809 998,916 899,949
Discontinued operations 11,547 134,546 263,183
------------ ------------ ------------
Total $ 2,192,196 $ 2,177,644 $ 1,930,805
============ ============ ============
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The restated 2001 and 2000 segment information presented below includes
both the impact of reclassifying discontinued operations as required by
SFAS No. 144 (as discussed in Note 6) and the restatement changes (as
discussed in Note 3). The following segment information reconcile
previously reported and restated financial information.
Fiscal year As reported Fiscal year
ended Dec. 31, with Restatement ended Dec. 31,
2001 Discontinued discontinued related 2001
(in thousands) As reported operations operations adjustments Restated
-------------- ------------ ------------ ----------- --------------
REVENUES:
Hospitality $ 228,712 $ - $ 228,712 $ - $ 228,712
Attractions 65,878 - 65,878 - 65,878
Media 24,157 14,764 9,393 - 9,393
Corporate and other 6,412 6,122 290 - 290
----------- ----------- ----------- ----------- -----------
Total $ 325,159 $ 20,886 $ 304,273 $ - $ 304,273
=========== =========== =========== =========== ===========
DEPRECIATION AND AMORTIZATION:
Hospitality $ 25,593 $ - $ 25,593 $ - $ 25,593
Attractions 5,810 - 5,810 - 5,810
Media 2,578 1,918 660 - 660
Corporate and other 7,294 752 6,542 - 6,542
----------- ----------- ----------- ----------- -----------
Total $ 41,275 $ 2,670 $ 38,605 $ - $ 38,605
=========== =========== =========== =========== ===========
OPERATING INCOME (LOSS):
Hospitality $ 33,915 $ - $ 33,915 $ 355 $ 34,270
Attractions (2,372) - (2,372) - (2,372)
Media 1,665 2,119 (454) - (454)
Corporate and other (39,399) 363 (39,762) (348) (40,110)
Preopening costs (15,141) - (15,141) (786) (15,927)
Impairment and other - - (14,262)
charges (14,262) (14,262)
Restructuring charges (2,182) - (2,182) - (2,182)
----------- ----------- ----------- ----------- -----------
Total $ (37,776) $ 2,482 $ (40,258) $ (779) $ (41,037)
=========== =========== =========== =========== ===========
IDENTIFIABLE ASSETS:
Hospitality $ 948,284 $ - $ 948,284 $ (638) $ 947,646
Attractions 88,620 - 88,620 (350) 88,270
Media 35,342 27,076 8,266 - 8,266
Corporate and other 998,503 10,397 988,106 (12,628) 975,478
----------- ----------- ----------- ----------- -----------
Total $ 2,070,749 $ 37,473 $ 2,033,276 $ (13,616) $ 2,019,660
=========== =========== =========== =========== ===========
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal year As reported Fiscal year
ended Dec. 31, with Restatement ended Dec. 31,
2000 Discontinued discontinued related 2000
(in thousands) As reported operations operations adjustments Restated
-------------- ------------ ------------ ----------- --------------
REVENUES:
Hospitality $ 237,260 $ - $ 237,260 $ - $ 237,260
Attractions 63,235 - 63,235 - 63,235
Media 29,013 14,100 14,913 - 14,913
Corporate and other 5,954 5,890 64 - 64
----------- ----------- ----------- ----------- -----------
Total $ 335,462 $ 19,990 $ 315,472 $ - $ 315,472
=========== =========== =========== =========== ===========
DEPRECIATION AND AMORTIZATION:
Hospitality $ 24,447 $ - $ 24,447 $ - $ 24,447
Attractions 6,443 - 6,443 - 6,443
Media 9,650 1,934 7,716 - 7,716
Corporate and other 7,040 783 6,257 - 6,257
----------- ----------- ----------- ----------- -----------
Total $ 47,580 $ 2,717 $ 44,863 $ - $ 44,863
=========== =========== =========== =========== ===========
OPERATING INCOME (LOSS):
Hospitality $ 45,949 $ - $ 45,949 $ (471) $ 45,478
Attractions (8,025) - (8,025) - (8,025)
Media (31,500) 1,688 (33,188) - (33,188)
Corporate and other (38,626) 169 (38,795) 608 (38,187)
Preopening costs (5,278) - (5,278) - (5,278)
Impairment and other
charges (76,597) (885) (75,712) - (75,712)
Restructuring charges (13,098) (146) (12,952) - (12,952)
----------- ----------- ----------- ----------- -----------
Total $ (127,175) $ 826 $ (128,001) $ 137 $ (127,864)
=========== =========== =========== =========== ===========
IDENTIFIABLE ASSETS:
Hospitality $ 660,604 $ - $ 660,604 $ (315) $ 660,289
Attractions 89,065 - 89,065 (350) 88,715
Media 46,805 28,136 18,669 - 18,669
Corporate and other 918,963 10,574 908,389 (8,440) 899,949
----------- ----------- ----------- ----------- -----------
Total $ 1,715,437 $ 38,710 $ 1,676,727 $ (9,105) $ 1,667,622
=========== =========== =========== =========== ===========
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the capital expenditures for continuing
operations by segment for the years ended December 31.
(in thousands) 2002 2001 2000
-------- -------- --------
CAPITAL EXPENDITURES:
Hospitality $170,522 $277,643 $201,720
Attractions 2,625 2,471 392
Media 660 159 8,065
Corporate and other 11,842 807 8,168
-------- -------- --------
Total $185,649 $281,080 $218,345
======== ======== ========
22. SUBSEQUENT EVENT
On March 25, 2003, the Company, through its wholly-owned subsidiary
Gaylord Investments, Inc., entered into an agreement to sell the assets
primarily used in the operations of WSM-FM and WWTN(FM) to Cumulus
Broadcasting, Inc. ("Cumulus"), and the Company entered into a joint
sales agreement with Cumulus for WSM-AM in exchange for approximately
$65 million in cash. Consummation of the sale of assets is subject to
customary closing conditions, including regulatory approvals, and is
expected to take place in the third quarter of 2003. In connection with
this agreement, the Company also entered into a local marketing
agreement with Cumulus pursuant to which, from the second business day
after the expiration or termination of the waiting period under the
Hart-Scott-Rodino Improvements Act of 1976 until the closing of the
sale of the assets, the Company will, for a fee, make available to
Cumulus substantially all of the broadcast time on WSM-FM and WWTN(FM).
In turn, Cumulus will provide programming to be broadcast during such
broadcast time and will collect revenues from the advertising that it
sells for broadcast during this programming time. The Company will
continue to own and operate WSM-AM, and under the terms of the joint
sales agreement with Cumulus, Cumulus will sell all of the commercial
advertising on WSM-AM and provide certain sales promotion and billing
and collection services relating to WSM-AM, all for a specified fee.
The joint sales agreement has a term of five years.
23. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is selected unaudited quarterly financial data, as
previously reported and as restated, for the fiscal years ended
December 31, 2002 and 2001. As discussed in Note 3, the Company
restated historical consolidated financial statements as part of the
re-audit. The "As previously reported" column represents the amounts
the Company reported on the respective Form 10-Q as filed with the
Securities and Exchange Commission during the year of 2002. During the
first quarter of 2002, Acuff-Rose Music was not reported as a
discontinued operation because management had not adopted a formal plan
to dispose of Acuff-Rose. During the second quarter of 2002, the
Company adopted a plan to dispose of Acuff-Rose and classified it as
discontinued operations.
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The sum of the quarterly per share amounts may not equal the annual
totals due to rounding.
First quarter ended March 31, 2002
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 104,505 $ (3,250) $ 101,255 $ - $ 101,255
Depreciation and
amortization 15,741 (478) 15,263 - 15,263
Operating income (loss) (16,402) (337) (16,739) 932 (15,807)
Income (loss) of continuing
operations before income
taxes, discontinued
operations and accounting
change (10,530) (345) (10,875) 112 (10,763)
Provision (benefit) for
income taxes (4,054) (93) (4,147) 113 (4,034)
Income (loss) of continuing
operations before
discontinued operations (6,476) (252) (6,728) (1) (6,729)
Gain (loss) from
discontinued operations,
net of taxes 789 252 1,041 113 1,154
Cumulative effect of
accounting change (2,595) - (2,595) 23 (2,572)
Net income (loss) (8,282) - (8,282) 135 (8,147)
Net income (loss) per share (0.25) (0.00) (0.25) 0.01 (0.24)
Net income (loss) per share
- assuming dilution (0.25) (0.00) (0.25) 0.01 (0.24)
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Second quarter ended June 30, 2002
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 98,289 $ - $ 98,289 $ - $ 98,289
Depreciation and
amortization 12,798 - 12,798 - 12,798
Operating income (loss) 7,595 - 7,595 1,190 8,785
Income (loss) of continuing
operations before income taxes 1,479 - 1,479 1,426 2,905
Provision (benefit) for income
taxes (15,227) - (15,227) 13,365 (1,862)
Income (loss) of continuing
operations before discontinued
operations 16,706 - 16,706 (11,939) 4,767
Gain (loss) from discontinued
operations, net of taxes 1,403 - 1,403 (292) 1,111
Cumulative effect of accounting
change - - - - -
Net income (loss) 18,109 - 18,109 (12,231) 5,878
Net income (loss) per share 0.54 0.00 0.54 (0.37) 0.17
Net income (loss) per share 0.54 0.00 0.54 (0.37) 0.17
- - assuming dilution
During the second quarter of 2002, the Company sold its partnership
share of the Opry Mills partnership to certain affiliates of The Mills
Corporation for approximately $30.8 million in cash proceeds upon the
disposition. The Company deferred approximately $20.0 million of the
gain representing the estimated present value of the continuing land
lease interest between the Company and the Opry Mills partnership at
June 30, 2002. The Company recognized the remainder of the proceeds,
net of certain transaction costs, as a gain of approximately $10.6
million during the second quarter of 2002.
Also during the second quarter of 2002, the Company adopted a plan of
restructuring to streamline certain operations and duties. Accordingly,
the Company recorded a pretax restructuring charge of $1.1 million
related to employee severance costs and other employee benefits. The
second quarter 2002 restructuring charge was offset by a reversal of
$1.1 million of the fourth quarter 2001 restructuring charge.
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Third quarter ended September 30, 2002
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 102,954 $ - $102,954 - $ 102,954
Depreciation and
amortization 13,969 - 13,969 - 13,969
Operating income (loss) 19,045 - 19,045 (10) 19,035
Income (loss) of continuing
operations before income taxes 27,367 - 27,367 (9) 27,358
Provision (benefit) for income
taxes 11,682 - 11,682 (4,118) 7,564
Income (loss) of continuing
operations before discontinued
operations 15,685 - 15,685 4,109 19,794
Gain (loss) from discontinued
operations, net of taxes 83,599 - 83,599 (3,349) 80,250
Cumulative effect of accounting
change - - - - -
Net income (loss) 99,284 - 99,284 760 100,044
Net income (loss) per share 2.94 0.00 2.94 0.02 2.96
Net income (loss) per share
- assuming dilution 2.94 0.00 2.94 0.02 2.96
During the third quarter of 2002, the Company sold its interest in the
land lease discussed above in relation to the sale of the Opry Mills
partnership and recognized the remaining $20.0 million deferred gain,
less certain transaction costs.
During the third quarter of 2002, the Company finalized the sale of
Acuff-Rose Music Publishing to Sony/ATV Music Publishing for
approximately $157.0 million in cash. The Company recognized a pretax
gain of $130.6 million during the third quarter of 2002 related to the
sale in discontinued operations. The gain on the sale of Acuff-Rose
Music Publishing is recorded in the income from discontinued operations
in the consolidated statement of operations.
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fourth quarter ended December 31, 2002
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 111,860 $ - $ 111,860 $ - $ 111,860
Depreciation and
amortization 14,590 - 14,590 - 14,590
Operating income (loss) (3,638) - (3,638) - (3,638)
Income (loss) of continuing
operations before income taxes (4,938) - (4,938) - (4,938)
Provision (benefit) for income
taxes (3,651) - (3,651) 3,789 138
Income (loss) of continuing
operations before discontinued
operations (1,287) - (1,287) (3,789) (5,076)
Gain (loss) from discontinued
operations, net of taxes (1,344) - (1,344) 3,789 2,445
Cumulative effect of accounting
change - - - - -
Net income (loss) (2,631) - (2,631) - (2,631)
Net income (loss) per share (0.08) 0.00 (0.08) 0.00 (0.08)
Net income (loss) per share
- assuming dilution (0.08) 0.00 (0.08) 0.00 (0.08)
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First quarter ended March 31, 2001
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 83,357 $(3,124) $ 80,233 $ - $ 80,233
Depreciation and
amortization 10,057 (481) 9,576 - 9,576
Operating income (loss) (1,674) (504) (2,178) (580) (2,758)
Income (loss) of continuing
operations before income taxes 29,188 (505) 28,683 (1,190) 27,493
Provision (benefit) for income
taxes 9,411 (113) 9,298 (560) 8,738
Income (loss) of continuing
operations before discontinued
operations 19,777 (392) 19,385 (630) 18,755
Gain (loss) from discontinued
operations, net of taxes (7,562) 392 (7,170) (386) (7,556)
Cumulative effect of accounting
change 11,909 - 11,909 (707) 11,202
Net income (loss) 24,124 - 24,124 (1,723) 22,401
Net income (loss) per share 0.72 (0.00) 0.72 (0.05) 0.67
Net income (loss) per share
assuming dilution 0.72 (0.00) 0.72 (0.05) 0.67
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Second quarter ended June 30, 2001
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 70,105 $ - $ 70,105 $ - $ 70,105
Depreciation and
amortization 9,753 - 9,753 - 9,753
Operating income (loss) (16,859) - (16,859) 129 (16,730)
Income (loss) of continuing
operations before income taxes (1,650) - (1,650) (853) (2,503)
Provision (benefit) for income
taxes (195) - (195) (885) (1,080)
Income (loss) of continuing
operations before discontinued
operations (1,455) - (1,455) 32 (1,423)
Gain (loss) from discontinued
operations, net of taxes (2,103) - (2,103) (402) (2,505)
Cumulative effect of accounting
change - - - - -
Net income (loss) (3,558) - (3,558) (370) (3,928)
Net income (loss) per share (0.11) 0.00 (0.11) (0.01) (0.12)
Net income (loss) per share
- assuming dilution (0.11) 0.00 (0.11) (0.01) (0.12)
During the second quarter of 2001, the Company recognized pretax
impairment and other charges of $11.4 million. Also during the second
quarter of 2001, the Company recorded a reversal of $2.3 million of the
restructuring charges originally recorded during the fourth quarter of
2000.
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Third quarter ended September 30, 2001
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 69,164 $ - $ 69,164 $ - $ 69,164
Depreciation and
amortization 9,644 - 9,644 - 9,644
Operating income (loss) (8,004) - (8,004) (74) (8,078)
Income (loss) of continuing
operations before income taxes (37,412) - (37,412) (1,056) (38,468)
Provision (benefit) for income
taxes (12,318) - (12,318) (2,486) (14,804)
Income (loss) of continuing
operations before discontinued
operations (25,094) - (25,094) 1,430 (23,664)
Gain (loss) from discontinued
operations, net of taxes (20,067) - (20,067) 132 (19,935)
Cumulative effect of accounting
change - - - - -
Net income (loss) (45,161) - (45,161) 1,562 (43,599)
Net income (loss) per share (1.35) 0.00 (1.35) 0.05 (1.30)
Net income (loss) per share
- assuming dilution (1.35) 0.00 (1.35) 0.05 (1.30)
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fourth quarter ended December 31, 2001
As As reported with Restatement
(in thousands, except per previously Discontinued discontinued related
share data) reported operations operations adjustments As restated
---------- ------------ ---------------- ----------- -----------
Revenues $ 84,771 $ - $ 84,771 $ - $ 84,771
Depreciation and
amortization 9,632 - 9,632 - 9,632
Operating income (loss) (13,217) - (13,217) (254) (13,471)
Income (loss) of continuing
operations before income taxes (2,505) - (2,505) (1,140) (3,645)
Provision (benefit) for income
taxes (572) - (572) (596) (1,168)
Income (loss) of continuing
operations before discontinued
operations (1,933) - (1,933) (544) (2,477)
Gain (loss) from discontinued
operations, net of taxes (21,215) - (21,215) 1,022 (20,193)
Cumulative effect of accounting
change - - - - -
Net income (loss) (23,148) - (23,148) 478 (22,670)
Net income (loss) per share (0.69) 0.00 (0.69) 0.02 (0.67)
Net income (loss) per share
- assuming dilution (0.69) 0.00 (0.69) 0.02 (0.67)
During the fourth quarter of 2001, the Company recognized a pretax loss
of $2.9 million from continuing operations representing impairment and
other charges and pretax restructuring charges from continuing
operations of $5.8 million offset by a pretax reversal of restructuring
charges of $1.4 million originally recorded during the fourth quarter
of 2000.
F-62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gaylord Entertainment Company:
We have audited the consolidated financial statements of Gaylord Entertainment
Company as of December 31, 2002 and 2001 and for each of the three years in the
period ended December 31, 2002, and have issued our report thereon dated
February 5, 2003 (except for Notes 2 and 22 as to which the date is March 25,
2003) (included elsewhere in this Annual Report on Form 10-K.) Our audits also
included the financial statement schedules listed in Item 15(A)(2) of this
Annual Report on Form 10-K. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Nashville, Tennessee
February 5, 2003
S-1
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2002
(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 $ 1,569 $ - $ - $ 1,299 $ 270
2001 restructuring charges - continuing operations 4,168 (1,079) - 2,658 431
2002 restructuring charges - continuing operations - 1,082 - 1,082 -
------- ------- ---- ------- -------
Total continuing operations 5,737 3 - 5,039 701
------- ------- ---- ------- -------
2000 restructuring charges - discontinued operations - - - - -
2001 restructuring charges - discontinued operations 3,383 - - 3,005 378
2002 restructuring charges - discontinued operations - - - - -
------- ------- ---- ------- -------
Total discontinued operations 3,383 - - 3,005 378
------- ------- ---- ------- -------
Total $ 9,120 $ 3 $ - $ 8,004 $ 1,079
======= ======= ==== ======= =======
S-2
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2001
(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 $10,825 $(3,666) $ - $ 5,590 $ 1,569
2001 restructuring charges - continuing operations - 5,848 - 1,680 4,168
------- ------- ---- ------- -------
Total continuing operations 10,825 2,182 - 7,270 5,737
------- ------- ---- ------- -------
2000 restructuring charges - discontinued operations 2,285 (424) - 1,861 -
2001 restructuring charges - discontinued operations - 3,383 - - 3,383
------- ------- ---- ------- -------
Total discontinued operations 2,285 2,959 - 1,861 3,383
------- ------- ---- ------- -------
Total $13,110 $ 5,141 $ - $ 9,131 $ 9,120
======= ======= ==== ======= =======
S-3
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 $ (234) $ - $ 235 $ -
2000 restructuring charges - continuing operations - 13,186 - 2,361 10,825
-------- -------- ---- -------- --------
Total continuing operations 469 12,952 - 2,596 10,825
-------- -------- ---- -------- --------
1999 restructuring charges - discontinuing operations 30 - - 30 -
2000 restructuring charges - discontinuing operations - 3,241 - 956 2,285
-------- -------- ---- -------- --------
Total discontinuing operations 30 3,241 - 986 2,285
-------- -------- ---- -------- --------
Total $ 499 $ 16,193 $ - $ 3,582 $ 13,110
======== ======== ==== ======== ========
S-4